<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1997
REGISTRATION NO. 333-17907
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TENET HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEVADA 8062 95-2557091
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
3820 STATE STREET
SANTA BARBARA, CALIFORNIA 93105
(805) 563-7000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SCOTT M. BROWN
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
TENET HEALTHCARE CORPORATION
3820 STATE STREET
SANTA BARBARA, CALIFORNIA 93105
(805) 563-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
BRIAN J. MCCARTHY ALISON S. RESSLER
Skadden, Arps, Slate, Meagher & Flom Sullivan & Cromwell
LLP 444 South Flower Street
300 South Grand Avenue Los Angeles, California 90071
Los Angeles, California 90071 (213) 955-8000
(213) 687-5000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 13, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES
AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
, 1997
[LOGO]
$1,300,000,000
TENET HEALTHCARE CORPORATION
$200,000,000 % SENIOR NOTES DUE 2003
$600,000,000 % SENIOR NOTES DUE 2005
$500,000,000 % SENIOR SUBORDINATED NOTES DUE 2007
The Senior Notes due 2003, the Senior Notes due 2005 (collectively, the
"Senior Notes") and the Senior Subordinated Notes due 2007 (the "Senior
Subordinated Notes" and, together with the Senior Notes, the "Notes") are being
offered by Tenet Healthcare Corporation ("Tenet" or the "Company"). The net
proceeds from the sale of the Notes offered hereby (the "Offering"), together
with borrowings under the New Credit Facility (as defined herein), will be used
to consummate the Refinancing (as defined herein) in connection with the
acquisition by the Company of OrNda HealthCorp ("OrNda"). The Offering is
contingent upon the consummation of such acquisition and the establishment of
the New Credit Facility. Interest on the Notes will be payable semi-annually on
January 15 and July 15 of each year, commencing July 15, 1997. The Senior Notes
will not be redeemable by the Company prior to maturity. The Senior Subordinated
Notes will be redeemable at the option of the Company, in whole or from time to
time in part, at any time on or after January 15, 2002 at the redemption prices
set forth herein, plus accrued and unpaid interest to the date of redemption. In
addition, upon the occurrence of a Change of Control Triggering Event (as
defined herein), each holder of Notes may require the Company to repurchase such
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
to the date of repurchase. The Senior Notes due 2003, the Senior Notes due 2005
and the Senior Subordinated Notes have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange ("NYSE"), under the
symbols "THC J03," "THC J05" and "THC 07," respectively.
The Senior Notes will be general unsecured obligations of the Company
ranking senior to all subordinated indebtedness of the Company, including the
Senior Subordinated Notes, and PARI PASSU in right of payment with all other
unsubordinated indebtedness of the Company, including borrowings under the New
Credit Facility. On a pro forma basis, as of November 30, 1996, after giving
effect to the Merger (as defined herein) and the Refinancing, approximately $1.7
billion in principal amount of outstanding indebtedness of Tenet will by its
terms be subordinated to the Senior Notes. The Senior Subordinated Notes will be
general unsecured obligations of the Company, subordinated in right of payment
to all existing and future Senior Debt (as defined herein) of the Company,
including the Senior Notes and borrowings under the New Credit Facility. On a
pro forma basis, as of November 30, 1996, after giving effect to the Merger and
the Refinancing, Senior Debt of the Company would have been approximately $3.0
billion. In addition, the Notes will be effectively subordinated to all debt of
the Company's subsidiaries which, on a pro forma basis, as of November 30, 1996,
after giving effect to the Merger and the Refinancing, would have been
approximately $341.5 million (excluding trade payables of $451.7 million,
intercompany debt and other obligations).
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT
IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note due 2003...................... % % %
Total......................................... $ $ $
Per Senior Note due 2005...................... % % %
Total......................................... $ $ $
Per Senior Subordinated Note due 2007......... % % %
Total......................................... $ $ $
<CAPTION>
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $2.4 MILLION.
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by the Underwriters, and subject to various prior
conditions. The Underwriters reserve the right to withdraw, cancel or modify any
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York on or about
, 1997, to investors in book-entry form through the facilities of
The Depository Trust Company against payment therefor in immediately available
funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SMITH BARNEY INC.
<PAGE>
AVAILABLE INFORMATION
Tenet has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
for the registration of the Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Notes, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements and notes
filed as a part thereof. Any statements contained herein concerning the contents
of any contract, agreement or other document referred to herein, filed as an
exhibit to the Registration Statement or otherwise filed, are not necessarily
complete. With respect to each such contract, agreement or other document filed
with the Commission, reference is made to such filing for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, registration statements and other
information with the Commission. Tenet has filed a registration statement on
Form S-4 with the Commission with respect to the Common Stock to be issued in
the Merger. The reports, proxy statements, registration statements and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web Site at http:// www.sec.gov. which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
Company's Common Stock is listed on the NYSE and the Pacific Stock Exchange (the
"PSE") under the symbol "THC." Reports, proxy statements and other information
filed by the Company may be inspected at the offices of the NYSE at 20 Broad
Street, New York, New York 10005 and at the offices of the PSE at 618 South
Spring Street, Los Angeles, California 90014 and 301 Pine Street, San Francisco,
California 94104.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act (File No. 1-7293) are incorporated in this Prospectus by
reference and are made a part hereof:
1. Annual Report on Form 10-K for the fiscal year ended May 31, 1996 (the
"Tenet 10-K"), filed on August 26, 1996;
2. The portions of Tenet's Proxy Statement for the Annual Meeting of
Shareholders held on September 25, 1996 that have been incorporated by reference
into the Tenet 10-K;
3. The portions of Tenet's 1996 Annual Report to Shareholders for the
fiscal year ended May 31, 1996 that have been incorporated by reference into the
Tenet 10-K;
4. Quarterly Reports on Form 10-Q for the quarterly periods ended August
31, 1996 and November 30, 1996, filed on October 11, 1996 and January 13, 1997,
respectively; and
5. Current Report on Form 8-K dated October 16, 1996, filed on November 6,
1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the securities made
hereby shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon oral or written request, a copy of any or all of
the documents incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents). Written or telephone requests should be directed to Tenet
Healthcare Corporation, 3820 State Street, Santa Barbara, California 93105,
Attention: Scott M. Brown, Esq., Senior Vice President, Secretary and General
Counsel (telephone (805) 563-7000).
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
125 GENERAL HOSPITALS WITH 26,943 BEDS
The following table sets forth certain information relating to each of the
125 general hospitals operated by the Company and by OrNda at November 30, 1996
(one of which was closed and one of which was sold in December 1996), two
general hospital acquisitions that were completed in December 1996 and one
general hospital acquisition that was completed in January 1997. Hospitals
operated by OrNda appear in italicized type.
<TABLE>
<CAPTION>
LICENSED
FACILITY LOCATION BEDS
- ----------------------------------------------------------- ------------------- -------------
<C> <S> <C> <C>
SOUTHERN CALIFORNIA
/ / Alvarado Hospital Medical Center San Diego 231
1
/ / Century City Hospital Los Angeles 190
2
/ / Encino Hospital Encino 151
3
/ / Garden Grove Hospital and Medical Center Garden Grove 167
4
/ / Garfield Medical Center Monterey Park 211
5
/ / Irvine Medical Center Irvine 176
6
/ / John F. Kennedy Memorial Hospital Indio 130
7
/ / Lakewood Regional Medical Center Lakewood 161
8
/ / Los Alamitos Medical Center Los Alamitos 173
9
/ / Medical Center of North Hollywood North Hollywood 160
10
/ / Placentia Linda Community Hospital Placentia 114
11
/ / San Dimas Community Hospital San Dimas 93
12
/ / South Bay Hospital Redondo Beach 201
13
/ / Tarzana Regional Medical Center Tarzana 231
14
/ / USC University Hospital Los Angeles 286
15
l BROTMAN MEDICAL CENTER CULVER CITY 438
16
l CENTINELA HOSPITAL MEDICAL CENTER INGLEWOOD 400
17
l CHAPMAN MEDICAL CENTER ORANGE 135
18
l COASTAL COMMUNITIES HOSPITAL SANTA ANA 177
19
l COMMUNITY HOSPITAL OF HUNTINGTON PARK HUNTINGTON PARK 99
20
l FOUNTAIN VALLEY REGIONAL HOSPITAL AND MEDICAL
21 CENTER FOUNTAIN VALLEY 413
l GREATER EL MONTE COMMUNITY HOSPITAL SOUTH EL MONTE 113
22
l HARBOR VIEW MEDICAL CENTER SAN DIEGO 156
23
l MIDWAY HOSPITAL MEDICAL CENTER LOS ANGELES 225
24
l MISSION HOSPITAL OF HUNTINGTON PARK HUNTINGTON PARK 127
25
l MONTEREY PARK HOSPITAL MONTEREY PARK 102
26
l SANTA ANA HOSPITAL MEDICAL CENTER SANTA ANA 90
27
l ST. LUKE MEDICAL CENTER PASADENA 162
28
l SUBURBAN MEDICAL CENTER PARAMOUNT 184
29
*l WESTERN MEDICAL CENTER SANTA ANA 288
30
*l WESTERN MEDICAL CENTER-ANAHEIM ANAHEIM 193
31
**l WESTSIDE HOSPITAL LOS ANGELES 68
32
l WHITTIER HOSPITAL MEDICAL CENTER WHITTIER 159
33
l WOODRUFF COMMUNITY HOSPITAL LONG BEACH 96
34
OTHER CALIFORNIA
/ / Community Hospital & Rehabilitation Center of
35 Los Gatos Los Gatos 164
/ / Doctors Hospital of Manteca Manteca 73
36
/ / Doctors Hospital of Pinole Pinole 137
37
/ / Doctors Medical Center of Modesto Modesto 433
38
/ / Redding Medical Center Redding 185
39
/ / San Ramon Regional Medical Center San Ramon 123
40
/ / Sierra Vista Regional Medical Center San Luis Obispo 199
41
/ / Twin Cities Community Hospital Templeton 84
42
l FRENCH HOSPITAL MEDICAL CENTER SAN LUIS OBISPO 147
43
l VALLEY COMMUNITY HOSPITAL SANTA MARIA 70
44
SOUTH FLORIDA
/ / Delray Community Hospital Delray Beach 211
45
/ / Hialeah Hospital Hialeah 378
46
/ / Hollywood Medical Center Hollywood 324
47
/ / North Ridge Medical Center Ft. Lauderdale 391
48
***/ / North Shore Medical Center Miami 357
49
/ / Palm Beach Gardens Medical Center Palm Beach Gardens 204
50
/ / Palmetto General Hospital Hialeah 360
51
/ / West Boca Medical Center Boca Raton 185
52
l CORAL GABLES HOSPITAL CORAL GABLES 273
53
l FLORIDA MEDICAL CENTER FT. LAUDERDALE 459
54
l FLORIDA MEDICAL CENTER, SOUTH PLANTATION 202
55
l PARKWAY REGIONAL MEDICAL CENTER NORTH MIAMI 699
56
TAMPA/ST. PETERSBURG,
FLORIDA AREA
/ / Memorial Hospital of Tampa Tampa 174
57
/ / Palms of Pasadena Hospital St. Petersburg 310
58
/ / Seven Rivers Community Hospital Crystal River 128
59
/ / Town and Country Hospital Tampa 201
60
l NORTH BAY MEDICAL CENTER NEW PORT RICHEY 122
61
NEW ORLEANS, LOUISIANA AREA
/ / Doctors Hospital of Jefferson Metairie 138
62
/ / Kenner Regional Medical Center Kenner 300
63
/ / Meadowcrest Hospital Gretna 200
64
/ / Memorial Medical Center Mid-City New Orleans 272
65
/ / Memorial Medical Center Uptown New Orleans 487
66
/ / Northshore Regional Medical Center Slidell 174
67
/ / St. Charles General Hospital New Orleans 173
68
PHOENIX/TUCSON, ARIZONA
l COMMUNITY HOSPITAL MEDICAL CENTER PHOENIX 59
69
l MESA GENERAL HOSPITAL MEDICAL CENTER MESA 138
70
l ST. LUKE'S MEDICAL CENTER PHOENIX 276
71
<CAPTION>
LICENSED
FACILITY LOCATION BEDS
- ----------------------------------------------------------- ------------------- -------------
<C> <S> <C> <C>
l TEMPE ST. LUKE'S HOSPITAL TEMPE 90
72
l TUCSON GENERAL HOSPITAL TUCSON 146
73
DALLAS, TEXAS AREA
/ / Doctors Hospital Dallas 268
74
/ / RHD Memorial Medical Center Dallas 190
75
/ / Trinity Medical Center Carrollton 149
76
l GARLAND COMMUNITY HOSPITAL GARLAND 113
77
l LAKE POINT MEDICAL CENTER ROWLETT 92
78
HOUSTON, TEXAS AREA
/ / Park Plaza Hospital Houston 468
79
/ / Twelve Oaks Hospital Houston 336
80
l CYPRESS FAIRBANKS MEDICAL CENTER HOUSTON 149
81
l HOUSTON NORTHWEST MEDICAL CENTER HOUSTON 498
82
l SHARPSTOWN GENERAL HOSPITAL HOUSTON 190
83
OTHER TEXAS
/ / Brownsville Medical Center Brownsville 177
84
/ / Mid-Jefferson Hospital Nederland 138
85
/ / Nacogdoches Medical Center Nacogdoches 150
86
/ / Odessa Regional Hospital Odessa 100
87
/ / Park Place Hospital Port Arthur 236
88
/ / Providence Memorial Hospital El Paso 471
89
/ / Sierra Medical Center El Paso 365
90
l SOUTH PARK HOSPITAL & MEDICAL CENTER LUBBOCK 101
91
l SOUTHWEST GENERAL HOSPITAL SAN ANTONIO 286
92
l TRINITY VALLEY MEDICAL CENTER PALESTINE 150
93
ALABAMA
/ / Brookwood Medical Center Birmingham 586
94
/ / Lloyd Noland Hospital Birmingham 319
95
ARKANSAS
/ / Central Arkansas Hospital Searcy 193
96
/ / Methodist Hospital of Jonesboro Jonesboro 104
97
/ / National Park Medical Center Hot Springs 166
98
/ / St. Mary's Regional Hospital Russellville 170
99
GEORGIA
/ / North Fulton Regional Hospital Roswell 167
100
/ / Spalding Regional Hospital Griffin 160
101
INDIANA
/ / Culver Union Hospital Crawfordsville 120
102
l WINONA MEMORIAL HOSPITAL INDIANAPOLIS 317
103
MISSOURI
/ / Columbia Regional Hospital Columbia 265
104
**/ / Kirksville Osteopathic Medical Center Kirksville 119
105
/ / Lucy Lee Hospital Poplar Bluff 201
106
/ / Lutheran Medical Center St. Louis 408
107
l TWIN RIVERS REGIONAL MEDICAL CENTER KENNETT 126
108
NORTH CAROLINA
/ / Central Carolina Hospital Sanford 137
109
/ / Frye Regional Medical Center Hickory 355
110
OREGON
l EASTMORELAND HOSPITAL PORTLAND 100
111
l WOODLAND PARK HOSPITAL PORTLAND 209
112
SOUTH CAROLINA
/ / East Cooper Community Hospital Mount Pleasant 100
113
/ / Hilton Head Hospital Hilton Head 64
114
/ / Piedmont Medical Center Rock Hill 268
115
TENNESSEE
/ / John W. Harton Regional Medical Center Tullahoma 137
116
/ / Medical Center of Manchester Manchester 49
117
/ / Saint Francis Hospital Memphis 890
118
/ / University Medical Center Lebanon 261
119
NINE ADDITIONAL STATES
/ / Saint Joseph Hospital Omaha, NE 374
120
l DAVENPORT MEDICAL CENTER DAVENPORT, IA 150
121
l MINDEN MEDICAL CENTER MINDEN, LA 121
122
l SAINT VINCENT HOSPITAL WORCESTER, MA 432
123
l GULF COAST MEDICAL CENTER BILOXI, MI 189
124
l LAKE MEADE HOSPITAL MEDICAL CENTER NORTH LAS VEGAS, NV 198
125
l PUGET SOUND HOSPITAL TACOMA, WA 160
126
l PLATEAU MEDICAL CENTER OAK HILL, WV 91
127
l LANDER VALLEY MEDICAL CENTER LANDER, WY 102
128
</TABLE>
* Pending acquisitions at November 30, 1996, acquired in December 1996.
** Westside Hospital was closed and Kirksville Osteopathic Medical Center was
sold in December 1996.
***Pending acquisition at November 30, 1996, acquired in January 1997.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE.
THE COMPANY
Tenet 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 November 30, 1996,
Tenet's subsidiaries operated 76 general hospitals with 17,344 licensed beds.
Tenet's subsidiaries and affiliates also own or operate various ancillary
healthcare businesses, including outpatient surgery centers, home healthcare
programs, ambulatory, occupational and rural healthcare clinics, a health
maintenance organization with approximately 58,000 members, a preferred provider
organization and a managed care insurance company as well as a small number of
rehabilitation hospitals, specialty hospitals, long-term care facilities and
psychiatric facilities. Tenet intends to continue its strategic acquisitions of
and partnerships with additional general hospitals and related healthcare
businesses in order to expand and enhance its integrated healthcare delivery
systems. For the 12 months ended November 30, 1996, Tenet had net operating
revenues, EBITDA (as defined herein) and income from continuing operations,
adjusted to reflect acquisitions, divestitures and related adjustments, of $6.0
billion, $1.2 billion and $242.0 million, respectively. See "Pro Forma Financial
Information."
On October 16, 1996, Tenet entered into an Agreement and Plan of Merger (as
amended as of November 22, 1996, the "Merger Agreement") with OrNda, pursuant to
which OrNda will become a wholly owned subsidiary of Tenet (the "Merger"). OrNda
is the third largest investor-owned provider of healthcare services in the
United States, delivering a broad range of inpatient and outpatient healthcare
services to urban and suburban communities in 15 states. At November 30, 1996,
OrNda operated 49 general hospitals with a total of 9,599 licensed beds. OrNda
also owns or operates six surgery centers, numerous outpatient and specialty
clinics, one psychiatric hospital and a managed healthcare Medicaid plan (the
"Medicaid HMO") with approximately 34,000 participants. For the 12 months ended
November 30, 1996, OrNda had net operating revenues, EBITDA and income from
continuing operations, adjusted to reflect acquisitions and related adjustments,
of $2.8 billion, $419.6 million and $112.9 million, respectively. See "Pro Forma
Financial Information."
Following the Merger, the Company will operate 125 general hospitals serving
urban and rural communities in 22 states, with a total of 26,943 licensed beds,
excluding transactions taking place after November 30, 1996. For the 12 months
ended November 30, 1996, on a combined basis adjusted to reflect acquisitions,
divestitures and related adjustments, including the pending acquisitions of
three hospitals subject to definitive agreements, two of which were acquired in
December 1996 and one of which was acquired in January 1997 (the "Pending
Acquisitions"), the Company's net operating revenues, EBITDA and income from
continuing operations, would have been approximately $8.8 billion, $1.6 billion
and $354.9 million, respectively. See "Pro Forma Financial Information." These
pro forma combined results do not give effect to certain cost savings that
management believes may be realized following the Merger. No assurances can be
made as to the amount of cost savings, if any, that actually will be realized.
Tenet believes that the Merger represents an opportunity to acquire a
substantial portfolio of hospitals providing quality care responsive to the
current managed care environment. Many of OrNda's general hospitals are located
in geographic areas where Tenet currently operates hospitals, including southern
California and south Florida. The Merger will provide an opportunity for the
Company to coordinate the services it provides in these geographic areas with
the services provided by OrNda, which the Company believes will accelerate its
development of integrated healthcare delivery systems in these areas. The Merger
also expands the Company's operations into several new geographic areas,
including Arizona, Iowa, Massachusetts, Mississippi, Nevada, Oregon, Washington,
West Virginia and Wyoming. The Company believes it will be able to integrate
effectively the operations of OrNda based on its successful integration of the
operations of American Medical Holdings, Inc. ("AMH"), which was acquired by
Tenet in March 1995.
The Company's principal executive offices are located at 3820 State Street,
Santa Barbara, California 93105, and its telephone number is (805) 563-7000.
4
<PAGE>
BUSINESS STRATEGY
The Company's strategic objective is to provide quality healthcare services
responsive to the current managed care environment. Tenet believes that
competition among healthcare providers occurs primarily at the local level.
Accordingly, the Company tailors its local strategies to address the specific
competitive characteristics of the geographic areas in which it operates,
including the number of facilities operated by Tenet, the nature and structure
of physician practices and physician groups, the extent of managed care
penetration, the number and size of competitors and the demographic
characteristics of the area. Key elements of the Company's strategy are:
- to develop integrated healthcare delivery systems by coordinating the
operations and services of the Company's facilities with other hospitals
and ancillary care providers and through alliances with physicians and
physician groups;
- to reduce costs through enhanced operating efficiencies while improving
the quality of care provided;
- to develop and maintain its strong relationships with physicians and
generally to foster a physician-friendly culture;
- to enter into discounted fee for service arrangements, capitated contracts
and other managed care contracts with third party payors; and
- to acquire and enter into strategic partnerships with hospitals, groups of
hospitals, other healthcare businesses, ancillary healthcare providers,
physician practices and physician practice assets where appropriate to
expand and enhance quality integrated healthcare delivery systems
responsive to the current managed care environment.
By providing Tenet with the opportunity to combine with a company having a
substantial portfolio of large, attractive urban and suburban hospitals known
for quality care and strong financial performance, the Merger supports major
strategic objectives of Tenet-to reinforce its position as a significant
provider of healthcare services in selected geographic areas throughout the
United States and enter attractive new geographic areas such as Arizona and
Massachusetts. Tenet believes that the Merger will create a stronger, more
geographically diverse company that will be better able to grow through
strategic acquisitions and partnerships. The combined company will continue to
emphasize the creation of strong integrated healthcare delivery systems.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Notes Offered................ $200.0 million principal amount of % Senior Notes due 2003
(the "Senior Notes due 2003"), $600.0 million principal
amount of % Senior Notes due 2005 (the "Senior Notes due
2005" and, together with the Senior Notes due 2003, the
"Senior Notes") and $500.0 million principal amount of %
Senior Subordinated Notes due 2007 (the "Senior Subordinated
Notes").
Maturity Dates............... January 15, 2003 with respect to the Senior Notes due 2003,
January 15, 2005 with respect to the Senior Notes due 2005
and January 15, 2007 with respect to the Senior Subordinated
Notes.
Interest Payment Dates....... January 15 and July 15, commencing July 15, 1997.
Mandatory Redemption......... None.
Optional Redemption.......... The Senior Notes will not be redeemable by the Company prior
to maturity. The Senior Subordinated Notes will be
redeemable at the option of Tenet, in whole or from time to
time in part, at any time on or after January 15, 2002 at
the redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. The terms of the
New Credit Facility will prohibit the Company from redeeming
or otherwise repurchasing the Senior Subordinated Notes
prior to the stated maturity thereof. See "Description of
Notes--Optional Redemption" and "Description of the New
Credit Facility--Covenants."
Change of Control............ Upon a Change of Control Triggering Event, each holder of
Notes will have the right to require Tenet to repurchase
such holder's Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of repurchase.
The terms of the New Credit Facility will prohibit the
Company from purchasing the Senior Subordinated Notes upon
the occurrence of a Change of Control Triggering Event. The
indentures relating to the Senior Notes and the Existing
Senior Notes (as defined herein) of the Company also may
restrict the Company's ability to purchase Senior
Subordinated Notes upon the occurrence of a Change of
Control Triggering Event. See "Risk Factors--Possible
Inability to Repurchase Notes Upon a Change of Control,"
"Description of Notes--Repurchase at the Option of Holders
Upon a Change of Control" and "Description of the New Credit
Facility."
Ranking...................... The Senior Notes will be general unsecured obligations of
the Company ranking senior to all subordinated indebtedness
of the Company, including the Senior Subordinated Notes, and
PARI PASSU in right of payment with all other existing and
future unsubordinated indebtedness of the Company, including
the Existing Senior Notes and borrowings under the New
Credit Facility. The Senior Subordinated Notes will be
general unsecured obligations of the Company subordinated in
right of payment to all existing and future Senior Debt of
the Company, including the Senior Notes, the Existing Senior
Notes and borrowings under the New Credit Facility. On a pro
forma basis, as of November 30, 1996, after giving effect to
the Merger and the Refinancing, Senior Debt of the Company
would have been approximately $3.0 billion. See "Historical
and Pro Forma Capitalization," "Related Transactions,"
"Description of the New Credit Facility," "Description
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
of Notes--General" and "--Subordination of Senior
Subordinated Notes." On a pro forma basis, as of November
30, 1996, after giving effect to the Merger and the
Refinancing, approximately $1.7 billion in principal amount
of outstanding indebtedness of Tenet will by its terms be
subordinated to the Senior Notes. In addition, both the
Senior Notes and the Senior Subordinated Notes will be
effectively subordinated to all of the outstanding debt of
the Company's subsidiaries which, on a pro forma basis, as
of November 30, 1996, after giving effect to the Merger and
the Refinancing, would have been approximately $341.5
million (excluding trade payables of $451.7 million,
intercompany debt and other obligations). See "Pro Forma
Financial Information." The indenture governing the Senior
Notes due 2003 (the "Senior Note due 2003 Indenture"), the
indenture governing the Senior Notes due 2005 (the "Senior
Note due 2005 Indenture") and the indenture governing the
Senior Subordinated Notes (the "Senior Subordinated Note
Indenture" and, together with the Senior Note due 2003
Indenture and the Senior Note due 2005 Indenture, the
"Indentures") will limit the ability of subsidiaries of
Tenet to incur additional indebtedness.
Certain Covenants............ The Indentures will contain certain covenants, including,
but not limited to, covenants limiting or prohibiting: (i)
the incurrence by the Company and its subsidiaries of
additional indebtedness; (ii) the payment of dividends on
and the redemption of capital stock by the Company; (iii)
the creation of liens securing indebtedness; (iv)
restrictions on the ability of subsidiaries to pay
dividends; (v) transactions with affiliates; and (vi) the
Company's ability to consolidate or merge with or into, or
to transfer all or substantially all of its assets to,
another person. See "Description of Notes--Certain
Covenants."
Use of Proceeds.............. The net proceeds to the Company from the sale of the Notes
are estimated to be approximately $1.27 billion (after
deducting estimated expenses and underwriting discounts and
commissions). The Company intends to use such net proceeds,
together with borrowings under the New Credit Facility, to
consummate the Refinancing and to pay related transaction
fees and expenses. See "Use of Proceeds" and "Related
Transactions."
</TABLE>
7
<PAGE>
RELATED TRANSACTIONS
In connection with the consummation of the Merger, the Company has
registered for issuance approximately 85.9 million shares of its common stock to
OrNda stockholders. In addition, Tenet intends to refinance approximately $525.0
million of OrNda's outstanding public debt securities through a tender offer to
repurchase such securities (the "OrNda Tender Offers") and to refinance the
existing credit facilities of Tenet and OrNda, which, on a pro forma basis to
reflect the Pending Acquisitions, at November 30, 1996 had outstanding balances
of $1.2 billion and $918.9 million, respectively, with the proceeds of the
Offering together with borrowings under a new credit facility (the "New Credit
Facility"), which will provide for aggregate commitments of up to $2.5 billion.
The refinancing transactions described above are herein collectively referred to
as the "Refinancing." The Refinancing extends the maturities of the Company's
indebtedness at favorable rates and positions the Company to take advantage of
future strategic acquisition and partnership opportunities. See "Risk
Factors--Certain Financing Considerations; Leverage" and "Historical and Pro
Forma Capitalization."
The Offering is conditioned upon the consummation of the Merger and the
establishment of the New Credit Facility. See "Related Transactions."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers in evaluating whether to make an investment
in the Notes offered hereby.
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents summary pro forma financial information that
was derived from the unaudited pro forma financial information included
elsewhere in this Prospectus and should be read in conjunction therewith and
with the related notes thereto. The following summary unaudited pro forma
financial information is presented assuming the Merger will be accounted for as
a pooling of interests, whereby Tenet will restate its historical consolidated
financial statements to include the assets, liabilities, shareholders' equity
and results of operations of OrNda. The statement of operations data included in
the summary unaudited pro forma financial information reflects the combination
of the historical as adjusted operating results of Tenet for the year ended May
31, 1996 and for the six months ended November 30, 1995 and 1996, with the
historical as adjusted operating results of OrNda for the year ended August 31,
1996 and for the six months ended November 30, 1995 and 1996, respectively.
Tenet reports its financial information on the basis of a May 31 fiscal year.
OrNda reports its financial information on the basis of an August 31 fiscal
year.
The unaudited pro forma balance sheet data gives effect to the following
transactions and events as if they had occurred as of November 30, 1996: (i) the
January 1997 acquisition by Tenet of North Shore Medical Center; (ii) the
December 1996 acquisition by OrNda of the Western Medical Centers; and (iii) the
consummation of the Merger and the Refinancing.
The unaudited pro forma statements of operations data of Tenet and OrNda for
the year ended May 31, 1996 and the six months ended November 30, 1995 and 1996
include the effects of the following transactions and events as if they had
occurred as of June 1, 1995 for the Tenet transactions and events and as of
September 1, 1995 for the OrNda transactions and events: (i) the August 1995
acquisition by Tenet of Memorial Medical Center (formerly known as Mercy+Baptist
Medical Center); the September 1995 acquisition by Tenet of Providence Memorial
Hospital; the October 1995 acquisition by Tenet of Medical Center of Manchester;
the November 1995 acquisition by Tenet of Methodist Hospital of Jonesboro; the
June 1996 acquisition by Tenet of Hialeah Hospital; the October 1996 acquisition
by Tenet of the Lloyd Noland Hospital and the January 1997 acquisition by Tenet
of North Shore Medical Center; (ii) the June 1995 sale by Tenet of its two
hospitals and related healthcare businesses in Singapore; the October 1995 sales
by Tenet of its interest in Australian Medical Enterprises, Inc. ("AME") and its
equity interest in a hospital in Malaysia; the February 1996 sale by Tenet of
its equity interest in a hospital in Thailand and the May 1996 sale by Tenet of
its equity interest in Westminster Health Care Holdings PLC ("Westminster");
(iii) the elimination of non-recurring gains on disposals of facilities and
long-term investments recorded by Tenet; (iv) Vencor, Inc.'s ("Vencor")
September 1995 acquisition of The Hillhaven Corporation ("Hillhaven") in which
Tenet held a significant equity interest; (v) the reduction of Tenet's equity
interest in Total Renal Care Holdings, Inc. ("TRC") in October 1995; (vi) the
November 1995 acquisition by OrNda of Universal Medical Center (subsequently
renamed Florida Medical Center-South); the January 1996 acquisition by OrNda of
a controlling equity interest in Houston Northwest Medical Center ("HNW"); the
July 1996 acquisitions by OrNda of Cypress Fairbanks Medical Center and Westside
Hospital; the August 1996 acquisition by OrNda of Centinela Hospital Medical
Center; the September 1996 acquisition by OrNda of The Saint Vincent Healthcare
System and the December 1996 acquisition by OrNda of the Western Medical
Centers; and (vii) the consummation of the Merger and the Refinancing.
The summary unaudited pro forma financial information does not purport to
present the financial position or results of operations of Tenet had the
transactions and events assumed therein occurred on the dates specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future.
The pro forma operating results do not give effect to certain cost savings
that management believes may be realized as a result of the Merger. There can be
no assurance that such cost savings, if any, will be achieved. See "Risk
Factors--Forward Looking Statements." The pro forma operating results also do
not reflect certain non-recurring costs expected to be incurred by Tenet in
connection with the Merger. See "Pro Forma Financial Information."
9
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30,
MAY 31, ----------------------
1996 1995 1996
----------- --------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues..................................................................... $ 8,644.8 $ 4,199.7 $ 4,351.5
Operating expenses:
Salaries and benefits.................................................................... 3,574.1 1,714.9 1,812.2
Supplies................................................................................. 1,204.8 573.8 593.0
Provision for doubtful accounts.......................................................... 496.4 244.6 236.0
Other operating expenses................................................................. 1,834.8 936.2 924.9
Depreciation............................................................................. 342.0 176.4 179.3
Amortization............................................................................. 104.8 52.9 54.7
Impairment losses........................................................................ 85.9 -- --
----------- --------- -----------
Operating income........................................................................... 1,002.0 500.9 551.4
Interest expense, net of capitalized portion............................................... (442.0) (229.7) (206.4)
Investment earnings........................................................................ 23.1 12.6 12.3
Equity in earnings of unconsolidated affiliates............................................ 3.4 1.7 1.3
Minority interests in income of consolidated subsidiaries.................................. (29.1) (12.0) (15.5)
Net gain on disposals of facilities and long-term investments.............................. 0.5 -- --
----------- --------- -----------
Income from continuing operations before income taxes...................................... 557.9 273.5 343.1
Taxes on income............................................................................ (228.5) (113.5) (139.0)
----------- --------- -----------
Income from continuing operations.......................................................... $ 329.4 $ 160.0 $ 204.1
----------- --------- -----------
----------- --------- -----------
Earnings per common share from continuing operations, fully diluted........................ $ 1.13 $ 0.55 $ 0.68
----------- --------- -----------
----------- --------- -----------
Weighted average number of shares outstanding, fully diluted (in 000s)..................... 295,062 296,032 301,929
----------- --------- -----------
----------- --------- -----------
Ratio of earnings to fixed charges (1)..................................................... 2.0x 2.0x 2.4x
----------- --------- -----------
----------- --------- -----------
OTHER OPERATING INFORMATION:
EBITDA (2)................................................................................. $ 1,534.7 $ 730.2 $ 785.4
EBITDA margin.............................................................................. 17.8% 17.4% 18.0%
Ratio of EBITDA to net interest expense (3)................................................ 3.7x 3.4x 4.0x
Ratio of total debt to EBITDA (4).......................................................... -- -- 3.2x
Capital expenditures....................................................................... $ 481.1 $ 218.1 $ 168.1
<CAPTION>
AS OF
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................................................... $ 823.6
Total assets....................................................................................................... 11,476.8
Long-term debt, net of current portion............................................................................. 4,926.0
Shareholders' equity............................................................................................... 3,444.8
</TABLE>
- ------------------------------
(1) The ratio of earnings to fixed charges is calculated by dividing income from
continuing operations before income taxes plus fixed charges by fixed
charges. Fixed charges consist of interest expense, including amortization
of financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
(2) EBITDA represents operating income before depreciation, amortization and
impairment losses. While EBITDA should not be construed as a substitute for
operating income or a better indicator of liquidity than cash flows from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. EBITDA
is not necessarily a measure of the Company's ability to fund its cash
needs. See the Consolidated Statements of Cash Flows of Tenet and OrNda and
the related notes thereto included in this Prospectus. EBITDA is included
herein because management believes that certain investors find it to be a
useful tool for measuring the ability to service debt.
(3) Net of capitalized portion of interest expense and pro forma interest
income.
(4) The ratio of pro forma combined total debt outstanding at November 30, 1996
of $5,007.8 million to pro forma EBITDA of $1,575.5 million for the 12
months ended November 30, 1996 was 3.2x.
10
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS BEFORE PURCHASING THE NOTES OFFERED HEREBY. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, "FORWARD-LOOKING STATEMENTS"
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT").
REFERENCES HEREIN TO TENET AFTER THE MERGER SHALL BE DEEMED TO INCLUDE TENET AND
ORNDA.
CERTAIN FINANCING CONSIDERATIONS; LEVERAGE
As of November 30, 1996, Tenet had $3.4 billion of outstanding indebtedness,
which amounted to approximately 54.3% of its total capitalization including
short-term borrowings and notes and the current portion of long-term debt, and
OrNda had $1.4 billion of outstanding indebtedness, which amounted to
approximately 67.0% of its total capitalization including short-term borrowings
and notes and the current portion of long-term debt. In connection with the
Merger, Tenet is refinancing approximately $525.0 million of OrNda's public debt
securities and the existing credit facilities of Tenet and OrNda, which on a pro
forma basis to reflect the Pending Acquisitions, at November 30, 1996 had
outstanding balances of $1.2 billion and $918.9 million, respectively. On a pro
forma basis, as of November 30, 1996, after giving effect to the Merger and the
Refinancing, Tenet would have had $5.0 billion of outstanding indebtedness,
which would amount to approximately 59.2% of its total capitalization including
short-term borrowings and notes and the current portion of long-term debt, and
$3.4 billion of shareholders' equity. See "Historical and Pro Forma
Capitalization," "Related Transactions" and "Pro Forma Financial Information."
Tenet anticipates that the New Credit Facility will include covenants
limiting, among other things, borrowings by, and liens on the assets of, Tenet
and its subsidiaries, investments, the sale of all or substantially all assets
and prepayment of subordinated debt, and prohibiting the repurchase of Tenet
stock or the payment of dividends, in addition to a minimum consolidated net
worth requirement and certain coverage ratio tests. In addition, the Indentures
will include, among other things, covenants limiting the incurrence of
additional debt and liens and the payment of dividends. Tenet's failure to
comply with any of these covenants could result in an event of default under its
indebtedness including the Notes and the New Credit Facility, which in turn
could cause an event of default to occur under substantially all of Tenet's
debt. An event of default could have a material adverse effect on Tenet's
business, financial condition and results of operations. See "--Possible
Inability to Repurchase Notes Upon a Change of Control," "Description of Notes"
and "Description of the New Credit Facility."
The degree to which Tenet is leveraged and the covenants described above may
adversely affect Tenet's ability to finance its future operations and could
limit its ability to pursue business opportunities that may be in the interests
of Tenet and its securityholders. In particular, changes in medical technology,
existing, proposed and future legislation, regulations and the interpretation
thereof, and the increasing importance of managed care contracts and integrated
healthcare delivery systems may require significant investment in facilities,
equipment, personnel or services. Although Tenet believes that cash generated
from operations, amounts available under the New Credit Facility and its ability
to access capital markets will be sufficient to allow it to make such
investments, there can be no assurance that Tenet will be able to obtain the
funds necessary to make such investments. Furthermore, tax-exempt or
government-owned competitors have certain financial advantages such as
endowments, charitable contributions, tax-exempt financing and exemption from
sales, property and income taxes not available to Tenet, providing them with a
potential competitive advantage in making such investments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Tenet."
11
<PAGE>
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
Tenet's ability to continue to compete successfully for managed care
contracts or to expand and enhance its integrated healthcare delivery systems
may depend upon, among other things, Tenet's ability to increase the number of
its facilities and services offered. Part of Tenet's business strategy is to
expand its healthcare delivery systems and services through the acquisition of
and partnerships with hospitals, groups of hospitals, other healthcare
businesses, ancillary healthcare providers, physician practices and physician
practice assets. There can be no assurance that suitable acquisitions and
partnerships can be consummated on terms favorable to Tenet or that financing,
if necessary, can be obtained for such acquisitions. See "-- Certain Financing
Considerations; Leverage." Further, there is no assurance that, as Tenet
continues to acquire or enter into partnerships with additional facilities and
related healthcare service providers in the geographic areas in which it
currently operates, it will not face constraints on its ability to grow from
Federal and state regulatory agencies. In addition, there can be no assurance
that Tenet will be able to operate profitably any hospitals, facilities,
businesses or other assets it may acquire or enter into partnerships with,
effectively integrate the operations of such acquisitions or partnerships or
otherwise achieve the intended benefits of such acquisitions and partnerships.
While management believes that certain cost savings may be realized following
the Merger, there can be no assurance that any such savings will actually be
realized or as to the timing thereof. See "Business--Business Strategy."
COMPETITION
The healthcare industry has been characterized in recent years by increased
competition for patients and staff physicians, excess capacity at general
hospitals, a shift from inpatient to outpatient treatment settings and increased
consolidation. New competitive strategies of hospitals and other healthcare
providers place increasing emphasis on the use of alternative healthcare
delivery systems (such as home health services, outpatient surgery and emergency
and diagnostic centers) that eliminate or reduce lengths of hospital stays. The
principal factors contributing to these trends are advances in medical
technology and pharmaceuticals, cost-containment efforts by managed care payors,
employers and traditional health insurers, changes in regulations and
reimbursement policies, increases in the number and type of competing healthcare
providers and changes in physician practice patterns. The revenues and operating
results of most of Tenet's hospitals are significantly affected by the
hospitals' ability to negotiate favorable contracts with managed care payors.
Tenet's future success will depend, in part, on the ability of Tenet's hospitals
to continue to attract and retain staff physicians, to enter into managed care
contracts and to organize and structure integrated healthcare delivery systems
with other healthcare providers and physician practice groups. There can be no
assurance that Tenet's hospitals will continue to be able to, on terms favorable
to Tenet, attract and retain physicians to their staffs, enter into managed care
contracts or organize and structure integrated healthcare delivery systems, for
which other healthcare companies with greater financial resources or a wider
range of services may be competing. See "Business--Competition."
LIMITS ON REIMBURSEMENT
Tenet derives a substantial portion of its net operating revenues from
third-party payors, including the Medicare and Medicaid programs. Changes in
government reimbursement programs have resulted in limitations on, increases in,
and in some cases reduced levels of, reimbursement for healthcare services, and
additional changes are anticipated. Such changes are likely to result in further
limitations on reimbursement levels especially because, in order to reach a
balanced budget, the U.S. Congress and the President are in favor of legislating
savings under both the Medicare and Medicaid programs. In addition, private
payors, including managed care payors, increasingly are demanding discounted fee
structures or the assumption by healthcare providers of all or a portion of the
financial risk through prepaid capitation arrangements. Inpatient utilization,
average lengths of stay and occupancy rates continue to be negatively affected
by payor-required pre-admission authorization and utilization review and by
payor pressure to maximize outpatient and alternative healthcare delivery
services for less acutely ill patients. In addition, efforts to impose reduced
allowances, greater discounts and more stringent cost controls by government and
other payors are expected to continue. Although Tenet is unable to predict the
effect these changes
12
<PAGE>
will have on its operations, as the number of patients covered by managed care
payors increases, significant limits on the scope of services reimbursed and on
reimbursement rates and fees could have a material adverse effect on its
business, financial condition and results of operations.
EXTENSIVE REGULATION
The healthcare industry is subject to extensive Federal, state and local
regulation relating to licensure, conduct of operations, ownership of
facilities, addition of facilities and services and prices for services. In
particular, Medicare and Medicaid 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 governmental
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, the Department
of Health and Human Services ("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. See "--Certain
Legal Proceedings."
The "Health Insurance Portability and Accountability Act of 1996," which
became effective January 1, 1997, amends, among other things, Title XI (42
U.S.C. 1301 ET SEQ.) to broaden the scope of current fraud and abuse laws to
include all health plans, whether or not they are reimbursed as a Federal
program.
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 and others 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. Tenet provides
home health and nursing home care in California, Florida and Texas.
Some states require state approval for construction and expansion of
healthcare facilities, including findings of need for additional or expanded
healthcare facilities or services. Certificates of Need, which are issued by
governmental agencies with jurisdiction over healthcare facilities, are at times
required for capital expenditures exceeding a prescribed amount, changes in bed
capacity or services and certain other matters. Following a number of years of
decline, the number of states requiring Certificates of Need is once again on
the rise as state legislators once again are looking at the Certificate of Need
process as a way to contain rising healthcare costs. At November 30, 1996, Tenet
operated hospitals in 11 states, and OrNda
13
<PAGE>
operated hospitals in seven additional states, that require state approval under
Certificate of Need programs. Tenet is unable to predict whether it will be able
to obtain any Certificates of Need in any jurisdiction where such Certificates
of Need are required.
Tenet is unable to predict the future course of Federal, state and local
regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on Tenet's business, financial condition and results of
operations. See "Business--Healthcare Reform, Regulation and Licensing."
HEALTHCARE REFORM LEGISLATION
Healthcare is one of the largest industries in the United States and
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 Tenet 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 business, financial
condition and results of operations 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 OrNda and proposals to increase co-payments and deductibles
from program and private patients. At the Federal level, both Congress and the
President have in the past, and are expected to in the future, propose
healthcare budgets that substantially reduce payments under the Medicare and
Medicaid programs. For example, in May 1996, both houses of Congress passed
bills that would have significantly reduced Medicare and Medicaid funding by
limiting future increases to the funding for such programs. Although President
Clinton vetoed those bills, the President's own proposals also propose to limit
or reduce increases in future Medicare and Medicaid payments.
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. Various states have applied, or are considering
applying, for a Federal waiver from current Medicaid regulations to allow them
to serve some of their Medicaid participants through managed care providers.
Tennessee has implemented such a revision and Texas has passed a law mandating
the state to apply for such a waiver. Louisiana also is considering wider use of
managed care for its 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 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.
While Tenet anticipates that payments to hospitals will be reduced as a
result of future federal and state legislation, it is uncertain at this time
what legislation regarding healthcare reform may ultimately be enacted or
whether other changes in the administration or interpretation of governmental
healthcare programs will occur. There can be no assurance that future healthcare
legislation or other changes in the administration or interpretation of
governmental healthcare programs will not have a material adverse effect on
either Tenet's or OrNda's business, financial condition and results of
operations. A significant reduction in the amount of payments received by
hospitals under government programs such as Medicare
14
<PAGE>
and Medicaid could have a material adverse effect on Tenet's business, financial
condition and results of operations. See "Business--Healthcare Reform,
Regulation and Licensing."
CERTAIN LEGAL PROCEEDINGS
Tenet 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 Tenet and certain of its subsidiaries and former
employees. Also named as defendants are numerous doctors and other healthcare
professionals. Tenet believes that the increase in litigation arose primarily
from advertisements made by certain lawyers seeking former psychiatric patients
in order to file claims against Tenet and certain of its subsidiaries. The
advertisements focused, in many instances, on Tenet's settlement of past
disputes involving the operations of its discontinued psychiatric business,
including Tenet's 1994 resolution of the Federal government's investigation and
a corresponding criminal plea agreement involving such discontinued psychiatric
business of Tenet. 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
Tenet's motion to recuse the original trial judge in that lawsuit has been
granted. The cases of three of the 740 individual plaintiffs within one of the
lawsuits currently are set for trial in April 1997.
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, a purported class action was filed in Texas state
court in May 1995, 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 satisfied certain other
criteria. In February 1996, this case was removed to Federal court. A motion by
the plaintiff to remand the case to Texas state court has been denied. A class
has not been certified and Tenet believes that a class is not capable of being
certified.
Tenet expects that additional lawsuits with similar allegations will be
filed. Tenet believes it has a number of defenses to each of these actions and
will defend these and any additional lawsuits vigorously. Until the lawsuits are
resolved, however, Tenet 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 Tenet 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 Tenet's business, financial condition and results of operations. There can be
no assurance, however, that the ultimate liability will not exceed such
reserves, which primarily represent the estimated costs of defending the
actions.
Two additional Federal class actions filed in August 1993 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 Tenet between January 14, 1993 and
August 26, 1993, and allege that each of the defendants violated Section 10(b)
of the Exchange Act. Based on these claims, plaintiffs seek compensatory
damages, injunctive relief, attorneys' fees, interest and costs. Tenet believes
it has meritorious defenses to this action and will defend this litigation
vigorously.
In connection with the merger of AMH with and into a subsidiary of Tenet in
March 1995, a total of nine purported class actions were filed in both Delaware
and California. Such class actions were settled in August 1996. Under the terms
of that settlement, Tenet 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. Tenet believes the Merger with OrNda will not be dilutive
after taking into
15
<PAGE>
account the cost savings that management believes may be realized following the
Merger. Nevertheless, the Merger has been approved by the required majority of
Tenet's outside directors.
In February 1996, OrNda's Midway Hospital Medical Center ("Midway") in Los
Angeles, California, which was acquired when OrNda acquired Summit Health Ltd.
("Summit") in April 1994, received an investigative subpoena from the Office of
the Inspector General of the United States Department of Health and Human
Services (the "OIG"). The subpoena states that it was issued in connection with
an investigation being conducted by the OIG concerning possible violations of
Medicare rules and regulations (the "OIG Investigation"). Tenet understands that
OrNda believes that the basis for the investigative subpoena from the OIG that
was served on Midway was a civil qui tam action that had been filed in July 1995
against Midway Hospital Medical Center, Inc. (a subsidiary of OrNda which owns
Midway), Summit and OrNda in the United States District Court for the Central
District of California (the "California Action"). Tenet understands that the
California Action originally was filed under a court-ordered seal that
prohibited OrNda from disclosing the action prior to this time.
The California Action alleges, among other things, that there were
violations of the federal False Claims Act and the federal fraud and abuse and
anti-kickback provisions of the Medicare and Medicaid laws in connection with
certain of Midway's compensation arrangements with its physicians. The
California Action alleges that as a result of this allegedly wrongful conduct,
the United States is entitled to monetary damages and penalties. The California
Action also alleges in a second cause of action violations of the fraud and
abuse, medical staff and wrongful discharge laws of the State of California and
claims as a result of such wrongful conduct compensatory as well as punitive
damages.
Tenet understands that the OIG has expanded the California Action, which
initially related to only one of OrNda's hospitals (Midway, which was acquired
by OrNda from Summit), and the OIG Investigation to 11 other former Summit
hospitals owned by OrNda. In an apparently unrelated matter, the government has
requested and OrNda has provided records from a single hospital outside the
group acquired from Summit. Tenet understands that OrNda is fully cooperating
with the OIG. Tenet understands that OrNda and its outside counsel have held
numerous meetings with government attorneys with respect to this matter and, as
a result, OrNda believes that the OIG Investigation continues to be a civil
investigation focused primarily on arrangements between physicians and the
hospitals that may violate Medicare rules and regulations and not on the
hospitals' Medicare or Medicaid billing practices. If the outcome of the
California Action or OIG Investigation were unfavorable, OrNda could be subject
to fines, penalties and damages ("Monetary Payments") and also could be excluded
from Medicare and other government reimbursement programs, which Monetary
Payments or exclusion could have a material adverse effect on OrNda's financial
condition or results of operations. The result of the California Action, the OIG
Investigation and their impact, if any, cannot be predicted or estimated at this
time. Tenet understands that based on information currently available to OrNda,
however, management of OrNda believes that if the California Action and the OIG
Investigation remain primarily limited to physician arrangements, remain civil
in nature and, with the exception of only one of the hospitals, relate only to
the practices of the former Summit hospitals, the final outcome of the
California Action and the OIG Investigation will not have a material adverse
effect on OrNda's financial condition or results of operations. If any of the
foregoing matters was to have a material adverse effect on OrNda, it also could
have a material adverse effect on Tenet's business, financial condition and
results of operations following the Merger.
Tenet understands that OrNda is not aware of any additional litigation or
investigations concerning the matters described above. There can be no
assurance, however, that in the event any such additional litigation or
investigation is instituted and there is an unfavorable outcome, such result
would not have a material adverse effect on OrNda's financial condition or
results of operations. If such result was to have a material adverse effect on
OrNda, it also could have a material adverse effect on Tenet's business,
financial condition and results of operations following the Merger. See
"Business--Legal Proceedings."
16
<PAGE>
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
The New Credit Facility will prohibit Tenet from repurchasing Notes upon the
occurrence of a Change of Control Triggering Event. Any future credit agreements
or other agreements relating to indebtedness to which Tenet becomes a party may
contain similar restrictions and provisions. The indentures relating to the
Senior Notes and the Existing Senior Notes of Tenet also may restrict the
Company's ability to purchase the Senior Subordinated Notes upon a Change of
Control Triggering Event. Accordingly, Tenet may not be able to satisfy its
obligations to repurchase the Notes unless Tenet is able to refinance or obtain
waivers with respect to the New Credit Facility and certain other indebtedness,
including, in the case of the Senior Subordinated Notes, the Existing Senior
Notes and the Senior Notes. There can be no assurance that Tenet will have the
financial resources to repurchase the Notes in the event of a Change of Control
Triggering Event, particularly if such Change of Control Triggering Event
requires Tenet to refinance, or results in the acceleration of, other
indebtedness. See "--Certain Financing Considerations; Leverage" and
"Description of Notes--Repurchase at Option of Holder Upon a Change of Control."
SUBSIDIARY OPERATIONS; SUBORDINATION
Both before and after consummation of the Merger, substantially all of the
Company's operations are and will be conducted, and substantially all of the
assets of Tenet are and will be owned, by its subsidiaries. Accordingly, the
Notes effectively will be subordinated to all existing and future obligations
and other liabilities (including trade payables) of Tenet's subsidiaries. Any
right of Tenet to the assets of any of its subsidiaries upon the liquidation,
reorganization or insolvency of such subsidiary (and the consequent right of the
holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of the creditors (including trade creditors) and
preferred stockholders, if any, of such subsidiary, except to the extent Tenet
has a claim against such subsidiary as a creditor of such subsidiary. In
addition, in the event that claims of Tenet as a creditor of a subsidiary are
recognized, such claims would be subordinate to any security interest in the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by Tenet. The ability of Tenet and its subsidiaries to incur certain
obligations is limited by certain of the restrictive covenants contained in the
New Credit Facility and in the Indentures governing the Notes. The Indentures
will limit the ability of Tenet's subsidiaries to incur additional indebtedness.
On a pro forma basis, as of November 30, 1996, after giving effect to the Merger
and the Refinancing, the outstanding indebtedness and other obligations of
Tenet's subsidiaries would have been approximately $341.5 million (excluding
trade payables of $451.7 million, intercompany debt and other obligations).
In addition, Tenet's ability to make required principal and interest
payments with respect to Tenet's indebtedness, including the Notes, depends on
the earnings of its subsidiaries and on its ability to receive funds from such
subsidiaries through dividends or other payments. Since the Notes are
obligations of Tenet only, Tenet's subsidiaries are not obligated or required to
pay any amounts due pursuant to the Notes or to make funds available therefor in
the form of dividends or advances to Tenet.
Further, the subordination provisions of the Senior Subordinated Note
Indenture will provide that the Company may not pay any principal of, premium,
if any, or interest on the Senior Subordinated Notes, or defease, repurchase,
redeem or otherwise acquire or retire Senior Subordinated Notes during the
continuance of a payment default with respect to any Designated Senior Debt
(which will include all borrowings under the New Credit Facility and, after the
repayment of the New Credit Facility, any other Senior Debt permitted under the
Senior Subordinated Note Indenture the principal amount of which is $100.0
million or more and that has been designated by the Company as "Designated
Senior Debt"), other than certain payments in the form of subordinated
securities or from a defeasance trust. In addition, if any non-payment default
occurs that would permit acceleration of any Designated Senior Debt, the holders
of such Designated Senior Debt may prohibit the Company from making any payment
upon or in respect of the Senior Subordinated Notes for a period of up to 179
days. Upon any liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company, holders of Senior Debt will be entitled to receive payment in full
prior to any payment to the holders of the Senior Subordinated Notes (other than
certain payments in the form of subordinated
17
<PAGE>
securities or from a defeasance trust). See "Description of Notes--Subordination
of Senior Subordinated Notes."
NO PRIOR PUBLIC MARKET
Although the Notes have been approved for listing, subject to official
notice of issuance, on the NYSE, the Notes are a new issue of securities with no
established trading market. The Company has been advised by the Underwriters (as
defined herein) that, following the completion of the Offering, the Underwriters
presently intend to make a market in the Notes as permitted by applicable laws
and regulations. However, the Underwriters are under no obligation to do so and
may discontinue any market making activities at any time at the sole discretion
of the Underwriters. There can be no assurance as to the liquidity of the market
that may develop for the Notes, the ability of holders of the Notes to sell
their Notes or the prices at which holders would be able to sell their Notes.
The Notes could trade at prices that may be higher or lower than the initial
offering price thereof depending on many factors, including prevailing interest
rates, the Company's operating results and the markets for similar securities.
See "Underwriting."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of Tenet or OrNda or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in the regions in which Tenet and OrNda operate;
industry capacity; demographic changes; existing government regulations and
changes in, or the failure to comply with, governmental regulations; legislative
proposals for healthcare reform; the ability to enter into managed care provider
arrangements on acceptable terms; changes in Medicare and Medicaid reimbursement
levels; liability and other claims asserted against Tenet or OrNda; competition;
the loss of any significant customers; changes in business strategy or
development plans; the ability to attract and retain qualified personnel,
including physicians; the significant indebtedness of Tenet after the Merger;
the lack of assurance that the synergies expected from the Merger will be
achieved; the availability and terms of capital to fund the expansion of Tenet's
business, including the acquisition of additional facilities; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including without limitation under the
captions "Prospectus Summary," "Risk Factors," "Business" and "Pro Forma
Financial Information." GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Tenet
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
18
<PAGE>
RELATED TRANSACTIONS
THE MERGER
On October 16, 1996, Tenet, OHC Acquisition Co., a Delaware corporation and
a newly formed, wholly owned subsidiary of Tenet ("Merger Sub") and OrNda
entered into the Merger Agreement, pursuant to which, among other things, Merger
Sub will be merged with and into OrNda and OrNda will become a wholly owned
subsidiary of Tenet in a transaction to be accounted for as a pooling of
interests. As a result of the Merger, each share of common stock, par value $.01
per share, of OrNda (the "OrNda Common Stock") outstanding immediately prior to
the effective time (the "Effective Time") of the Merger (other than treasury
shares and shares held by Tenet or any subsidiary of Tenet or OrNda which will
be cancelled) will be converted into the right to receive 1.35 shares of common
stock, par value $0.075 per share, of Tenet (the "Tenet Common Stock"), and the
associated preferred stock purchase rights (the "Rights") issued in accordance
with the Rights Agreement, dated as of December 7, 1988, as amended from time to
time (the "Rights Agreement"), between Tenet and Bank of America NT&SA as
successor to Bankers Trust Company. Cash will be paid in lieu of any fractional
shares of Tenet Common Stock. As of November 30, 1996, OrNda had an aggregate of
approximately 64.0 million shares of OrNda Common Stock outstanding on a fully
diluted basis. Certain stockholders of OrNda (the "Consenting Holders") who hold
in the aggregate approximately 14.0% of OrNda's outstanding shares have executed
Stockholder Voting Agreements, pursuant to which such stockholders have agreed
to vote in favor of the Merger Agreement and the transactions contemplated
thereby and against any proposals that would impede or delay the Merger. Tenet
has also granted registration rights to the Consenting Holders with respect to
the shares of Tenet Common Stock such holders will receive in the Merger.
In addition, Tenet and OrNda have entered into stock option agreements,
pursuant to which OrNda has granted to Tenet an option to purchase up to
approximately 19.9% of the outstanding shares of OrNda Common Stock at a price
of $29.869 per share, and Tenet has granted to OrNda an option to purchase up to
approximately 10.5% of the Tenet Common Stock (on a fully diluted basis) at a
price of $22.125 per share, each under certain circumstances. The options are
exercisable in whole or in part upon the occurrence of certain "triggering
events" relating to an acquisition of the grantor by a third party. None of such
triggering events has occurred as of the date of this Prospectus. The options
will terminate upon the consummation of the Merger or upon termination of the
Merger Agreement for certain reasons.
THE REFINANCING
As part of the Refinancing, Tenet has commenced tender offers to purchase
for cash any and all of OrNda's outstanding 12.25% Senior Subordinated Notes due
2002 (the "OrNda 12.25% Notes") and 11.375% Senior Subordinated Notes due 2004
(the "OrNda 11.375% Notes" and collectively, the "OrNda Debt Securities"). The
OrNda Debt Securities had an aggregate outstanding principal amount of
approximately $525.0 million at November 30, 1996.
In connection with the OrNda Tender Offers, Tenet is soliciting consents
(the "Consent Solicitations") from the holders of the OrNda Debt Securities to
eliminate certain of the restrictive covenants in the indentures relating to
such securities, including restricted payment covenants that would limit Tenet's
access to the cash flow of OrNda following the Merger.
Each of the indentures relating to the OrNda Debt Securities requires the
affirmative consent of holders of record of not less than 50% of the outstanding
principal amount of the securities issued thereunder in order to effect the
proposed amendments. The amendments will become effective upon the acceptance
for purchase and payment of the OrNda Debt Securities pursuant to the OrNda
Tender Offers. The obligation pursuant to the OrNda Tender Offers to purchase
securities of each issue properly tendered and not withdrawn is conditioned
upon, among other things, (i) the execution of a supplemental indenture with
respect to the applicable indenture providing for the proposed amendments, (ii)
the consummation of the Merger and (iii) the consummation of the Offering. In
addition, Tenet's obligation to make consent payments with respect to each issue
of the OrNda Debt Securities is conditioned upon Tenet's acceptance of
securities of such issue for purchase pursuant to the applicable OrNda Tender
Offer. The OrNda Tender Offers are subject to a number of additional conditions.
The OrNda Tender Offers are expected to expire
19
<PAGE>
on January 31, 1997. Tenet currently estimates that substantially all of the
OrNda Debt Securities will be tendered and repurchased pursuant to the OrNda
Tender Offers. If a lesser aggregate principal amount of OrNda Debt Securities
is tendered pursuant to the OrNda Tender Offers, Tenet currently intends to
permit the untendered securities to remain outstanding. Changes in the
assumptions regarding the aggregate amount of OrNda Debt Securities purchased
pursuant to the OrNda Tender Offers are not expected to have a significant
impact on Tenet's pro forma interest expense or consolidated indebtedness
following the Merger although the Notes will be effectively subordinated to any
untendered OrNda Debt Securities with respect to the assets of OrNda. The
Offering is not conditioned upon consummation of the OrNda Tender Offers.
Tenet also intends to refinance the existing credit facilities of Tenet and
OrNda, which at November 30, 1996, on a pro forma basis to reflect the Pending
Acquisitions, had outstanding balances of $1.2 billion and $918.9 million,
respectively. Tenet intends to fund the Refinancing, together with fees and
expenses incurred in connection therewith, with the proceeds of the Offering
together with borrowings under the New Credit Facility. The Refinancing extends
the maturities of the Company's indebtedness at favorable rates and positions
the Company to take advantage of future strategic acquisition and partnership
opportunities.
SOURCES AND USES OF FUNDS
The following table sets forth the sources and uses of funds to be used to
consummate the Refinancing assuming that (i) the Notes are sold at a price to
the public equal to 100% of the principal amount thereof and (ii) all of the
OrNda Debt Securities are properly tendered and not withdrawn pursuant to the
OrNda Tender Offers. The sources and uses of funds set forth below are based
upon amounts outstanding as of November 30, 1996, on a pro forma basis to
reflect the Pending Acquisitions, and the Company's best estimate of the results
of the OrNda Tender Offers and the other assumptions described above, which
estimates and assumptions are subject to change.
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
<S> <C>
SOURCES:
New Credit Facility.................................................... $ 1,405.1
Senior Notes due 2003.................................................. 200.0
Senior Notes due 2005.................................................. 600.0
Senior Subordinated Notes.............................................. 500.0
----------
$ 2,705.1
----------
----------
USES:
Repurchase of the OrNda 12.25% Notes(1)................................ $ 425.1
Repurchase of the OrNda 11.375% Notes(1)............................... 144.1
Refinancing of Tenet's existing credit facility........................ 1,181.9
Refinancing of OrNda's existing credit facility........................ 918.9
Estimated fees and expenses of the Refinancing......................... 35.1
----------
$ 2,705.1
----------
----------
</TABLE>
- ------------------------------
(1) Includes the balance of the OrNda Debt Securities that are expected to be
repurchased and cancelled pursuant to the OrNda Tender Offers plus the
respective premium and consent payment.
20
<PAGE>
USE OF PROCEEDS
Tenet intends to use the proceeds from the Offering, together with
anticipated initial borrowings of $1,405.1 million under the New Credit
Facility, as follows: (i) $425.1 million will be used to purchase the OrNda
12.25% Notes pursuant to the OrNda Tender Offers (assuming 100% of the OrNda
12.25% Notes are tendered); (ii) $144.1 million will be used to purchase the
OrNda 11.375% Notes pursuant to the OrNda Tender Offers (assuming 100% of the
OrNda 11.375% Notes are tendered); (iii) $1,181.9 million will be used to repay
all of the outstanding indebtedness under the existing Tenet credit facility
(based upon amounts outstanding as of November 30, 1996, on a pro forma basis to
reflect the Pending Acquisitions); (iv) $918.9 million will be used to repay all
of the outstanding indebtedness under the existing OrNda credit facility (based
upon amounts outstanding as of November 30, 1996, on a pro forma basis to
reflect the Pending Acquisitions); and (v) an estimated $35.1 million will be
applied to pay fees and expenses relating to the Refinancing, including
underwriting discounts and commissions, financial advisory fees and legal and
accounting expenses. See "Related Transactions."
The OrNda 12.25% Notes mature on May 15, 2002. The OrNda 11.375% Notes
mature on August 15, 2004. Borrowings under the existing Tenet credit facility
bear interest at a floating rate per annum (a weighted average rate of 6.319% at
November 30, 1996) and have a scheduled maturity of March 1, 2001. Borrowings
under the existing OrNda credit facility bear interest at a floating rate per
annum (a weighted average rate of 6.568% at November 30, 1996) and have a
scheduled maturity of October 30, 2001.
21
<PAGE>
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth, as of November 30, 1996, (i) the historical
capitalization of each of Tenet and OrNda, (ii) the capitalization of the
combined company, adjusted to reflect certain acquisitions, divestitures and
related adjustments and (iii) the capitalization of the combined company on a
pro forma basis to give further effect to the consummation of the Merger and the
Refinancing. See "Use of Proceeds" and "Related Transactions." This table should
be read in conjunction with the Pro Forma Financial Information and the related
notes thereto and the separate historical financial statements of Tenet and
OrNda and related notes thereto all included elsewhere in this Prospectus. See
"Pro Forma Financial Information."
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1996
---------------------------------------------------
ADJUSTED
TENET/ PRO
HISTORICAL HISTORICAL ORNDA FORMA
TENET ORNDA COMBINED COMBINED
----------- ------------ ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Short-term borrowings and notes.............................. $ 2.8 $ -- $ 2.8 $ 2.8
Current portion of long-term debt............................ 41.6 36.9 79.0(1) 79.0
----------- ------------ ----------- -----------
Total current debt..................................... 44.4 36.9 81.8 81.8
Long-term debt, net of current portion:
New Credit Facility........................................ -- -- -- 1,405.1
Senior Notes due 2003...................................... -- -- -- 200.0
Senior Notes due 2005...................................... -- -- -- 600.0
Senior Subordinated Notes.................................. -- -- -- 500.0
Existing credit facilities................................. 1,131.5 792.6 2,100.8 --
9 5/8% Senior Notes due 2002............................... 300.0 -- 300.0 300.0
8 5/8% Senior Notes due 2003............................... 500.0 -- 500.0 500.0
10 1/8% Senior Subordinated Notes due 2005................. 900.0 -- 900.0 900.0
6% Exchangeable Subordinated Notes due 2005(2)............. 320.0 -- 320.0 320.0
Other debt................................................. 181.0(3) 542.3(4) 725.9 200.9
----------- ------------ ----------- -----------
Total long-term debt, net of current portion........... 3,332.5 1,334.9 4,846.7 4,926.0
----------- ------------ ----------- -----------
Shareholders' equity:
Tenet common stock, par value $0.075, authorized
450,000,000 shares; issued 219,232,999 shares,
297,871,844 shares pro forma(5).......................... 16.5 -- 22.2 22.2
OrNda common stock, par value $0.01, authorized 200,000,000
shares; issued 58,250,996 shares, no shares pro forma.... -- 0.6 -- --
Other shareholders' equity................................. 2,868.4 673.6 3,536.4 3,461.3(6)
Less treasury stock, at cost, 2,676,091 shares............. (38.7) -- (38.7) (38.7)
----------- ------------ ----------- -----------
Total shareholders' equity............................. 2,846.2 674.2 3,519.9 3,444.8
----------- ------------ ----------- -----------
Total capitalization(7)................................ $ 6,223.1 $ 2,046.0 $ 8,448.4 $ 8,452.6
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
- --------------------------
(1) Includes liabilities assumed (recorded at their estimated fair values) in
connection with the October 1996 acquisition by Tenet of the Lloyd Noland
Hospital and the January 1997 acquisition by Tenet of North Shore Medical
Center, the September 1996 acquisition by OrNda of The Saint Vincent
Heathcare System and the December 1996 acquisition by OrNda of the Western
Medical Centers.
(2) Exchangeable into 8,301,067 shares of common stock of Vencor held by Tenet.
(3) Includes other notes payable, capitalized lease obligations and $70.4
million of unamortized discounts related to several issues of debt,
including Tenet's Existing Senior Notes, 2005 Senior Subordinated Notes (as
defiend herein) and 2005 Exchangeable Subordinated Notes (as defined
herein). See Note 5 of the notes to the Consolidated Financial Statements of
Tenet.
(4) Includes the OrNda Debt Securities, certain other secured and unsecured
notes payable and capitalized lease obligations. See Notes 5 and 6 of the
notes to the Consolidated Financial Statements of OrNda.
(5) Does not include 35,095,663 shares of Tenet Common Stock reserved for
issuance upon exercise of Tenet options (including 7,007,118 shares related
to the conversion of 5,190,458 OrNda options to Tenet options at a
conversion ratio of 1.35 to 1).
(6) Includes estimated transaction costs in the amount of $30.0 million in
connection with the Merger and the after-tax effect of $45.1 million related
to tender premiums paid and the write-off of unamortized debt issuance
costs. Does not reflect other charges expected to be incurred by Tenet and
OrNda in connection with the Merger. These charges may include costs
associated with the combination of Tenet and OrNda, primarily severance
costs, costs of restructuring of benefit packages and charges related to
reduction of corporate overhead costs and consolidation of duplicative
services or facilities in certain markets.
(7) Includes short-term borrowings and notes and the current portion of
long-term debt.
22
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is presented
assuming the Merger will be accounted for as a pooling of interests, whereby
Tenet will restate its historical consolidated financial statements to include
the assets, liabilities, shareholders' equity and results of operations of
OrNda.
The statement of operations data included in the unaudited pro forma
financial information reflects the combination of the historical operating
results of Tenet for the years ended May 31, 1994 and 1995, with the historical
operating results of OrNda for the years ended August 31, 1994 and 1995 and the
historical as adjusted operating results of Tenet for the year ended May 31,
1996 and for the six months ended November 30, 1995 and 1996, with the
historical as adjusted operating results of OrNda for the year ended August 31,
1996 and for the six months ended November 30, 1995 and 1996, respectively.
Tenet reports its financial information on the basis of a May 31 fiscal year.
OrNda reports its financial information on the basis of an August 31 fiscal
year. The unaudited pro forma financial information does not reflect the results
of operations of AMH prior to its acquisition by the Company on March 1, 1995.
The unaudited Condensed Combined Pro Forma Balance Sheet gives effect to the
following transactions and events as if they had occurred as of November 30,
1996: (i) the January 1997 acquisition by Tenet of North Shore Medical Center;
(ii) the December 1996 acquisition by OrNda of the Western Medical Centers; and
(iii) the consummation of the Merger and the Refinancing.
The unaudited Pro Forma Condensed Combined Statements of Operations give
effect to the following transactions and events as if they had occurred as of
June 1, 1995 for the Tenet transactions and events and as of September 1, 1995
for the OrNda transactions and events: (i) the August 1995 acquisition by Tenet
of Memorial Medical Center (formerly known as Mercy+Baptist Medical Center); the
September 1995 acquisition by Tenet of Providence Memorial Hospital; the October
1995 acquisition by Tenet of Medical Center of Manchester; the November 1995
acquisition by Tenet of Methodist Hospital of Jonesboro; the June 1996
acquisition by Tenet of Hialeah Hospital; the October 1996 acquisition by Tenet
of the Lloyd Noland Hospital and the January 1997 acquisition by Tenet of North
Shore Medical Center; (ii) the June 1995 sale by Tenet of its two hospitals and
related healthcare businesses in Singapore; the October 1995 sales by Tenet of
its interest in AME and its equity interest in a hospital in Malaysia; the
February 1996 sale by Tenet of its equity interest in a hospital in Thailand and
the May 1996 sale by Tenet of its equity interest in Westminster; (iii) the
elimination of non-recurring gains on disposals of facilities and long-term
investments recorded by Tenet; (iv) Vencor's September 1995 acquisition of
Hillhaven in which Tenet held a significant equity interest; (v) the reduction
of Tenet's interest in TRC in October 1995; (vi) the November 1995 acquisition
by OrNda of Universal Medical Center (subsequently renamed Florida Medical
Center-South); the January 1996 acquisition by OrNda of a controlling equity
interest in HNW; the July 1996 acquisitions by OrNda of Cypress Fairbanks
Medical Center and Westside Hospital; the August 1996 acquisition by OrNda of
Centinela Hospital Medical Center; the September 1996 acquisition by OrNda of
The Saint Vincent Healthcare System and the December 1996 acquisition by OrNda
of the Western Medical Centers; and (vii) the consummation of the Merger and the
Refinancing.
The unaudited pro forma financial information does not purport to present
the financial position or results of operations of Tenet had the transactions
and events assumed therein occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future.
The unaudited pro forma financial information does not give effect to
certain cost savings that Tenet management believes may be realized as a result
of the Merger. There can be no assurances that such cost savings, if any, will
be achieved. See "Risk Factors--Forward Looking Statements." The Unaudited Pro
Forma Condensed Combined Statements of Operations do not reflect certain
non-recurring costs expected to be incurred in connection with the Merger. These
costs are expected to include investment advisory fees and legal, accounting and
other professional fees and certain charges associated with the combination of
Tenet and OrNda, primarily severance costs, costs of restructuring of benefit
packages and charges related to reduction of corporate overhead costs and
consolidation of duplicative services or facilities in certain markets.
The unaudited pro forma financial information is based on certain
assumptions and adjustments described in the Notes to the unaudited pro forma
financial information included in this Prospectus and should be read in
conjunction therewith and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Tenet," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
OrNda" and the consolidated financial statements of Tenet and OrNda and the
related notes thereto included herein.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
years ended May 31, 1994, 1995 and 1996 combines Tenet's Consolidated Statements
of Operations for the fiscal years ended May 31, 1994, 1995 and 1996 with
OrNda's Consolidated Statements of Operations for the fiscal years ended August
31, 1994, 1995 and 1996, respectively. The Unaudited Pro Forma Condensed
Combined Statements of Operations for the six months ended November 30, 1995 and
1996 combine the Consolidated Statements of Operations of Tenet and the
Consolidated Statements of Operations of OrNda for the same six-month periods.
23
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
ORNDA HEALTHCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF NOVEMBER 30, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
TENET ORNDA
HOSPITAL HOSPITAL MERGER AND
HISTORICAL ACQUISITION ADJUSTED HISTORICAL ACQUISITION ADJUSTED REFINANCING
TENET (A) TENET ORNDA (B) ORNDA ADJUSTMENTS
----------- ------------- --------- ----------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 56.8 $ $ 56.8 $ 10.5 $ $ 10.5 $
Short-term investments, at cost
which approximates market.... 103.1 103.1
Accounts and notes receivable,
less allowance for doubtful
accounts..................... 1,006.3 1.0 1,007.3 415.6 26.9 442.5
Inventories of supplies, at
cost......................... 134.7 1.3 136.0 45.0 3.9 48.9
Deferred income taxes.......... 253.6 253.6 43.9(c)
Assets held for sale........... 11.5 11.5
Prepaid expenses and other
current assets............... 69.8 0.3 70.1 88.1 10.7 98.8
----------- ------ --------- ----------- ------ --------- ------------
Total current assets......... 1,635.8 2.6 1,638.4 559.2 41.5 600.7 43.9
Investments and other assets..... 505.9 0.5 506.4 172.1 2.0 174.1
Property and equipment, at cost
less accumulated depreciation.. 3,738.1 49.0 3,787.1 1,379.2 81.8 1,461.0
Intangible assets, at cost less
accumulated amortization....... 2,692.7 10.5 2,703.2 501.7 56.2 557.9 35.1(d)
(31.0)(d)
----------- ------ --------- ----------- ------ --------- ------------
$ 8,572.5 $ 62.6 $ 8,635.1 $ 2,612.2 $ 181.5 $ 2,793.7 $ 48.0
----------- ------ --------- ----------- ------ --------- ------------
----------- ------ --------- ----------- ------ --------- ------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt......................... $ 41.6 $ 0.5 $ 42.1 $ 36.9 $ $ 36.9 $
Short-term borrowings and
notes........................ 2.8 2.8
Accounts payable............... 266.7 6.0 272.7 155.7 23.3 179.0
Accrued employee compensation
and benefits................. 136.2 3.1 139.3 74.8 8.1 82.9
Accrued interest payable....... 71.0 71.0 7.4 1.9 9.3
Income taxes payable........... 16.0 16.0 (27.6) (27.6) (30.1)(d)
43.9(c)
Other current liabilities...... 410.6 0.6 411.2 173.9 6.1 180.0 30.0(e)
----------- ------ --------- ----------- ------ --------- ------------
Total current liabilities.... 944.9 10.2 955.1 421.1 39.4 460.5 43.8
Long-term debt, net of current
portion........................ 3,332.5 50.4 3,382.9 1,334.9 128.9 1,463.8 2,705.1(d)
(2,625.8)(d)
Deferred income taxes............ 424.5 424.5 51.5 51.5
Other long-term liabilities and
minority interests............. 1,024.4 2.5 1,026.9 130.5 13.2 143.7
Shareholders' equity............. 2,846.2 (0.5) 2,845.7 674.2 674.2 (30.0)(e)
(45.1)(d)
----------- ------ --------- ----------- ------ --------- ------------
$ 8,572.5 $ 62.6 $ 8,635.1 $ 2,612.2 $ 181.5 $ 2,793.7 $ 48.0
----------- ------ --------- ----------- ------ --------- ------------
----------- ------ --------- ----------- ------ --------- ------------
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 67.3
Short-term investments, at cost
which approximates market.... 103.1
Accounts and notes receivable,
less allowance for doubtful
accounts..................... 1,449.8
Inventories of supplies, at
cost......................... 184.9
Deferred income taxes.......... 297.5
Assets held for sale........... 11.5
Prepaid expenses and other
current assets............... 168.9
-----------
Total current assets......... 2,283.0
Investments and other assets..... 680.5
Property and equipment, at cost
less accumulated depreciation.. 5,248.1
Intangible assets, at cost less
accumulated amortization....... 3,265.2
-----------
$11,476.8
-----------
-----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt......................... $ 79.0
Short-term borrowings and
notes........................ 2.8
Accounts payable............... 451.7
Accrued employee compensation
and benefits................. 222.2
Accrued interest payable....... 80.3
Income taxes payable........... 2.2
Other current liabilities...... 621.2
-----------
Total current liabilities.... 1,459.4
Long-term debt, net of current
portion........................ 4,926.0
Deferred income taxes............ 476.0
Other long-term liabilities and
minority interests............. 1,170.6
Shareholders' equity............. 3,444.8
-----------
$11,476.8
-----------
-----------
</TABLE>
24
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
ORNDA HEALTHCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1996
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL TENET ADJUSTED ORNDA
TENET TENET DIVESTITURES TENET YEAR ENDED
YEAR ENDED HOSPITAL AND YEAR ENDED AUGUST 31,
MAY 31, 1996 ACQUISITIONS ADJUSTMENTS MAY 31, 1996 1996
------------ ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net operating revenues.................. $5,558.5 $ 341.0(f) $ (50.4)(g) $5,849.1 $2,147.2
Operating expenses:
Salaries and benefits................. 2,194.3 139.2(f) (22.6)(g) 2,310.9 935.4
Supplies.............................. 764.2 39.1(f) (6.3)(g) 797.0 291.6
Provision for doubtful accounts....... 289.7 30.2(f) (0.2)(g) 319.7 141.8
Other operating expenses.............. 1,212.1 95.4(f) (10.8)(g) 1,296.7 434.0
Depreciation.......................... 239.9 11.6(i) (3.2)(g) 248.3 78.9
Amortization.......................... 80.4 0.9(j) (0.4)(g) 80.9 24.9
Impairment losses..................... 85.9 85.9
------------ ------------ ------------- ------------ ----------
Operating income........................ 692.0 24.6 (6.9) 709.7 240.6
Interest expense, net of capitalized
portion............................... (311.9) (0.2)(f) 0.3(g) (315.4) (107.2)
(16.8)(m) 13.2(n)
Investment earnings..................... 22.3 (0.7)(g) 19.9 4.4
(1.7)(p)
Equity in earnings of unconsolidated
affiliates............................ 19.4 (7.4)(g) 3.4 5.1
(8.6)(p)
Minority interests in income of
consolidated subsidiaries............. (22.0) (0.1)(f) 2.2(g) (19.9) (7.8)
Net gain on disposals of facilities and
long-term investments................. 346.2 (346.2)(q)
------------ ------------ ------------- ------------ ----------
Income from continuing operations before
income taxes.......................... 746.0 7.5 (355.8) 397.7 135.1
Taxes on income......................... (347.7) (2.9) 168.4 (182.2) (35.2)
------------ ------------ ------------- ------------ ----------
Income from continuing operations....... $ 398.3 $ 4.6 $(187.4) $ 215.5 $ 99.9
------------ ------------ ------------- ------------ ----------
------------ ------------ ------------- ------------ ----------
Earnings per common share from
continuing operations, fully
diluted............................... $ 1.86 $ 1.01 $ 1.72
------------ ------------ ----------
------------ ------------ ----------
Weighted average number of shares
outstanding, fully diluted (in
000s)................................. 216,676 216,676 58,064
------------ ------------ ----------
------------ ------------ ----------
Ratio of earnings to fixed charges...... 2.9x 2.1x 2.0x
------------ ------------ ----------
------------ ------------ ----------
<CAPTION>
ADJUSTED
ORNDA
ORNDA YEAR ENDED MERGER AND
HOSPITAL AUGUST 31, REFINANCING PRO FORMA
ACQUISITIONS 1996 ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net operating revenues.................. $648.5(h) $2,795.7 $ $8,644.8
Operating expenses:
Salaries and benefits................. 327.8(h) 1,263.2 3,574.1
Supplies.............................. 116.2(h) 407.8 1,204.8
Provision for doubtful accounts....... 34.9(h) 176.7 496.4
Other operating expenses.............. 104.1(h) 538.1 1,834.8
Depreciation.......................... 14.8(i) 93.7 342.0
Amortization.......................... 4.6(j) 29.5 (5.6)(k) 104.8
Impairment losses..................... 85.9
------ ---------- ----------- ---------
Operating income........................ 46.1 286.7 5.6 1,002.0
Interest expense, net of capitalized
portion............................... (26.3)(l) (133.5) (5.6)(k) (442.0)
12.5(o)
Investment earnings..................... (1.2)(h) 3.2 23.1
Equity in earnings of unconsolidated
affiliates............................ (5.1)(h) 3.4
Minority interests in income of
consolidated subsidiaries............. (1.4)(h) (9.2) (29.1)
Net gain on disposals of facilities and
long-term investments................. 0.5(h) 0.5 0.5
------ ---------- ----------- ---------
Income from continuing operations before
income taxes.......................... 12.6 147.7 12.5 557.9
Taxes on income......................... (6.1) (41.3) (5.0)(o) (228.5)
------ ---------- ----------- ---------
Income from continuing operations....... $ 6.5 $ 106.4 $ 7.5 $ 329.4
------ ---------- ----------- ---------
------ ---------- ----------- ---------
Earnings per common share from
continuing operations, fully
diluted............................... $ 1.83 $ 1.13
---------- ---------
---------- ---------
Weighted average number of shares
outstanding, fully diluted (in
000s)................................. 58,064 78,386(r) 295,062
---------- ----------- ---------
---------- ----------- ---------
Ratio of earnings to fixed charges...... 1.9x 2.0x
---------- ---------
---------- ---------
</TABLE>
25
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
ORNDA HEALTHCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1996
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TENET ORNDA MERGER AND
HISTORICAL HOSPITAL ADJUSTED HISTORICAL HOSPITAL ADJUSTED REFINANCING PRO FORMA
TENET ACQUISITIONS TENET ORNDA ACQUISITIONS ORNDA ADJUSTMENTS COMBINED
---------- ------------ -------- ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues... $ 2,914.7 $ 64.7(s) $2,979.4 $ 1,190.0 $182.1(t) $1,372.1 $ $4,351.5
Operating expenses:
Salaries and
benefits............. 1,150.1 28.5(s) 1,178.6 539.8 93.8(t) 633.6 1,812.2
Supplies............... 395.1 6.5(s) 401.6 164.2 27.2(t) 191.4 593.0
Provision for doubtful
accounts............. 153.2 4.9(s) 158.1 70.9 7.0(t) 77.9 236.0
Other operating
expenses............. 641.9 20.6(s) 662.5 223.0 39.4(t) 262.4 924.9
Depreciation........... 127.0 0.6(i) 127.6 47.2 4.5(i) 51.7 179.3
Amortization........... 42.6 0.2(j) 42.8 14.5 1.6(j) 16.1 (4.2)(k) 54.7
---------- ------ -------- ---------- ----------- -------- ----------- ---------
Operating income......... 404.8 3.4 408.2 130.4 8.6 139.0 4.2 551.4
Interest expense, net of
capitalized portion.... (141.1) (0.1) (s) (144.2) (58.0) (6.3)(l) (64.3) (4.2)(k) (206.4)
(3.0)(m) 6.3(o)
Investment earnings...... 10.3 10.3 2.1 (0.1)(t) 2.0 12.3
Equity in earnings of
unconsolidated
affiliates............. 1.3 1.3 1.3
Minority interests in
income of consolidated
subsidiaries........... (10.1) (10.1) (5.4) (5.4) (15.5)
---------- ------ -------- ---------- ----------- -------- ----------- ---------
Income from continuing
operations before
income taxes........... 265.2 0.3 265.5 69.1 2.2 71.3 6.3 343.1
Taxes on income.......... (116.0) (0.1) (116.1) (19.5) (0.9) (20.4) (2.5)(o) (139.0)
---------- ------ -------- ---------- ----------- -------- ----------- ---------
Income from continuing
operations............. $ 149.2 $ 0.2 $ 149.4 $ 49.6 $ 1.3 $ 50.9 $ 3.8 $ 204.1
---------- ------ -------- ---------- ----------- -------- ----------- ---------
---------- ------ -------- ---------- ----------- -------- ----------- ---------
Earnings per common share
from continuing
operations, fully
diluted................ $ 0.68 $ 0.68 $ 0.82 $ 0.84 $ 0.68
---------- -------- ---------- -------- ---------
---------- -------- ---------- -------- ---------
Weighted average number
of shares outstanding,
fully diluted (in
000s).................. 220,096 220,096 60,617 60,617 81,833(r) 301,929
---------- -------- ---------- -------- ----------- ---------
---------- -------- ---------- -------- ----------- ---------
Ratio of earnings to
fixed charges.......... 2.5x 2.5x 2.0x 2.0x 2.4x
---------- -------- ---------- -------- ---------
---------- -------- ---------- -------- ---------
</TABLE>
26
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
ORNDA HEALTHCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1995
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TENET
TENET DIVESTITURES ORNDA
HISTORICAL HOSPITAL AND ADJUSTED HISTORICAL HOSPITAL ADJUSTED
TENET ACQUISITIONS ADJUSTMENTS TENET ORNDA ACQUISITIONS ORNDA
----------- ------------ ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues... $ 2,654.8 $ 230.1(f) $ (50.6)(g) $ 2,834.3 $ 977.6 $ 387.8(h) $ 1,365.4
Operating expenses:
Salaries and benefits.. 1,046.9 92.6(f) (22.6)(g) 1,116.9 406.8 191.2(h) 598.0
Supplies............... 364.7 27.2(f) (6.4)(g) 385.5 127.4 60.9(h) 188.3
Provision for doubtful
accounts............. 137.0 19.0(f) (0.2)(g) 155.8 66.3 22.5(h) 88.8
Other operating
expenses............. 578.3 61.3(f) (11.1)(g) 628.5 238.7 69.0(h) 307.7
Depreciation........... 122.7 10.9(i) (3.2)(g) 130.4 35.7 10.3(i) 46.0
Amortization........... 40.0 0.5(f) (0.4)(g) 40.7 11.0 3.6(j) 14.6
0.6(j)
----------- ------------ ------------- --------- ----------- ------ ---------
Operating income......... 365.2 18.0 (6.7) 376.5 91.7 30.3 122.0
Interest expense, net of
capitalized portion.... (158.4) (0.1)(f) 0.3(g) (160.3) (54.4) (18.9)(l) (73.3)
(11.6)(m) 9.5(n)
Investment earnings...... 12.7 (0.2)(g) 10.8 2.1 (0.3)(h) 1.8
(1.7)(p)
Equity in earnings of
unconsolidated
affiliates............. 14.0 (3.8)(g) 1.7 7.3 (7.3)(h)
(8.5)(p)
Minority interests in
income of consolidated
subsidiaries........... (10.6) 2.2(g) (8.4) (1.3) (2.3)(h) (3.6)
Net gain on disposals of
facilities............. 311.9 (311.9)(q)
----------- ------------ ------------- --------- ----------- ------ ---------
Income from continuing
operations before
income taxes........... 534.8 6.3 (320.8) 220.3 45.4 1.5 46.9
Taxes on income.......... (233.7) (2.4) 138.7 (97.4) (9.6) (4.0) (13.6)
----------- ------------ ------------- --------- ----------- ------ ---------
Income from continuing
operations............. $ 301.1 $ 3.9 $ (182.1) $ 122.9 $ 35.8 $ (2.5) $ 33.3
----------- ------------ ------------- --------- ----------- ------ ---------
----------- ------------ ------------- --------- ----------- ------ ---------
Earnings per common share
from continuing
operations, fully
diluted................ $ 1.41 $ 0.59 $ 0.71 $ 0.56
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Weighted average number
of shares outstanding,
fully diluted (in
000s).................. 216,175 216,175 59,153 59,153
----------- --------- ----------- ---------
----------- --------- ----------- ---------
Ratio of earnings to
fixed charges.......... 3.7x 2.1x 1.6x 1.5x
----------- --------- ----------- ---------
----------- --------- ----------- ---------
<CAPTION>
MERGER AND
REFINANCING PRO FORMA
ADJUSTMENTS COMBINED
-------------- -----------
<S> <C> <C>
Net operating revenues... $ $ 4,199.7
Operating expenses:
Salaries and benefits.. 1,714.9
Supplies............... 573.8
Provision for doubtful
accounts............. 244.6
Other operating
expenses............. 936.2
Depreciation........... 176.4
Amortization........... (2.4)(k) 52.9
-------------- -----------
Operating income......... 2.4 500.9
Interest expense, net of
capitalized portion.... (2.4)(k) (229.7)
6.3(o)
Investment earnings...... 12.6
Equity in earnings of
unconsolidated
affiliates............. 1.7
Minority interests in
income of consolidated
subsidiaries........... (12.0)
Net gain on disposals of
facilities.............
-------------- -----------
Income from continuing
operations before
income taxes........... 6.3 273.5
Taxes on income.......... (2.5)(o) (113.5)
-------------- -----------
Income from continuing
operations............. $ 3.8 $ 160.0
-------------- -----------
-------------- -----------
Earnings per common share
from continuing
operations, fully
diluted................ $ 0.55
-----------
-----------
Weighted average number
of shares outstanding,
fully diluted (in
000s).................. 79,857 (r) 296,032
-------------- -----------
-------------- -----------
Ratio of earnings to
fixed charges.......... 2.0x
-----------
-----------
</TABLE>
27
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
ORNDA HEALTHCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1995
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL ORNDA
TENET YEAR ENDED PRO FORMA
YEAR ENDED AUGUST 31, MERGER PRO FORMA
MAY 31, 1995 1995 ADJUSTMENTS COMBINED
------------ -------------- ------------- ----------
<S> <C> <C> <C> <C>
Net operating revenues.................................. $ 3,318.4 $ 1,842.7 $ $ 5,161.1
Operating expenses:.....................................
Salaries and benefits................................. 1,366.8 803.1 2,169.9
Supplies.............................................. 431.5 236.2 667.7
Provision for doubtful accounts....................... 137.5 122.2 259.7
Other operating expenses.............................. 759.2 419.2 1,178.4
Depreciation.......................................... 164.4 67.9 232.3
Amortization.......................................... 30.6 17.3 (4.1)(k) 43.8
Restructuring costs................................... 36.9 36.9
------------ -------------- ------ ----------
Operating income........................................ 391.5 176.8 4.1 572.4
Interest expense, net of capitalized portion............ (138.1) (109.1) (4.1)(k) (251.3)
Investment earnings..................................... 27.5 4.6 32.1
Equity in earnings of unconsolidated affiliates......... 28.4 14.0 42.4
Minority interests in income of consolidated
subsidiaries.......................................... (9.4) (0.2) (9.6)
Net gain on disposals of facilities and long-term
investments........................................... 29.5 1.0 30.5
------------ -------------- ------ ----------
Income from continuing operations before income taxes... 329.4 87.1 416.5
Taxes on income......................................... (135.0) (15.8) (150.8)
------------ -------------- ------ ----------
Income from continuing operations....................... $ 194.4 $ 71.3 $ $ 265.7
------------ -------------- ------ ----------
------------ -------------- ------ ----------
Earnings per common share from continuing operations,
fully diluted......................................... $ 1.06 $ 1.51 $ 1.08
------------ -------------- ----------
------------ -------------- ----------
Weighted average number of shares outstanding, fully
diluted (in 000s)..................................... 190,139 47,382 63,966(r) 254,105
------------ -------------- ------ ----------
------------ -------------- ------ ----------
Ratio of earnings to fixed charges...................... 2.7 x 1.6 x 2.2x
------------ -------------- ----------
------------ -------------- ----------
</TABLE>
28
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
ORNDA HEALTHCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1994
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL ORNDA
TENET YEAR ENDED PRO FORMA
YEAR ENDED AUGUST 31, MERGER PRO FORMA
MAY 31, 1994 1994 ADJUSTMENTS COMBINED
------------ -------------- ------------- ----------
<S> <C> <C> <C> <C>
Net operating revenues................................. $ 2,943.2 $ 1,274.4 $ $ 4,217.6
Operating expenses:
Salaries and benefits................................ 1,293.4 574.2 1,867.6
Supplies............................................. 339.4 158.9 498.3
Provision for doubtful accounts...................... 107.0 86.2 193.2
Other operating expenses............................. 666.5 275.6 942.1
Depreciation......................................... 142.7 56.4 199.1
Amortization......................................... 18.1 10.4 (3.3)(k) 25.2
Restructuring costs.................................. 77.0 2.5 79.5
Merger expenses...................................... -- 30.0 30.0
------------ -------------- ------ ----------
Operating income....................................... 299.1 80.2 3.3 382.6
Interest expense, net of capitalized portion........... (70.0) (83.4) (3.3)(k) (156.7)
Investment earnings.................................... 27.7 2.9 30.6
Equity in earnings of unconsolidated affiliates........ 23.8 3.6 27.4
Minority interests in income of consolidated
subsidiaries......................................... (8.2) (4.0) (12.2)
Net gain (loss) on disposals of facilities............. 87.5 (45.3) 42.2
------------ -------------- ------ ----------
Income (loss) from continuing operations before income
taxes................................................ 359.9 (46.0) 313.9
Taxes on income........................................ (144.0) (1.0) (145.0)
------------ -------------- ------ ----------
Income (loss) from continuing operations............... $ 215.9 $ (47.0) $ $ 168.9
------------ -------------- ------ ----------
------------ -------------- ------ ----------
Earnings (loss) per common share from continuing
operations, fully diluted............................ $ 1.23 $ (1.29) $ 0.75
------------ -------------- ----------
------------ -------------- ----------
Weighted average number of shares outstanding, fully
diluted (in 000s).................................... 181,087 37,879 51,137(r) 232,224
------------ -------------- ------ ----------
------------ -------------- ------ ----------
Ratio of earnings to fixed charges..................... 4.2x 0.5x 2.4x
------------ -------------- ----------
------------ -------------- ----------
</TABLE>
29
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
The adjustments to arrive at the unaudited pro forma financial information
are as follows:
(a) To reflect Tenet's January 1997 acquisition of substantially all of
the assets of North Shore Medical Center. This transaction will be accounted
for by the purchase method of accounting. The assets acquired and
liabilities assumed in this transaction are recorded at their estimated fair
values. The excess of the aggregate purchase price of $49.0 million over the
aggregate estimated fair value of the net assets acquired is expected to be
approximately $10.5 million. The acquisition of North Shore Medical Center
was financed using Tenet's existing credit facility.
(b) To reflect OrNda's December 1996 acquisition of substantially all of
the assets of the Western Medical Centers, consisting primarily of two acute
care hospitals and a skilled nursing facility. The transaction will be
accounted for by the purchase method of accounting. The assets acquired and
liabilities assumed in the transaction are recorded at their estimated fair
values. The excess of the aggregate purchase price of $181.5 million over
the aggregate fair value of the net assets acquired is approximately $56.2
million. The acquisition of the Western Medical Centers was financed using
OrNda's existing credit facility.
(c) To reclassify OrNda's current deferred tax asset to conform to
Tenet's presentation.
(d) To reflect the Refinancing and the following related items: an
increase to intangible assets of $4.1 million (reflecting estimated debt
issuance costs of $35.1 million to be amortized over the lives of the Notes
and the New Credit Facility less $31.0 million in unamortized issuance costs
to be written off); and a tax benefit of $30.1 million related to the
payment of estimated tender premiums and consent fees and the write-off of
the unamortized issuance costs. The $45.1 million after-tax effect of the
write-off, the tender premiums and the consent fees will be charged to
operations as an extraordinary item in the period the Refinancing is
completed.
(e) To record estimated transaction costs in the amount of $30.0 million
in connection with the Merger. The unaudited pro forma financial information
does not reflect other charges expected to be incurred by Tenet and OrNda in
connection with the Merger. These charges may include costs associated with
the combination of Tenet and OrNda, primarily severance costs, costs of
restructuring benefit packages and charges related to reduction of corporate
overhead costs and the consolidation of duplicative services or facilities
in certain markets.
(f) To reflect the historical operations of the following facilities
prior to their acquisition by Tenet to give effect to the transactions as if
they had occurred as of the beginning of the respective period: the August
1995 acquisition of Memorial Medical Center (formerly known as Mercy+Baptist
Medical Center); the September 1995 acquisition of Providence Memorial
Hospital; the October 1995 acquisition of Medical Center of Manchester; the
November 1995 acquisition of Methodist Hospital of Jonesboro; the June 1996
acquisition of Hialeah Hospital; the October 1996 acquisition of Lloyd
Noland Hospital and the January 1997 acquisition of North Shore Medical
Center.
(g) To reflect the following sales by Tenet as if they had occurred as
of the beginning of the respective period: the June 1995 sale of its two
hospitals and related healthcare businesses in Singapore, the October 1995
sales of its interest in AME and its equity interest in a hospital in
Malaysia, the February 1996 sale of its equity interest in a hospital in
Thailand and the May 1996 sale of its equity interest in Westminster.
(h) To reflect the historical operations of the following facilities
prior to their acquisition by OrNda to give effect to the transactions as if
they had occurred as of the beginning of the respective period: the November
1995 acquisition of Universal Medical Center (subsequently renamed Florida
Medical Center-South); the January 1996 acquisition of a controlling equity
interest in HNW; the July 1996 acquisitions of Cypress Fairbanks Medical
Center and Westside Medical Center; the August 1996 acquisition of Centinela
Hospital Medical Center; the September 1996 acquisition of The Saint Vincent
Healthcare System and the December 1996 acquisition of the Western Medical
Centers.
30
<PAGE>
(i) To adjust depreciation expense to reflect the estimated fair values
of the buildings and equipment acquired in the purchases of the general
hospital facilities referred to in Notes (f) and (h) above.
(j) To reflect the amortization of the excess of the purchase price of
the general hospital facilities referred to in Notes (f) and (h) above over
the estimated fair values of the net assets acquired using the straight-line
method.
(k) To reclassify OrNda's amortization of capitalized financing costs to
interest expense in accordance with Tenet's accounting policy.
(l) To reflect additional interest expense for the periods prior to the
acquisitions described in Note (h) above ($26.3 million for the year ended
August 31, 1996 and $6.3 million and $18.9 million for the six months ended
November 30, 1996 and 1995, respectively) on $387.4 million of borrowings
under OrNda's secured bank credit facility, based on an average historical
interest rate of 7.08%.
(m) To reflect additional interest expense for the periods prior to the
acquisitions described in Note (f) above ($16.8 million for the year ended
May 31, 1996 and $3.0 million and $11.6 million for the six months ended
November 30, 1996 and 1995, respectively) on $511.0 million of borrowings
under Tenet's credit facilities, based on an average historical interest
rate of 6.5%.
(n) To reflect the reduction in interest expense ($13.2 million for the
year ended May 31, 1996 and $9.5 million for the six months ended November
30, 1995) from the application of an aggregate of $536.1 million in net
proceeds from the sale of certain of Tenet's international assets, as
described in Note (g) above, and the $91.8 million proceeds from Hillhaven's
redemption of its Series C and Series D Preferred Stock held by Tenet, as
described in Note (p) below, to repay borrowings under its credit agreements
with an average historical interest rate of 6.5%.
(o) To adjust interest expense, including the amortization of deferred
financing costs over the term of the related indebtedness, and to reflect
income taxes at an assumed rate of 40.0% for the year ended May 31, 1996, as
follows (dollars in millions):
<TABLE>
<S> <C>
To increase interest expense to give effect to the issuance
of the Notes (aggregate principal of $1.3 billion) at a
blended interest rate of 7.83%............................ $ 105.2
To increase interest expense to give effect to anticipated
borrowings under the New Credit Facility (aggregate
principal of $1.2 billion) at an interest rate of 6.25%... 88.8
To reduce interest expense to give effect to the repurchase
of the OrNda Debt Securities (aggregate principal of
$525.0 million) and the repayment of borrowings under the
existing credit facilities of Tenet and OrNda (aggregate
principal of $2.1 billion) at a blended interest rate of
7.87%..................................................... (206.5)
---------
Net reduction in interest expense.......................... $ 12.5
---------
---------
</TABLE>
The adjustments made for the six months ended November 30, 1995 and 1996
are equal to one half of the amounts above.
(p) To reflect Vencor's acquisition of Hillhaven. Because Tenet owns
less than 20.0% of Vencor and does not have the ability to exercise
significant influence over Vencor, Tenet now accounts for its interest in
Vencor in accordance with SFAS No. 115. Tenet had accounted for its interest
in Hillhaven using the equity method of accounting for investments in
unconsolidated subsidiaries. The Unaudited Pro Forma Condensed Combined
Statements of Operations reflect adjustments made to eliminate Tenet's
equity in the earnings of Hillhaven ($7.2 million for the year ended May 31,
1996 and $7.1 million for the six months ended November 30, 1995) that had
been recognized by Tenet, as well as the dividends ($1.7 million) on the
Hillhaven Series C and Series D Preferred Stock held by Tenet prior to their
September 1995 redemption by Vencor.
31
<PAGE>
Also to reflect the dilution in Tenet's equity interest in TRC from an
approximately 25.0% interest to an approximately 13.6% interest as a result
of TRC's completion in October 1995 of an initial public offering of its
common stock. Because Tenet owned less than 20.0% of TRC's common shares
after the October 1995 stock sale by TRC, and does not have the ability to
exercise significant influence over TRC, Tenet has been accounting for its
investment in accordance with SFAS No. 115 since October 1995. Tenet's
equity in the earnings of TRC recognized under the equity method amounted to
$1.4 million for the year ended May 31, 1996 and the six months ended
November 30, 1995.
(q) To reflect the elimination of non-recurring gains on disposals of
facilities and long-term investments in the amount of $346.2 million in the
year ended May 31, 1996 and $311.9 million in the six months ended November
30, 1995.
(r) Represents the weighted average common shares and common equivalent
shares that would have been outstanding in addition to Tenet's historical
weighted average common shares as a result of the Merger.
(s) To reflect the historical operations of Lloyd Noland Hospital prior
to its acquisition by Tenet in October 1996 and the January 1997 acquisition
of North Shore Medical Center, giving effect to both transactions as if they
had occurred as of the beginning of the period.
(t) To reflect the historical operations of the following facilities
prior to their acquisition by OrNda, giving effect to the transactions as if
they had occurred as of the beginning of the period: the July 1996
acquisitions of Cypress Fairbanks Medical Center and Westside Medical
Center; the August 1996 acquisition of Centinela Hospital Medical Center;
the September 1996 acquisition of The Saint Vincent Healthcare System and
the December 1996 acquisition of the Western Medical Centers.
32
<PAGE>
SELECTED OPERATING STATISTICS
The following tables set forth certain historical operating statistics for
the domestic general hospitals operated by the Company and by OrNda for each of
the periods indicated.
TENET HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED MAY 31, NOVEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER PATIENT DAY)
<S> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA:
Number of hospitals (at end of period)......... 35 70 74 75 76
Licensed beds (at end of period)(1)............ 6,873 15,622 16,666 16,827 17,344
Net inpatient revenues......................... $ 1,568.4 $ 1,937.9 $ 3,440.4 $ 1,626.7 $ 1,742.7
Net outpatient revenues........................ $ 557.2 $ 786.3 $ 1,572.1 $ 755.3 $ 836.2
Admissions..................................... 207,868 267,868 487,601 231,866 246,774
Equivalent admissions(2)....................... 271,004 358,664 689,619 323,251 357,199
Average length of stay(3)...................... 5.6 5.6 5.6 5.5 5.4
Patient days................................... 1,154,030 1,507,865 2,710,062 1,280,367 1,342,531
Equivalent patient days(4)..................... 1,493,314 1,997,508 3,796,184 1,755,944 1,924,258
Net inpatient revenues per patient day......... $ 1,359 $ 1,285 $ 1,269 $ 1,270 $ 1,298
Net inpatient revenues per admission........... $ 7,545 $ 7,235 7056 $ 7,016 $ 7,062
Utilization of licensed beds(5)................ 46.8% 46.4% 44.9% 43.1% 42.8%
Outpatient visits.............................. 1,472,258 2,293,586 5,609,550 2,666,656 3,156,690
</TABLE>
ORNDA HEALTHCORP
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER PATIENT DAY)
<S> <C> <C> <C> <C> <C>
HISTORICAL OPERATING DATA:
Number of hospitals (at end of period)(6)...... 46 46 50 47 49
Licensed beds (at end of period)(1)............ 8,025 8,069 9,685 8,361 10,049
Net inpatient revenues......................... $ 811.8 $ 1,112.9 $ 1,299.2 $ 321.5 $ 403.8
Net outpatient revenues........................ $ 389.5 $ 615.3 $ 705.9 $ 142.4 $ 198.0
Admissions..................................... 179,085 204,204 237,669 53,275 60,628
Equivalent admissions(2)....................... 246,872 286,753 346,711 76,853 90,290
Average length of stay(3)...................... 4.9 5.3 5.0 5.1 5.2
Patient days................................... 871,938 1,076,782 1,187,421 272,185 314,830
Equivalent patient days(4)..................... 1,201,980 1,512,070 1,732,203 392,656 468,862
Net inpatient revenues per patient day......... $ 931 $ 1,034 $ 1,094 $ 1,181 $ 1,283
Net inpatient revenues per admission........... $ 4,533 $ 5,450 $ 5,466 $ 6,034 $ 6,660
Utilization of licensed beds(5)................ 35.2% 36.4% 38.1% 35.8% 34.4%
Outpatient visits.............................. 1,367,016 1,824,099 2,767,994 569,911 830,027
</TABLE>
- ------------------------
(1) Aggregate number of beds at the end of the period that a facility has been
granted approval to operate from the appropriate state licensing agency.
(2) Equivalent admissions represents actual admissions adjusted to include
outpatient and emergency room services by multiplying actual admissions by
the sum of gross inpatient revenue and gross outpatient revenue and dividing
the result by gross inpatient revenue.
(3) Represents patient days divided by admissions.
(4) Equivalent patient days represents actual patient days adjusted to include
outpatient and emergency room services by multiplying actual patient days by
the sum of gross inpatient revenue and gross outpatient revenue and dividing
the result by gross inpatient revenue.
(5) Represents average daily census for the period divided by the average number
of licensed beds during the period.
(6) In all periods presented includes one psychiatric hospital.
33
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF TENET
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
The following tables set forth selected historical financial information for
Tenet for each of the fiscal years in the five-year period ended May 31, 1996
and for the six months ended November 30, 1995 and 1996. The selected financial
information for each of the five fiscal years has been derived from the
consolidated financial statements of Tenet, which have been audited by KPMG Peat
Marwick LLP, independent auditors for Tenet, and from the underlying accounting
records of Tenet. The report of KPMG Peat Marwick LLP covering the consolidated
financial statements of Tenet refers to a change in the method of accounting for
income taxes in 1994. The selected financial information for the six-month
periods has been derived from unaudited condensed consolidated financial
statements of Tenet and reflects all adjustments (consisting of normal recurring
adjustments) that, in the opinion of the management of Tenet, are necessary for
a fair presentation of such information. Operating results for the six months
ended November 30, 1996 are not necessarily indicative of the results that may
be expected for fiscal 1997.
All information included in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Tenet" and with the condensed consolidated
financial statements and related notes of Tenet included herein. Certain amounts
derived from the consolidated statements of operations have been reclassified to
conform with the presentation below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
----------------------------------------------------- --------------------
1992 1993(2) 1994 1995(3) 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:(1)(4)
Net operating revenues.................... $ 2,934.3 $ 3,178.2 $ 2,943.2 $ 3,318.4 $ 5,558.5 $ 2,654.8 $ 2,914.7
Operating expenses:
Salaries and benefits................... 1,328.1 1,464.8 1,293.4 1,366.8 2,194.3 1,046.9 1,150.1
Supplies................................ 318.9 349.2 339.4 431.5 764.2 364.7 395.1
Provision for doubtful accounts......... 123.1 114.6 107.0 137.5 289.7 137.0 153.2
Other operating expenses................ 616.5 689.1 666.5 759.2 1,212.1 578.3 641.9
Depreciation............................ 122.4 141.8 142.7 164.4 239.9 122.7 127.0
Amortization............................ 18.4 18.6 18.1 30.6 80.4 40.0 42.6
Restructuring charges(5)................ 17.9 51.6 77.0 36.9 -- -- --
Impairment losses(6).................... -- -- -- -- 85.9 -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income.......................... 389.0 348.5 299.1 391.5 692.0 365.2 404.8
Interest expense, net of capitalized
portion................................. (89.4) (75.3) (70.0) (138.1) (311.9) (158.4) (141.1)
Investment earnings....................... 28.7 21.1 27.7 27.5 22.3 12.7 10.3
Equity in earnings of unconsolidated
affiliates.............................. 6.7 12.5 23.8 28.4 19.4 14.0 1.3
Minority interest expense................. (6.8) (10.0) (8.2) (9.4) (22.0) (10.6) (10.1)
Net gain on disposals of facilities and
long-term investments(7)................ 31.0 121.8 87.5 29.5 346.2 311.9 --
--------- --------- --------- --------- --------- --------- ---------
Income from continuing operations before
income taxes............................ 359.2 418.6 359.9 329.4 746.0 534.8 265.2
Taxes on income........................... (141.0) (155.0) (144.0) (135.0) (347.7) (233.7) (116.0)
--------- --------- --------- --------- --------- --------- ---------
Income from continuing operations......... $ 218.2 $ 263.6 $ 215.9 $ 194.4 $ 398.3 $ 301.1 $ 149.2
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per common share from continuing
operations, fully diluted............... $ 1.19 $ 1.49 $ 1.23 $ 1.06 $ 1.86 $ 1.41 $ 0.68
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cash dividends per common share........... $ 0.46 $ 0.48 $ 0.12 -- -- -- --
Ratio of earnings to fixed charges(8)..... 3.5x 4.3x 4.2x 2.7x 2.9x 3.7x 2.5x
<CAPTION>
AS OF MAY 31, AS OF NOVEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit)................. $ 223.9 $ 155.9 $ (196.3) $ 267.1 $ 410.4 $ 275.9 $ 690.9
Total assets.............................. 4,236.4 4,173.4 3,697.0 7,918.4 8,332.4 8,140.5 8,572.5
Long-term debt, excluding current
portion................................. 1,066.2 892.4 223.1 3,273.4 3,191.1 3,254.9 3,332.5
Shareholders' equity...................... 1,674.0 1,752.1 1,319.9 1,986.1 2,636.2 2,355.0 2,846.2
</TABLE>
34
<PAGE>
- ------------------------------
(1) Results of operations for all periods presented exclude Tenet's former
psychiatric division which was discontinued as of November 30, 1993, but
include, through the dates of their divestitures, other divested businesses
that were not classified as discontinued operations.
(2) Results of operations for periods prior to April 1993 include, on a
consolidated basis, the results of Westminster, the ownership of which was
reduced from approximately 90% to 42% in April 1993 through a public
offering of Westminster common stock.
(3) On March 1, 1995, Tenet acquired, in a transaction accounted for as a
purchase, all the outstanding common stock of AMH for $1.5 billion in cash
and 33.2 million shares of Tenet's Common Stock valued at approximately
$488.0 million (the "AMH Merger").
(4) Results of operations for the periods presented include the results, through
the respective dates of sale, of (i) the fiscal 1994 sale of 29 inpatient
rehabilitation hospitals and 45 related satellite outpatient clinics; (ii)
the fiscal 1994 sale to Hillhaven of 23 long-term care facilities; (iii) the
August 1994 sale of an approximately 75% interest in TRC; (iv) the June 1995
sale of two hospitals and related healthcare businesses in Singapore; (v)
the October 1995 sales of its interest in AME and its equity interest in a
hospital in Malaysia; (vi) the February 1996 sale of its equity interest in
a hospital in Thailand and (vii) the May 1996 sale of its equity interest in
Westminster. See Notes (g) and (p) of notes to the unaudited pro forma
financial information.
(5) The restructuring charges for fiscal 1992 and fiscal 1993 relate to the
combination of Tenet's rehabilitation hospital division into its general
hospital division, a corporate overhead reduction program begun in April
1993 and severance costs incurred in connection with a change in senior
executive management. The restructuring charges for fiscal 1994 relate to a
plan initiated by Tenet in April 1994 to significantly decrease overhead
costs by reducing corporate and division staffing levels and selling Tenet's
corporate headquarters building in Santa Monica, California. The
restructuring charges for fiscal 1995 relate to severance payments and
outplacement services for involuntary terminations of former employees and
other related costs in connection with Tenet's relocation of substantially
all of its hospital support activities previously located in southern
California and Florida to new offices in Dallas, Texas following the AMH
Merger.
(6) The impairment losses for fiscal 1996 relate to three rehabilitation
hospitals, four general hospitals and a parcel of undeveloped land.
(7) The net after-tax effect of the gains from disposals of facilities and
long-term investments was $181.1 million or $0.84 per share, fully diluted,
for the year ended May 31, 1996 and $124.3 million or $0.82 per share, fully
diluted, for the six months ended November 30, 1995.
(8) The ratio of earnings to fixed charges is calculated by dividing income from
continuing operations before income taxes plus fixed charges by fixed
charges. Fixed charges consist of interest expense, including amortization
of financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TENET
Unless otherwise expressly indicated, all references to years are to fiscal
years, and all note references are to the accompanying notes to Consolidated
Financial Statements.
IMPACT OF THE MERGER
On October 16, 1996, Tenet and OrNda entered into the Merger Agreement,
pursuant to which OrNda will become a wholly owned subsidiary of Tenet in a
transaction to be accounted for as a pooling of interests. Under the terms of
the Merger Agreement, each share of OrNda Common Stock outstanding immediately
prior to the Effective Time of the Merger will be converted into the right to
receive 1.35 shares of Tenet Common Stock and the associated Rights issued in
accordance with the Rights Agreement. In connection with the consummation of the
Merger, the Company has registered for issuance approximately 85.9 million
shares of its common stock to OrNda stockholders. The Merger is expected to
close in late January, 1997.
Tenet's subsidiaries operated 76 general hospitals and OrNda's subsidiaries
operated 49 general hospitals at November 30, 1996. Management believes that
joining together Tenet's general hospitals and related healthcare operations
with OrNda's general hospitals and related healthcare operations will create a
stronger, more geographically diverse company that will be better able to
compete in certain key geographic areas, such as south Florida and southern
California, and to grow through strategic acquisitions and partnerships. The
healthcare industry has undergone, and continues to undergo, tremendous change,
including cost-containment pressures by government payors, managed care
providers and others, as well as technological advances that require increased
capital expenditures. The combined company will continue to emphasize the
creation of strong integrated healthcare delivery systems. The Merger is
expected to enable the combined company to realize certain cost savings. No
assurances can be made as to the amount of cost savings, if any, that actually
will be recognized.
Following the Merger, the Company believes that its primary liquidity needs
will consist of capital expenditures, debt service and working capital.
Estimated capital expenditures for the combined entity are expected to be
approximately $500 million per year for each of the next three fiscal years. The
Company believes that cash generated by operations and amounts available under
the New Credit Facility will be sufficient to meet its liquidity needs over the
short term (up to 18 months) and the long term (18 months to three years). The
Company's strategy includes the pursuit of growth through strategic acquisitions
and partnerships, including the development of integrated healthcare delivery
systems in selected geographic areas. All or a portion of such acquisitions may
be financed through cash generated by operations, available credit under the New
Credit Facility or by accessing the capital markets. At the closing of the
Merger, the Company expects to have significant unused borrowing capacity under
the New Credit Facility. The New Credit Facility and the Notes will include
various affirmative, negative and financial covenants with which the Company
must comply, including among others, a requirement to maintain certain financial
ratios and limitations on the Company's ability to incur additional
indebtedness. In addition, the New Credit Facility will prohibit dividends and
stock repurchases prior to Tenet's senior long-term unsecured debt being rated
investment grade by Moody's (as defined herein) and S&P (as defined herein).
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO THREE MONTHS
AND SIX MONTHS ENDED NOVEMBER 30, 1995.
Income before income taxes was $305.9 million in the quarter ended November
30, 1995, compared with $136.8 million in the current year quarter. The
prior-year quarter includes pre-tax net gains on disposals of assets of $188.4
million (approximately $.54 per share net of taxes, on a fully diluted basis).
Income before income taxes was $534.8 million in the six months ended November
30, 1995, compared with $265.2 million for the current six-month period. The
prior-year six-month results include pre-tax net gains on disposals of assets of
$311.9 million (approximately $.82 per share net of taxes, on a fully diluted
36
<PAGE>
basis). Excluding these gains, pre-tax income for the six months ended November
30, 1995 was $222.9 million.
The following is a summary of operations for the three months and six months
ended November 30, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
----------------------------------------------
1995 1996 1995 1996
--------- --------- ----------- -----------
(DOLLARS IN (% OF NET OPERATING
MILLIONS) REVENUES)
<S> <C> <C> <C> <C>
NET OPERATING REVENUES:
Domestic general hospitals............................. $ 1,264.8 $ 1,342.1 92.3% 90.9%
Other domestic operations(1)........................... 89.5 134.0 6.5 9.1
International operations............................... 16.6 -- 1.2 --
--------- --------- ----- -----
Net operating revenues................................. 1,370.9 1,476.1 100.0% 100.0%
--------- --------- ----- -----
OPERATING EXPENSES:
Salaries and benefits.................................. (544.7) (581.4) 39.7 39.4
Supplies............................................... (186.0) (204.1) 13.6 13.8
Provision for doubtful accounts........................ (69.7) (78.7) 5.1 5.3
Other operating expenses............................... (296.7) (320.2) 21.6 21.7
Depreciation........................................... (61.3) (63.8) 4.5 4.3
Amortization........................................... (21.2) (21.7) 1.5 1.5
--------- --------- ----- -----
Operating income....................................... $ 191.3 $ 206.2 14.0% 14.0%
--------- --------- ----- -----
--------- --------- ----- -----
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30,
----------------------------------------------
1995 1996 1995 1996
--------- --------- ----------- -----------
(DOLLARS IN (% OF NET OPERATING
MILLIONS) REVENUES)
<S> <C> <C> <C> <C>
NET OPERATING REVENUES:
Domestic general hospitals............................. $ 2,440.0 $ 2,631.4 91.9% 90.3%
Other domestic operations(1)........................... 164.3 283.3 6.2 9.7
International operations............................... 50.5 -- 1.9 --
--------- --------- ----- -----
Net operating revenues................................. 2,654.8 2,914.7 100.0% 100.0%
--------- --------- ----- -----
OPERATING EXPENSES:
Salaries and benefits.................................. (1,046.9) (1,150.1) 39.4 39.5
Supplies............................................... (364.7) (395.1) 13.7 13.5
Provision for doubtful accounts........................ (137.0) (153.2) 5.2 5.3
Other operating expenses............................... (578.3) (641.9) 21.8 22.0
Depreciation........................................... (122.7) (127.0) 4.6 4.3
Amortization........................................... (40.0) (42.6) 1.5 1.5
--------- --------- ----- -----
Operating income....................................... $ 365.2 $ 404.8 13.8% 13.9%
--------- --------- ----- -----
--------- --------- ----- -----
</TABLE>
- ------------------------------
(1) Net operating revenues of other domestic operations consist primarily of
revenues from (i) physician practices; (ii) the Company's rehabilitation
hospitals, long-term care facilities and psychiatric hospitals that are
located on or near the same campuses as the Company's general hospitals;
(iii) healthcare joint ventures operated by the Company; (iv) subsidiaries
of the Company offering health maintenance organizations, preferred provider
organizations and indemnity products; and (v) revenues earned by the Company
in consideration of the guarantees of certain indebtedness and leases of
third parties.
Operating income increased by $39.6 million (or 10.8%) to $404.8 million for
the six months ended November 30, 1996 from $365.2 million for the prior year
six-month period. The operating margin for the current six-month period
increased to 13.9% from 13.8% a year ago.
37
<PAGE>
The table below sets forth certain selected historical operating statistics
for the Company's domestic general hospitals.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,
-------------------------------------------- --------------------------------------------
INCREASE INCREASE
1995 1996 (DECREASE) 1995 1996 (DECREASE)
------------- ------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Number of hospitals (at end of
period)............................ 75 76 1* 75 76 1*
Licensed beds (at end of period).... 16,827 17,344 3.1% 16,827 17,344 3.1%
Net inpatient revenues (in
millions).......................... $ 839.4 $ 884.5 5.4% $ 1,626.7 $ 1,742.7 7.1%
Net outpatient revenues (in
millions).......................... $ 390.0 $ 425.7 9.2% $ 755.3 $ 836.2 10.7%
Admissions.......................... 120,363 124,564 3.5% 231,866 246,774 6.4%
Equivalent admissions............... 166,564 179,602 7.8% 323,251 357,199 10.5%
Average length of stay (days)....... 5.5 5.4 (0.1)* 5.5 5.4 (0.1)*
Patient days........................ 661,141 677,525 2.5% 1,280,367 1,342,531 4.9%
Equivalent patient days............. 894,989 968,680 8.2% 1,755,944 1,924,258 9.6%
Net inpatient revenue per patient
day................................ $ 1,270 $ 1,305 2.8% $ 1,270 $ 1,298 2.2%
Net inpatient revenue per
admission.......................... $ 6,974 $ 7,101 1.8% $ 7,016 $ 7,062 0.7%
Utilization of licensed beds........ 43.4% 43.2% (0.2)%* 43.1% 42.8% (0.3)%*
Outpatient visits................... 1,387,899 1,615,945 16.4% 2,666,656 3,156,690 18.4%
</TABLE>
- ------------------------------
* The change is the difference between 1995 and 1996 amounts shown.
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals on a same-store basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,
-------------------------------------------- --------------------------------------------
INCREASE INCREASE
1995 1996 (DECREASE) 1995 1996 (DECREASE)
------------- ------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Number of hospitals................. 69 69 -- 69 69 --
Average licensed beds............... 15,282 15,268 (0.1 )% 15,285 15,269 (0.1 )%
Patient days........................ 606,616 608,787 0.4 % 1,211,416 1,207,608 (0.3 )%
Net inpatient revenue per patient
day................................ $ 1,305 $ 1,326 1.6 % $ 1,290 $ 1,317 2.1 %
Admissions.......................... 111,158 111,756 0.5 % 220,534 221,961 0.6 %
Net inpatient revenue per
admission.......................... $ 7,122 $ 7,221 1.4 % $ 7,085 $ 7,167 1.2 %
Outpatient visits................... 1,293,724 1,438,239 11.2 % 2,545,430 2,829,764 11.2 %
Average length of stay (days)....... 5.5 5.4 (0.1 )* 5.5 5.4 (0.1 )*
</TABLE>
- ------------------------------
* The change is the difference between 1995 and 1996 amounts shown.
There continue to be increases in inpatient acuity and intensity as less
intensive services shift from inpatient to outpatient settings or to alternative
healthcare delivery services because of technological improvements and continued
pressures by payors to reduce admissions and lengths of stay.
The Medicare program accounted for 38.4% of the net patient revenues of the
Company's domestic general hospitals for the quarter and six months ended
November 30, 1995, compared with 41.7% and 40.0% for the quarter and six months
ended November 30, 1996, 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 presently are 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.
The Company has implemented hospital cost-control programs and overhead
reductions and is forming integrated healthcare delivery systems to address the
prospect of reduced payments. Pressures to
38
<PAGE>
control healthcare costs have resulted in an increase in the percentage of
revenues attributable to managed care payors. The Company anticipates that its
managed care business will 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, average lengths of
stay and occupancy rates continue 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 was
$89.5 million for the three months ended November 30, 1995, compared to $134.0
million for the three months ended November 30, 1996, representing an increase
of $44.5 million. Net operating revenues for the six months ended November 30,
1995 were $164.3 million, compared with $283.3 million for the current year
six-month period, representing an increase of $119.0 million. This increase
primarily reflects continued growth of physician practices and National Health
Plans, the Company's HMO and insurance subsidiary.
Net operating revenues from the Company's former international operations
were $16.6 million and $50.5 million for the quarter and six months ended
November 30, 1995, respectively. During and subsequent to the August 31, 1995
fiscal quarter, the Company sold all of its interests in hospitals and related
healthcare businesses in Singapore, Malaysia, Thailand and Australia.
Operating expenses, which include salaries and benefits, supplies, provision
for doubtful accounts, depreciation and amortization, and other operating
expenses, were $1,179.6 million for the quarter ended November 30, 1995 and
$1,269.9 million for the current year quarter. Operating expenses for the prior
and current year six months ended November 30, 1995 and 1996 were $2,289.6
million and $2,509.9 million, respectively. Operating margins for the prior and
current year quarters ended November 30, 1995 and 1996 were 14.0%. Operating
margins for the prior and current year six-month periods were 13.8% and 13.9%,
respectively.
Salaries and benefits expense as a percentage of net operating revenues was
39.7% in the quarter ended November 30, 1995 and 39.4% in the three months ended
November 30, 1996. Salaries and benefits expense as a percentage of net
operating revenues for the prior and current six-month periods were 39.4% and
39.5%, respectively. These improvements resulted from the cost reduction efforts
discussed earlier herein.
Supplies expense as a percentage of net operating revenues was 13.6% in the
quarter ended November 30, 1995 and 13.8% in the three months ended November 30,
1996. Supplies expense as a percentage of net operating revenues for the prior
and current six-month periods were 13.7% and 13.5%, respectively.
The provision for doubtful accounts as a percentage of net operating
revenues was 5.1% for the quarter ended November 30, 1995, and 5.3% in the three
months ended November 30, 1996. The provision for doubtful accounts as a
percentage of net operating revenues for the prior and current six-month periods
were 5.2% and 5.3%, respectively. The increases primarily related to new
acquisitions.
Other operating expenses as a percentage of net operating revenues was 21.6%
for the quarter ended November 30, 1995 and 21.7% in the three months ended
November 30, 1996. Other operating expenses as a percentage of net operating
revenues for the prior and current year six-month periods were 21.8% and 22.0%,
respectively.
Depreciation and amortization expense as a percentage of net operating
revenues was 6.0% in the quarter ended November 30, 1995 and 5.8% in the three
months ended November 30, 1996. Depreciation and amortization expense as a
percentage of net operating revenues for the prior and current six-month periods
were 6.1% and 5.8%, respectively.
39
<PAGE>
Interest expense, net of capitalized interest, was $81.3 million in the
quarter ended November 30, 1995 and $70.1 million in the three months ended
November 30, 1996. Interest expense, net of capitalized interest, for the prior
and current six-month periods was $158.4 million and $141.1 million,
respectively. The reduction is due to lower borrowings and interest rates in the
quarter and six months ended November 30, 1996.
Investment earnings were $5.4 million in the quarter ended November 30, 1995
and $5.5 million in the three months ended November 30, 1996. Investment
earnings for the prior and current six-month periods were $12.7 million and
$10.3 million, respectively. Investment earnings are derived primarily from
notes receivable and investments in debt and equity securities.
Equity in earnings of unconsolidated affiliates was $7.1 million in the
quarter ended November 30, 1995 and $0.7 million in the three months ended
November 30, 1996. Equity in earnings of unconsolidated affiliates for the prior
and current year six-month periods was $14.0 million and $1.3 million,
respectively. The prior year quarter and six-month period included $6.2 million
and $12.3 million, respectively, in earnings from two unconsolidated affiliates
that were sold during fiscal 1996 and two that are no longer accounted for on
the equity method of accounting because the Company's ownership interest has
been reduced below 20%. These latter two investments now are carried in the
Company's balance sheet at their fair value.
Minority interests in the income of consolidated subsidiaries was $5.0
million during the quarter ended November 30, 1995, compared to $5.5 million in
the three months ended November 30, 1996. Minority interests in the income of
consolidated subsidiaries for the prior and current year six-month periods was
$10.6 million and $10.1 million, respectively.
Taxes on income as a percentage of income before income taxes were 43.7% in
the six months ended November 30, 1995 and 1996. The difference between the
Company's effective income tax rate and the statutory federal income tax rate is
shown below:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------------------------------
1995 1996
----------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------------ --------- -----------
(IN MILLIONS OF DOLLARS AND AS A
PERCENT OF PRETAX INCOME)
<S> <C> <C> <C> <C>
Tax provision at statutory federal rate................................... $ 187.2 35.0% $ 92.8 35.0%
State income taxes, net of federal income tax benefit..................... 19.7 3.7 10.9 4.1
Goodwill amortization..................................................... 10.9 2.0 11.4 4.3
Gains on sales of foreign subsidiary's assets............................. 16.3 3.1 -- --
Other..................................................................... (0.4) (0.1) 0.9 0.3
--------- --- --------- ---
Taxes on income and effective tax rates................................... $ 233.7 43.7% $ 116.0 43.7%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Amortization of the goodwill resulting from the Company's March 1995
acquisition of AMH of approximately $32.0 million ($0.15 per share) for the six
months ended November 30, 1996 is a noncash charge and provides no income tax
benefits.
FISCAL YEARS ENDED MAY 31, 1996, 1995 AND 1994
On March 1, 1995, in a transaction accounted for as a purchase, the Company
acquired AMH for $1.5 billion in cash and 33.2 million shares of the Company's
common stock valued at approximately $488.0 million. In connection with the AMH
Merger, the Company also repaid $1.8 billion of debt. The acquisition and debt
retirements were financed by borrowings under Tenet's then existing credit
agreement and the public issuance of $1.2 billion in new debt securities.
Prior to the AMH 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 its general hospital campuses. With the AMH Merger, the Company acquired 37
domestic general hospitals with 8,831 beds, bringing its total number of
domestic general hospitals to
40
<PAGE>
70 hospitals with 15,451 licensed 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 AMH Merger 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 $60.0 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.
The Company's 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 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>
1994 1995 1996
--------- --------- ---------
(DOLLARS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Gain (loss) on sales of facilities and long-term investments............. $ 88 $ (2) $ 329
Gain on sales of subsidiary's common stock............................... -- 32 17
Impairment losses........................................................ -- -- (86)
Restructuring charges.................................................... (77) (37) --
--------- --- ---------
Net unusual pretax items (after tax-$0.04 fully diluted per share in
1994, ($0.03) in 1995 and $0.59 in 1996)................................ $ 11 $ (7) $ 260
--------- --- ---------
--------- --- ---------
</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.
41
<PAGE>
The following is a summary of continuing operations revenues for the past
three fiscal years:
<TABLE>
<CAPTION>
1994 1995 1996 1994 1995 1996
--------- --------- --------- ----------- ----------- -----------
(DOLLARS IN MILLIONS) (% OF NET OPERATING REVENUES)
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUES:
Domestic general hospitals........... $ 2,133 $ 2,777 $ 5,133 72.5% 83.7% 92.3%
Other domestic operations(1)......... 275 310 375 9.4 9.3 6.8
International operations............. 175 214 51 5.9 6.5 0.9
Divested operations(2)............... 360 17 -- 12.2 0.5 --
--------- --------- --------- ----- ----- -----
$ 2,943 $ 3,318 $ 5,559 100.0% 100.0% 100.0%
--------- --------- --------- ----- ----- -----
OPERATING EXPENSES:
Salaries and benefits................ $ (1,293) $ (1,367) $ (2,194) 43.9% 41.2% 39.5%
Supplies............................. (339) (432) (764) 11.5 13.0 13.7
Provision for doubtful accounts...... (107) (137) (290) 3.6 4.1 5.2
Other operating expenses............. (667) (759) (1,212) 22.7 22.9 21.8
Depreciation......................... (143) (164) (240) 4.9 5.0 4.3
Amortization......................... (18) (31) (81) 0.6 0.9 1.5
Impairment losses.................... -- -- (86) -- -- 1.6
Restructuring charges................ (77) (37) -- 2.6 1.1 --
--------- --------- --------- ----- ----- -----
Operating income....................... $ 299 $ 391 $ 692 10.2% 11.8% 12.4%
--------- --------- --------- ----- ----- -----
--------- --------- --------- ----- ----- -----
</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 Rehabilitation
Corporation in January and March of 1994; and (iii) 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.
42
<PAGE>
The table below sets forth certain selected historical operating statistics
for the Company's domestic general hospitals:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
---------------
1994 1995 1996 1995 TO 1996
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
DOMESTIC GENERAL HOSPITALS OPERATING DATA:
Number of hospitals (at end of period).................... 35 70 74 4
Licensed beds (at end of period).......................... 6,873 15,622 16,666 6.7%
Net inpatient revenues (in millions)...................... $ 1,568.4 $ 1,937.9 $ 3,440.4 77.5%
Net outpatient revenues (in millions)..................... $ 557.2 $ 786.3 $ 1,572.1 100.0%
Admissions................................................ 207,868 267,868 487,601 82.0%
Equivalent admissions..................................... 271,004 358,664 689,619 92.3%
Average length of stay (days)............................. 5.6 5.6 5.6 --
Patient days.............................................. 1,154,030 1,507,865 2,710,062 79.7%
Equivalent patient days................................... 1,493,314 1,997,508 3,796,184 90.0%
Net inpatient revenues per patient day.................... $ 1,359 $ 1,285 $ 1,269 (1.2)%
Utilization of licensed beds.............................. 46.8% 46.4% 44.9% (1.5)%*
Outpatient visits......................................... 1,472,258 2,293,586 5,609,550 144.6%
</TABLE>
- ------------------------------
* The change is the difference between the 1995 and 1996 amounts 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>
INCREASE
(DECREASE)
1995 1996 1995 TO 1996
------------ ------------ ---------------
<S> <C> <C> <C>
Number of hospitals..................................................... 68 68
Average licensed beds................................................... 15,227 15,218 (0.1)%
Patient days............................................................ 2,533,785 2,506,668 (1.1)%
Net inpatient revenues per patient per day.............................. $ 1,245 $ 1,282 3.0%
Admissions.............................................................. 441,310 451,134 2.2%
Net inpatient revenues per admission.................................... $ 7,149 $ 7,125 (0.3)%
Outpatient visits....................................................... 4,231,726 5,225,621 23.5%
Average length of stay (days)........................................... 5.7 5.6 (0.1)*
</TABLE>
- ------------------------------
* The change is the difference between the 1995 and 1996 amounts 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.
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
43
<PAGE>
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 was
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 Systems ("SOS"), 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.
44
<PAGE>
Impairment losses representing noncash 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 AMH 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 AMH Merger is a noncash
charge but provides no income tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity has been derived principally from the cash proceeds
of operating activities, borrowings under the Company's unsecured revolving bank
credit agreement and, for the year ended May 31, 1996, from disposals of assets
and investments, the public issuance of debt securities, realization of tax
benefits associated with losses from its discontinued psychiatric business and
proceeds from the exercises of performance investment plan options. During the
six months ended November 30, 1996, net cash used in operating activities was
$14.2 million after expenditures of $30.0 million for discontinued operations
and restructuring charges. For the prior year six-month period, net cash
provided by operating activities was $11.1 million after expenditures of $73.4
million for discontinued operations and restructuring charges. Net cash provided
by operating activities for the year ended May 31, 1996 was $195.0 million after
net expenditures of $97.0 million for discontinued operations and restructuring
charges. Cash flows from operating activities during the six months ended
November 30, 1996 were adversely affected primarily because of (i) billing
delays due to conversions of patient accounting systems at several hospitals;
(ii) delays in cash flows at recently acquired facilities where accounts
receivable were not purchased; (iii) temporary slowdowns in the collection of
Medicare receivables due to changes in fiscal intermediaries for recently
acquired facilities; and (iv) a general slowdown of payments received from other
payors. Management
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<PAGE>
believes that cash flow from operating activities in the future will return to
the Company's historically positive levels. The Company's liquidity, along with
the availability of credit under the Company's unsecured revolving bank credit
agreement, should be adequate to meet debt service requirements and to finance
planned capital expenditures, acquisitions 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 November 30, 1996 were $56.8
million, a decrease of $32.4 million from May 31, 1996. The ratio of total debt
to equity was 1.2 to 1.0 at November 30, 1996 and May 31, 1996. Working capital
at November 30, 1996 was $690.9 million, compared to $410.3 million at May 31,
1996. At November 30, 1996 the current portion of long-term debt was $41.6
million compared to $60.0 million at May 31, 1996.
Cash proceeds from the sale of property and equipment in the six months
ended November 30, 1996 were $40.3 million, primarily from the sale of the
Company's former corporate headquarters building in Santa Monica, California.
Proceeds from the sales of facilities, investments and other assets were $548.0
million in the year ended May 31, 1996. During 1996 the Company sold its two
hospitals and related businesses in Singapore, its interests in a hospital in
Malaysia and in a hospital in Thailand and its interest in a company owning nine
hospitals and a pathology business in Australia. The net cash proceeds from all
of these sales aggregated approximately $324.0 million. In May 1996 the Company
sold its interest in Westminster for approximately $120.0 million. Also during
1996, the Company received $91.8 million for the redemption of its Hillhaven
preferred stock.
Cash payments for property and equipment were $95.4 million in the six
months ended November 30, 1996, compared to $160.5 million in the six months
ended November 30, 1995. They were $370.0 million in the year ended May 31, 1996
and $264.0 million in 1995. Capital expenditures for the Company, before any
significant acquisitions of facilities and other healthcare operations, are
expected to be approximately $300.0 million to $400.0 annually. Such capital
expenditures relate primarily to the development of healthcare services networks
in selected geographic areas, design and construction of new buildings,
expansion and renovation of existing facilities, equipment additions and
replacements, introduction of new medical technologies and various other capital
improvements.
During fiscal 1996, the Company spent $410.0 million for purchases of new
businesses. These included six general hospitals (or interests in hospitals) and
a number of physician practices. During the six months ended November 30, 1996,
the Company spent $159.7 million for purchases of new business. These included
two general hospitals and a number of physician practices.
BUSINESS OUTLOOK
The challenge facing the Company and the healthcare industry as a whole is
to continue to provide quality patient care in an environment of rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and public payors. Because of national, state and private
industry efforts to reform healthcare delivery and payment systems, the
healthcare industry faces increased uncertainty. The Company is unable to
predict whether any healthcare legislation at the federal 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.
46
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF ORNDA
ORNDA HEALTHCORP AND SUBSIDIARIES
The following tables set forth selected historical financial information for
OrNda for each of the fiscal years in the five-year period ended August 31, 1996
and for the three months ended November 30, 1995 and 1996. The selected
financial information for each of the five annual periods has been derived from
the audited consolidated financial statements of OrNda, which have been audited
by Ernst & Young LLP, independent auditors for OrNda, and from the underlying
accounting records of OrNda. The selected financial information for the
three-month periods has been derived from unaudited condensed consolidated
financial statements of OrNda and reflects all adjustments (consisting of normal
recurring adjustments) that, in the opinion of the management of OrNda, are
necessary for a fair presentation of such information. Operating results for the
three months ended November 30, 1996 are not necessarily indicative of the
results that may be expected for fiscal 1997.
All information included in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of OrNda" and with the audited consolidated financial
statements and related notes of OrNda included herein. Certain amounts derived
from the consolidated statements of operations have been reclassified to conform
with the presentation below.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NOVEMBER 30,
YEAR ENDED AUGUST 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues......................... $ 808.5 $ 961.8 $ 1,274.4 $ 1,842.7 $ 2,147.2 $ 493.6 $ 637.1
Operating expenses:
Salaries and benefits........................ 393.7 443.0 574.2 803.1 935.4 210.4 291.8
Supplies..................................... 101.5 112.5 158.9 236.2 291.6 64.9 87.9
Provision for doubtful accounts.............. 52.4 63.9 86.2 122.2 141.8 33.2 32.7
Other operating expenses..................... 179.0 210.3 275.6 419.2 434.0 112.2 123.5
Depreciation................................. 35.6 43.3 56.4 67.9 78.9 17.8 24.4
Amortization................................. 4.4 4.4 10.4 17.3 24.9 5.6 7.3
Merger transaction expenses(1)............... -- -- 30.0 -- -- -- --
Restructuring charges(2)..................... 13.0 -- 2.5 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income............................... 28.9 84.4 80.2 176.8 240.6 49.5 69.5
Interest expense, net of capitalized portion... (40.2) (68.7) (83.4) (109.1) (107.2) (27.2) (30.6)
Interest income................................ 3.2 3.4 2.9 4.6 4.4 1.2 1.2
Equity in earnings of unconsolidated
affiliates(3)................................ (8.2) 0.2 3.6 14.0 5.1 3.8 --
Minority interest expense...................... (7.6) (4.6) (4.0) (0.2) (7.8) (1.4) (2.3)
Net gain (loss) on disposals of facilities and
long-term investments........................ (44.9) -- (45.3) 1.0 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes................................. (68.8) 14.7 (46.0) 87.1 135.1 25.9 37.8
Taxes on income................................ 1.3 1.1 1.0 15.8 35.2 6.0 11.3
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations....... $ (70.1) $ 13.6 $ (47.0) $ 71.3 $ 99.9 $ 19.9 $ 26.5
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per common share from
continuing operations, fully diluted(4)...... $ (2.32) $ 0.34 $ (1.29) $ 1.51 $ 1.72 $ 0.39 $ 0.44
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cash dividends per common share................ -- -- -- -- -- -- --
Ratio of earnings to fixed charges(5).......... -- 1.2x 0.5x 1.6x 2.0x 1.7x 2.0x
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
AS OF AUGUST 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 46.7 $ 26.2 $ 6.8 $ 5.4 $ 88.1 $ 184.7 $ 138.1
Total assets.................................. 994.4 1,205.1 1,846.5 1,946.4 2,466.5 2,107.9 2,612.2
Long-term debt, excluding current portion..... 571.0 705.4 1,067.1 1,013.4 1,229.9 996.7 1,334.9
Shareholders' equity.......................... 185.9 212.1 328.1 393.1 640.4 601.3 674.2
</TABLE>
47
<PAGE>
- ------------------------------
(1) Merger transaction expenses for fiscal 1994 relate to the merger with
American Healthcare Management Inc. ("American Healthcare") on April 19,
1994.
(2) The restructuring charges for fiscal 1992 include $6.1 million for special
executive compensation related to the employment of Charles N. Martin, Jr.,
OrNda's Chairman, President and Chief Executive Officer, and $6.9 million
related to employee severance and relocation expenses related to relocating
the corporate office from Dallas, Texas to Nashville, Tennessee.
Restructuring charges for fiscal 1994 relate to $2.5 million of special
executive compensation related to the issuance of options to purchase stock
to certain executives at prices below market.
(3) HNW is a 498-bed acute care facility located in Houston Texas. Effective
January 1, 1996, OrNda purchased the controlling equity interests in HNW.
Prior to January 1996, OrNda's investments in HNW consisted of (i) two
classes of mandatorily redeemable preferred stock; (ii) a mortgage note
receivable; and, (iii) prior to February 28, 1994, an investment in HNW's
common stock. In applying the equity method of accounting for the investment
prior to February 28, 1994, OrNda's investment in mandatorily redeemable
preferred stock of HNW was considered an advance to HNW and was combined
with the common stock. As a result, 100% of HNW's losses attributable to its
common stock were recognized as losses to OrNda and reduced OrNda's combined
investments in HNW. On February 28, 1994, OrNda irrevocably transferred its
investment in common stock of HNW to the HNW Employee Stock Ownership Plan
and HNW for nominal consideration. The effect of this transfer eliminated
the requirement for OrNda to apply the equity method of accounting
subsequent to February 28, 1994. Beginning March 1, 1994, OrNda's method of
income recognition for its investments in HNW's mandatorily redeemable
preferred stock was accretion of the HNW mandatorily redeemable preferred
stock, recognition of cash dividends paid by HNW and accrual of cumulative,
compounded, mandatorily redeemable dividend not paid by HNW.
(4) Per share information for the years ended August 31, 1992, 1993 and 1994 is
based on primary shares because earnings per share assuming full dilution is
anti-dilutive.
(5) The ratio of earnings to fixed charges is calculated by dividing income from
continuing operations before income taxes plus fixed charges by fixed
charges. Fixed charges consist of interest expense, including amortization
of financing costs, and that portion of rental expense deemed to be
representative of the interest component of rental expense. Earnings were
inadequate to cover fixed charges by $68,836 for the year ended August 31,
1992.
48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ORNDA
To provide prospective purchasers of the Notes with certain additional
information about OrNda, set forth below is the Management's Discussion and
Analysis of Financial Condition and Results of Operations of OrNda substantially
in the form included in OrNda's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1996 and Annual Report on Form 10-K for the fiscal year ended
August 31, 1996.
MERGERS AND ACQUISITIONS. OrNda's recent operating results were
significantly affected by mergers, acquisitions and divestitures as discussed
below. As discussed in Note 2 to the accompanying consolidated financial
statements at August 31, 1995 and 1996 and for each of the three years in the
period ended August 31, 1996 (the "Audited Consolidated Financial Statements"),
OrNda completed the American Healthcare and Summit mergers on April 19, 1994.
The American Healthcare merger was accounted for as a pooling-of-interests and,
accordingly, the operations of American Healthcare and OrNda have been combined
in the accompanying consolidated financial statements. The Summit Merger was
accounted for as a purchase and, accordingly, its operations have been included
since the date of the merger. The discussion herein is based upon the combined
operations of OrNda and American Healthcare for all periods presented in the
accompanying consolidated financial statements and including Summit Health
effective April 19, 1994. To enhance understandability, discussion and analysis
of financial condition and results of operations of the separate companies is
included, where necessary. For purposes of "Management's Discussion and Analysis
of Financial Condition and Results of Operations of OrNda," references herein to
OrNda include the operations of the combined entity of OrNda and American
Healthcare, unless the context requires otherwise.
In addition to the American Healthcare and Summit mergers, OrNda'a results
of operations have been impacted by the August 1994 acquisition of Fountain
Valley Regional Hospital and Medical Center ("Fountain Valley") and related
businesses in Fountain Valley, California, the February 1995 acquisition of
three hospitals and related businesses that comprise the St. Luke's Health
System ("St. Luke's") in Arizona, the January 1996 acquisition of HNW, the July
1996 acquisition of Cypress Fairbanks Medical Center in Houston, Texas ("Cypress
Fairbanks"), the August 1996 acquisition of Centinela Medical Center in
Inglewood, California ("Centinela") and the September 1996 acquisition of St.
Vincent's Healthcare System in Worcester, Massachusetts ("St. Vincent's").
Cost in excess of net assets acquired ("Goodwill"), net of amortization,
increased approximately $179.8 million in fiscal 1996 primarily from goodwill
associated with the acquisitions of HNW ($100.0 million), Cypress Fairbanks
($24.4 million) and Centinela ($52.1 million). Goodwill, net of amortization,
increased approximately $43.9 million in fiscal 1995 primarily from the
acquisition of St. Luke's of $4.0 million; adjustments associated with the
acquisition of Fountain Valley of $2.9 million; in connection with the buy out
of a joint venture at one of OrNda's hospitals of $11.5 million; and, final
adjustments to the acquisition of Summit of $31.6 million. The adjustments to
the Summit goodwill resulted principally from the finalization of appraisals on
fixed assets acquired, resolution of certain assumed litigation, and receipt of
actuarial estimates on termination of pension plans.
DIVESTITURES. Effective in the third quarter of fiscal 1994, OrNda's
management decided upon a plan of disposition to sell Decatur Hospital in
Decatur, Georgia. During the fourth quarter of fiscal 1994, OrNda's management
also entered into plans to dispose of Lewisburg Community Hospital in Lewisburg,
Tennessee, Gibson General Hospital in Trenton, Tennessee, and Pasadena General
Hospital in Pasadena, Texas. These four hospitals have a total of 486 licensed
beds. OrNda consummated the sale of the Decatur Hospital in June 1994 and the
sale of the Gibson Hospital effective October 31, 1994. Effective December 31,
1994, OrNda sold Ross Hospital, a 92-bed psychiatric facility in Kentfield,
California.
OrNda sold the hospital in Lewisburg on March 1, 1995 and had definitive
agreements to lease the Pasadena General Hospital real property and sell the
operations of Pasadena General Hospital to the lessee. The lessee assumed
ownership of operations and began leasing Pasadena General Hospital on March 3,
1995. On or about March 27, 1995, OrNda became aware that the buyer/lessee of
Pasadena had failed to perform under its contractual agreement. On March 31,
1995, OrNda re-assumed management of
49
<PAGE>
the facility until the facility was closed on May 14, 1995. On July 7, 1995,
OrNda entered into a definitive agreement to sell the real property of Pasadena
General Hospital to a third party. The sales price resulted in an additional
loss on sale of $5.7 million which was recorded in the third quarter of fiscal
1995. The above noted divestitures did not have a significant impact on
subsequent operations.
GEOGRAPHIC CONCENTRATION. OrNda operates hospitals in greater southern
California, south Florida, Arizona and Texas which generated the following
percentages of OrNda's total revenue for the three months ended November 30,
1995 and 1996, respectively:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF 1995 TOTAL NUMBER OF 1996 TOTAL
HOSPITALS REVENUE HOSPITALS REVENUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Southern California................................ 15 33.6% 16 29.0%
South Florida...................................... 5 17.2% 4 14.2%
Arizona............................................ 6 10.7% 6 7.6%
Texas.............................................. 6 10.5% 8 17.8%
</TABLE>
The following percentages are for the fiscal years ended August 31, 1995 and
1996, respectively:
<TABLE>
<CAPTION>
NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
OF FISCAL 1995 OF FISCAL 1996
HOSPITALS TOTAL REVENUE HOSPITALS TOTAL REVENUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Southern California................................ 15 34.8% 17 31.6%
South Florida...................................... 5 19.3% 5 16.5%
Arizona............................................ 6 8.9% 6 9.7%
Texas.............................................. 6 10.2% 8 16.0%
</TABLE>
To the extent favorable or unfavorable changes in regulations or market
conditions occur in these areas, such changes would likely have a corresponding
impact on OrNda's results of operations.
RESULTS OF OPERATIONS
GENERAL TRENDS. During the periods discussed below, OrNda's results of
operations were affected by certain industry trends, changing components of
total revenue, and changes in OrNda's debt structure. OrNda's results of
operations have also been impacted by the mergers, acquisitions and divestitures
discussed above.
INDUSTRY TRENDS. Outpatient services accounted for 32.9%, 30.7%, 31.3% and
28.8% of actual gross patient revenue for the three months ended November 30,
1995 and 1996 and for the years ended August 31, 1996 and 1995, respectively,
reflecting the industry trend towards greater use of outpatient services and the
expansion of OrNda's outpatient services primarily achieved through the opening
of new outpatient clinics in key markets in fiscal 1996 and 1995. OrNda expects
the industry trend towards outpatient services to continue as procedures
currently being performed on an inpatient basis become available on an
outpatient basis through technological and pharmaceutical advances. OrNda plans
to provide quality health care services as an extension of its hospitals through
a variety of outpatient activities including surgery, diagnostics, physician
clinics and home health.
As discussed below, excluding the effect of the acquisitions and the
divestitures noted above ("same-hospitals basis"), total revenues have
increased, reflecting higher utilization of outpatient and ancillary services,
increased acuity of patients admitted, and an increase in admissions for
inpatient procedures. The impact on revenue of increased patient acuity and
general price increases has been partially offset by the increasing proportion
of revenues derived from Medicare, Medicaid and managed care providers. These
major payors substantially pay on a fixed payment rate on a per patient or a per
diem basis instead of a cost or charge reimbursement methodology. Fixed payments
limit the ability of OrNda to increase revenues through price increases. While
these fixed payment rates have increased annually, the increases have
historically been at a rate less than OrNda's increases in costs, and have been
inadequate to reflect increases in costs associated with improved medical
technologies. OrNda has been able to mitigate such
50
<PAGE>
inflationary pressures through cost control programs, as well as utilization
management programs which reduce the number of days that patients stay in the
hospital and the amount of hospital services provided to the patient. The
average length of stay has decreased from 5.3 days for the year ended August 31,
1995 to 5.0 days for the year ended August 31, 1996. OrNda has programs designed
to improve the margins associated with the revenues derived from government
payors and managed care providers. In addition, OrNda has programs designed to
enhance overall hospital margins.
THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
NOVEMBER 30, 1995
Total revenue for the three months ended November 30, 1996, increased over
the same period in the prior year by $143.5 million or 29.1% to $637.1 million.
The 29.1% increase is a result of the acquisitions discussed above as well as an
increase in same hospitals revenue as discussed below. The increase in total
revenue attributable to acquisitions was $140.6 million. Net income applicable
to common shares for the quarter ended November 30, 1996, was $26.4 million, or
$0.44 per share, compared to $19.6 million, or $0.40 per share, in the same
period last year.
Operating expenses in the quarter ended November 30, 1996, increased 27.4%
($115.3 million) compared to the same period in the prior year primarily as a
result of the acquisitions discussed above and the increase in same hospital
revenues and volumes discussed below.
On a same hospitals basis, total revenue increased 0.6% ($2.9 million)
primarily as a result of a 0.1% increase in admissions and a 1.5% increase in
gross outpatient revenue. On a same hospitals basis, salaries and benefits
increased as a percent of total revenue from 42.7% in 1995 to 43.8% in 1996
primarily as a result of performing certain patient services internally versus
contracting with third parties. Supplies expense decreased 0.5% ($0.3 million)
and as a percentage of total revenue decreased from 13.4% in 1995 to 13.2% in
1996. Purchased services decreased 5.2% ($2.6 million) and as a percentage of
total revenue decreased from 10.2% in 1995 to 9.6% in 1996 due to the
elimination of contracting with third parties as noted above. The provision for
doubtful accounts decreased 28.0% ($9.3 million) and decreased from 6.9% of
total revenue for 1995 to 4.9% for 1996 primarily due to collections of patient
accounts receivable that were reserved in prior periods during system
conversions. Other operating expenses increased 1.9% ($1.1 million) and as a
percentage of total revenue was 11.8% in 1995 and 11.9% in 1996.
The effect of price increases implemented by OrNda's hospitals was nominal
as gross revenue from fixed reimbursement third party payors represented
approximately 82.4% of OrNda's total gross revenue in the quarter ended November
30, 1996. Over the last several years, the portion of OrNda's total revenue
derived from fixed reimbursement third party payors has increased while rates of
increases from these payors have generally been less than medical-related
inflation, resulting in increased efforts by OrNda to implement cost containment
initiatives and re-evaluate hospital programs for adequacy of profitability.
Since these trends are likely to continue, OrNda's ability to improve operating
results at its existing hospitals is dependent on its continues effectiveness in
reducing its costs of services. OrNda's operations may also be enhanced through
strategic acquisitions. OrNda intends to pursue strategic acquisitions of health
care providers in geographic areas and with service capabilities that will
facilitate the development of integrated networks.
Depreciation and amortization for the quarter ended November 30, 1996,
increased 35.1% ($8.2 million) over the prior period primarily as a result of
the acquisitions of HNW, Cypress Fairbanks, Centinela and St. Vincent's. The
increase in depreciation and amortization attributable to acquisitions was $5.9
million. In addition, amortization on intangibles increased $2.0 million as a
result of new business units.
Interest expense for the three months ended November 30, 1996, as compared
to the same period last year, increased 12.4% ($3.4 million) primarily as a
result of an increase in debt to fund recent acquisitions. This increase was
partially offset by improved pricing under OrNda's existing credit facility. Of
OrNda's total indebtedness of $1.4 billion at November 30, 1996, approximately
$767.3 million bears interest at rates that fluctuate with market rates, such as
the Prime Rate or LIBOR. Increases in market interest rates will adversely
affect OrNda's net income.
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<PAGE>
Minority interest, which represents the amounts paid or payable to
physicians pursuant to OrNda's joint venture arrangements, increased $1.0
million in 1996 as compared to 1995, primarily as a result of a $9.4 million
exchange of minority interest ownership in two hospitals for minority interest
investment in two group physician practices in the first quarter of fiscal 1996
and the acquisition of HNW which has several specialty joint ventures.
OrNda recorded income of $3.8 million in the quarter ended November 30, 1995
related to its investments in HNW, which primarily represented non-cash income
related to OrNda's investment in HNW redeemable preferred stock. Effective
January 1, 1996, OrNda acquired HNW from the hospital's ESOP. Following the
transaction, HNW became a wholly owned subsidiary of OrNda.
OrNda accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The
majority of OrNda's deferred tax assets related to approximately $187.0 million
of tax loss and credit carryforwards at November 30, 1996, which OrNda has
available to offset future taxable income. The AHM merger caused an "ownership
change" within the meaning of Section 382(g) of the Internal Revenue Code (the
"IRC") for both OrNda and AHM. Consequently, allowable federal deductions
relating to tax attribute carryforwards of OrNda and AHM arising in periods
prior to the AHM merger are thereafter subject to annual limitations (OrNda --
$19.0 million; AHM -- $16.0 million). For AHM, such tax attribute carryforwards
can only be applied against the prospective taxable income of the entities that
previously comprised AHM. These limitations may be increased for
"built-in-gains", as defined under the IRC, recognized during a five-year period
following the date of the merger. Management assesses the realizability of the
deferred tax assets on at least a quarterly basis and currently is satisfied,
despite the annual limitations, that it is more likely than not that the
deferred tax assets recorded at November 30, 1996, net of the valuation
allowance, will be realized through reversal of deferred tax liabilities.
For the quarter ended November 30, 1996, OrNda recorded income tax expense
of $11.3 million on pre-tax income of $37.8 million, an amount less than the
statutory rate, primarily due to the availability of net operating loss
carryforwards.
YEAR ENDED AUGUST 31, 1996 COMPARED WITH THE YEAR ENDED AUGUST 31, 1995.
Total revenue for the year ended August 31, 1996 increased over the same
period in the prior year by $304.5 million or 16.5% to $2.1 billion. The 16.5%
increase is primarily a result of the acquisitions discussed above as well as an
increase in same hospitals revenue as discussed below. The increase in total
revenue attributable to acquisitions, net of divestitures, was $179.9 million.
Net income applicable to common shares for the year ended August 31, 1996 was
$99.5 million, or $1.73 per share, compared to $69.3 million, or $1.53 per
share, in the same period last year.
Operating expenses in the year ended August 31, 1996 increased 14.1% ($222.1
million) compared to the same period in the prior year primarily as a result of
acquisitions and the increase in same hospital revenues and volumes discussed
below.
On a same-hospitals basis, total revenue increased 7.6% ($124.6 million)
primarily as a result of a 2.9% increase in admissions and a 13.5% increase in
gross outpatient revenue. On a same-hospitals basis, salaries and benefits
increased as a percent of total revenue from 45.3% in fiscal 1995 to 45.4% in
fiscal 1996. Supplies expense increased 11.4% ($24.1 million) and as a
percentage of total revenue increased from 12.8% in fiscal 1995 to 13.3% in
fiscal 1996. Purchased services decreased 5.6% ($10.6 million) and as a
percentage of total revenue decreased from 11.6% in fiscal 1995 to 10.2% in
fiscal 1996 primarily due to a reclassification in fiscal 1996 of the supply
component of major contracts from purchased services to supplies expense. The
provision for doubtful accounts increased 1.1% ($1.3 million) but decreased from
7.1% of total revenue for the year ended August 31, 1995 to 6.7% for the year
ended August 31, 1996. Other operating expenses increased 7.0% ($9.5 million)
and as a percentage of total revenue was 8.3% in fiscal 1995 and 1996.
The effect of price increases implemented by OrNda's hospitals was nominal
as gross revenue from fixed reimbursement third-party payors represented
approximately 87.5% of OrNda's total gross revenue
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in 1996. Over the last several years, the portion of OrNda's total revenue
derived from fixed reimbursement third-party payors has increased while rates of
increases from these payors have generally been less than medical-related
inflation, resulting in increased efforts by OrNda to implement cost containment
initiatives and re-evaluate hospital programs for adequacy of profitability.
Since these trends are likely to continue, OrNda's ability to improve operating
results at its existing hospitals is dependent on its continued effectiveness in
reducing its costs of services. OrNda's operations may also be enhanced through
strategic acquisitions as was particularly evident in fiscal 1994 and fiscal
1995 with the mergers with American Healthcare and Summit and the individual
hospital acquisitions. OrNda intends to pursue strategic acquisitions of health
care providers in geographic areas and with service capabilities that will
facilitate the development of integrated networks.
Depreciation and amortization for fiscal 1996 increased 21.9% ($18.7
million) over the prior year primarily as a result of the acquisitions of St.
Luke's, HNW, Cypress Fairbanks and Centinela. The increase in depreciation and
amortization attributable to acquisitions, net of divestitures, was $11.1
million. In addition, amortization on intangibles increased as a result of new
business units.
Interest expense for fiscal 1996 as compared to the same period last year
decreased 1.7% ($1.9 million) primarily as a result of a decline in the average
debt balance outstanding and improved pricing under the existing credit
facility. Such decrease was partially reduced by the effect of a $2.2 million
reduction in interest expense in the third quarter of fiscal 1995 related to an
interest rate swap agreement. Of OrNda's total indebtedness of $1.3 billion at
August 31, 1996, approximately $692.2 million bears interest at rates that
fluctuate with market rates, such as the Prime Rate or LIBOR. Increases in
market interest rates will adversely affect OrNda's net income.
Minority interest, which represents the amounts paid or payable to
physicians pursuant to OrNda's joint venture arrangements, increased $7.5
million in fiscal 1996 as compared to fiscal 1995, primarily as a result of a
$9.4 million exchange of minority interest ownership in two hospitals for
minority interest investment in two group physician practices in the first
quarter of fiscal 1996 and the acquisition of HNW which had existing joint
ventures.
In fiscal 1996, OrNda recorded income of $5.1 million, compared to $14.0
million in fiscal 1995, related to its investments in HNW which primarily
represented non-cash income related to OrNda's investment in HNW redeemable
preferred stock. Effective January 1, 1996, OrNda acquired HNW from the
hospital's ESOP. Following the transaction, HNW became a wholly owned subsidiary
of OrNda. See Note 2 to the accompanying Audited Consolidated Financial
Statements for further discussion of OrNda's investments in HNW as well as the
acquisition of HNW.
OrNda accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
The majority of OrNda's deferred tax assets related to approximately $198.9
million of tax loss and credit carryforwards at August 31, 1996, which OrNda has
available to offset future taxable income. The American Healthcare merger (see
Note 2 to the Audited Consolidated Financial Statements) caused an "ownership
change" within the meaning of Section 382(g) of the Internal Revenue Code (the
"IRC") for both OrNda and American Healthcare. Consequently, allowable federal
deductions relating to tax attribute carryforwards of OrNda and American
Healthcare arising in periods prior to the merger are thereafter subject to
annual limitations (OrNda - $19.0 million; American Healthcare - $16.0 million).
For American Healthcare, such tax attribute carryforwards can only be applied
against the prospective taxable income of the entities that previously comprised
American Healthcare. These limitations may be increased for "built-in-gains," as
defined under the IRC, recognized during a five-year period following the date
of the merger. Management assesses the realizability of the deferred tax assets
on at least a quarterly basis and currently is satisfied, despite the annual
limitations, that it is more likely than not that the deferred tax assets
recorded at August 31, 1996, net of the valuation allowance, will be realized
through reversal of deferred tax liabilities.
For the year ended August 31, 1996, OrNda recorded income tax expense of
$35.2 million on pre-tax income of $135.1 million, an amount less than the
statutory rate, primarily due to the availability of net operating loss
carryforwards.
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YEAR ENDED AUGUST 31, 1995 COMPARED WITH THE YEAR ENDED AUGUST 31, 1994.
Total revenue for the year ended August 31, 1995, increased over the prior
year by $568.3 million or 44.6% to $1.8 billion. The 44.6% increase is primarily
a result of the Summit merger and other hospital acquisitions discussed above.
The increase in total revenue attributable to acquisitions, net of divestitures
was $496.5 million. Net income applicable to common shares for the year ended
August 31, 1995, was $69.3 million, or $1.53 per share compared to a net loss of
$61.2 million, or $(1.62) per share in prior year.
Operating expenses for the year ended August 31, 1995, increased 44.4%
($485.8 million) over the prior year primarily as a result of the acquisitions
discussed above. Actual salaries and benefits as a percentage of total revenue
declined from 45.1% in fiscal 1994 to 43.6% in fiscal 1995 mainly as a result of
reductions in corporate office personnel attained in combining the OrNda and
American Healthcare corporate offices and due to labor efficiencies achieved at
certain facilities.
Actual other operating expenses increased 35.2% ($55.1 million). This
category of expense increased at a rate greater than other categories due to the
1994 acquisition of Summit, which owns a Medicaid HMO that includes the majority
of its non-salary expenses in other operating expense. In addition, the St.
Luke's acquisition in fiscal 1995 also included a Medicaid HMO. Operating
expenses for the year ended August 31, 1995, increased approximately $17.4
million for claims payments made by the Medicaid HMO to third-party providers.
In addition, other operating expenses increased $12.3 million for rent expense
related to acquisitions financed through leasing agreements with third parties.
On a same-hospitals basis, total revenue increased 6.9% ($71.9 million)
primarily as a result of a 3.9% increase in admissions and a 18.7% ($105.2
million) increase in gross outpatient revenue. On a same-hospitals basis,
salaries and benefits increased 8.7% ($41.7 million) primarily due to
inflationary increases and an increase in same hospital revenue. Supplies
expense increased 3.9% ($5.0 million) and as a percentage of total revenue
decreased from 12.4% in fiscal 1994 to 12.1% in fiscal 1995, primarily as a
result of favorable reductions in expenses under supply contracts in
pharmaceuticals and other areas. Purchased services increased 3.5% ($4.0
million) but as a percentage of total revenue remained at 14.4% in fiscal 1994
and fiscal 1995 primarily as a result of increases in marketing and rent
expenses. Other operating expenses increased 10.1% ($9.2 million) and as a
percentage of total revenue increased from 8.8% in fiscal 1994 to 9.0% in fiscal
1995, primarily as a result of increases in marketing and rent expenses. The
provision for doubtful accounts increased 17.0% ($12.4 million) and increased
from 7.0% of total revenue in 1994 to 7.6% in 1995. In connection with the
American Healthcare and Summit mergers, during the year ended August 31, 1994,
OrNda changed the methodologies used by the previously separate companies to
calculate the allowance for doubtful accounts to conform to a single method for
OrNda and American Healthcare which resulted in a $3.3 million favorable impact
on the provision for doubtful accounts in 1994.
Depreciation and amortization for the year ended August 31, 1995, increased
27.6% ($18.4 million) over the prior year primarily as a result of the Summit
merger and other acquisitions discussed previously. The increase in depreciation
and amortization attributable to acquisitions, net of divestitures, was $19.1
million.
Interest expense increased 30.8% ($25.7 million) as a result of additional
indebtedness incurred to finance the acquisitions discussed above as well as
increases in market interest rates. Such increase was partially offset by a
decrease in interest expense of $2.2 million related to an interest rate swap
agreement in the third quarter of fiscal 1995. Of OrNda's total indebtedness of
$1.1 billion at August 31, 1995, approximately $480.2 million bore interest at
rates that fluctuate with market rates, such as the Prime Rate or LIBOR. Market
interest rates increased from 1994 to 1995 causing OrNda's interest expense to
increase.
Minority interest, which represents the amounts paid or payable to
physicians pursuant to OrNda's joint venture arrangements, decreased 94.0% ($3.8
million) in fiscal 1995 as compared to fiscal 1994, primarily as a result of the
repurchase of joint venture interests and a decline in operations at certain of
OrNda's joint ventures.
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In fiscal 1995, OrNda recorded income of $14.0 million, compared to $3.6
million in fiscal 1994, related to its investments in HNW which primarily
represented non-cash income related to OrNda's investment in HNW redeemable
preferred stock. See Note 2 to the accompanying Audited Consolidated Financial
Statements for further discussion of OrNda's investments in HNW.
For the year ended August 31, 1995, OrNda recorded income tax expense of
$15.8 million on pretax income of $87.1 million, an amount less than the
statutory rate, primarily due to the availability of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1996, OrNda had working capital of $138.1 million, of which
$10.5 million was cash, compared with $88.1 million of working capital at August
31, 1996. OrNda's cash portion of working capital is primarily managed through a
revolving credit arrangement, whereby excess cash generated through operations
or otherwise is generally used to reduce the outstanding revolving credit
facility. When cash requirements arise, the revolving credit facility is drawn
upon as needed. On November 26, 1996, OrNda executed an amendment to its credit
agreement (the "Credit Facility") which increased the borrowing capacity under
the revolving commitment from $440.0 million to $773.8 million. As of November
30, 1996, $767.3 million was outstanding under the Credit Facility and
commitment availability had been reduced by $25.3 million as a result of issued
letters of credit. The Credit Facility still matures on October 30, 2001.
OrNda's operating activities provided cash of $32.3 million for the quarter
ended November 30, 1996. Cash from operations was used for the $14.2 million
increase in patient accounts receivable, net of the provision for doubtful
accounts. The increase in patient accounts receivable resulted primarily from
delays in payment from certain state Medicaid/Medicare programs and due to the
acquisition and start up of new business units. Cash from operations includes
$19.5 million received as a refund of funds remitted in fiscal 1996 to defease
indebtedness of Centinela in connection with the acquisition of Centinela. Cash
from operations was used for income tax payments of $11.9 million and interest
payments of $38.7 million.
Net cash used in investing activities of $110.8 million during the three
months ended November 30, 1996, consisted primarily of capital expenditures of
$26.1 million and $82.0 million for the acquisitions of hospitals and related
assets, primarily St. Vincent's hospital. OrNda's management currently expects
to incur approximately $125.0 million of capital expenditures in fiscal 1997 for
replacement equipment and construction at existing facilities.
Net cash provided by financing activities for the quarter ended November 30,
1996, of $71.6 million resulted primarily from the $72.3 million excess of long
term debt borrowings over principal payments on long term debt.
OrNda believes that the cash flows generated by operations together with
availability of credit under OrNda's Credit Facility will be sufficient to meet
OrNda's short and long-term cash needs. However, OrNda's net
debt-to-total-capitalization ratio at November 30, 1996 is 66.9%. Such leverage
may limit the amount of additional indebtedness available to OrNda for
acquisitions requiring capital in excess of amounts currently available under
the Credit Facility.
As of November 30, 1996, OrNda had approximately $767.3 million of debt
outstanding under the Credit Facility with an interest rate of LIBOR plus 1.0%.
Interest rates in the future may be subject to upward and downward adjustments
based on OrNda's leverage ratio. To the extent that interest rates increase in
the future, OrNda may experience higher interest rates on such debt. A 1%
increase in the prime rate or LIBOR would result in approximately a $7.7 million
increase in annual interest expense based upon OrNda's credit facility
indebtedness outstanding at November 30, 1996.
The ratio of earnings to fixed charges and preferred stock dividends was
1.72 and 1.99 for the three months ended November 30, 1995 and 1996,
respectively. The ratio of earnings to fixed charges and preferred stock
dividends is calculated by dividing earnings before income taxes plus fixed
charges by the sum of fixed charges which consists of interest expense,
amortization of financing costs, preferred stock
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dividends, and the portion of rental expense which is deemed to be
representative of the interest component of rental expense. The ratio of
earnings to fixed charges and preferred stock dividends is an indication of
OrNda's ability to pay interest expense and other fixed charges.
In recent years the IRS was examining the federal income tax returns for
fiscal 1984, 1985 and 1986 of Summit Health, which became a wholly-owned
subsidiary of OrNda in April 1994 and merged into OrNda in September 1994.
Summit Health received a revenue agent's report from the IRS with proposed
adjustments for the years 1984 through 1986 aggregating as of August 31, 1996
approximately $16.6 million of income tax, $66.4 million of interest on the tax,
$43.9 million of penalties and $25.6 million of interest on the penalties. After
receiving the revenue agent's report, Summit Health filed a protest contesting
the proposed adjustments. On October 28, 1996, OrNda entered into a Closing
Agreement on Final Determination with the IRS for the above audit period, by
agreeing and paying additional tax of $647,000 and interest of $888,000 to close
the audit of Summit Health for the fiscal years 1984 through 1986.
INFLATION. A significant portion of OrNda's operating expenses are subject
to inflationary increases, the impact of which OrNda has historically been able
to substantially offset through charge increases, expanding services and
increased operating efficiencies. To the extent that inflation occurs in the
future, OrNda may not be able to pass on the increased costs associated with
providing health care services to patients with government or managed care
payors, unless such payors correspondingly increase reimbursement rates.
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BUSINESS
GENERAL
Tenet 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 November 30, 1996,
Tenet's subsidiaries and affiliates operated 76 general hospitals with 17,344
licensed beds. Tenet's subsidiaries also own or operate various ancillary
healthcare businesses, including outpatient surgery centers, home healthcare
programs, ambulatory, occupational and rural healthcare clinics, a health
maintenance organization with approximately 58,000 members, a preferred provider
organization and a managed care insurance company as well as a small number of
rehabilitation hospitals, specialty hospitals, long-term care facilities and
psychiatric facilities. Tenet intends to continue its strategic acquisitions of
and partnerships with additional general hospitals and related healthcare
businesses in order to expand and enhance its integrated healthcare delivery
systems. For the 12 months ended November 30, 1996, Tenet had net operating
revenues, EBITDA and income from continuing operations, adjusted to reflect
acquisitions, divestitures and related adjustments, of $6.0 billion, $1.2
billion and $242.0 million, respectively. See "Pro Forma Financial Information."
At November 30, 1996, Tenet's investments in other healthcare companies
included: (i) an approximately 12.1% 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 Health Care Property
Partners ("HCPP"). See "--Investments."
As a result of the Merger, OrNda will become a wholly owned subsidiary of
the Company. OrNda is the third largest investor-owned provider of healthcare
services in the United States, delivering a broad range of inpatient and
outpatient healthcare services to urban and suburban communities in 15 states.
At November 30, 1996, OrNda operated 49 general hospitals with a total of 9,599
licensed beds, six surgery centers, numerous outpatient and specialty clinics,
one psychiatric hospital and a Medicaid HMO with approximately 34,000
participants. For the 12 months ended November 30, 1996, OrNda had net operating
revenues, EBITDA and income from continuing operations, adjusted to reflect
acquisitions and related adjustments, of $2.8 billion, $419.6 million and $112.9
million, respectively. See "Pro Forma Financial Information."
Following the Merger, the Company will operate 125 general hospitals serving
urban and rural communities in 22 states, with a total of 26,943 licensed beds,
excluding transactions taking place after November 30, 1996. For the 12 months
ended November 30, 1996, on a combined basis adjusted to reflect acquisitions,
divestitures and related adjustments, including the Pending Acquisitions, two of
which were acquired in December 1996 and one of which was acquired in January
1997, the Company's net operating revenues, EBITDA and income from continuing
operations, would have been approximately $8.8 billion, $1.6 billion and $354.9
million, respectively. See "Pro Forma Financial Information." These pro forma
combined results do not give effect to certain cost savings that management
believes may be realized following the Merger. No assurances can be made as to
the amount of cost savings, if any, that actually will be realized.
Tenet believes that the Merger represents an opportunity to acquire a
substantial portfolio of hospitals providing quality care responsive to the
current managed care environment. Many of OrNda's general hospitals are located
in geographic areas where Tenet currently operates hospitals, including southern
California and south Florida. The Merger will provide an opportunity for the
Company to coordinate the services it provides in these geographic areas with
those services provided by OrNda, which the Company believes will accelerate its
development of integrated healthcare delivery systems in these areas. The Merger
also expands the Company's operations into several new geographic areas,
including Arizona, Iowa, Massachusetts, Mississippi, Nevada, Oregon, Washington,
West Virginia and Wyoming. The Company believes it will be able to integrate
effectively OrNda's operations based on its successful integration of the
operations of AMH, which was acquired by Tenet in March 1995.
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BUSINESS STRATEGY
The Company's strategic objective is to provide quality healthcare services
responsive to the current managed care environment. Tenet believes that
competition among healthcare providers occurs primarily at the local level.
Accordingly, the Company tailors its local strategies to address the specific
competitive characteristics of the geographic areas in which it operates,
including the number of facilities operated by Tenet, the nature and structure
of physician practices and physician groups, the extent of managed care
penetration, the number and size of competitors and the demographic
characteristics of the area. Key elements of the Company's strategy are:
- to develop integrated healthcare delivery systems by coordinating the
operations and services of the Company's facilities with other hospitals
and ancillary care providers and through alliances with physicians and
physician groups;
- to reduce costs through enhanced operating efficiencies while improving
the quality of care provided;
- to develop and maintain its strong relationships with physicians and
generally to foster a physician-friendly culture;
- to enter into discounted fee for service arrangements, capitated contracts
and other managed care contracts with third party payors; and
- to acquire and enter into strategic partnerships with hospitals, groups of
hospitals, other healthcare businesses, ancillary healthcare providers,
physician practices and physician practice assets where appropriate to
expand and enhance quality integrated healthcare delivery systems
responsive to the current managed care environment.
DEVELOP INTEGRATED HEALTHCARE DELIVERY SYSTEMS. In each geographic area it
serves, the Company has established or is developing an integrated healthcare
delivery system to offer a full range of quality patient care responsive to the
current managed care environment by coordinating the services offered by its
hospitals and related facilities with the services offered by other providers.
The Company believes that general hospitals will serve as the hubs for the
development of integrated healthcare delivery systems due to their highly
developed infrastructure, extensive service base, sophisticated equipment and
skilled personnel.
The Company's strategy is implemented in a number of ways depending upon the
characteristics of the local area. In areas where there is significant managed
care penetration or in which the Company anticipates such penetration, the
Company encourages physicians practicing at its hospitals to form independent
physician associations ("IPAs"). As part of its strategy, the Company intends to
form physician hospital organizations ("PHOs") that bring together its hospitals
and IPAs, physicians or physician groups under a variety of arrangements to
negotiate for managed care contracts, including capitated contracts. Tenet has
formed a PHO for the New Orleans area and is in the process of forming PHOs in
several other geographic areas. The Company also has formed management service
organizations ("MSOs"), which provide management and administrative services to
physicians, physician group practices and IPAs, and which enter into managed
care contracts on behalf of these groups and, in certain circumstances in the
future, PHOs. Where appropriate, the Company also purchases physician and
physician group practices and employs such physicians or purchases the assets of
those practices and manages such practices through its MSOs or otherwise.
The Company uses various combinations of one or all of the foregoing methods
in each geographic area to create a community of interest between its hospitals
and the physicians who practice there, to which it adds additional resources,
where necessary, to create an integrated healthcare delivery system capable of
providing a full range of healthcare services to the community. One example of
how this integrated delivery strategy is being implemented is the Company's
Redding Medical Center, a tertiary care hospital located in a primarily rural
area in northern California, around which hospital the Company is developing
such a system, with the hospital itself acting as the hub. Affiliations with
physician practices, non-Tenet primary care hospitals, an outpatient surgery
center developed in partnership with local physicians and
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affiliated ancillary care providers in the surrounding area enable this system
to provide a full range of healthcare services. In addition, the Company has
introduced its HMO product to this geographic area. The Company believes that
the development of such integrated healthcare delivery systems will enhance its
ability to contract with payors in those areas that have experienced or will
experience a high degree of managed care penetration.
The Company believes that the Merger will enhance its ability to expand and
enhance its integrated healthcare delivery systems. In south Florida, Tenet will
be able to expand its existing Tenet South Florida HealthSystem with the
inclusion of OrNda's four existing general hospitals and related healthcare
operations with Tenet's eight existing general hospitals and related heathcare
operations. In southern California, Tenet plans to continue to develop and
expand its existing healthcare delivery system, which would combine OrNda's 19
existing general hospitals and related healthcare operations with Tenet's 15
existing general hospitals and related healthcare operations. These systems will
provide a full range of services over a large geographic area. In addition, the
Merger will extend the Company's operations into several additional geographic
areas, some of which do not yet exhibit (and in some cases are not expected to
exhibit in the near term) the high degree of managed care penetration
experienced in California and in certain other parts of the country.
REDUCE COSTS THROUGH ENHANCED OPERATING EFFICIENCY WHILE IMPROVING THE
QUALITY OF CARE. The Company continues to position itself as a provider of
quality healthcare services responsive to the current managed care environment
by enhancing operating efficiencies at the hospital, regional and corporate
levels. For example, the Company has implemented programs at the hospital level
to monitor and adjust staffing levels in response to patient acuity and hospital
census, and to improve service and the quality of outcomes while reducing
operating expenses through the reengineering of the delivery of patient care in
its hospitals. At several of the Company's hospitals, job functions have been
redefined and services have been moved directly to the patient floors. Tenet
believes that increasing the amount of patient care delivered at the bedside
will increase patient satisfaction while reducing costs. This initiative also
has enhanced the ability of professionals to focus their attention on higher
levels of patient care.
In order to reduce costs and achieve economies of scale at the regional
level, the Company has combined the hospital business offices of facilities
located in close geographic proximity. Consolidating business offices allows the
Company's hospitals to reduce staffing levels while enhancing the effectiveness
of their billing and collection efforts. The Company also has reduced costs and
achieved economies of scale at the hospital, regional and corporate levels by
consolidating the collection of accounts receivable through SOS and negotiating
purchase contracts that take greater advantage of its group purchasing program.
In addition, management believes that certain cost savings may be realized
following the Merger. No assurances can be made as to the amount of cost
savings, if any, that actually will be realized.
DEVELOP AND MAINTAIN STRONG RELATIONSHIPS WITH PHYSICIANS. Tenet believes
that its success will depend in large part on maintaining strong relationships
with physicians, including physicians previously associated with OrNda. To
better serve the needs of its patients, Tenet has devoted substantial management
effort and resources to establishing and maintaining such relationships and to
fostering a physician-friendly culture at each of its hospitals. The Company
attracts physicians to its hospitals by equipping its hospitals with
technologically advanced equipment, sponsoring training programs to educate
physicians on advanced medical procedures, using governing boards for each
hospital, the primary voting members of which are physicians and community
members and otherwise creating an environment within which physicians prefer to
practice. The Company often is at the forefront in introducing new services,
medical equipment and medical technologies designed to improve patient care and
assist physicians. These efforts serve the dual purposes of developing and
maintaining strong relationships with physicians and better serving the needs of
patients.
The Company looks to physicians to play an active role in the governance of
its hospitals. For example, each of the Company's hospitals has a governing
board, the only voting members of which are physicians who are active members of
the medical staff and local community members. The Company has no voting
representatives on any of its hospitals' governing boards. These boards develop
short and
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long-term plans for the hospitals and review and approve, as appropriate,
actions of the medical staff, including staff appointments, credentialing, peer
review and quality assurance. The Company also maintains a physician advisory
board that provides advice to the Company with respect to long-term strategy,
emerging technologies, training programs and significant hospital operational
issues. This advisory board serves as another vehicle through which physicians
on the staffs of the Company's hospitals can communicate their views to the
Company.
ENTER INTO MANAGED CARE CONTRACTS. The Company believes that its extensive
experience operating in California, which has a high degree of managed care
penetration, will enhance its ability to compete successfully in other
geographic areas that are experiencing an increase in managed care. Pressures to
control healthcare costs have resulted in a continuing increase in the
percentage of the United States population that is covered by managed healthcare
plans. To increase the cost-effectiveness of healthcare delivery, managed care
payors have introduced new utilization review systems, increased the use of
discounted and capitated fee arrangements and have attempted, where appropriate,
to direct patients to less intensive alternatives along the continuum of patient
care. Managed care payors typically require members or provide financial
incentives for members to utilize only those healthcare providers that have
contracted with such payors to provide care on a discounted or capitated basis.
Accordingly, in order to maintain and increase their patient base as managed
care penetration increases, it is important for providers to enter into such
contracts. In determining with which providers to contract, payors consider,
among other factors, the quality of care provided, the range of services, the
geographic coverage and the cost-effectiveness of the care provided. Tenet
believes that the development and expansion of its integrated healthcare
delivery systems will enable it to better compete for managed care contracts,
which, in turn, should allow it to expand its patient volume and cash flow,
notwithstanding the reduced rates at which services may be provided under such
contracts.
PURSUE STRATEGIC ACQUISITIONS AND PARTNERSHIPS. The Company intends to
continue to pursue aggressively strategic acquisitions of and partnerships with
hospitals, other healthcare businesses, ancillary healthcare providers,
physician practices and physician practice assets, where appropriate, to expand
and enhance its integrated healthcare delivery systems. Examples of recent
strategic acquisitions are the Company's June 1996 acquisition of Hialeah
Hospital, a 378-bed general hospital located in Hialeah, Florida and the January
1997 acquisition of North Shore Medical Center, a 357-bed general hospital
located in Miami, Florida. Hialeah Hospital's location in Hialeah and North
Shore Medical Center's location in Miami, both in north Dade County, have
enhanced the geographic coverage of the Tenet South Florida HealthSystem and
increased the number of general hospitals in that system to nine. Tenet believes
that significant opportunities exist to enter into additional partnerships and
make strategic acquisitions, including partnerships with and acquisitions of
tax-exempt hospitals and physician groups or physician practice assets, where
appropriate. On a pro forma basis, immediately following the Merger and the
Refinancing the Company expects to have approximately $1.1 billion available
under the New Credit Facility to take advantage of strategic acquisition and
partnership opportunities.
DOMESTIC HEALTH CARE OPERATIONS
As a result of the Merger, the Company will operate 125 general hospitals
serving communities in 22 states, excluding transactions taking place after
November 30, 1996. On a combined basis, Tenet's and OrNda's 125 general
hospitals had a total of 26,943 licensed beds at November 30, 1996. In addition,
the Company and OrNda operate numerous ancillary healthcare facilities,
including a small number of rehabilitation hospitals, long-term care facilities
and psychiatric facilities located on the same campus as, or nearby, their
general hospitals, and operated all or a substantial part of 141 medical office
buildings as of November 30, 1996. With the exception of one general hospital
that was acquired in fiscal 1996 and is in the process of becoming accredited
for the first time, each of the Company's and OrNda's facilities that is
eligible for accreditation is fully accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), the Commission on
Accreditation of Rehabilitation Facilities (in the case of the rehabilitation
hospitals) or another appropriate accreditation agency. With such accreditation,
the Company's and OrNda's hospitals are eligible to participate in the Medicare
and Medicaid programs.
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Each of Tenet's and OrNda'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, neuroscience, 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.
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.
Tenet has acquired nine general hospitals (or interests in general
hospitals) since June 1, 1995. 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 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 Methodist Hospital of
Jonesboro, a not-for-profit 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 June 1996, Tenet acquired the 378-bed
Hialeah Hospital in Hialeah, Florida. In October 1996, Tenet acquired the
319-bed Lloyd Noland Hospital in Birmingham, Alabama. In January 1997, Tenet
acquired the 357-bed North Shore Medical Center in Miami, Florida. In the fourth
quarter of fiscal 1996, Tenet converted the Jo Ellen Smith general hospital in
New Orleans, Louisiana, into a specialty hospital. See "Pro Forma Financial
Information." 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.
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<PAGE>
During the same period, OrNda has completed the acquisition of eight general
hospitals (or interests in general hospitals). OrNda acquired Universal Medical
Center (subsequently re-named Florida Medical Center-South) in November 1995, a
controlling equity interest in Houston Northwest Medical Center in January 1996,
Cypress Fairbanks Medical Center and Westside Medical Center in July 1996,
Centinela Hospital Medical Center in August 1996, The Saint Vincent Healthcare
System in September 1996 and the Western Medical Center and the Western Medical
Center-Anaheim in December 1996. See "Pro Forma Financial Information."
The Company also has been actively pursuing the acquisition and management
of physician practices and physician practice assets where doing so would
enhance the Company's goal of expanding and enhancing its integrated healthcare
delivery systems. 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.
During the last three fiscal years, Tenet and OrNda have spent an aggregate
of approximately $705.3 million and $222.2 million, respectively, on capital
expenditures at their domestic hospitals to expand and upgrade the facilities
and to acquire medical equipment. The Company expects to continue to make the
capital expenditures necessary to maintain and improve the Tenet and OrNda
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Tenet-- Liquidity and Capital Resources" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of OrNda--Liquidity and Capital Resources." Management believes that
the Tenet and OrNda hospitals are well-positioned to compete effectively in the
rapidly evolving healthcare environment. The Company continually analyzes
whether each of its hospitals fits within its strategic plans and has and will
continue to analyze ways in which such assets may best be used to maximize
shareholder value.
DOMESTIC PROPERTIES
The following table sets forth certain information relating to each of the
125 hospitals (26,943 licensed beds) operated by the Company and by OrNda at
November 30, 1996 (one of which was closed and one of which was sold in December
1996) as well as two hospitals which were acquired in December 1996 and one of
which was acquired in January 1997. Hospitals operated by OrNda appear in
italicized type.
<TABLE>
<CAPTION>
LICENSED
GEOGRAPHIC AREA/STATE FACILITY LOCATION BEDS STATUS
- --------------------------- ------------------------------------------- ------------------- ------------- ---------
<S> <C> <C> <C> <C>
Southern California Alvarado Hospital Medical Center San Diego 231 Owned
Century City Hospital (1) Los Angeles 190 Leased
Encino Hospital (1)(2) Encino 151 Leased
Garden Grove Hospital and Medical Center Garden Grove 167 Owned
Garfield Medical Center Monterey Park 211 Owned
Irvine Medical Center (1) Irvine 176 Leased
John F. Kennedy Memorial Hospital Indio 130 Owned
Lakewood Regional Medical Center Lakewood 161 Owned
Los Alamitos Medical Center Los Alamitos 173 Owned
Medical Center of North Hollywood North Hollywood 160 Owned
Placentia Linda Community Hospital Placentia 114 Owned
San Dimas Community Hospital San Dimas 93 Owned
South Bay Hospital (1) Redondo Beach 201 Leased
Tarzana Regional Medical Center (1)(2) Tarzana 231 Leased
USC University Hospital (3) Los Angeles 286 Leased
BROTMAN MEDICAL CENTER CULVER CITY 438 OWNED
CENTINELA HOSPITAL MEDICAL CENTER INGLEWOOD 400 OWNED
CHAPMAN MEDICAL CENTER (1) ORANGE 135 LEASED
COASTAL COMMUNITIES HOSPITAL (4) SANTA ANA 177 OWNED
COMMUNITY HOSPITAL OF HUNTINGTON PARK (1) HUNTINGTON PARK 99 LEASED
FOUNTAIN VALLEY REGIONAL HOSPITAL AND
MEDICAL CENTER FOUNTAIN VALLEY 413 OWNED
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
LICENSED
GEOGRAPHIC AREA/STATE FACILITY LOCATION BEDS STATUS
- --------------------------- ------------------------------------------- ------------------- ------------- ---------
<S> <C> <C> <C> <C>
Southern California GREATER EL MONTE COMMUNITY HOSPITAL SOUTH EL MONTE 113 OWNED
(cont'd)
HARBOR VIEW MEDICAL CENTER SAN DIEGO 156 OWNED
MIDWAY HOSPITAL MEDICAL CENTER LOS ANGELES 225 OWNED
MISSION HOSPITAL OF HUNTINGTON PARK HUNTINGTON PARK 127 OWNED
MONTEREY PARK HOSPITAL MONTEREY PARK 102 OWNED
SANTA ANA HOSPITAL MEDICAL CENTER (1) SANTA ANA 90 LEASED
ST. LUKE MEDICAL CENTER PASADENA 162 OWNED
SUBURBAN MEDICAL CENTER (1) PARAMOUNT 184 LEASED
WESTERN MEDICAL CENTER (5) SANTA ANA 288 PENDING
WESTERN MEDICAL CENTER - ANAHEIM (5) ANAHEIM 193 PENDING
WESTSIDE HOSPITAL (6) LOS ANGELES 68 OWNED
WHITTIER HOSPITAL MEDICAL CENTER WHITTIER 159 OWNED
WOODRUFF COMMUNITY HOSPITAL LONG BEACH 96 OWNED
Northern and Other Community Hospital & Rehabilitation Center
California of Los Gatos (1) Los Gatos 164 Leased
Doctors Hospital of Manteca Manteca 73 Owned
Doctors Hospital of Pinole (1) Pinole 137 Leased
Doctors Medical Center of Modesto Modesto 433 Owned
Redding Medical Center Redding 185 Owned
San Ramon Regional Medical Center San Ramon 123 Owned
Sierra Vista Regional Medical Center San Luis Obispo 199 Owned
Twin Cities Community Hospital Templeton 84 Owned
FRENCH HOSPITAL MEDICAL CENTER SAN LUIS OBISPO 147 OWNED
VALLEY COMMUNITY HOSPITAL (1) SANTA MARIA 70 LEASED
South Florida Delray Community Hospital Delray Beach 211 Owned
Hialeah Hospital Hialeah 378 Owned
Hollywood Medical Center Hollywood 324 Owned
North Ridge Medical Center Ft. Lauderdale 391 Owned
North Shore Medical Center (7) Miami 357 Pending
Palm Beach Gardens Medical Center (1) Palm Beach Gardens 204 Leased
Palmetto General Hospital Hialeah 360 Owned
West Boca Medical Center Boca Raton 185 Owned
CORAL GABLES HOSPITAL (4) CORAL GABLES 273 OWNED
FLORIDA MEDICAL CENTER (4) FT. LAUDERDALE 459 OWNED
FLORIDA MEDICAL CENTER, SOUTH PLANTATION 202 OWNED
PARKWAY REGIONAL MEDICAL CENTER (8) NORTH MIAMI 699 OWNED
Tampa/St. Petersburg, Memorial Hospital of Tampa Tampa 174 Owned
Florida Area Palms of Pasadena Hospital St. Petersburg 310 Owned
Seven Rivers Community Hospital Crystal River 128 Owned
Town and Country Hospital Tampa 201 Owned
NORTH BAY MEDICAL CENTER NEW PORT RICHEY 122 OWNED
New Orleans, Doctors Hospital of Jefferson (1) Metairie 138 Leased
Louisiana Area Kenner Regional Medical Center Kenner 300 Owned
Meadowcrest Hospital Gretna 200 Owned
Memorial Medical Center Mid-City New Orleans 272 Owned
Memorial Medical Center Uptown New Orleans 487 Owned
Northshore Regional Medical Center (1) Slidell 174 Leased
St. Charles General Hospital New Orleans 173 Owned
Phoenix/Tucson, Arizona COMMUNITY HOSPITAL MEDICAL CENTER PHOENIX 59 OWNED
MESA GENERAL HOSPITAL MEDICAL CENTER (1) MESA 138 LEASED
ST. LUKE'S MEDICAL CENTER (1) PHOENIX 276 LEASED
TEMPE ST. LUKE'S HOSPITAL (1) TEMPE 90 LEASED
TUCSON GENERAL HOSPITAL TUCSON 146 OWNED
Dallas, Texas Area Doctors Hospital Dallas 268 Owned
RHD Memorial Medical Center (1) Dallas 190 Leased
Trinity Medical Center (1) Carrollton 149 Leased
GARLAND COMMUNITY HOSPITAL GARLAND 113 OWNED
LAKE POINT MEDICAL CENTER ROWLETT 92 OWNED
Houston, Texas Area Park Plaza Hospital (9) Houston 468 Owned
Twelve Oaks Hospital Houston 336 Owned
CYPRESS FAIRBANKS MEDICAL CENTER HOUSTON 149 OWNED
HOUSTON NORTHWEST MEDICAL CENTER HOUSTON 498 OWNED
SHARPSTOWN GENERAL HOSPITAL HOUSTON 190 OWNED
Other Texas Brownsville Medical Center Brownsville 177 Owned
Mid-Jefferson Hospital Nederland 138 Owned
Nacogdoches Medical Center Nacogdoches 150 Owned
Odessa Regional Hospital (10) Odessa 100 Owned
Park Place Hospital Port Arthur 236 Owned
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
LICENSED
GEOGRAPHIC AREA/STATE FACILITY LOCATION BEDS STATUS
- --------------------------- ------------------------------------------- ------------------- ------------- ---------
<S> <C> <C> <C> <C>
Providence Memorial Hospital El Paso 471 Owned
Sierra Medical Center El Paso 365 Owned
SOUTH PARK HOSPITAL & MEDICAL CENTER LUBBOCK 101 OWNED
SOUTHWEST GENERAL HOSPITAL SAN ANTONIO 286 OWNED
TRINITY VALLEY MEDICAL CENTER PALESTINE 150 OWNED
Alabama Brookwood Medical Center Birmingham 586 Owned
Lloyd Noland Hospital Birmingham 319 Owned
St. Clair Hospital (1)(11) Birmingham 82 Leased
Arkansas Central Arkansas Hospital Searcy 193 Owned
Methodist Hospital of Jonesboro (12) Jonesboro 104 Owned
National Park Medical Center Hot Springs 166 Owned
St. Mary's Regional Hospital Russellville 170 Owned
Georgia North Fulton Regional Hospital (1) Roswell 167 Leased
Spalding Regional Hospital Griffin 160 Owned
Indiana Culver Union Hospital Crawfordsville 120 Owned
WINONA MEMORIAL HOSPITAL INDIANAPOLIS 317 OWNED
Missouri Columbia Regional Hospital (13) Columbia 265 Owned
Kirksville Osteopathic Medical Center (14) Kirksville 119 Leased
Lucy Lee Hospital (1) Poplar Bluff 201 Leased
Lutheran Medical Center St. Louis 408 Owned
TWIN RIVERS REGIONAL MEDICAL CENTER KENNETT 126 OWNED
North Carolina Central Carolina Hospital Sanford 137 Owned
Frye Regional Medical Center (1) Hickory 355 Leased
Oregon EASTMORELAND HOSPITAL PORTLAND 100 OWNED
WOODLAND PARK HOSPITAL (3) PORTLAND 209 LEASED
South Carolina East Cooper Community Hospital Mount Pleasant 100 Owned
Hilton Head Hospital (15) Hilton Head 64 Owned
Piedmont Medical Center Rock Hill 268 Owned
Tennessee John W. Harton Regional Medical Center Tullahoma 137 Owned
Medical Center of Manchester (1) Manchester 49 Leased
Saint Francis Hospital Memphis 890 Owned
University Medical Center Lebanon 261 Owned
Nine additional states Saint Joseph Hospital Omaha, NE 374 Owned
DAVENPORT MEDICAL CENTER DAVENPORT, IA 150 OWNED
MINDEN MEDICAL CENTER MINDEN, LA 121 OWNED
SAINT VINCENT HOSPITAL WORCESTER, MA 432 OWNED
GULF COAST MEDICAL CENTER BILOXI, MI 189 OWNED
LAKE MEADE HOSPITAL MEDICAL CENTER NORTH LAS VEGAS, NV 198 OWNED
PUGET SOUND HOSPITAL TACOMA, WA 160 OWNED
PLATEAU MEDICAL CENTER OAK HILL, WV 91 OWNED
LANDER VALLEY MEDICAL CENTER (4) LANDER, WY 102 OWNED
</TABLE>
- ------------------------------
(1) Leased from a third party.
(2) Leased by a partnership in which Tenet's subsidiaries own a 75% interest.
(3) On leased land.
(4) Joint venture with minority interests owned by physicians.
(5) The acquisition of this facility was pending pursuant to a definitive
agreement at November 30, 1996. The acquisition was completed in December
1996.
(6) This facility was closed in December 1996.
(7) The acquisition of this facility was pending pursuant to a definitive
agreement at November 30, 1996. The acquisition was completed in January
1997.
(8) Effective September 1, 1996, the 352 bed license of Golden Glades Medical
Center was combined with the license of this nearby hospital resulting in
this hospital's licensed beds increasing to 699 licensed beds.
(9) Excludes the 38-bed Plaza Specialty Hospital in Houston, Texas, the
financial results of which are combined with Park Plaza Hospital.
(10) Owned by a partnership in which Tenet's subsidiaries own an 83% interest.
(11) A Tenet subsidiary owns a 50% interest in the limited liability company
that leases this hospital. This 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.
(12) Owned by a limited liability company of which Tenet owns 95% and is the
managing member.
(13) 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 1996.
(14) Tenet sold its lease of this hospital in December 1996.
(15) Owned by a partnership in which Tenet's subsidiaries own a 70% interest.
64
<PAGE>
GEOGRAPHIC AREA DISCUSSION
By providing Tenet with the opportunity to combine with a company having a
substantial portfolio of large, attractive urban and suburban hospitals known
for quality care and strong financial performance, the Merger supports major
strategic objectives of Tenet--to reinforce its position as a significant
provider of healthcare services in selected geographic areas throughout the
United States and enter attractive new geographic areas such as Arizona and
Massachusetts. Tenet believes that the Merger will create a stronger, more
geographically diverse company that will be better able to grow through
strategic acquisitions and partnerships. The combined company will continue to
emphasize the creation of strong integrated healthcare delivery systems. The
Merger also expands the Company's operations into several new geographic areas,
including Arizona, Iowa, Massachusetts, Mississippi, Nevada, Oregon, Washington,
West Virginia and Wyoming. The following discussion summarizes the Company's
strategy in two of the principal geographic areas where the OrNda hospitals
being acquired pursuant to the Merger will complement Tenet's existing
integrated systems.
SOUTHERN CALIFORNIA. Southern California is geographically large and
densely populated. Los Angeles and Orange counties alone had a combined
population of over 11.3 million people in 1990 according to the United States
Bureau of the Census. For healthcare services companies, southern California is
a highly competitive environment characterized by an increasingly high degree of
managed care penetration.
Tenet's strategy in southern California is to develop and expand its
integrated healthcare delivery system by combining its general hospitals and
related healthcare businesses with physicians, physician groups and ancillary
healthcare providers where appropriate in order to compete more effectively for
managed care contracts. Furthermore, Tenet intends to continue to join with
physicians and physician groups to form IPAs, PHOs or other appropriate
organizations that will enhance the ability of Tenet and its partners to enter
into additional managed care contracts, including capitated contracts under
which Tenet receives a fixed monthly payment per covered person in exchange for
which Tenet meets the healthcare needs of those covered by such contracts.
The Merger provides Tenet with the opportunity to expand and enhance its
integrated healthcare delivery system by adding OrNda's 19 existing southern
California hospitals and related healthcare operations to Tenet's 15 existing
hospitals and related healthcare operations. Following the Merger, Tenet will be
the largest integrated healthcare provider in southern California and will have
the widest geographical representation in the area. Tenet's southern California
general hospitals will include four tertiary hospitals (Centinela Hospital
Medical Center, Fountain Valley Regional Hospital and Medical Center, Tarzana
Regional Medical Center and Western Medical Center) and one quartenary hospital
(USC University Hospital), offering heart, liver and lung transplants as well as
gamma knife brain surgery.
The table below sets forth, on a historical combined basis, certain selected
historical operating statistics for those hospitals operated by Tenet and OrNda
in the southern California area.
<TABLE>
<CAPTION>
FISCAL YEARS(1)
----------------------------------
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Number of hospitals (at end of period)........................... 28 29 31
Licensed beds (at end of period)................................. 5,090 5,266 5,623
Net operating revenues........................................... $ 1,280.1 $ 1,589.4 $ 1,595.3
Admissions....................................................... 138,501 165,992 171,654
Equivalent admissions............................................ 179,300 218,967 228,961
Patient days..................................................... 702,576 848,174 846,565
Equivalent patient days.......................................... 908,164 1,104,840 1,119,859
Total outpatient visits.......................................... 811,129 934,490 1,302,480
</TABLE>
- ------------------------------
(1) For purposes of the above, financial and operating data for each of Tenet's
fiscal years ended May 31 of the respective years has been combined with
financial and operating data for each of OrNda's fiscal years ended August
31 of such year. Excludes one facility which has been deconsolidated for
financial reporting purposes.
65
<PAGE>
SOUTH FLORIDA. South Florida is a rapidly expanding metropolitan area that
encompasses Palm Beach, Broward and Dade counties. Those counties had a combined
population of approximately 4.1 million people in 1990 according to the United
States Bureau of the Census. The highly competitive south Florida healthcare
environment is characterized by an increasingly high degree of managed care
penetration.
The Tenet South Florida HealthSystem is an integrated healthcare delivery
system that currently consists of eight general hospitals, four of which are
tertiary care hospitals, and numerous related healthcare operations, including a
physical rehabilitation facility, a psychiatric hospital, two skilled nursing
facilities, over 50 owned or managed physician practices and outpatient surgery,
diagnostic, workers' compensation occupational therapy and health and fitness
centers. The Merger will enhance Tenet's ability to compete for managed care and
other contracts by adding OrNda's four existing south Florida general hospitals,
one of which is a tertiary care hospital, and related healthcare businesses to
the Tenet South Florida HealthSystem and expanding the system's geographic reach
further south to Miami and Coral Gables. Tenet recently further strengthened the
network with its January 1997 acquisition of North Shore Medical Center in
Miami. Tenet intends to continue to acquire or manage physician practices and to
join with physicians and physician groups to form IPAs, PHOs or other
appropriate organizations that will enhance the ability of Tenet and its
partners to enter into more managed care contracts, including capitated
contracts.
The table below sets forth, on a historical combined basis, certain selected
historical operating statistics for those facilities operated by Tenet and OrNda
in the south Florida area.
<TABLE>
<CAPTION>
FISCAL YEARS(1)
----------------------------------
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Number of hospitals (at end of year)............................. 9 9 10
Licensed beds (at end of year)................................... 3,197 3,197 3,328
Net operating revenues........................................... $ 834.2 $ 911.3 $ 956.3
Admissions....................................................... 86,519 92,309 96,239
Equivalent admissions............................................ 115,724 126,604 133,907
Patient days..................................................... 500,081 507,097 514,436
Equivalent patient days.......................................... 644,053 686,503 709,607
Total outpatient procedures...................................... 827,383 1,116,929 1,154,080
</TABLE>
- ------------------------------
(1) For purposes of the above, financial and operating data for each of Tenet's
fiscal years ended May 31 of the respective years has been combined with
financial and operating data for each of OrNda's fiscal years ended August
31 of such year.
OTHER DOMESTIC OPERATIONS
At November 30, 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. OrNda's
subsidiaries also own or operate extensive ancillary healthcare operations
similar to those of Tenet.
INVESTMENTS
At November 30, 1996, Tenet held as investments (i) 8,301,067 shares of
Vencor, representing an approximately 12.1% interest in Vencor, which operates
nursing homes and other healthcare businesses, (ii) 3,000,000 shares of TRC,
representing 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 Hillhaven), and other third parties its
leasehold interests in the 21 long-term care facilities and the psychiatric
hospital, but
66
<PAGE>
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 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 $91.8 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.
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, 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 the 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. New competitive strategies of hospitals
and other healthcare providers place increasing emphasis on the use of
alternative healthcare delivery systems (such as home health services,
outpatient surgery and emergency and diagnostic centers) that eliminate or
reduce lengths of hospital stays. The principal factors contributing to these
trends are advances in medical
67
<PAGE>
technology and pharmaceuticals, cost-containment efforts by managed care payors,
employers and traditional health insurers, changes in regulations and
reimbursement policies, increases in the number and type of competing healthcare
providers and changes in physician practice patterns. Tenet's future success
will depend, in part, on the ability of the Company's hospitals to continue to
attract and retain 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 its hospitals to form IPAs, (ii) having the
Company join with those IPAs, physicians and physician group practices to form
PHOs to contract with managed care and other payors and (iii) forming 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 technologically
advanced equipment, sponsoring training programs to educate physicians on
advanced medical procedures, using governing boards for each hospital, the sole
voting members of which are physicians and community members, to develop short
and long-term plans for the hospital and review and approve, as appropriate,
actions of the medical staff, including staff appointments, credentialing, peer
review and quality assurance,
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and otherwise creating an 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 and retain physicians to their staffs, enter into managed care
contracts, organize and structure integrated healthcare delivery systems,
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, 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.
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,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Medicare............................................................... 32.1% 33.9% 35.9% 38.9% 39.7%
Medicaid............................................................... 6.4 7.5 8.5 7.2 6.7
Private and Other...................................................... 61.5 58.6 55.6 53.9 53.6
--------- --------- --------- --------- ---------
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 AMH and three
months of results for the general hospitals acquired by Tenet in connection
with the AMH Merger.
The following table presents the percentage of net patient revenues of the
general hospitals of OrNda for fiscal years 1994, 1995 and 1996 under each of
the following programs:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Medicare................................................................................. 42.3% 36.4% 36.6%
Medicaid................................................................................. 12.3 11.0 12.5
Private and Other........................................................................ 45.4 52.6 50.9
--------- --------- ---------
Totals................................................................................... 100.0% 100.0% 100.0%
</TABLE>
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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, was 2.5%.
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). There was an increase of 2.0% 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.
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 will be adjusted in cost reporting years through
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
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
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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.
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 and OrNda'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. Various states have applied, or are considering
applying, for a Federal waiver from current Medicaid regulations to allow them
to serve some of their Medicaid participants through managed care providers.
Tennessee has implemented a revision and Texas has passed a law mandating the
State to apply for such a waiver. Louisiana is considering wider use of managed
care for its 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.
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CERTIFICATE OF NEED REQUIREMENTS. Some states require state approval for
construction and expansion of healthcare facilities, including findings of need
for additional or expanded healthcare facilities or services. Certificates of
Need, which are issued by governmental agencies with jurisdiction over
healthcare facilities, are at times required for capital expenditures exceeding
a prescribed amount, changes in bed capacity or services and certain other
matters. Following a number of years of decline, the number of states requiring
Certificates of Need is once again on the rise as state legislators once again
are looking at the Certificate of Need process as a way to contain rising
healthcare costs. At November 30, 1996, Tenet operated hospitals in 11 states
and OrNda operated hospitals in seven additional 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, 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 Safe Harbors under the Antikickback Amendments. 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.
The "Health Insurance Portability and Accountability Act of 1996," which
became effective January 1, 1997, amends, among other things, Title XI (42
U.S.C. 1301 ET SEQ.) to broaden the scope of current fraud and abuse laws to
include all health plans, whether or not they are reimbursed as a Federal
program.
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. 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 business, financial condition and results of
operations.
ENVIRONMENTAL REGULATIONS. The Company's healthcare operations generate
medical waste that must be disposed of in compliance with Federal, state and
local environmental laws, rules and regulations. The
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Company's operations, as well as the Company's purchases and sales of
facilities, are also subject to various other environmental laws, rules and
regulations. The costs of compliance do not, and the Company anticipates that
such costs 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 was acquired in fiscal
1996 and is in the process of becoming accredited for the first time, 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, the
primary voting members of which are physicians and community members, 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.
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
discontinued psychiatric business, including the Company's 1994 resolution of
the Federal government's investigation and a corresponding criminal plea
agreement involving such discontinued psychiatric business 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. The cases of three of the 740 individual
plaintiffs within one of the lawsuits currently are scheduled for trial in April
1997.
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, 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
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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 has been
denied. A class has not been certified and the Company believes that a 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 these and any additional lawsuits 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, which primarily represent the
estimated costs of defending the actions.
Two additional federal class actions filed in August 1993 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 Exchange Act. 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 filed with the 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.
In connection with the merger of AMH with and into a subsidiary of Tenet in
March 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 AMH 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. Tenet believes the Merger with OrNda will not be dilutive
after taking into account the cost savings that management believes may be
realized following the Merger. Nevertheless, the Merger has been approved by the
required majority of Tenet's outside directors.
In February 1996, OrNda's Midway in Los Angeles, California, which was
acquired when OrNda acquired Summit in April 1994, received an investigative
subpoena from the OIG. The subpoena states that it was issued in connection with
an OIG Investigation being conducted by the OIG concerning possible violations
of Medicare rules and regulations. Tenet understands that OrNda believes that
the basis
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for the investigative subpoena from the OIG that was served on Midway was a
civil qui tam action that had been filed in July 1995 against Midway Hospital
Medical Center, Inc. (a subsidiary of OrNda which owns Midway), Summit and OrNda
in the United States District Court for the Central District of California.
Tenet understands that this California Action originally was filed under a
court-ordered seal that prohibited OrNda from disclosing the action prior to
this time.
The California Action alleges, among other things, that there were
violations of the federal False Claims Act and the federal fraud and abuse and
anti-kickback provisions of the Medicare and Medicaid laws in connection with
certain of Midway's compensation arrangements with its physicians. The
California Action alleges that as a result of this allegedly wrongful conduct,
the United States is entitled to monetary damages and penalties. The California
Action also alleges in a second cause of action violations of the fraud and
abuse, medical staff and wrongful discharge laws of the State of California and
claims as a result of such wrongful conduct compensatory as well as punitive
damages.
Tenet understands that the OIG has expanded the California Action, which
initially related to only one of OrNda's hospitals (Midway, which was acquired
by OrNda from Summit), and the OIG Investigation to 11 other former Summit
hospitals owned by OrNda. In an apparently unrelated matter, the government has
requested and OrNda has provided records from a single hospital outside the
group acquired from Summit. Tenet understands that OrNda is fully cooperating
with the OIG. Tenet understands that OrNda and its outside counsel have held
numerous meetings with government attorneys with respect to this matter and, as
a result, OrNda believes that the OIG Investigation continues to be a civil
investigation focused primarily on arrangements between physicians and the
hospitals that may violate Medicare rules and regulations and not on the
hospitals' Medicare or Medicaid billing practices. If the outcome of the
California Action or OIG Investigation were unfavorable, OrNda could be subject
to Monetary Payments and also could be excluded from Medicare and other
government reimbursement programs, which Monetary Payments or exclusion could
have a material adverse effect on OrNda's financial condition or results of
operations. The result of the California Action, the OIG Investigation and their
impact, if any, cannot be predicted or estimated at this time. Tenet understands
that based on information currently available to OrNda, however, management of
OrNda believes that if the California Action and the OIG Investigation remain
primarily limited to physician arrangements, remain civil in nature and, with
the exception of only one of the hospitals, relate only to the practices of the
former Summit hospitals, the final outcome of the California Action and the OIG
Investigation will not have a material adverse effect on OrNda's financial
condition or results of operations. If any of the foregoing matters was to have
a material adverse effect on OrNda, it also could have a material adverse effect
on Tenet's business, financial condition and results of operations following the
Merger.
Tenet understands that OrNda is not aware of any additional litigation or
investigations concerning the matters described above. There can be no
assurance, however, that in the event any such additional litigation or
investigation is instituted and there is an unfavorable outcome, such result
would not have a material adverse effect on OrNda's financial condition or
results of operations. If such result was to have a material adverse effect on
OrNda, it also could have a material adverse effect on Tenet's business,
financial condition and results of operations following the Merger.
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. See "Risk
Factors--Legal Proceedings."
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
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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.
RECENT DEVELOPMENTS
In December 1996, OrNda acquired the Western Medical Centers in southern
California and in January 1997 Tenet acquired North Shore Medical Center in
Miami, Florida. Since those acquisitions were material pending acquisitions at
November 30, 1996, they have been included in the summary unaudited pro forma
financial information and the pro forma financial information. In December 1996,
Tenet sold its lease of the Kirksville Osteopathic Medical Center and OrNda
closed Westside Hospital. Since these latter two transactions are not material,
they have not been included in the summary unaudited pro forma financial
information or the pro forma financial information. See "Pro Forma Financial
Information."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information as of November 30, 1996, with
respect to each of Tenet's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- ----------- -------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS(1)
Jeffrey C. Barbakow.................... 52 Chairman and Chief Executive Officer
Michael H. Focht Sr.................... 54 President, Chief Operating Officer and Director
Trevor Fetter.......................... 36 Executive Vice President and Chief Financial Officer
Scott M. Brown......................... 51 Senior Vice President, General Counsel and Secretary
Raymond L. Mathiasen................... 53 Senior Vice President and Chief Accounting Officer
Bernice B. Bratter..................... 58 Director
Maurice J. DeWald...................... 56 Director
Peter de Wetter........................ 76 Director
Edward Egbert, M.D..................... 71 Director
Raymond A. Hay......................... 68 Director
Lester B. Korn......................... 60 Director
James P. Livingston.................... 70 Director
Thomas J. Pritzker..................... 46 Director
Richard S. Schweiker................... 70 Director
</TABLE>
- ------------------------------
(1) Pursuant to the Merger Agreement, Tenet has agreed that, promptly following
the Merger, it will increase the size of the Tenet Board of Directors from
11 to 14 persons. The three additional members are expected to be three
members of OrNda's current Board of Directors. Tenet's Board of Directors is
divided into three classes. Each director is elected to serve a three-year
term. No determination has yet been made as to which class each additional
member will be elected, but one will be elected to each of the three
classes.
JEFFREY C. BARBAKOW was elected by the Board to serve as Chief Executive
Officer and President of Tenet effective June 1, 1993. Effective July 28, 1993,
Mr. Barbakow was elected Chairman of the Board, at which time he relinquished
the office of President. Prior to June 1, 1993, Mr. Barbakow served as a
Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation, a
position he held from September 1991 through May 31, 1993. From 1988 until 1991,
Mr. Barbakow served as Chairman, President and Chief Executive Officer of MGM/UA
Communications, Inc. Prior to October 1988, Mr. Barbakow served as a Managing
Director of Merrill Lynch Capital Markets and an executive officer of several
Merrill Lynch affiliates. In addition, Mr. Barbakow served as a director of MGM
Grand, Inc. from November 1988 through May 1993. Mr. Barbakow has been a
director of Tenet since 1990.
MICHAEL H. FOCHT was elected by the Board to serve as Chief Operating
Officer of Tenet effective April 28, 1993, and to serve in the additional
position of President effective July 28, 1993. Mr. Focht served as Senior
Executive Vice President, Operations, of Tenet from 1991, and President and
Chief Executive Officer of Tenet's General Hospital Division from 1986. Mr.
Focht joined Tenet in 1978 and has served as a director of Tenet since 1990.
TREVOR 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.
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<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.
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 LLP).
BERNICE B. BRATTER served as Executive Director of Senior Health and Peer
Counseling, a non-profit healthcare organization located in Santa Monica,
California from 1980 through her retirement from that position on March 14,
1995. From March 1995 through September, 1996, Ms. Bratter lectured and served
as a consultant in the fields of not-for-profit corporations and healthcare.
Since October 1, 1996, Ms. Bratter has served as the President of the Los
Angeles Women's Foundation, a not-for-profit organization dedicated to reshaping
the status of women of all ages in southern California. Ms. Bratter has been a
director of Tenet since 1990.
MAURICE J. DEWALD is Chairman and Executive Officer of Verity Financial
Group, Inc., a private firm that he founded in 1993, which is involved in
investment and development projects, and President of DeWald Enterprises, a
private investment firm that he founded in 1991. From 1986 until 1990, Mr.
DeWald served as Managing Partner of the Los Angeles office of KPMG Peat Marwick
LLP. Mr. DeWald also is a director of Dai-Ichi Kangyo Bank of California and ARV
Assisted Living, Inc. Mr. DeWald has been a director of Tenet since 1991.
PETER DE WETTER served as Executive Vice President of Tenet from October
1979 until his retirement in May 1989. Mr. de Wetter has been a director of
Tenet since 1977.
EDWARD EGBERT retired as a physician in private practice on January 1, 1994.
From 1975 to 1982, Dr. Egbert served on the Governing Board of Sierra Medical
Center, a general hospital owned and operated by one of Tenet's subsidiaries.
Dr. Egbert has been a director of Tenet since 1975.
RAYMOND A. HAY has been Chairman and Chief Executive Officer of Aberdeen
Associates, a private investment firm, since 1992. Mr. Hay held the same
position with Hay-Faulstich & Associates from 1991 through January 1992, when
its operations were assumed by Aberdeen Associates. From 1983 until June 1991,
Mr. Hay served as Chairman and Chief Executive Officer of The LTV Corporation,
which filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code
in 1986. The petition received final approval in June 1993. Mr. Hay has been a
director of Tenet since 1985.
LESTER B. KORN has been a director of Tenet since 1993. Mr. Korn is Chairman
and Chief Executive Officer of Korn Tuttle Capital Group, a diversified holding
company based in Los Angeles, California. Mr. Korn served as the Chairman of
Korn/Ferry International, an executive search firm which he founded, from 1969
until May 1991, when he retired and became Chairman Emeritus. During 1987-1988,
he served as United States Ambassador to the United Nations Economic and Social
Council. Mr. Korn also serves as a director of ConAm Properties, Ltd.
JAMES P. LIVINGSTON served as an Executive Vice President of Tenet from 1977
until his retirement in June 1986. From 1984 until his retirement, Mr.
Livingston also served as President and Chief Executive Officer of Tenet's
former Health Products and Services Group. Mr. Livingston has been a director of
Tenet since 1975.
THOMAS J. PRITZKER has been the president and director of the corporation
that is the general partner of a limited partnership that is a general partner
of the sole general partner of GKH Investments, L.P. (the "Partnership"), since
1980. The sole general partner of the Partnership, GHK Partners, L.P., acted as
a financial advisor to AMH in connection with the acquisition of AMH by the
Company. Mr. Pritzker also
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has served as the Chairman of Healthcare COMPARE Corp., a firm involved in
providing medical review and cost management services to various types of
healthcare payor groups, since 1990, and President of Hyatt Corporation, a
diversified company primarily engaged in real estate and hotel management
activities, since 1979. Mr. Pritzker was elected a Director by the Board on
March 29, 1995.
RICHARD S. SCHWEIKER served as president of the American Council of Life
Insurance from 1983 until his retirement on December 31, 1994. Mr. Schweiker
also serves as a director of LabOne, Inc. Mr. Schweiker has been a director of
Tenet since 1984. From 1981 to 1983, Mr. Schweiker served as Secretary of Health
and Human Services.
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DESCRIPTION OF NOTES
GENERAL
The Senior Notes due 2003 will be issued pursuant to an Indenture (the
"Senior Note due 2003 Indenture") between the Company and The Bank of New York,
as Trustee (the "Senior Note due 2003 Trustee"). The Senior Notes due 2005 will
be issued pursuant to an Indenture (the "Senior Note due 2005 Indenture")
between the Company and The Bank of New York, as Trustee (the "Senior Note due
2005 Trustee"). The Senior Subordinated Notes will be issued pursuant to an
Indenture (the "Senior Subordinated Note Indenture" and, together with the
Senior Note due 2003 Indenture and the Senior Note due 2005 Indenture, the
"Indentures") between the Company and The Bank of New York, as Trustee (the
"Senior Subordinated Note Trustee" and, together with the Senior Note due 2003
Trustee and the Senior Note due 2005 Trustee, the "Trustees"). The terms of the
Notes include those stated in the Indentures and those made part of the
Indentures by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders of
Notes are referred to the Indentures and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indentures does not
purport to be complete and is qualified in its entirety by reference to the
Indentures, including the definitions therein of certain terms used below.
Copies of the proposed forms of Indentures have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. The definitions of
certain terms used in the following summary are set forth below under "--Certain
Definitions." As used in this "Description of Notes," the term the "Company"
refers to Tenet Healthcare Corporation and not to any of its Subsidiaries.
The Senior Notes will be general unsecured obligations of the Company,
senior to all subordinated Indebtedness of the Company, including the Senior
Subordinated Notes, the Company's 10 1/8% Senior Subordinated Notes due 2005
(the "2005 Senior Subordinated Notes") and the Company's 6% Exchangeable
Subordinated Notes due 2005 (the "2005 Exchangeable Subordinated Notes"), and
PARI PASSU in right of payment with all other existing and future unsubordinated
Indebtedness of the Company, including the Company's 9 5/8% Senior Notes due
2002 (the "2002 Senior Notes"), the Company's 8 5/8% Senior Notes due 2003 (the
"2003 Senior Notes" and, together with the 2002 Senior Notes, the "Existing
Senior Notes") and all Obligations under the New Credit Facility. On a pro forma
basis, as of November 30, 1996, after giving effect to the Merger and the
Refinancing, approximately $1.7 billion in principal amount of outstanding
indebtedness of the Company will by its terms be subordinated to the Senior
Notes.
The Senior Subordinated Notes will be general unsecured obligations of the
Company, subordinated in right of payment to all existing and future Senior Debt
of the Company, including the Senior Notes, the Existing Senior Notes and all
Obligations under the New Credit Facility, and will be PARI PASSU in right of
payment to the 2005 Senior Subordinated Notes and senior to the 2005
Exchangeable Subordinated Notes. On a pro forma basis, as of November 30, 1996,
after giving effect to the Merger and the Refinancing, Senior Debt of the
Company would have been approximately $3.0 billion. See "Historical and Pro
Forma Capitalization," "Related Transactions," "Description of the New Credit
Facility" and "--Subordination of Senior Subordinated Notes."
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes will
be effectively subordinated to all outstanding Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries. Any right of the Company to receive assets of any of
its Subsidiaries upon the latter's liquidation or reorganization or insolvency
(and the consequent right of the Holders of Notes to participate in those
assets) will be effectively subordinated to the claims of that Subsidiary's
creditors and preferred stockholders, except to the extent that the Company is
itself recognized as a creditor of such Subsidiary, in which case the claims of
the Company would still be subordinate to any security interest in the assets of
such Subsidiary and any Indebtedness of such Subsidiary senior to that held by
the Company. On a pro forma basis, as of November 30, 1996, after giving effect
to the Merger and the Refinancing, the outstanding debt of the Company's
Subsidiaries would have been approximately $341.5 million (based upon certain
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assumptions as to the amounts of indebtedness of OrNda to be redeemed or
repurchased and excluding trade payables of $451.7 million, intercompany debt
and other obligations). See "Risk Factors--Subsidiary Operations; Subordination"
and "Pro Forma Financial Information."
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes due 2003 will be unsecured senior obligations of the
Company limited in aggregate principal amount to $200.0 million and will mature
on January 15, 2003. The Senior Notes due 2005 will be unsecured senior
obligations of the Company limited in aggregate principal amount to $600.0
million and will mature on January 15, 2005. Interest on the Senior Notes due
2003 and the Senior Notes due 2005 will accrue at the respective rates per annum
set forth on the cover page of this Prospectus and will be payable semi-annually
in arrears on January 15 and July 15 of each year, commencing on July 15, 1997,
to Holders of record on the immediately preceding January 1 and July 1,
respectively. Interest on the Senior Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the date
of original issuance.
The Senior Subordinated Notes will be unsecured obligations of the Company
limited in aggregate principal amount to $500.0 million and will mature on
January 15, 2007. Interest on the Senior Subordinated Notes will accrue at the
rate per annum set forth on the cover page of this Prospectus and will be
payable semi-annually in arrears on January 15 and July 15 of each year,
commencing on July 15, 1997, to Holders of record on the immediately preceding
January 1 and July 1, respectively. Interest on the Senior Subordinated Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance.
Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments with respect to Notes, the Holders of which
have given wire transfer instructions, on or prior to the relevant record date,
to the paying agent, will be required to be made by wire transfer of immediately
available funds to the accounts specified by such Holders. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the applicable Trustee maintained for such purpose. The Notes will
be issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the option of the Company prior
to their maturity.
The Senior Subordinated Notes will not be redeemable at the option of the
Company prior to January 15, 2002. Thereafter, the Senior Subordinated Notes
will be subject to redemption at the option of the Company, in whole or from
time to time in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on January 15 of the
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------------- -----------
<S> <C>
2002........................................................................................ %
2003........................................................................................ %
2004........................................................................................ %
200 and thereafter.......................................................................... %
</TABLE>
If less than all of the Senior Subordinated Notes are to be redeemed at any
time, selection of Senior Subordinated Notes for redemption will be made by the
applicable Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Senior Subordinated Notes are then
listed, or, if the Senior Subordinated Notes are not so listed, on a pro rata
basis, by lot or by such
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method as the applicable Trustee shall deem fair and appropriate; provided that
Senior Subordinated Notes with a principal amount of $1,000 shall not be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Subordinated Notes to be redeemed at its registered address. If any
Senior Subordinated Note is to be redeemed in part only, the notice of
redemption that relates to such Senior Subordinated Note shall state the portion
of the principal amount thereof to be redeemed. A new Senior Subordinated Note
in principal amount equal to the unredeemed portion thereof will be issued in
the name of the Holder thereof upon cancellation of the original Senior
Subordinated Note. On and after the redemption date, interest will cease to
accrue on Senior Subordinated Notes or portions of them called for redemption.
The New Credit Facility will prohibit the Company from redeeming or
otherwise repurchasing the Senior Subordinated Notes prior to the stated
maturity thereof. See "Description of the New Credit Facility."
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company will not be required to make any mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event, each Holder of
Notes will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase (the "Change of
Control Payment") on a date that is not more than 90 days after the occurrence
of such Change of Control Triggering Event (the "Change of Control Payment
Date"). Within 30 days following any Change of Control Triggering Event, the
Company will mail, or at the Company's request the applicable Trustee will mail,
a notice to each Holder offering to repurchase the Notes held by such Holder
pursuant to the procedures specified in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control Triggering Event.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
and not withdrawn pursuant to the Change of Control Offer, (2) deposit with the
paying agent an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the applicable Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The paying agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the applicable Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Senior Subordinated Note Indenture will provide that, prior to
complying with the provisions of this covenant, but in any event within 90 days
following a Change of Control Triggering Event, the Company will either repay
all outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Senior
Subordinated Notes required by this covenant. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
A failure by the Company to comply with the provisions of the two preceding
paragraphs will constitute an Event of Default under the applicable Indenture.
Except as described above with respect to a Change of Control, the Indentures
will not contain provisions that permit the Holders of the Notes to
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require that the Company purchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction. See "--Events of Default and
Remedies."
The New Credit Facility will prohibit the Company from redeeming or
otherwise repurchasing the Senior Subordinated Notes prior to the stated
maturity thereof, and also will provide that certain change of control events
with respect to the Company will constitute a default thereunder. See
"Description of the New Credit Facility." Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. The indentures relating to the
Existing Senior Notes and the Senior Notes also may restrict the Company's
ability to purchase the Senior Subordinated Notes upon a Change of Control
Triggering Event. In the event a Change of Control occurs at a time when the
Company is prohibited from purchasing the Senior Subordinated Notes, the Company
could seek the consent of its lenders or noteholders to the purchase of the
Senior Subordinated Notes or could attempt to refinance the Indebtedness that
contains such prohibition. If the Company does not obtain such a consent or
repay such Indebtedness, the Company will remain prohibited from purchasing the
Senior Subordinated Notes. In such case, the Company's failure to purchase
tendered Senior Subordinated Notes would constitute an Event of Default under
the Senior Subordinated Notes Indenture which could, in turn, constitute a
default under other outstanding Indebtedness. In such circumstances, the
subordination provisions in the Senior Subordinated Note Indenture would likely
restrict payments to the Holders of Senior Subordinated Notes. See "Risk
Factors--Possible Inability to Repurchase Notes Upon a Change of Control" and
"--Subsidiary Operations; Subordination."
SUBORDINATION OF SENIOR SUBORDINATED NOTES
The payment of principal of, premium, if any, and interest on the Senior
Subordinated Notes will be subordinated in right of payment, as set forth in the
Senior Subordinated Note Indenture, to the prior payment in full of all Senior
Debt, whether outstanding on the date of the Senior Subordinated Note Indenture
or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt (including
interest accruing after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt, whether or not allowed or allowable as
a claim in such proceeding) before the Holders of Senior Subordinated Notes will
be entitled to receive any payment with respect to the Senior Subordinated
Notes, and until all Obligations with respect to Senior Debt are paid in full,
any distribution to which the Holders of Senior Subordinated Notes would be
entitled shall be made to the holders of Senior Debt (except (a) that Holders of
Senior Subordinated Notes may receive securities that (i) are subordinated at
least to the same extent as the Senior Subordinated Notes to Senior Debt and any
securities issued in exchange for Senior Debt, (ii) are unsecured (except to the
extent the Senior Subordinated Notes are secured), (iii) are not Guaranteed by
any Subsidiary of the Company (except to the extent the Senior Subordinated
Notes are so Guaranteed), and (iv) have a Weighted Average Life to Maturity and
final maturity that are not shorter than the Weighted Average Life to Maturity
of the Senior Subordinated Notes or any securities issued to holders of Senior
Debt under the New Credit Facility pursuant to a plan of reorganization or
readjustment, and (b) payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Senior
Subordinated Notes (except in such subordinated securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on Designated
Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Senior Subordinated Note
Trustee receives a notice of such default (a "Payment Blockage Notice"), for so
long as any Obligations are outstanding under the New Credit Facility, from the
Representative thereunder and,
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thereafter, from the holders or Representative of any Designated Senior Debt.
Payments on the Senior Subordinated Notes may and shall be resumed (a) in the
case of a payment default, upon the date on which such default is cured or
waived and (b) in the case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity of
any Designated Senior Debt has been accelerated. No new period of payment
blockage may be commenced within 360 days after the receipt by the Senior
Subordinated Note Trustee of any prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Subordinated Note Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice.
The Senior Subordinated Note Indenture will further require that the Company
promptly notify holders of Senior Debt if payment of the Senior Subordinated
Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Senior Subordinated Notes may recover
less ratably than creditors of the Company who are Holders of Senior Debt. On a
pro forma basis, as of November 30, 1996, after giving effect to the Merger and
the Refinancing, Senior Debt of the Company would have been approximately $3.0
billion. The Senior Subordinated Note Indenture will limit, subject to certain
financial tests, the amount of additional Indebtedness, including Senior Debt,
that the Company and its Subsidiaries can incur. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"DESIGNATED SENIOR DEBT" means (i) so long as any Obligations are
outstanding under the New Credit Facility, such Obligations and (ii) thereafter,
any other Senior Debt permitted under the Senior Subordinated Note Indenture the
principal amount of which is $100.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"SENIOR DEBT" means (i) Indebtedness under the New Credit Facility, (ii) the
Senior Notes, the Existing Senior Notes, any other Indebtedness permitted to be
incurred by the Company under the terms of the Senior Subordinated Note
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Senior Subordinated Notes and (iii) all Obligations with respect
to any of the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (v) the Senior Subordinated Notes, the
2005 Senior Subordinated Notes and the 2005 Exchangeable Subordinated Notes, (w)
any liability for Federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Senior Subordinated Note Indenture.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indentures will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of the Company's or any of its
Subsidiaries' Equity Interests (other than (w) Physician Joint Venture
Distributions, (x) dividends or distributions payable in Qualified Equity
Interests of the Company, (y) dividends or distributions payable to the Company
or any Subsidiary of the Company, and (z) dividends or distributions by any
Subsidiary of the Company payable to all holders of a class of Equity Interests
of such Subsidiary on a PRO RATA basis); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company; or (iii) make
any principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes issued under
such Indenture, except at the original final maturity date thereof or pursuant
to a Specified Exchange or the Refinancing (all such payments and other actions
set forth in clauses (i) through (iii) 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
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Trustees within 60 days prior to the date of such Restricted Payment) of the
asset(s) proposed to be transferred by the Company or such Subsidiary, as the
case may be, pursuant to such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four full fiscal quarter period
for which internal financial statements are available immediately preceding
the date of such Restricted Payment, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant in the Indentures
described below under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after March 1,
1995 (excluding Restricted Payments permitted by clauses (v), (w) and (x) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commencing
after March 1, 1995 to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), PLUS (ii) 100% of the aggregate
net cash proceeds received by the Company from the issue or sale (other than
to a Subsidiary of the Company) since March 1, 1995 of Qualified Equity
Interests of the Company or of debt securities of the Company or any of its
Subsidiaries that have been converted into or exchanged for such Qualified
Equity Interests of the Company, plus (iii) $20.0 million.
If no Default or Event of Default has occurred and is continuing, or would
occur as a consequence thereof, the foregoing provisions will not prohibit the
following Restricted Payments: (u) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indentures; (v) the
payment of cash dividends on any series of Disqualified Stock issued after the
date of the Indentures in an aggregate amount not to exceed the cash received by
the Company since the date of the Indentures upon issuance of such Disqualified
Stock; (w) 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)(ii) of the preceding paragraph; (x) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness or in exchange for or out of
the net cash proceeds from the substantially concurrent sale (other than to a
Subsidiary of the Company) of Qualified Equity Interests of the Company;
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (y) the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Subsidiary of the Company held by any member of the Company's (or
any of its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; PROVIDED that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $15.0 million in any twelve-month period; and (z) the
making and consummation of (A) a senior subordinated asset sale offer in
accordance with the provisions of the indenture relating to the 2005 Senior
Subordinated Notes or (B) a Change of Control Offer with respect to the Senior
Subordinated Notes in accordance with the provisions of the Senior Subordinated
Note Indenture or a change of control offer with respect to the 2005 Senior
Subordinated Notes or the 2005 Exchangeable Subordinated Notes in accordance
with the provisions of the indentures relating thereto.
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Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustees an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described under the caption "--Restricted Payments"
were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indentures will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") after the
date of the Indentures any Indebtedness (including Acquired Debt) and that the
Company will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the
Company may incur Indebtedness (including Acquired Debt) and the Company may
issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.5 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period. Indebtedness
consisting of reimbursement obligations in respect of a letter of credit will be
deemed to be incurred when the letter of credit is first issued.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of Indebtedness pursuant to the New
Credit Facility in an aggregate principal amount at any time outstanding not
to exceed an amount equal to $2.5 billion less the aggregate amount of all
mandatory repayments applied to permanently reduce the commitments with
respect to such Indebtedness;
(ii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iv) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indentures to be incurred (including,
without limitation, Existing Indebtedness);
(v) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(vi) 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 Indentures to be outstanding or any receivable or liability the payments
of which is determined by reference to a foreign currency; PROVIDED that the
notional principal amount of any such Hedging Obligation does not exceed the
principal amount of the Indebtedness to which such Hedging Obligation
relates;
(vii) the incurrence by the Company or any of its Subsidiaries of
Physician Support Obligations;
(viii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by tender, bid, performance, government contract,
surety or appeal bonds, standby letters of credit or warranty or contractual
service obligations of like nature, in each case to the extent incurred in
the ordinary course of business of the Company or such Subsidiary;
(ix) 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
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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 2.5 to 1, 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
(x) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an
aggregate principal amount at any time outstanding not to exceed $250.0
million.
LIENS
The Senior Note Indenture will provide that the Company will not, and will
not permit any of its subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien (except Permitted Liens) on any asset now
owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom unless all payments due under the
Senior Note Indenture and the Senior Notes are secured on an equal and ratable
basis with the Obligations so secured until such time as such obligations are no
longer secured by a Lien.
The Senior Subordinated Note Indenture will provide that the Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien to secure Indebtedness that is
pari passu with or subordinated in right of payment to the Senior Subordinated
Notes (except Permitted Liens) on any asset now owned or hereafter acquired, or
any income or profits therefrom or assign or convey any right to receive income
therefrom unless all payments due under the Senior Subordinated Note Indenture
and the Senior Subordinated Notes are secured on an equal and ratable basis with
the Obligations so secured until such time as such Obligations are no longer
secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indentures will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indentures, (b) the Indentures, (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, unless such Indebtedness was incurred in connection with or in
contemplation of such acquisition for the purpose of refinancing Indebtedness
which was tax-exempt, or in violation of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that the Consolidated Cash Flow of such Person is
not taken into account in determining whether such acquisition was permitted by
the terms of the Indentures except to the extent that such Consolidated Cash
Flow would be permitted to be dividends to the Company without the prior consent
or approval of any third party, (e) customary non-assignment provisions in
leases entered into in the ordinary course of business, (f) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (g) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such
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Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced, or (h) the New
Credit Facility and related documentation as the same is in effect on the date
of the Indentures and as amended or replaced from time to time, provided that no
such amendment or replacement is more restrictive as to the matters enumerated
above than the New Credit Facility and related documentation as in effect on the
date of the Indentures.
LINE OF BUSINESS
The Indentures will provide that the Company will not, and will not permit
any of its subsidiaries to, engage in any material extent in any business other
than the ownership, operation and management of Hospitals and Related
Businesses.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indentures will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indentures pursuant to supplemental indentures
in forms reasonably satisfactory to the Senior Note Trustee and the Senior
Subordinated Note Trustee, as the case may be; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant in the applicable Indenture described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
TRANSACTIONS WITH AFFILIATES
The Indentures will provide that the Company will not, and will not permit
any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make any contract, agreement, understanding, loan, advance or Guarantee
with, or for 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 applicable Trustee
(a) with respect to any Affiliate Transaction involving aggregate consideration
in excess of $5.0 million, a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $15.0 million, an opinion as to the fairness to the Company or such
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing; PROVIDED that (x)
transactions or payments pursuant to any employment arrangements or employee or
director benefit plans entered into by the Company or any of its Subsidiaries in
the ordinary
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course of business and consistent with the past practice of the Company or such
Subsidiary, (y) transactions between or among the Company and/or its
Subsidiaries and (z) transactions permitted by the provisions of the Indentures
described above under the caption "--Restricted Payments," in each case, shall
not be deemed to be Affiliate Transactions.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES
The Senior Note Indenture will provide that the Company will not permit any
Subsidiary, directly or indirectly, to Guarantee or secure the payment of any
other Indebtedness of the Company or any of its Subsidiaries (except
Indebtedness of a Subsidiary of such Subsidiary or Physician Support
Obligations) unless such Subsidiary simultaneously executes and delivers a
supplemental indenture to the Senior Note Indenture providing for the Guarantee
of the payment of the Senior Notes by such Subsidiary, which Guarantee shall be
senior to or PARI PASSU with such Subsidiary's Guarantee of or pledge to secure
such other Indebtedness. The Senior Subordinated Note Indenture will provide
that the Company will not permit any Subsidiary, directly or indirectly, to
Guarantee or secure the payment of any other Indebtedness of the Company or any
of its Subsidiaries (except Indebtedness of a Subsidiary of such Subsidiary or
Physician Support Obligations) unless such Subsidiary simultaneously executes
and delivers a supplemental indenture to the Senior Subordinated Note Indenture
providing for the Guarantee of the payment of the Senior Subordinated Notes by
such Subsidiary, which Guarantee shall be subordinated to such Subsidiary's
Guarantee of or pledge to secure such other Indebtedness to the same extent as
the Senior Subordinated Notes are subordinated to such other Indebtedness under
the Senior Subordinated Note Indenture. Notwithstanding the foregoing, any such
Guarantee by a Subsidiary of the Notes shall provide by its terms that it shall
be automatically and unconditionally released and discharged upon the sale or
other disposition, by way of merger or otherwise, to any Person not an Affiliate
of the Company, of all of the Company's stock in, or all or substantially all
the assets of, such Subsidiary. The forms of such supplemental indentures will
be attached as exhibits to the Indentures. The foregoing provisions will not be
applicable to any one or more Guarantees that otherwise would be prohibited of
up to $25.0 million in aggregate principal amount of Indebtedness of the Company
or its Subsidiaries at any time outstanding.
NO AMENDMENT TO SUBORDINATION PROVISIONS
The Senior Note Indenture will provide that the Company will not amend,
modify or alter the Senior Subordinated Note Indenture or the indentures
relating to the 2005 Senior Subordinated Notes or the 2005 Exchangeable
Subordinated Notes in any way that would (i) increase the principal of, advance
the final maturity date of or shorten the Weighted Average Life to Maturity of
(a) any 2005 Senior Subordinated Notes or 2005 Exchangeable Subordinated Notes
or (b) 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 Senior Notes or (ii) amend the provisions of Article 10 of
the Senior Subordinated Note Indenture (which relates to subordination) or the
subordination provisions of the indentures relating to the 2005 Senior
Subordinated Notes or the 2005 Exchangeable Subordinated Notes or any of the
defined terms used therein in a manner that would be adverse to the Holders of
the Senior Notes.
NO SENIOR SUBORDINATED DEBT
The Senior Subordinated Note Indenture will provide that the Company will
not incur any Indebtedness that is subordinate or junior in right of payment to
any Senior Debt and senior in any respect in right of payment to the Senior
Subordinated Notes.
REPORTS
The Indentures will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with
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respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability and make
such information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
The Indentures will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
respective series of Notes (whether or not prohibited by the subordination
provisions of the Senior Subordinated Note Indenture); (ii) default in payment
when due of the principal of or premium, if any, on the respective series of
Notes (whether or not prohibited by the subordination provisions of the Senior
Subordinated Note Indenture); (iii) failure by the Company to comply with the
provisions described under the captions "--Repurchase at the Option of Holders
Upon a Change of Control," "--Certain Covenants--Restricted Payments" or
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; (iv) failure by
the Company for 60 days after notice to comply with any of its other agreements
in the Indentures or the Notes; (v) in the case of the Senior Notes Indenture
only, any default occurs under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Significant
Subsidiaries (or the payment of which is Guaranteed by the Company or any of its
Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the
date of the Indentures or is thereafter created, which default (a) constitutes a
Payment Default or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or that has been so accelerated,
aggregates $25.0 million or more; (vi) in the case of the Senior Subordinated
Note Indenture only, any default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Significant Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee
exists on the date of the Senior Subordinated Note Indenture or is thereafter
created, which default (a) constitutes a failure to pay principal at final
maturity or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness that has not
been paid at final maturity or that has been so accelerated, aggregates $25.0
million or more; (vii) failure by the Company or any of its Significant
Subsidiaries to pay final judgments aggregating in excess of $25.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days; and
(viii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Notes or
Senior Subordinated Notes, as the case may be, may declare all the Senior Notes
or Senior Subordinated Notes, as the case may be, to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indentures or the Notes except as provided in the
Indentures. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the applicable Trustee in its
exercise of any trust or power. Either Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Subordinated
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Notes pursuant to the optional redemption provisions of the Senior Subordinated
Note Indenture, an equivalent premium shall also become and be immediately due
and payable to the extent permitted by law upon the acceleration of the Senior
Subordinated Notes. If an Event of Default occurs under the Senior Note
Indenture prior to maturity or under the Senior Subordinated Note Indenture
prior to January 15, 2002 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 Notes prior to such dates, then the premium
specified in the applicable Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of such Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
or Senior Subordinated Notes, as the case may be, then outstanding by notice to
the applicable Trustee on behalf of the Holders of all of the Senior Notes or
Senior Subordinated Notes, as the case may be, may waive any existing Default or
Event of Default and its consequences under the applicable Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Senior Notes or Senior Subordinated Notes, as the case may be.
The Company is required to deliver to each Trustee annually a statement
regarding compliance with the respective Indentures, and the Company is required
upon becoming aware of any Default or Event of Default, to deliver to the
Trustees a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDER
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indentures or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the Federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes or Senior
Subordinated Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the applicable Trustee, and the Company's obligations
in connection therewith and (iv) the Legal Defeasance provisions of the
applicable Indenture. In addition, the Company may, at its option and at any
time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Senior Note Indenture or the Senior
Subordinated Note Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Senior Notes or the Senior Subordinated Notes, as
the case may be. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "--Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Senior Notes or the Senior
Subordinated Notes, as the case may be.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the appropriate Trustee, in trust, for the
benefit of the Holders of the Senior Notes or the Senior Subordinated Notes, as
the case may be, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, and,
in the case of the Senior Subordinated Notes, the Company must specify whether
the Senior
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Subordinated Notes are being defeased to maturity or to a particular redemption
date (in which case the Company shall issue an irrevocable notice of redemption
as of a specified date that will be delivered by the applicable Trustee in
accordance with the redemption provisions of the Senior Subordinated Note
Indenture); (ii) in the case of Legal Defeasance, the Company shall have
delivered to the appropriate Trustee an opinion of counsel in the United States
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
applicable Indenture, there has been a change in the applicable Federal income
tax law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of such outstanding Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Legal Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance
before the date that is one year prior to the final maturity of the Notes, the
Company shall have delivered to the appropriate Trustee an opinion of counsel in
the United States confirming that the Holders of such outstanding Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Covenant Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the applicable Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound (other than a breach, violation or default resulting
from the borrowing of funds to be applied to such deposit); (vi) the Company
must have delivered to the appropriate Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the appropriate Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders of such Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the appropriate Trustee an Officers'
Certificate stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indentures.
The Registrar and the Trustees may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indentures. The Company is not required to transfer or exchange any Senior
Subordinated Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Subordinated Note for a period of 15 days before
a selection of Senior Subordinated Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes. See "--Global Notes."
GLOBAL NOTES
The Notes will each be issued in the form of one or more registered Notes in
book-entry form (each, a "Global Note") that will be deposited with, or on
behalf of, The Depositary Trust Company ("DTC") and registered in the name of
DTC's nominee. Except as set forth below, a Global Note may not be transferred
except as a whole by DTC to a nominee of DTC or any such nominee to a successor
of DTC or a nominee of such successor.
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So long as DTC or its nominee is the registered Holder of a Global Note, DTC
or its nominee, as the case may be, will be treated as the sole owner of it for
all purposes under the Indenture and the beneficial owners of Notes will be
entitled only to those rights and benefits afforded to them in accordance with
DTC's regular operating procedures. Upon specified written instructions of a
Participant (defined below), DTC will have its nominee assist Participants in
the exercise of certain Holders' rights, such as a demand for acceleration or an
instruction to the Trustee. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have Notes represented by a
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Notes in certificated form and will not be
considered the registered Holders thereof under the Indenture.
If (i) DTC is at any time unwilling or unable to continue as depository or
if at any time DTC ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and a
successor depository is not appointed by the Company within 90 days, (ii) an
Event of Default under the applicable Indenture with respect to the notes has
occurred and is continuing and the beneficial owners representing a majority in
principal amount of the Notes advise DTC to cease acting as depository or (iii)
the Company, in its sole discretion, determines at any time that the Notes shall
no longer be represented by a Global Note, the Company will issue individual
Notes of the applicable amount and in certificated form in exchange for a Global
Note. In any such instance, an owner of a beneficial interest in the Global Note
will be entitled to physical delivery of individual notes in certificated form
of like tenor, equal in principal amount to such beneficial interest and to have
such Notes in certificated form registered in its name.
DTC has advised the Company that it is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds certificates that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for the physical movement
of securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
None of the Company, the Trustee or the Underwriters will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial interests in a Global Note, or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indentures or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Senior Notes or Senior Subordinated
Notes, as the case may be, then outstanding (including consents obtained in
connection with a tender offer or exchange offer for such Notes), and any
existing default or compliance with any provision of the Indentures or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Senior Notes or Senior Subordinated Notes, as the case
may be (including consents obtained in connection with a tender offer or
exchange offer for such Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must
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consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Note or, in the case of the Senior Subordinated
Note Indenture, alter the provisions with respect to the redemption of the
Senior Subordinated Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders Upon a
Change of Control"), (iii) reduce the rate of or change the time for payment of
interest on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Senior Notes or Senior Subordinated Notes, as the case
may be, by the Holders of at least a majority in aggregate principal amount and
a waiver of the payment default that resulted from such acceleration), (v) make
any Note payable in money other than that stated in the Notes, (vi) make any
change in the provisions of the Indentures relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of or
premium, if any, or interest on the Notes, (vii) in the case of the Senior
Subordinated Note Indenture, waive a redemption payment with respect to any
Senior Subordinated Note (other than a payment required by one of the covenants
described above under the caption "--Repurchase at the Option of Holders Upon a
Change of Control") or (viii) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions of Article 10 of
the Senior Subordinated Note Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal amount
of the Senior Subordinated Notes then outstanding if such amendment would
adversely affect the rights of Holders of Senior Subordinated Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the appropriate Trustee may amend or supplement the Indentures
or the Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for any supplemental indenture described above under the caption
"--Certain Covenants-- Limitation on Issuances of Guarantees of Indebtedness by
Subsidiaries," to provide for the assumption of the Company's obligations to
Holders of Notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of Notes or
that does not adversely affect the legal rights under the Indentures of any such
Holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indentures under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indentures will contain certain limitations on the rights of the
Trustees, should either Trustee become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustees will be
permitted to engage in other transactions; however, if either Trustee acquires
any conflicting interest it must eliminate such conflict within 90 days, apply
to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Notes or Senior Subordinated Notes, as the case may be, will have the right to
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the applicable Trustee, subject to certain exceptions.
The Indentures provide that in case an Event of Default shall occur (which shall
not be cured), the Trustees will be required, in the exercise of their power, to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, neither Trustee will be under any obligation to
exercise any of its rights or powers under the Indentures at the request of any
Holder of Notes, unless such Holder shall have offered to the appropriate
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
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"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.
"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 and (ii)
the issuance or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause (i)
or (ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $25.0 million or (b) for net proceeds
in excess of $25.0 million. Notwithstanding the foregoing: (a) a transfer of
assets by the Company to a Subsidiary or by a Subsidiary to the Company or to
another Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to the
Company or to another Subsidiary, (c) a Restricted Payment that is permitted by
the covenant described above under the caption "--Certain Covenants--Restricted
Payments" and (d) a Hospital Swap will not be deemed to be an Asset Sale.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
and its Subsidiaries taken as a whole to any Person or group (as such term is
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a
Person or group who, prior to such transaction, held a majority of the voting
power of the voting stock of the Company, (ii) the acquisition by any Person or
group (as defined above) of a direct or indirect interest in more than 50% of
the voting power of the voting stock of the Company, by way of merger or
consolidation or otherwise, or (iii) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred, in which case a holder's ability
to obtain the benefit of a Change of Control Offer may be impaired. In addition,
no assurances can be given that the Company will be able to acquire Notes
tendered upon the occurrence of a Change of Control Triggering Event.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change
of Control and a Rating Decline.
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"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period PLUS (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), PLUS (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
PLUS (iii) the Fixed Charges of such Person and its Subsidiaries for such
period, to the extent that such Fixed Charges were deducted in computing such
Consolidated Net Income, PLUS (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation and
amortization were deducted in computing such Consolidated Net Income, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP but
excluding any one-time charge or expense incurred in order to consummate the
Refinancing; PROVIDED that (i) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock), less all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made in accordance with
GAAP as a result of the acquisition of such business) subsequent to the date of
the Indentures in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, and excluding the cumulative effect of a
change in accounting principles, all as determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indentures 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.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is
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mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to the date on which the applicable Notes mature.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indentures, until such amounts are repaid,
including all reimbursement obligations with respect to letters of credit
outstanding as of the date of the Indentures.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period, and (ii) the Consolidated Cash Flow and
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded.
"FIXED CHARGES" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, and net payments or receipts (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all cash dividend payments (and
non-cash dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, as in effect from time to time.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements,
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(ii) forward foreign exchange contracts or currency swap agreements and (iii)
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency values.
"HOSPITAL" means a hospital, outpatient clinic, long-term care facility or
other facility or business that is used or useful in or related to the provision
of healthcare services.
"HOSPITAL SWAP" means an exchange of assets by the Company or a Subsidiary
of the Company for one or more Hospitals and/or one or more Related Businesses
or for the Capital Stock of any Person owning one or more Hospitals and/or one
or more Related Businesses.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (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.
"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.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction with respect to any such lien, pledge, charge or
security interest).
"MOODY'S" means Moody's Investors Service, 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).
"NEW CREDIT FACILITY" means that certain Credit Agreement by and among the
Company and Morgan Guaranty Trust Company of New York and the other banks that
are party thereto, providing for $2.5 billion in aggregate principal amount of
Indebtedness, including any related notes, instruments and agreements executed
in connection therewith, and in each case as amended, modified, extended,
renewed, refunded, replaced or refinanced, in whole or in part, from time to
time.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"ORNDA" means OrNda HealthCorp, a Delaware corporation.
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"PAYMENT DEFAULT" means, for purposes of the Senior Note Indenture, any
failure to pay any scheduled installment of interest or principal on any
Indebtedness within the grace period provided for such payment in the
documentation governing such Indebtedness.
"PERMITTED LIENS" means (i) Liens in favor of the Company; (ii) 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 (unless such
Liens secure Indebtedness that was incurred in connection with or in
contemplation of such acquisition and is used to refinance tax-exempt
Indebtedness) and do not extend to any assets or the Company or its Subsidiaries
other than those of the Person merged into or consolidated with the Company or
that becomes a Subsidiary of the Company; (iii) 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 (unless such Liens secure Indebtedness that was incurred in
connection with or in contemplation of such acquisition and is used to refinance
tax-exempt Indebtedness); (iv) Liens to secure the performance of statutory
obligations, tender, bid, performance, government contract, surety or appeal
bonds or other obligations of a like nature incurred in the ordinary course of
business; (v) Liens existing on the date of the Indentures; (vi) 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; (vii) other Liens on assets of the Company or any Subsidiary
of the Company securing Indebtedness that is permitted by the terms of the
Indentures 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 (viii) Liens to secure Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that was secured by a Lien permitted under the Indentures
and that was incurred in accordance with the provisions of the Indentures;
PROVIDED that such Liens do not extend to or cover any property or assets of the
Company or any Subsidiary other than assets or property securing the
Indebtedness so refinanced.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used solely to extend, refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Subsidiaries; provided that, except in
the case of Indebtedness of the Company issued in exchange for, or the net
proceeds of which are used solely to extend, refinance, renew, replace, defease
or refund, Indebtedness of a Subsidiary of the Company: (i) the principal amount
of such Permitted Refinancing Indebtedness does not exceed the principal amount
of the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of any premiums paid and reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Senior Notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Senior Notes on subordination terms at least as favorable to the
Holders of Senior Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iv) such Indebtedness is incurred by the Company if the Company is
the obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (v) such Indebtedness is incurred by the Company or a
Subsidiary if a Subsidiary is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PHYSICIAN JOINT VENTURE DISTRIBUTIONS" means distributions made by the
Company or any of its Subsidiaries to any physician, pharmacist or other allied
healthcare professional in connection with the unwinding, liquidation or other
termination of any joint venture or similar arrangement between any such Person
and the Company or any of its Subsidiaries.
99
<PAGE>
"PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee incurred
in the ordinary course of business by the Company or a Subsidiary of the Company
in connection with any advance, loan or payment to, or on behalf of or for the
benefit of any physician, pharmacist or other allied healthcare professional for
the purpose of recruiting, redirecting or retaining the physician, pharmacist or
other allied healthcare professional to provide service to patients in the
service area of any Hospital or Related Business owned or operated by the
Company or any of its Subsidiaries; EXCLUDING, HOWEVER, compensation for
services provided by physicians, pharmacists or other allied healthcare
professionals to any Hospital or Related Business owned or operated by the
Company or any of its Subsidiaries.
"QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the Company
other than Disqualified Stock of the Company.
"RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both shall not make a rating of the Notes publicly available, a nationally
recognized securities rating agency or agencies, as the case may be, selected by
the Company, which shall be substituted for S&P or Moody's or both, as the case
may be.
"RATING CATEGORY" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining whether
the rating of the Notes has decreased by one or more gradations, gradations
within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or the
equivalent gradations for another Rating Agency) shall be taken into account
(e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as
from BB- to B+, will constitute a decrease of one gradation).
"RATING DATE" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) the first public notice of the occurrence of a Change
of Control or of the intention by the Company to effect a Change of Control.
"RATING DECLINE" means the occurrence on or within 90 days after the date
of the first public notice of the occurrence of a Change of Control or of the
intention by the Company to effect a Change of Control (which period shall be
extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by any of the Rating Agencies) of: (a) in
the event the Notes are rated by either Moody's or S&P on the Rating Date as
Investment Grade, a decrease in the rating of the Notes by both Rating Agencies
to a rating that is below Investment Grade, or (b) in the event the Notes are
rated below Investment Grade by both Rating Agencies on the Rating Date, a
decrease in the rating of the Notes by either Rating Agency by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).
"RELATED BUSINESS" means a healthcare business affiliated or associated
with a Hospital or any business related or ancillary to the provision of
healthcare services or information or the investment in, management, leasing or
operation of a Hospital.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indentures.
"S&P" means Standard & Poor's Corporation and its successors.
"SPECIFIED EXCHANGE" means any retirement of Indebtedness upon the exercise
by a holder of such Indebtedness, pursuant to the terms thereof, of any right to
exchange such Indebtedness for shares of common stock of Vencor, Inc. or any
successor thereto or any other equity securities, other than Equity Interests of
a Subsidiary, owned by the Company as of October 11, 1995, or for any securities
or other property received with respect to such common stock or equity
securities or cash in lieu thereof, whether or not such right is subject to the
Company's ability to pay an amount in cash in lieu thereof.
100
<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).
"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.
101
<PAGE>
DESCRIPTION OF THE NEW CREDIT FACILITY
In connection with the Merger and the Refinancing, Morgan Guaranty Trust
Company of New York ("Morgan Guaranty"), Bank of America NT&SA, The Bank of New
York and the Bank of Nova Scotia (collectively, the "Arranging Agents") and a
syndicate of other lenders (the "Lenders") will provide Tenet with a $2.5
billion revolving credit facility expiring in 2002. Tenet's obligations under
the New Credit Facility will rank PARI PASSU with the Senior Notes and will
constitute Senior Debt with respect to the Senior Subordinated Notes.
INTEREST RATE. It is anticipated that loans under the New Credit Facility
will bear interest, at the option of Tenet, at either (i) a base rate equal to
the higher of the rate announced from time to time by Morgan Guaranty as its
prime rate or the daily federal funds rate plus 50 basis points or (ii) the
London interbank offered rate (as adjusted for certain reserve requirements) for
1-, 2-, 3- or 6-month periods plus an interest margin ranging from 22.50 to
68.75 basis points based on the ratio of Tenet's consolidated total debt to net
earnings before interest, taxes, depreciation and amortization. Facility fees
also will be payable to each Lender based on the amount of such Lender's
commitment to make loans at rates ranging from 12.50 basis points to 31.25 basis
points as determined by reference to the same ratio.
COVENANTS. It is contemplated that the credit agreement entered into in
connection with the New Credit Facility (the "Credit Agreement") will include
various affirmative, negative and financial covenants, including, without
limitation, (i) restrictions on disposition of assets and the making of certain
investments, (ii) a prohibition on the prepayment, redemption or defeasance of
the Senior Subordinated Notes and other Tenet subordinated indebtedness prior to
the stated maturity thereof, (iii) limitations on subsidiary debt incurrence and
lien incurrence, (iv) limitations on mergers and changes of business, (v) a
minimum consolidated net worth requirement, a minimum fixed charge coverage
ratio and a maximum leverage ratio and (vi) a prohibition on dividends and stock
repurchases prior to Tenet's senior long-term unsecured debt being rated
investment grade by Moody's and S&P.
EVENTS OF DEFAULT. It is anticipated that events of default under the
Credit Agreement will include various events of default customary for such type
of agreement. Without limitation, it is anticipated that a change of control of
the Company will constitute an event of default under the Credit Agreement.
CONDITIONS. It is contemplated that the Credit Agreement will provide that
the obligations of the Lenders to provide the New Credit Facility will be
subject to the satisfaction or waiver of certain conditions, including, among
others (i) consummation of the Merger, (ii) repayment and cancellation of
indebtedness under Tenet's and OrNda's existing bank facilities and (iii) no
material adverse change in the business, operations, properties or financial
condition of Tenet and its subsidiaries and OrNda and its subsidiaries, taken as
a whole.
102
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc. ("JPMSI") and
Smith Barney Inc. (collectively, the "Underwriters"), each of the Underwriters
has severally agreed to purchase from the Company, and the Company has agreed to
sell to each of the Underwriters, the respective principal amounts of Senior
Notes due 2003, Senior Notes due 2005 and Senior Subordinated Notes set forth
opposite its name below, at the public offering price set forth on the cover
page of this Prospectus, less the underwriting discount:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF SENIOR
OF SENIOR NOTES OF SENIOR NOTES SUBORDINATED
UNDERWRITER DUE 2003 DUE 2005 NOTES
- ------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation..................... $ $ $
Goldman, Sachs & Co..............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................
J.P. Morgan Securities Inc.......................
Smith Barney Inc.................................
---------------- ---------------- ----------------
Total........................................ $ 200,000,000 $ 600,000,000 $ 500,000,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent, including the
consummation of the Merger and the establishment of the New Credit Facility. The
Company has agreed to indemnify the Underwriters against certain liabilities and
expenses, including liabilities under the Securities Act or to contribute to
payments that the Underwriters may be required to make in respect thereof. The
nature of the Underwriters' obligations is such that the Underwriters are
committed to purchase all of the Notes if any of the Notes are purchased by
them.
The Underwriters have advised the Company that they propose to offer the
Notes directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such offering price
less a concession not to exceed % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, discounts not in excess of
% of the principal amount of the Notes to certain other dealers. After the
initial public offering of the Notes, the offering price and other selling terms
may be changed by the Underwriters.
The Notes have been approved for listing, subject to official notice of
issuance, on the NYSE. Nevertheless, the Notes are new issues of securities,
have no established trading market and may not be widely distributed. The
Company has been advised by the Underwriters that, following the completion of
the Offering, the Underwriters presently intend to make a market in the Notes as
permitted by applicable laws and regulations. However, the Underwriters are
under no obligation to do so and may discontinue any market making activities at
any time at the sole discretion of the Underwriters. No assurance can be given
as to the liquidity of any trading market for the Notes.
DLJ has provided and is currently retained to provide certain investment
banking services to the Company for which it has received and is entitled to
receive usual and customary fees. DLJ acted as financial advisor to the Company
in connection with the Merger, for which it is entitled to receive usual and
customary fees. DLJ is also acting as dealer manager in connection with the
OrNda Tender Offers and the Consent Solicitations and will receive usual and
customary fees for such services.
JPMSI and certain of its affiliates have provided and are expected to
continue to provide certain investment banking and commercial banking services
to the Company for which they have received or will receive usual and customary
fees. Morgan Guaranty, an affiliate of JPMSI, is the lead bank under the
103
<PAGE>
Company's existing credit facility and will be the lead Arranging Agent under
the New Credit Facility replacing such existing credit facility. See
"Description of the New Credit Facility."
LEGAL MATTERS
Certain legal matters as to the validity of the Notes offered hereby will be
passed upon for the Company by Scott M. Brown, Senior Vice President and General
Counsel of the Company and Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California. The validity of the Notes will be passed upon for the
Underwriters by Sullivan & Cromwell, Los Angeles, California. With respect to
certain matters governed by Nevada law, Scott M. Brown, Skadden, Arps, Slate,
Meagher & Flom LLP and Sullivan & Cromwell will rely on the opinion of Woodburn
and Wedge, Reno, Nevada. As of January 6, 1997, Mr. Brown owned 2,449 shares of
Tenet Common Stock and had outstanding options to purchase 145,634 shares of
Tenet Common Stock pursuant to Tenet benefit plans.
EXPERTS
The consolidated financial statements and schedule of Tenet Healthcare
Corporation as of May 31, 1996 and 1995, and for each of the years in the
three-year period ended May 31, 1996, have been included and incorporated by
reference herein and in the Registration Statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, included and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The report of KPMG Peat Marwick LLP covering the
consolidated financial statements refers to a change in the method of accounting
for income taxes in 1994.
The consolidated financial statements of OrNda HealthCorp at August 31, 1996
and 1995 and for each of the three years in the period ended August 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
104
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
Financial Statements:
Report of Independent Auditors........................................................................... F-2
Consolidated Statements of Operations for the years ended May 31, 1994, 1995 and 1996.................... F-3
Consolidated Balance Sheets as of May 31, 1995 and 1996.................................................. F-4
Consolidated Statements of Cash Flows for the years ended May 31, 1994, 1995 and 1996.................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the years ended May 31, 1994, 1995 and
1996................................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Unaudited Condensed Consolidated Balance Sheets as of May 31, 1996 and November 30, 1996................. F-24
Unaudited Condensed Consolidated Statements of Income for the three months and six months ended November
30, 1995 and 1996...................................................................................... F-25
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 1995 and
1996................................................................................................... F-26
Notes to Unaudited Condensed Consolidated Financial Statements........................................... F-27
ORNDA HEALTHCORP AND SUBSIDIARIES
Financial Statements:
Report of Independent Auditors........................................................................... F-29
Consolidated Statements of Operations for the years ended August 31, 1994, 1995 and 1996................. F-30
Consolidated Balance Sheets as of August 31, 1995 and 1996............................................... F-31
Consolidated Statements of Shareholders' Equity for the years ended August 31, 1994, 1995 and 1996....... F-32
Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1995 and 1996................. F-33
Notes to Consolidated Financial Statements............................................................... F-34
Unaudited Consolidated Statements of Income for the three months ended November 30, 1995 and 1996........ F-52
Unaudited Consolidated Balance Sheets as of August 31, 1996 and November 30, 1996........................ F-53
Unaudited Consolidated Statements of Cash Flows for the three months ended November 30, 1995 and 1996.... F-54
Notes to Unaudited Consolidated Financial Statements..................................................... F-55
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Tenet Healthcare Corporation:
We have audited the accompanying consolidated balance sheets of Tenet
Healthcare Corporation and subsidiaries as of May 31, 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.
KPMG Peat Marwick LLP
Los Angeles, California
July 25, 1996
F-2
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
-------------------------------
1994 1995 1996
--------- --------- ---------
(DOLLAR AMOUNTS, EXCEPT PER
SHARE
AMOUNTS, ARE EXPRESSED IN
MILLIONS)
<S> <C> <C> <C>
Net operating revenues......................................................... $ 2,943 $ 3,318 $ 5,559
--------- --------- ---------
Operating expenses:
Salaries and benefits........................................................ (1,293) (1,367) (2,194)
Supplies..................................................................... (339) (432) (764)
Provision for doubtful accounts.............................................. (107) (137) (290)
Other operating expenses..................................................... (667) (759) (1,212)
Depreciation................................................................. (143) (164) (240)
Amortization................................................................. (18) (31) (81)
Impairment losses............................................................ -- -- (86)
Restructuring charges........................................................ (77) (37) --
--------- --------- ---------
Operating income............................................................... 299 391 692
--------- --------- ---------
Interest expense, net of capitalized portion................................... (70) (138) (312)
Investment earnings............................................................ 28 27 22
Equity in earnings of unconsolidated affiliates................................ 23 28 20
Minority interests in income of consolidated subsidiaries...................... (8) (9) (22)
Net gain (loss) on disposals of facilities and long-term investments........... 88 (2) 329
Gains on sales of subsidiary's common stock.................................... -- 32 17
--------- --------- ---------
Income from continuing operations before income taxes.......................... 360 329 746
Taxes on income................................................................ (144) (135) (348)
--------- --------- ---------
Income from continuing operations.............................................. 216 194 398
Discontinued operations........................................................ (701) (9) (25)
Extraordinary charges from early extinguishment of debt........................ -- (20) (23)
Cumulative effect of a change in accounting principle.......................... 60 -- --
--------- --------- ---------
Net income (loss).............................................................. $ (425) $ 165 $ 350
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per share:
Primary:
Continuing operations...................................................... $ 1.29 $ 1.10 $ 1.90
Discontinued operations.................................................... (4.19) (0.06) (0.12)
Extraordinary charge....................................................... -- (0.11) (0.11)
Cumulative effect of a change in accounting principle...................... 0.36 -- --
--------- --------- ---------
$ (2.54) $ 0.93 $ 1.67
--------- --------- ---------
--------- --------- ---------
Fully diluted:
Continuing operations...................................................... $ 1.23 $ 1.06 $ 1.86
Discontinued operations.................................................... (4.10) (0.05) (0.12)
Extraordinary charges...................................................... -- (0.10) (0.11)
Cumulative effect of a change in accounting principle...................... 0.33 -- --
--------- --------- ---------
$ (2.54) $ 0.91 $ 1.63
--------- --------- ---------
--------- --------- ---------
Weighted average shares and share equivalents outstanding (in thousands):
Primary...................................................................... 167,024 176,817 209,492
Fully diluted................................................................ 181,087 190,139 216,676
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31
--------------------
1995 1996
--------- ---------
(DOLLAR AMOUNTS
ARE EXPRESSED
IN MILLIONS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................................... $ 155 $ 89
Short-term investments in debt securities.................................................... 139 112
Accounts and notes receivable, less allowance for doubtful accounts
($184 in 1995 and $156 in 1996)............................................................ 565 838
Inventories of supplies, at cost............................................................. 116 128
Deferred income taxes........................................................................ 410 279
Assets held for sale......................................................................... 184 39
Prepaid expenses and other current assets.................................................... 55 60
--------- ---------
Total current assets....................................................................... 1,624 1,545
--------- ---------
Investments and other assets................................................................... 362 518
Property, plant and equipment, net............................................................. 3,319 3,648
Costs in excess of net assets acquired, less accumulated amortization
($21 in 1995 and $86 in 1996)................................................................ 2,511 2,574
Other intangible assets, at cost, less accumulated amortization
($37 in 1995 and in 1996).................................................................... 102 47
--------- ---------
$ 7,918 $ 8,332
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................................ $ 252 $ 60
Accounts payable............................................................................. 359 380
Employee compensation and benefits........................................................... 162 120
Accrued interest payable..................................................................... 57 68
Income taxes payable......................................................................... 2 33
Other current liabilities.................................................................... 524 473
--------- ---------
Total current liabilities.................................................................. 1,356 1,134
--------- ---------
Long-term debt, net of current portion......................................................... 3,273 3,191
Other long-term liabilities and minority interests............................................. 1,002 977
Deferred income taxes.......................................................................... 301 394
Commitments and contingencies
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000 shares; 218,713,406 shares issued at
May 31, 1995 and May 31, 1996.............................................................. 16 16
Additional paid-in capital................................................................... 1,502 1,542
Unrealized gains on investments in debt and equity securities................................ -- 28
Retained earnings............................................................................ 740 1,090
Less common stock in treasury, at cost, 18,775,274 at May 31, 1995 and 2,790,967 shares at
May 31, 1996............................................................................... (272) (40)
--------- ---------
Total shareholders' equity................................................................. 1,986 2,636
--------- ---------
$ 7,918 $ 8,332
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
-------------------------------
1994 1995 1996
--------- --------- ---------
(DOLLAR AMOUNTS ARE EXPRESSED
IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................................... $ (425) $ 165 $ 350
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization...................................................... 198 195 321
Deferred income taxes.............................................................. (253) 95 243
Gains on sales of facilities and long-term investments............................. (88) (30) (346)
Additions to reserves for discontinued operations, impairment losses and
restructuring charges............................................................ 1,175 51 127
Extraordinary charges from early extinguishment of debt............................ -- 20 23
Other items........................................................................ (22) (6) 12
Increase (decrease) in cash from changes in operating assets and liabilities, net of
effects from purchases of new businesses:
Accounts and notes receivable, net................................................. (65) (47) (256)
Inventories, prepaid expenses and other current assets............................. (21) 1 (12)
Accounts payable, accrued expenses and income taxes payable........................ (31) (28) (64)
Noncurrent accrued expenses and other liabilities.................................. (2) 4 (106)
Net expenditures for discontinued operations and restructuring charges............... (319) (427) (97)
--------- --------- ---------
Net cash provided by (used in) operating activities................................ 147 (7) 195
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment........................................... (185) (264) (370)
Purchases of new businesses, net of cash acquired.................................... (5) (1,429) (410)
Proceeds from sales of facilities, long-term investments and other assets............ 569 172 548
Other items.......................................................................... 7 8 (36)
--------- --------- ---------
Net cash provided by (used in) investing activities................................ 386 (1,513) (268)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings............................................................. 91 3,445 2,961
Loan payments........................................................................ (428) (2,091) (3,187)
Proceeds from exercises of performance investment plan options....................... -- -- 203
Proceeds from exercises of stock options............................................. 1 3 30
Cash dividends paid to shareholders.................................................. (40) -- --
Other items.......................................................................... 15 5 --
--------- --------- ---------
Net cash provided by (used in) financing activities................................ (361) 1,362 7
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................... 172 (158) (66)
Cash and cash equivalents at beginning of year..................................... 141 313 155
--------- --------- ---------
Cash and cash equivalents at end of year........................................... $ 313 $ 155 $ 89
--------- --------- ---------
--------- --------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURES
The Company paid interest (net of amounts capitalized) of $62 million, $113
million, and $279 million for the years ended May 31, 1994, 1995, and 1996,
respectively. Income taxes paid during the same years amounted to $30 million,
$45 million and $28 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.
F-5
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ADDITIONAL
OUTSTANDING ISSUED PAID-IN UNREALIZED RETAINED TREASURY
SHARES AMOUNT CAPITAL GAINS EARNINGS STOCK
----------- ----------- ----------- ------------- ----------- -----------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS,
SHARE AMOUNTS IN THOUSANDS)
<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)
----------- --- ----------- --- ----------- -----
----------- --- ----------- --- ----------- -----
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $2.7 billion, $3.4
billion and $6.2 billion for the years ended May 31, 1994, 1995 and 1996,
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 1994 and 1995 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.
E. CASH EQUIVALENTS
The Company treats highly liquid investments with an original maturity of
three months or less as cash equivalents.
F-7
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
F-8
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
F-9
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITIONS AND DISPOSALS OF FACILITIES (CONTINUED)
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 $202 million in
1995 and $51 million in 1996. Operating profits before general corporate
overhead costs were $39 million in 1995 and $7 million in 1996.
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:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Land....................................................................... $ 238 $ 266
Buildings and improvements................................................. 2,593 2,863
Construction in progress................................................... 97 118
Equipment.................................................................. 1,215 1,351
--------- ---------
4,143 4,598
Less accumulated depreciation and amortization............................. 824 950
--------- ---------
Net property, plant and equipment.......................................... $ 3,319 $ 3,648
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. LONG-TERM DEBT AND LEASE OBLIGATIONS
A. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN MILLIONS)
<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..................................................................................... 293 294
10 1/8% Senior Subordinated Notes due 2005, $900 million face value, net of $21.8 million
unamortized discount......................................................................... 877 878
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......................................................................... 96 102
Notes and capital lease obligations secured by plant and equipment, weighted average interest
rate of approximately 9.6% in 1995 and 11.2% in 1996, payable in installments to 2009........ 153 116
Convertible floating-rate debentures........................................................... 219 --
Unsecured medium-term notes due 1997........................................................... 73 36
Other notes, primarily unsecured............................................................... 7 19
--------- ---------
3,525 3,251
Less current portion........................................................................... 252 60
--------- ---------
$ 3,273 $ 3,191
--------- ---------
--------- ---------
</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.
F-11
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
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 through the exercise of
F-12
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
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 8.1% in
1994, 8.3% during 1995 and 9.0% during 1996.
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 Poor's 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>
LATER
1997 1998 1999 2000 2001 YEARS
--------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<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 $98 million in 1994, $111 million in 1995, and $177 million in
1996.
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.
F-13
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INCOME TAXES
Taxes on income from continuing operations consist of the following amounts:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Currently payable:
Federal............................................................. $ 159 $ 101 $ 194
State............................................................... 31 18 35
Foreign............................................................. 6 9 5
--------- --------- ---------
196 128 234
Deferred:
Federal............................................................. (46) -- 80
State............................................................... (6) 2 11
--------- --------- ---------
(52) 2 91
--------- --------- ---------
Other................................................................. -- 5 23
--------- --------- ---------
$ 144 $ 135 $ 348
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the Company's effective income tax rate and the
statutory federal income tax rate is shown below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS OF DOLLARS AND AS A
PERCENT OF PRETAX INCOME)
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory federal rate.............. $ 126 35.0% $ 115 35.0% $ 261 35.0%
State income taxes, net of federal income tax
benefit............................................ 17 4.6% 14 4.2% 29 3.9%
Goodwill amortization................................ -- -- 5 1.5% 23 3.0%
Gain on sale of foreign operations................... -- -- -- -- 30 4.1%
Other................................................ 1 0.4% 1 0.3% 5 0.6%
----- --- ----- --- ----- ---
Taxes on income from continuing operations and
effective tax rates................................ $ 144 40.0% $ 135 41.0% $ 348 46.6%
----- --- ----- --- ----- ---
----- --- ----- --- ----- ---
</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."
F-14
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities as of May 31, 1995 and 1996 relate to
the following:
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
----------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Depreciation and fixed-asset basis differences............................ $ -- $ 566 $ -- $ 546
Reserves related to discontinued operations & restructuring charges....... 81 -- 87 --
Receivables--doubtful accounts and adjustments............................ 112 -- 118 --
Cash-basis accounting change.............................................. -- 16 -- 8
Accruals for insurance risks.............................................. 81 -- 92 --
Intangible assets......................................................... -- 2 4 --
Other long-term liabilities............................................... 121 -- 82 --
Benefit plans............................................................. 99 -- 78 --
Other accrued liabilities................................................. 53 -- 58 --
Investments and other assets.............................................. 17 -- -- 87
Federal and state net operating loss carryforwards........................ 137 -- -- --
Other items............................................................... -- 8 7 --
----- ----- ----- -----
$ 701 $ 592 $ 526 $ 641
----- ----- ----- -----
----- ----- ----- -----
</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
F-15
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. CLAIMS AND LAWSUITS (CONTINUED)
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.
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, 1994, 1995 and 1996, 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
F-16
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. CLAIMS AND LAWSUITS (CONTINUED)
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. 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
F-17
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. PREFERRED STOCK PURCHASE RIGHTS AND PREFERRED STOCK (CONTINUED)
be entitled upon exercise to purchase, for the then-current exercise price of
the right, common stock of the surviving company having a market value equal to
two times the exercise price of the rights. The plan also provides that, in the
event of certain other mergers or business combinations, certain self-dealing
transactions or the acquisition by a person of stock having 30% or more of the
Company's general voting power, each holder of a right generally will be
entitled upon exercise to purchase, for the then-current exercise price of the
right, the number of shares of Series A Preferred Stock having a market value
equal to two times the exercise price of the rights.
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 $12 million in fiscal 1994, $4 million in 1995, and $2 million in 1996.
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>
1995 1996
------------ ------------
(SHARES OF COMMON STOCK)
<S> <C> <C>
Outstanding at beginning of year (1983 and 1991 plans)................................ 15,426,593 19,617,125
Granted ($13.875 to $20.875 per share in 1995 and 1996)............................... 6,241,700 3,619,346
Exercised ($4.405 to $17.50 per share in 1995 and 1996)............................... (705,022) (2,459,664)
Canceled and other adjustments........................................................ (1,346,146) (1,812,579)
------------ ------------
Outstanding at end of year ($4.405 to $22.438 per share at May 31, 1996).............. 19,617,125 18,964,228
------------ ------------
------------ ------------
Exercisable at end of year............................................................ 8,967,874 9,800,152
------------ ------------
------------ ------------
</TABLE>
In September 1994 a new 1994 Directors Stock Option Plan replaced a 1991
Director Restricted Share Plan which replaced 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 exercise price equal
F-18
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCK BENEFIT PLANS (CONTINUED)
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 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 1994 and 1995.
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.
F-19
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. EMPLOYEE RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status of the AMI Plans and
amounts recognized in the consolidated financial statements as of May 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested..................................................................... $ 271 $ 249
Accumulated................................................................ 282 264
--------- ---------
--------- ---------
Projected benefit obligation................................................. 285 264
Plan assets at fair value, primarily listed stocks and corporate bonds....... (223) (296)
--------- ---------
Shortfall/(excess) of plan assets compared to projected benefit obligation... 62 (32)
Unrecognized net gain........................................................ 13 80
--------- ---------
Pension liability............................................................ $ 75 $ 48
--------- ---------
--------- ---------
</TABLE>
Net pension cost for the AMI Plans was $2 million and $4 million for the
three months ended May 31, 1995 and for the year ended May 31, 1996,
respectively. The discount rate used in determining the actuarial present value
of the projected benefit obligation for the AMI Plans approximated 7.0% at May
31, 1995 and 8.0% as of May 31, 1996. 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
F-20
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. INVESTMENTS (CONTINUED)
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 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.
F-21
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. RESTRUCTURING CHARGES (CONTINUED)
Actual costs incurred and charged against the restructuring reserves were
approximately $35 million in 1994, $23 million in 1995 and $32 million in 1996.
The balances of the reserves are included in other current liabilities or other
long-term liabilities in the Company's consolidated balance sheets at May 31,
1995 and 1996.
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 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.
F-22
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The following table shows the Company's interest rate swaps and their
weighted average interest rates as of the end of the most recent two fiscal
years. Variable interest rates may change significantly, affecting future cash
flows.
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN MILLIONS)
<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.................................................... 5.7% 6.0%
Contract duration................................................... 2 Y ars 1 Year
Notional amount for agreements under which the Company pays fixed
rates............................................................... $120 $69
Average pay rate.................................................... 8.5% 8.7%
Average receive rate................................................ 5.6% 5.8%
Contract duration................................................... 1-5 Y ars 3-4 Years
</TABLE>
F-23
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1996 1996
--------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................. $ 89.2 $ 56.8
Short-term investments, at cost which approximates market............................. 111.8 103.1
Accounts and notes receivable, less allowance for doubtful accounts ($156.0 at May 31
and $182.2 at November 30).......................................................... 838.4 1,006.3
Inventories of supplies, at cost...................................................... 127.6 134.7
Deferred income taxes................................................................. 278.9 253.6
Prepaid expenses and other current assets............................................. 98.9 81.3
--------- ------------
Total current assets................................................................ 1,544.8 1,635.8
--------- ------------
Investments and other assets............................................................ 517.7 505.9
Property and equipment, at cost......................................................... 4,597.7 4,789.9
Less accumulated depreciation and amortization........................................ 948.9 1,051.8
--------- ------------
Net property and equipment............................................................ 3,648.8 3,738.1
--------- ------------
Intangible assets, at cost less accumulated amortization ($123.0 at May 31 and $160.5 at
November 30).......................................................................... 2,621.1 2,692.7
--------- ------------
$ 8,332.4 $ 8,572.5
--------- ------------
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................................................... $ 60.0 $ 41.6
Short-term borrowings and notes....................................................... 2.0 2.8
Accounts payable...................................................................... 380.4 266.7
Accrued employee compensation and benefits............................................ 120.4 136.2
Accrued interest payable.............................................................. 68.1 71.0
Income taxes payable.................................................................. 32.8 16.0
Other current liabilities............................................................. 470.8 410.6
--------- ------------
Total current liabilities........................................................... 1,134.5 944.9
--------- ------------
Long-term debt, net of current portion.................................................. 3,191.1 3,332.5
Deferred income taxes................................................................... 394.0 424.5
Other long-term liabilities and minority interests...................................... 976.5 1,024.4
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000 shares; 218,713,406 shares
issued at May 31, 1996 and 219,981,043 shares issued at November 30, 1996........... 16.4 16.5
Other shareholders' equity............................................................ 2,660.3 2,868.4
Less common stock in treasury, at cost, 2,790,967 shares at May 31, 1996 and 2,676,091
shares at November 30, 1996......................................................... (40.4) (38.7)
--------- ------------
Total shareholders' equity.......................................................... 2,636.3 2,846.2
--------- ------------
$ 8,332.4 $ 8,572.5
--------- ------------
--------- ------------
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-24
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
---------------------- ----------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues........................................... $ 1,370.9 $ 1,476.1 $ 2,654.8 $ 2,914.7
---------- ---------- ---------- ----------
Operating expenses:
Salaries and benefits.......................................... 544.7 581.4 1,046.9 1,150.1
Supplies....................................................... 186.0 204.1 364.7 395.1
Provision for doubtful accounts................................ 69.7 78.7 137.0 153.2
Other operating expenses....................................... 296.7 320.2 578.3 641.9
Depreciation................................................... 61.3 63.8 122.7 127.0
Amortization................................................... 21.2 21.7 40.0 42.6
---------- ---------- ---------- ----------
Operating income................................................. 191.3 206.2 365.2 404.8
---------- ---------- ---------- ----------
Interest expense, net of capitalized portion..................... (81.3) (70.1) (158.4) (141.1)
Investment earnings.............................................. 5.4 5.5 12.7 10.3
Equity in earnings of unconsolidated affiliates.................. 7.1 0.7 14.0 1.3
Minority interests............................................... (5.0) (5.5) (10.6) (10.1)
Gains on sales of facilities..................................... 171.1 -- 294.6 --
Gains on subsidiary's sale of common stock....................... 17.3 -- 17.3 --
---------- ---------- ---------- ----------
Income before income taxes....................................... 305.9 136.8 534.8 265.2
Taxes on income.................................................. (123.1) (60.0) (233.7) (116.0)
---------- ---------- ---------- ----------
Net income....................................................... $ 182.8 $ 76.8 $ 301.1 $ 149.2
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share:
Primary........................................................ $ 0.90 $ 0.35 $ 1.48 $ 0.68
Fully diluted.................................................. $ 0.85 $ 0.35 $ 1.41 $ 0.68
Weighted average shares and share equivalents outstanding--fully
diluted (in thousands)......................................... 216,183 220,669 216,175 220,096
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-25
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ---------
(IN MILLIONS)
<S> <C> <C>
Net cash provided by (used in) operating activities, including net expenditures for
discontinued operations and restructuring charges........................................ $ 11.1 $ (14.2)
---------- ---------
Cash flows from investing activities:
Proceeds from sales of facilities and other assets....................................... 402.8 40.3
Purchases of property and equipment...................................................... (160.5) (95.4)
Purchases of new businesses, net of cash acquired........................................ (367.3) (159.7)
Collection of note receivable............................................................ -- 67.1
Other items.............................................................................. (9.9) (0.8)
---------- ---------
Net cash used in investing activities.................................................. (134.9) (148.5)
---------- ---------
Cash flows from financing activities:
Proceeds from borrowings................................................................. 1,079.2 751.4
Payments of borrowings................................................................... (1,065.9) (636.2)
Proceeds from stock options exercised.................................................... 9.4 14.6
Proceeds from exercises of performance investment options................................ 44.9 --
Sales of common stock under employee stock purchase plan................................. -- 4.8
Dividends to minority interests.......................................................... -- (4.3)
---------- ---------
Net cash provided by financing activities.............................................. 67.6 130.3
---------- ---------
Net decrease in cash and cash equivalents.................................................. (56.2) (32.4)
Cash and cash equivalents at beginning of period........................................... 155.0 89.2
---------- ---------
Cash and cash equivalents at end of period................................................. $ 98.8 $ 56.8
---------- ---------
---------- ---------
Supplemental disclosures:
Interest paid............................................................................ $ 150.4 $ 130.9
Income taxes paid, net of refunds received............................................... 19.7 97.4
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-26
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments that are necessary to fairly state the
financial position of Tenet Healthcare Corporation, its cash flows and the
results of its operations for the periods indicated. All the adjustments
affecting net income are of a normal recurring nature. As used herein, the
"Company" means Tenet Healthcare Corporation and its subsidiaries, unless
the context requires otherwise.
The Company presumes that users of this interim financial information have
read or have access to the Company's audited financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the preceding fiscal year and that the adequacy of additional
disclosure needed for a fair presentation may be determined in that context.
Accordingly, footnotes and other disclosure which would substantially
duplicate the disclosure contained in the Company's most recent annual
report to security holders have been omitted. The patient volumes and net
operating revenues of the Company's domestic general hospitals are subject
to seasonal variations caused by a number of factors, including but not
necessarily limited to, seasonal cycles of illness, climate and weather
conditions, vacation patterns of both hospital patients and admitting
physicians and other factors relating to the timing of elective hospital
procedures. Net income also is not necessarily representative of operations
for a full year for various reasons, including interest rates, acquisitions
and disposals of facilities and long-term assets, revenue allowances and
discount fluctuations, the timing of price changes and fluctuations in
quarterly tax rates. These same considerations apply to all year-to-year
comparisons.
2. On October 17, 1996, the Company announced the signing of a definitive
merger agreement with OrNda HealthCorp ("OrNda"). Under the terms of the
agreement, OrNda shareholders will receive 1.35 shares of Tenet Healthcare
Corporation common stock (approximately 85.9 million shares in the
aggregate) for each share of OrNda common stock in a tax-free exchange. The
transaction includes the assumption of approximately $1.4 billion in OrNda
debt, and is expected to close in late January 1997. Upon completion of the
acquisition, which will be accounted for as a pooling of interests, the
combined company will operate 125 facilities in 22 states (excluding
transactions taking place after November 30, 1996).
OrNda's net operating revenues and net income for its latest fiscal year
ended August 31, 1996 were $2.1 billion and $99.9 million, respectively.
The following unaudited pro forma data summarizes the combined results of
operations of the Company and OrNda restated to reflect the combination as a
pooling of interests.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
YEAR ENDED --------------------
MAY 31, 1996 1995 1996
------------ --------- ---------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net operating revenues............................................ $ 7,705.7 $ 3,632.4 $ 4,104.7
Net income........................................................ 498.2 336.9 198.8
Earnings per share................................................ $ 1.70 $ 1.14 $ 0.66
</TABLE>
3. During the three-month and six-month periods ended November 30, 1996, actual
costs incurred and charged against the Company's reserves for discontinued
operations were approximately $9.7 million and $23.2 million, respectively.
Costs incurred and charged against restructuring reserves were approximately
$13.4 million for the three months ended November 30, 1996 and $16.5 million
for the six months then ended. These reserves are included in other current
liabilities or other long-term liabilities in the Company's balance sheets
at May 31, 1996 and November 30, 1996.
4. During the quarter ended November 30, 1996, the Company acquired Lloyd
Noland Hospital, a 319-bed acute care hospital in Birmingham, Alabama, for
$47.0 million in cash. The Company also
F-27
<PAGE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquired several physician practices. The results of operations of the
acquired businesses have been included in the Company's consolidated
statements of income from the dates of acquisition. In January 1997, the
Company acquired North Shore Medical Center, a 357-bed acute care hospital
in Miami, Florida. All of these transactions have been or will be accounted
for as purchases. In December 1996, the Company sold its lease of the
Kirksville Osteopathic Medical Center, a 119-bed hospital in Kirksville,
Missouri.
5. As a result of the redemption and/or conversion of all of the Company's
convertible subordinated floating-rate debentures during the year ended May
31, 1996, there are no potentially dilutive securities except for employee
stock options. Consequently, primary and fully-diluted earnings per share
for the quarter and six-months ended November 30, 1996 are the same.
Fully-diluted earnings per share for the quarter and six-months ended
November 30, 1995 include the effects of the convertible subordinated
floating-rate debentures which were outstanding during the period.
6. The plaintiffs' motion to remand the Justin Love vs. National Medical
Enterprises, et al. case (which case is described in Note 7B of the Notes to
Consolidated Financial Statements of the Company for its fiscal year ended
May 31, 1996) from the U.S. District Court in Houston, Texas, to Texas state
court has been denied. There have been no other material changes to the
description of i) Professional and General Liability Insurance set forth in
Note 7A of the Notes to Consolidated Financial Statements of the Company for
its fiscal year ended May 31, 1996 or ii) Significant Legal Proceedings set
forth in Note 7B of the Notes to Consolidated Financial Statements of the
Company for its fiscal year ended May 31, 1996. 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 unresolved legal proceedings cannot
reasonably be esimated, 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.
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
OrNda HealthCorp
We have audited the accompanying consolidated balance sheets of OrNda
HealthCorp and Subsidiaries as of August 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended August 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 consolidated financial position of
OrNda HealthCorp and Subsidiaries at August 31, 1995 and 1996, and the
consolidated results of operations and cash flows for each of the three years in
the period ended August 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Nashville, Tennessee
October 25, 1996
F-29
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total Revenue........................................................... $ 1,274,359 $ 1,842,701 $ 2,147,232
Costs and Expenses:
Salaries and benefits................................................. 574,152 803,081 935,386
Supplies.............................................................. 158,884 236,189 291,570
Purchased services.................................................... 119,095 207,599 203,219
Provision for doubtful accounts....................................... 86,249 122,193 141,833
Other operating expenses.............................................. 156,474 211,606 230,786
Depreciation and amortization......................................... 66,765 85,170 103,828
Interest expense...................................................... 83,428 109,100 107,243
Interest income....................................................... (2,862) (4,582) (4,399)
Special executive compensation........................................ 2,530 -- --
Merger transaction expenses........................................... 29,992 -- --
Loss (gain) on asset sales............................................ 45,272 (973) --
Minority interests.................................................... 3,999 240 7,781
------------ ------------ ------------
(49,619) 73,078 129,985
Income from investments in Houston Northwest Medical Center............. 3,634 14,006 5,128
------------ ------------ ------------
Income (loss) before income tax expense and extraordinary items......... (45,985) 87,084 135,113
Income tax expense...................................................... 1,057 15,772 35,242
------------ ------------ ------------
Income (loss) before extraordinary items................................ (47,042) 71,312 99,871
Extraordinary items..................................................... (12,296) -- --
------------ ------------ ------------
Net income (loss)....................................................... (59,338) 71,312 99,871
Preferred stock dividend requirements................................... (1,867) (2,000) (332)
------------ ------------ ------------
Net income (loss) applicable to common and common equivalent shares..... $ (61,205) $ 69,312 $ 99,539
------------ ------------ ------------
------------ ------------ ------------
Earnings (loss) per common and common equivalent share:
Income (loss) before extraordinary items.............................. $ (1.29) $ 1.53 $ 1.73
Extraordinary items................................................... (0.33) -- --
------------ ------------ ------------
Net income (loss)..................................................... $ (1.62) $ 1.53 $ 1.73
------------ ------------ ------------
------------ ------------ ------------
Earnings (loss) per share assuming full dilution:
Income (loss) before extraordinary items.............................. $ (1.29) $ 1.51 $ 1.72
Extraordinary items................................................... (0.33) -- --
------------ ------------ ------------
Net income (loss)..................................................... $ (1.62) $ 1.51 $ 1.72
------------ ------------ ------------
------------ ------------ ------------
Weighted average common and dilutive common equivalent shares
outstanding........................................................... 37,879 45,294 57,509
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares outstanding assuming full dilution....... 37,879 47,382 58,064
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See the accompanying notes.
F-30
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
AS OF AUGUST 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................................... $ 4,963 $ 17,435
Patient accounts receivable, net of allowance for uncollectible accounts of $58,632
and $78,447 at August 31, 1995 and 1996, respectively............................. 307,601 379,874
Supplies, at cost................................................................... 34,097 42,168
Other............................................................................... 57,052 86,338
------------ ------------
Total Current Assets.............................................................. 403,713 525,815
Property, Plant and Equipment, at cost:
Land................................................................................ 126,436 152,449
Buildings and improvements.......................................................... 870,352 1,062,953
Equipment and fixtures.............................................................. 359,979 490,498
------------ ------------
1,356,767 1,705,900
Less accumulated depreciation and amortization...................................... 288,410 370,707
------------ ------------
1,068,357 1,335,193
Investments in Houston Northwest Medical Center....................................... 73,755 --
Excess of Purchase Price Over Net Assets Acquired, net of accumulated amortization.... 318,029 497,806
Other Assets.......................................................................... 82,550 107,714
------------ ------------
$ 1,946,404 $ 2,466,528
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................... $ 117,258 $ 168,403
Accrued expenses and other liabilities.............................................. 220,851 209,525
Current maturities of long-term debt................................................ 60,182 59,750
------------ ------------
Total Current Liabilities......................................................... 398,291 437,678
Long-term Debt........................................................................ 1,013,423 1,229,930
Other Liabilities..................................................................... 141,552 158,503
Shareholders' Equity:
Convertible preferred stock, $.01 par value, 10,000,000 authorized shares, issued
and outstanding 1,329,701 shares at August 31, 1995............................... 20,112 --
Common stock, $.01 par value authorized 200,000,000 shares, issued and outstanding
44,877,804 and 58,250,996 shares at August 31, 1995 and 1996, respectively........ 449 583
Additional paid-in capital.......................................................... 414,805 633,983
Retained earnings (deficit)......................................................... (94,020) 5,851
Unrealized gains on available-for-sale securities, net of tax....................... 51,792 --
------------ ------------
393,138 640,417
------------ ------------
$ 1,946,404 $ 2,466,528
------------ ------------
------------ ------------
</TABLE>
See the accompanying notes.
F-31
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
COMMON STOCK STOCK ADDITIONAL RETAINED
---------------------- --------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) OTHER
--------- ----------- --------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1993............... 34,483 $ 345 1,194 $ 18,062 $ 299,137 $ (105,436) $ --
Issuance of common stock............... 8,961 89 -- -- 102,416 -- --
Paid-in-kind dividends on PIK
preferred............................ -- -- 123 1,867 (1,867) -- --
Conversion of convertible preferred.... 7 -- (7) (104) 104 -- --
Stock option compensation.............. -- -- -- -- 2,530 -- --
Net loss............................... -- -- -- -- -- (59,338) --
Net unrealized gain on available-
for-sale securities, net of tax...... -- -- -- -- -- -- 70,859
Pooling adjustment to conform AHM's
fiscal year.......................... -- -- -- -- -- (558) --
--------- ----- --------- ---------- ---------- ----------- ----------
BALANCE AT AUGUST 31, 1994............... 43,451 434 1,310 19,825 402,320 (165,332) 70,859
Issuance of common stock............... 1,313 14 -- -- 10,980 -- --
Paid-in-kind dividend on PIK
preferred............................ -- -- 134 2,000 (2,000) -- --
Conversion of convertible preferred.... 114 1 (114) (1,713) 1,712 -- --
Tax effect of Summit options........... -- -- -- -- 1,793 -- --
Net income............................. -- -- -- -- -- 71,312 --
Decrease in unrealized gain on
available-for-sale securities, net of
tax.................................. -- -- -- -- -- -- (19,067)
--------- ----- --------- ---------- ---------- ----------- ----------
BALANCE AT AUGUST 31, 1995............... 44,878 449 1,330 20,112 414,805 (94,020) 51,792
Issuance of common stock............... 12,017 120 -- -- 199,192 -- --
Paid-in-kind dividend on PIK
preferred............................ -- -- 33 332 (332) -- --
Conversion of convertible preferred.... 1,356 14 (1,356) (20,333) 20,319 -- --
Redemption of preferred stock.......... -- -- (7) (111) (1) -- --
Net income............................. -- -- -- -- -- 99,871 --
Decrease in unrealized gain on
available-for-sale securities, net of
tax.................................. -- -- -- -- -- -- (4,791)
Elimination of unrealized gain on
investment in HNW upon acquisition of
HNW.................................. -- -- -- -- -- -- (47,001)
--------- ----- --------- ---------- ---------- ----------- ----------
BALANCE AT AUGUST 31, 1996............... 58,251 $ 583 -- -- $ 633,983 $ 5,851 --
--------- ----- --------- ---------- ---------- ----------- ----------
--------- ----- --------- ---------- ---------- ----------- ----------
</TABLE>
See the accompanying notes.
F-32
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOW PROVIDED BY OPERATING ACTIVITIES:
Net income (loss).............................................................. $ (59,338) $ 71,312 $ 99,871
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Non-cash portion of income from investments in Houston Northwest Medical
Center..................................................................... (1,049) (11,344) (4,213)
Non-cash portion of special executive compensation........................... 2,530 -- --
Loss (gain) on asset sales................................................... 45,272 (973) --
Extraordinary items.......................................................... 12,296 -- --
Depreciation and amortization................................................ 66,765 85,170 103,828
Provision for doubtful accounts.............................................. 86,249 122,193 141,833
Amortization of debt discount................................................ 411 33 13
Noncash pooling expenses related to AHM Merger............................... 13,166 -- --
Changes in assets and liabilities net of effects from acquisitions and
dispositions of hospitals:
Net patient accounts receivable............................................ (93,089) (143,348) (158,077)
Other current assets....................................................... 5,943 (9,379) (19,894)
Other assets............................................................... (5,230) (3,087) 400
Accounts payable, accrued expenses and other current liabilities........... (10,744) 18,690 (36,105)
Other liabilities.......................................................... (25,017) 3,452 6,097
Other........................................................................ (2,162) -- --
Proceeds from sales of trading investment security............................. -- -- 20,625
--------- --------- ---------
Net cash provided by operating activities................................ 36,003 132,719 154,378
--------- --------- ---------
CASH FLOW USED IN INVESTING ACTIVITIES:
Acquisitions of hospitals and related assets................................... (361,475) (60,251) (431,193)
Proceeds from sales of assets.................................................. 6,893 18,912 3,037
Capital expenditures........................................................... (47,724) (71,910) (102,573)
Issuance of notes receivable................................................... (7,025) (2,810) (6,213)
Payments received on long-term notes and other receivables..................... 1,572 12,484 6,067
Other investing activities..................................................... 7,453 (5,789) (1,719)
--------- --------- ---------
Net cash used in investing activities.................................... (400,306) (109,364) (532,594)
--------- --------- ---------
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Issuance of stock.............................................................. 6,293 7,029 199,312
Principal payments on long-term debt borrowings................................ (486,151) (142,071) (120,435)
Proceeds received on long-term debt borrowings................................. 860,865 101,177 321,000
Financing costs incurred in connection with long-term borrowings............... (21,207) (637) (3,797)
Other.......................................................................... (1,147) (1,264) (5,392)
--------- --------- ---------
Net cash provided by (used in) financing activities...................... 358,653 (35,766) 390,688
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (5,650) (12,411) 12,472
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................... 25,914 17,374 4,963
Pooling adjustment to beginning of period balance to conform AHM's fiscal year... (2,890) -- --
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................... $ 17,374 $ 4,963 $ 17,435
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)......................................... $ 86,575 $ 108,598 $ 107,432
Income taxes................................................................. 387 1,825 28,920
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Preferred stock dividends...................................................... 1,867 2,000 332
Stock issued for acquisitions of hospitals and related assets.................. 96,212 3,965 --
Capital lease obligations incurred............................................. 4,346 2,605 196
</TABLE>
See the accompanying notes.
F-33
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1--GENERAL AND ACCOUNTING POLICIES
REPORTING ENTITY: OrNda HealthCorp ("Company"), which is incorporated in
the State of Delaware, is a provider of health care services through the
operation of general acute care hospitals located primarily in the southern and
western United States. Of the 49 general acute care hospitals operated by the
Company at August 31, 1996, 19 hospitals are located in California of which 17
hospitals are located in the southern California area. In addition, 5 hospitals
are located in southern Florida and 6 hospitals are located in Arizona. The
concentration of hospitals in California, southern Florida and Arizona increases
the risk that any adverse economic, regulatory or other developments that may
occur in such areas may adversely affect the Company's operations or financial
condition.
CONSOLIDATION: The consolidated financial statements include the accounts
of the Company, its majority owned subsidiaries and limited liability
corporations and partnerships in which the Company or one of its subsidiaries is
a general partner and has a controlling interest. Limited partner distributions
are shown as "minority interests" in the Consolidated Statements of Operations.
All material intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform to
the current year presentation. The results of hospital operations acquired in
purchase transactions are included from their respective acquisition dates.
USE OF ESTIMATES IN FINANCIAL STATEMENTS: Judgment and estimation is
exercised by management in certain areas of the preparation of financial
statements. Some of the more significant areas include the allowance for
uncollectible accounts, settlement amounts due to or receivable from fiscal
intermediaries, reserves for self-insurance risks, and reserves for litigation.
Management believes that such estimates are adequate.
TOTAL REVENUE: Total revenue represents net patient service revenue and
other revenue and is reported at the net realizable amounts due from patients,
third-party payors, and others for services rendered. Net patient service
revenue generated from Medicare and Medicaid/Medi-Cal reimbursement programs
accounted for approximately 57%, 51% and 52% of total net patient service
revenue for the years ended August 31, 1994, 1995 and 1996, respectively.
Settlement amounts due to or receivables from Medicare and Medicaid/Medi-Cal
programs are determined by fiscal intermediaries. The difference between the
final determination and estimated amounts accrued is accounted for as an
adjustment to revenue in the year of final determination. Management believes
that adequate provision has been made in the consolidated financial statements
for potential adjustments resulting from such examinations. Recapture amounts
due to or receivable from the Medicare program are determined by fiscal
intermediaries. The difference between the final determination and estimated
amounts accrued for recapture related to sold facilities is accounted for as an
adjustment to gain or loss on asset sales in the year of final determination.
Management believes that adequate provision has been made in the consolidated
financial statements for potential adjustments resulting from examinations of
such recapture amounts.
As stated above, the Company derives a substantial portion of its revenue
from the Medicare and Medicaid/Medi-Cal programs. Changes in existing
governmental reimbursement programs in recent years have resulted in reduced
levels of reimbursement for health care services. Additional changes are
anticipated which are likely to result in further reductions in the rate of
increase in reimbursement levels.
EARNINGS (LOSS) PER COMMON SHARE: Earnings (loss) per common and common
equivalent share is based on the Company's weighted average number of shares of
common stock outstanding during the year adjusted to give effect to dilutive
stock options and warrants using the treasury stock method. The dilutive
F-34
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 1--GENERAL AND ACCOUNTING POLICIES (CONTINUED)
effect of stock options and warrants was 1.1 million shares in fiscal 1995 and
1.9 million shares in fiscal 1996. The effect of stock options and warrants was
anti-dilutive for fiscal 1994.
Earnings (loss) per share assuming full dilution also assumes the conversion
of the Company's redeemable convertible preferred stock into common shares in
fiscal 1995 and 1996. The effect of the redeemable convertible preferred stock
was anti-dilutive in fiscal 1994.
CASH AND CASH EQUIVALENTS: For purposes of the Consolidated Statements of
Cash Flows, the Company considers all highly liquid debt instruments with a
maturity of three months or less when purchased to be cash equivalents. The
carrying amount reported in the balance sheet for cash and cash equivalents
approximates fair value.
SUPPLIES: Supplies are priced at cost (first-in, first-out method) and are
not in excess of market.
PROPERTY, PLANT AND EQUIPMENT: Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The range of
useful lives estimated for buildings and improvements is 10 to 40 years, and for
equipment and fixtures is 3 to 25 years. Assets related to capital leases
including improvements are amortized on a straight-line basis over the terms of
the leases or the useful lives of the assets, whichever is shorter and the
amortization expense is included with depreciation expense. Buildings and
Improvements include construction in progress of $27.2 million and $31.0 million
at August 31, 1995 and 1996, respectively. The Company capitalized interest
costs of $1.3 million, $1.3 million and $1.5 million related to construction in
progress for the years ended August 31, 1994, 1995 and 1996, respectively.
INTANGIBLE ASSETS: Deferred financing costs of $29.8 million and $28.1
million at August 31, 1995 and 1996, respectively, are included in Other Assets
in the accompanying Consolidated Balance Sheets and are amortized over the life
of the related debt using the effective interest method. Deferred financing
costs are net of accumulated amortization of $7.1 million and $12.6 million at
August 31, 1995 and 1996, respectively.
Goodwill is amortized on a straight line basis and the amortization period
(20 to 40 years for hospitals and 5 to 10 years for non-hospital acquisitions)
is based upon the estimated economic lives of the hospital buildings acquired
which range from 25 to 40 years as determined by independent appraisers, the
indefinite useful life of any Certificates of Need acquired and competition
within the local markets. Goodwill is net of accumulated amortization of $15.9
million and $30.8 million at August 31, 1995 and 1996, respectively. The
carrying value of goodwill is reviewed by the Company on a quarterly basis if
the facts and circumstances suggest that it may be impaired. Factors considered
in evaluating impairment include unexpected or adverse changes in the following:
(i) the economic, competitive or regulatory environments in which the Company
operates, (ii) profitability and (iii) cash flows. If the review indicates that
goodwill will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill is reduced by the estimated shortfall
of cash flows.
IMPAIRMENT OF LONG-LIVED ASSETS: In March 1995, the Financial Accounting
Standards Board issued
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The
F-35
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 1--GENERAL AND ACCOUNTING POLICIES (CONTINUED)
Company currently plans to adopt SFAS No. 121 in the first quarter of fiscal
1997 and, based on current circumstances, does not believe the effect of
adoption will be material.
PROFESSIONAL LIABILITY INSURANCE: At August 31, 1994, 1995 and 1996, the
general and professional liability risks of the Company were self-insured up to
$3.0 million on a per-occurrence basis and up to $30.0 million on an
aggregate-per-claim-year basis. At August 31, 1996, the Company carried general
and professional liability insurance from an unrelated commercial carrier for
losses above the self-insurance limits to $50.0 million. Liabilities for
self-insured professional and general liability risks at August 31, 1996, for
both asserted and unasserted claims, are based on actuarially projected
estimates discounted at an average rate of 8.0% to their present value based on
historical loss payment patterns. Although the ultimate settlement of these
liabilities may vary from such estimates, management believes the amount
provided in the Company's financial statements is adequate.
NOTE 2--MERGER, ACQUISITION AND DISPOSITION TRANSACTIONS
FISCAL 1996
HOUSTON NORTHWEST MEDICAL CENTER
Houston Northwest Medical Center ("HNW") is a 498-bed acute care facility
located in Houston, Texas. Effective January 1, 1996, the Company purchased the
controlling equity interests in HNW for a total cash purchase price of $153.9
million and commenced operation of the facility. In connection with the
acquisition, the Company recorded assets with a fair value of $90.4 million,
liabilities of $36.5 million and goodwill of $100.0 million. Purchase price
adjustments have not been finalized as of August 31, 1996, but are not expected
to be material.
Prior to January 1996, the Company's investments in HNW consisted of (i) two
classes of mandatorily redeemable preferred stock with a redemption value of
$62.5 million; and, (ii) a mortgage note receivable with a balance of $7.4
million at December 31, 1995.
The Company recognized the following income related to its investments in
HNW until January 1996, at which time the Company began consolidating the
operations of HNW (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Accretion of discount on mandatorily redeemable preferred
stock....................................................... $ 1,918 $ 2,086 $ 757
Dividend income on mandatorily redeemable preferred stock..... 10,266 11,258 4,123
Equity method losses from common stock investment............. (9,135) -- --
Interest income on mortgage note receivable................... 585 662 248
--------- --------- ---------
$ 3,634 $ 14,006 $ 5,128
--------- --------- ---------
--------- --------- ---------
</TABLE>
CYPRESS FAIRBANKS MEDICAL CENTER
Effective July 1, 1996, the Company purchased Cypress Fairbanks Medical
Center ("Cypress Fairbanks"), a 149-bed acute care hospital in Houston, Texas,
and related healthcare facilities for $76.1 million. In connection with the
acquisition the Company recorded assets with a fair value of $60.0 million,
liabilities
F-36
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2--MERGER, ACQUISITION AND DISPOSITION TRANSACTIONS (CONTINUED)
of $8.3 million and goodwill of $24.4 million. Purchase price adjustments have
not been finalized as of August 31, 1996, but are not expected to be material.
CENTINELA HOSPITAL MEDICAL CENTER
Effective August 1, 1996, the Company purchased Centinela Hospital Medical
Center ("Centinela"), a 400-bed acute care hospital in Inglewood, California,
and related healthcare businesses for $125.3 million. In connection with the
acquisition, the Company recorded assets with a fair value of $94.3 million,
liabilities of $21.1 million and goodwill of $52.1 million. Purchase price
adjustments have not been finalized as of August 31, 1996, but are not expected
to be material.
OTHERS
Effective November 1, 1995, the Company completed the acquisition of
Universal Medical Center (renamed Florida Medical Center--South), a 202-bed
facility located in Plantation, Florida. Effective July 1, 1996, the Company
acquired Westside Hospital, a 68-bed facility located in Los Angeles,
California. The combined cost of these acquisitions was $32.1 million. In
connection with these acquisitions, the Company acquired assets with a fair
value of $32.9 million, assumed liabilities of $3.6 million and recorded $2.7
million of goodwill. Purchase price adjustments have not been finalized as of
August 31, 1996, but are not expected to be material.
FISCAL 1995
ST. LUKE'S HEALTH SYSTEM
Effective February 13, 1995, the Company purchased three hospitals with 417
beds and related businesses that comprise the St. Luke's Health System ("St.
Luke's") in the Phoenix, Arizona metropolitan area for $120.3 million including
$3.0 million of the Company's common stock (195,122 shares). In connection with
the acquisition, the Company acquired assets with a fair value of $45.9 million
and assumed liabilities of $26.8 million and recorded $7.1 million of goodwill.
SUBURBAN
Effective November 1, 1994, the Company purchased Suburban Medical Center, a
184 licensed-bed hospital located in Paramount, California for $4.6 million. In
connection with the acquisition, the Company acquired assets with a fair value
or $5.2 million, assumed liabilities of $2.2 million and recorded $1.6 million
of goodwill.
OTHER
During the third quarter of fiscal 1995, the Company sold all of its common
stock interest in Horizon Mental Health Management, Inc. for approximately $8.4
million resulting in a gain on sale of $6.7 million. The gain is included in
gain on asset sales in the accompanying statement of operations, net of the loss
on the consummation of a sale entered into in fiscal 1994.
During fiscal 1995, the Company's investment in an independent non-public
company previously accounted for under the equity method was exchanged for
common stock of a publicly traded entity resulting in a $9.6 million non-cash
gain on exchange of securities and the new securities being classified as
TRADING under Statement of Financial Accounting Standard No. 115 "Accounting for
Certain Investments in
F-37
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2--MERGER, ACQUISITION AND DISPOSITION TRANSACTIONS (CONTINUED)
Debt and Equity Securities". The Company also recorded non-cash write-downs or
reserves on certain non-operating assets of $9.6 million for impairment or
declines in value deemed to be other than temporary.
FISCAL 1994
AHM
On April 19, 1994, the Company completed a merger with American Healthcare
Management, Inc. ("AHM"), a health care services company engaged in the
operation of general acute care hospitals. AHM owned or leased 16 hospitals in 9
states, with a total of 2,028 licensed beds. The AHM Merger was accounted for as
a pooling of interests in which shareholders of AHM received 0.6 of a share of
the Company's common stock, representing 16.6 million additional shares issued,
in exchange for each share of AHM common stock held. In connection with the AHM
Merger, the Company recorded $30.0 million of nonrecurring charges and an
extraordinary loss of $8.4 million as a result of refinancing OrNda's and AHM's
senior credit facilities. Prior to the AHM Merger, AHM used a fiscal year ending
December 31. Accordingly, the recast operating results of AHM for the year ended
September 30, 1993, were combined with the operating results of OrNda for the
year ended August 31, 1993, and the AHM balance sheet accounts at September 30,
1993, were combined with OrNda's balance sheet accounts at August 31, 1993, in
order to restate the accompanying financial statements for periods prior to the
AHM Merger. As a result of this restatement, an adjustment for AHM's net income
for the month of September 1993 is reflected as a 1994 adjustment to the
consolidated retained earnings (deficit) and the Consolidated Statement of Cash
Flows for fiscal 1994 includes an adjustment to the balance at the beginning of
the period for AHM's cash activity for the month of September 1993. The effect
of the differing fiscal years on the Company's financial statements is not
significant.
The following is a summary of the results of the separate operations of
OrNda and AHM included in the Consolidated Statements of Operations (in
thousands):
<TABLE>
<CAPTION>
ORNDA AHM CONSOLIDATED
---------- ---------- ------------
<S> <C> <C> <C>
Seven months ended March 31, 1994:
Total revenue........................................ $ 454,531 $ 205,044 $ 659,575
Net income........................................... 1,696 7,546 9,242
</TABLE>
In the third quarter of fiscal 1994, the Company recorded the following
nonrecurring charges in connection with the AHM Merger, all of which have been
paid as of August 31, 1996 (in thousands):
<TABLE>
<CAPTION>
CASH NONCASH
EXPENSE EXPENSE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Employee benefit and certain severance actions............... $ 8,456 $ 999 $ 9,455
Investment advisory and professional fees.................... 6,077 -- 6,077
Costs of information systems consolidations primarily related
to the write-down of assets................................ 1,000 10,260 11,260
Other........................................................ 1,293 1,907 3,200
--------- --------- ---------
$ 16,826 $ 13,166 $ 29,992
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-38
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2--MERGER, ACQUISITION AND DISPOSITION TRANSACTIONS (CONTINUED)
SUMMIT
On April 19, 1994, the Company also completed a merger with Summit Health
Ltd. ("Summit"), a health care services company engaged in the operation of (i)
general acute care hospitals, (ii) a managed care entity contracting to provide
services to the Arizona Health Care Cost Containment System, and (iii)
outpatient surgery centers. Summit owned or leased 12 acute care hospitals in 4
states with a total of 1,611 licensed beds. The Summit merger was accounted for
as a purchase in which Summit shareholders received $5.50 in cash and 0.2157
shares of the Company's common stock for each share of Summit common stock,
representing $192.1 million of cash paid and 7.5 million additional shares
issued at a market value of $96.2 million. In connection with the Summit Merger,
the Company also acquired real estate previously leased by Summit for $60.6
million. Furthermore, the Company assumed or paid $21.9 million of Summit's debt
resulting in a total acquisition cost of approximately $370.8 million. In
connection with the Summit Merger, the Company acquired assets with a fair value
of $320.9 million, assumed liabilities of $161.5 million and recorded $211.4
million of goodwill.
FOUNTAIN VALLEY
Effective July 31, 1994, the Company purchased Fountain Valley Regional
Hospital and Medical Center ("Fountain Valley"), located in Fountain Valley,
California for $105.2 million. The facilities include a 413-bed acute care
hospital, a surgery center, an imaging center and four medical office buildings.
In connection with the acquisition, the Company acquired assets with a fair
value of $104.2 million and assumed liabilities of $20.2 million and recorded
$21.2 million of goodwill.
OTHER
During fiscal 1994, the Company, in separate transactions, sold or entered
into agreements to sell four hospitals, resulting in a loss of $45.3 million.
PRO FORMA INFORMATION
The following pro forma information reflects the fiscal 1996 acquisitions as
if they had occurred on September 1, 1994 and 1995, the fiscal 1995 acquisitions
as if they had occurred on September 1, 1993 and 1994, and the fiscal 1994
acquisitions as if they had occurred on September 1, 1993 (in thousands, except
per share data):
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total revenue....................................... $ 1,828,445 $ 2,312,765 $ 2,408,507
Net income (loss)................................... (22,762) 72,955 99,717
Net income (loss) applicable to common shares....... (24,629) 70,955 98,385
Net income (loss) per common share.................. (0.58) 1.56 1.73
Net income (loss) per common share assuming full
dilution.......................................... $ (0.58) $ 1.54 $ 1.72
</TABLE>
F-39
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3--INCOME TAXES
The provision for income taxes for the years ended August 31 is as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current federal income tax.................................... $ 169 $ 14,657 $ 23,160
Current state income tax...................................... 888 4,750 8,938
Deferred federal income tax benefit........................... -- (3,635) --
Deferred state income tax..................................... -- -- 3,144
--------- --------- ---------
$ 1,057 $ 15,772 $ 35,242
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's federal deferred tax assets and liabilities for the years ended
August 31 are tax effected as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryovers.............................................. $ 98,358 $ 82,245 $ 69,620
Capital loss carryovers.................................................... 1,593 -- --
Alternative minimum tax credit carryovers.................................. -- 1,036 2,691
General business credit carryovers......................................... 7,652 7,652 6,649
Excess tax basis over book basis of accounts receivable.................... 18,825 19,889 25,837
Excess tax basis over book basis of other assets........................... 10,051 -- --
Accrued expenses........................................................... 19,590 18,894 20,745
Professional liability reserves............................................ 8,285 9,422 10,608
Capital lease liability.................................................... 4,786 4,626 4,024
Other deferred tax assets.................................................. 790 6,157 1,166
---------- ---------- ----------
Total deferred tax assets.................................................... 169,930 149,921 141,340
Valuation allowances....................................................... (53,375) (48,072) (41,506)
---------- ---------- ----------
Total deferred tax assets net of allowance................................... 116,555 101,849 99,834
Deferred tax liabilities:....................................................
Tax in excess of book depreciation......................................... 76,432 79,449 106,185
Excess book basis over tax basis of certain investments.................... 34,779 21,896 --
Unamortized cash to accrual method adjustments............................. 9,243 4,960 1,249
Other deferred tax liabilities............................................. 3,232 -- --
---------- ---------- ----------
Total deferred tax liabilities............................................... 123,686 106,305 107,434
---------- ---------- ----------
Net deferred tax liability................................................... $ 7,131 $ 4,456 $ 7,600
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At August 31, 1996, the Company had net current deferred federal tax assets
of $43.0 million and net noncurrent deferred federal tax liabilities of $50.6
million.
F-40
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3--INCOME TAXES (CONTINUED)
The effective income tax rate before extraordinary items differed from the
federal statutory rate for the years ended August 31 as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense (benefit) at federal statutory rate.......................... (35.0)% 35.0% 35.0%
Nondeductible goodwill amortization........................................... -- 3.2 2.9
Operating loss for which no benefit was recognized............................ 35.0 -- --
Benefit of prior year losses realized......................................... -- (23.7) (17.6)
State income tax.............................................................. 1.9 3.6 5.8
Federal alternative minimum tax............................................... 0.4 -- --
----- ----- -----
Effective income tax rate..................................................... 2.3% 18.1% 26.1%
----- ----- -----
----- ----- -----
</TABLE>
The following schedule summarizes approximate tax attribute carry forwards
from prior tax returns for both OrNda and AHM, which are available on a limited
basis to offset federal net taxable income (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
PERIODS
-----------
<S> <C> <C>
Net operating loss ("NOL").......................................... $ 198,915 2001-2009
General business credits............................................ 6,649 1997-2001
Alternative minimum tax credit...................................... 2,691 None
</TABLE>
The AHM Merger caused an "ownership change" within the meaning of Section
382(g) of the Internal Revenue Code for both OrNda and AHM. Consequently,
allowable federal deductions relating to NOL's of OrNda and AHM arising in
periods prior to the AHM Merger are thereafter subject to annual limitations of
approximately $19 million and $16 million for OrNda and AHM, respectively. In
addition, approximately $55 million of the NOL's are subject to an annual
limitation of approximately $3 million due to prior "ownership changes" of
OrNda. The annual limitations may be increased in order to offset certain
built-in gains which are recognized during the five year period following an
ownership change. In addition, the NOL's from pre-merger tax years of AHM may
only be applied against the prospective taxable income of the AHM entities. The
limitations described above are not currently expected to significantly affect
the ability of the Company to ultimately recognize the benefit of these NOL's in
future years.
The Company's federal income tax returns are not presently under audit by
the Internal Revenue Service (the "IRS"), except in respect to Summit as
disclosed below. Furthermore, the Company's federal income tax returns for
taxable years through August 31, 1991 are no longer subject to IRS audit, except
for net operating loss and credit carry forwards for income tax purposes from
prior years which may be subject to IRS audit as net operating loss and credit
carry forwards are utilized in subsequent tax years. Also, Summit Health has
extended the statute of limitations for fiscal years 1987 to 1992 through March
31, 1997.
In recent years the IRS was examining the federal income tax returns for
fiscal years 1984, 1985 and 1986 of Summit Health, which became a wholly-owned
subsidiary of the Company in April 1994 and merged into the Company in September
1994. Summit Health received a revenue agent's report from the IRS with proposed
adjustments for the years 1984 through 1986 aggregating as of August 31, 1996
approximately $16.6 million of income tax, $66.4 million of interest on the tax,
$43.9 million of penalties
F-41
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3--INCOME TAXES (CONTINUED)
and $25.6 million of interest on the penalties. After receiving the revenue
agent's report, Summit Health filed a protest contesting the proposed
adjustments. On October 28, 1996, the Company entered into a Closing Agreement
on Final Determination with the IRS for the above audit period, by agreeing and
paying additional tax of $647,000 and interest of $888,000 to close the audit of
Summit Health for the fiscal years 1984 through 1986. The Closing Agreement is
subject to review by the Joint Congressional Committee on Taxation since the
matter relates to a refund of taxes to Summit Health in excess of $1 million.
NOTE 4--OTHER CURRENT ASSETS AND LIABILITIES
Other current assets and liabilities consist of the following at August 31
(in thousands):
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Other Current Assets:.................................................
Other accounts receivable, net...................................... $ 27,021 $ 58,040
Trading security.................................................... 14,920 --
Receivable for surplus rebate on Centinela's bond defeasance........ -- 13,755
Other current assets................................................ 15,111 14,543
---------- ----------
$ 57,052 $ 86,338
---------- ----------
---------- ----------
Accrued Expenses and Other Liabilities:
Due to third-party payors........................................... $ 99,833 $ 64,474
Salaries, benefits and other compensation........................... 34,493 42,435
Vacation and sick pay............................................... 23,473 25,703
Interest............................................................ 16,018 15,829
Other............................................................... 47,034 61,084
---------- ----------
$ 220,851 $ 209,525
---------- ----------
---------- ----------
</TABLE>
F-42
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5--LONG-TERM DEBT
A summary of long-term debt at August 31 follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Parent Company:
Senior Credit Facilities:
Revolving Credit Facilities................................... $ 119,000 $ 266,000
Term Loans.................................................... 361,175 426,250
12.25% Senior Subordinated Notes due 2002....................... 400,000 400,000
10.25% Senior Subordinated Notes due 2003....................... 511 511
11.375% Senior Subordinated Notes due 2004...................... 125,000 125,000
Subsidiaries:
Secured Debt--other (including capitalized leases); rates,
generally fixed, average 11.9%; payable in periodic
installments through 2023..................................... 67,919 71,919
------------ ------------
1,073,605 1,289,680
Less current portions............................................. 60,182 59,750
------------ ------------
$ 1,013,423 $ 1,229,930
------------ ------------
------------ ------------
</TABLE>
SENIOR CREDIT FACILITIES
On October 27, 1995, the Company executed an amended and restated credit
agreement (the "Restated Credit Facility") which increased the Company's
borrowing capacity under its credit facility from approximately $660.0 million
to $900.0 million, of which $692.2 million was outstanding on August 31, 1996
and of which commitment availability had been reduced by issued letters of
credit of $27.4 million and scheduled principal payments of $33.8 million,
resulting in available credit of $146.6 million. The Restated Credit Facility,
which amends the Company's previous credit agreement dated April 19, 1994, will
mature on October 30, 2001, and consists of the following facilities (the
"Senior Credit Facilities"): (i) revolving commitment of $440.0 million to
refinance the debt under the previous credit agreement, for general corporate
purposes, to issue up to $50 million of letters of credit, and for strategic
acquisitions; and (ii) a $460.0 million term loan to refinance debt under the
previous credit agreement payable in incremental quarterly installments.
Loans under the Restated Credit Facility bear interest, at the option of the
Company, at a rate equal to either (i) the "alternate base rate" plus 0.25% or
(ii) LIBOR plus 1.25%, in each case subject to potential decreases or increases
dependent on the Company's leverage ratio. Interest is payable quarterly if a
rate based on the alternate base rate is elected or at the end of the LIBOR
period (but in any event not to exceed 90 days) if a rate based on LIBOR is
elected. The weighted average interest rate on the Company's borrowings under
the Senior Credit Facilities at August 31, 1996, was 6.7%.
In certain circumstances, the Company is required to make principal
prepayments on the Senior Credit Facilities, including the receipt of proceeds
from the issuance of additional subordinated indebtedness, certain asset sale
proceeds not used to acquire additional assets within a specified period, and
50% of the proceeds in excess of $50 million from the issuance of additional
equity not used to acquire additional assets, fund capital expenditures or repay
subordinated debt within one year. The Company may prepay at any time all or
part of the outstanding Senior Credit Facilities without penalty.
F-43
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5--LONG-TERM DEBT (CONTINUED)
The Restated Credit Facility limits, under certain circumstances, the
Company's ability to incur additional indebtedness, sell material assets,
acquire the capital stock or assets of another business, or pay dividends. The
Restated Credit Facility also requires the Company to maintain a specified net
worth and meet or exceed certain coverage, leverage, and indebtedness ratios.
Indebtedness under the Restated Credit Facility is secured by a perfected, first
priority security interest in the stock of all existing and future subsidiaries
of the Company, intercompany notes of indebtedness, majority-owned partnerships
and certain specified investments.
12.25% SENIOR SUBORDINATED NOTES
In May 1992, OrNda issued $400 million aggregate principal amount of 12.25%
senior subordinated notes due May 2002 ( the "12.25% Notes"). The 12.25% Notes
are subordinated to the Company's Senior Credit Facilities and to indebtedness
of the Company's subsidiaries. Interest on the 12.25% Notes is payable
semiannually on May 15 and November 15, commencing November 15, 1992. The 12.25%
Notes mature on May 15, 2002, but may be redeemed in whole or in part at the
option of the Company on or after June 1, 1997 through June 1, 2000, at
specified redemption prices in excess of par and thereafter at par.
10.25% SENIOR SUBORDINATED NOTES
On July 28, 1993, AHM issued $100 million aggregate principal amount of 10%
senior subordinated notes due July 2003 (the "10% Notes"). Interest on the 10%
Notes is payable semiannually on February 1 and August 1 of each year. The 10%
Notes mature on August 1, 2003, but may be redeemed in whole or in part at the
option of the Company on or after August 1, 1998 through July 1, 2000 at
specified redemption prices in excess of par and thereafter at par.
Pursuant to the Waiver and Consent Agreement dated February 3, 1994, by and
among the Company and the holders of a majority in principal amount of the 10%
Notes, as consideration for their agreement to make certain changes to the
Notes' Indenture to effect the AHM Merger (see Note 2) and other matters, the
Company (i) paid to the holders on the closing date of the AHM Merger $15.00 for
each $1,000 principal amount of outstanding 10% Notes and (ii) increased the
rate of interest on the 10% Notes from 10% per annum to 10.25% per annum
(redefined as the "10.25% Notes"). The AHM Merger caused a "change of control,"
as defined in the Notes' Indenture, which required the Company to make a prompt
offer to repurchase all or any portion of the 10.25% Notes owned by the holders
thereof at 101% of the principal amount, together with accrued interest thereon,
to the date of repurchase. Pursuant to the offer, $99.3 million of 10.25% Notes
were redeemed through August 31, 1994, resulting in a loss on early
extinguishment of debt of $4.1 million. The 10.25% Notes are subordinated to the
Company's Senior Credit Facilities and subsidiary indebtedness.
11.375% SENIOR SUBORDINATED NOTES
On August 23, 1994, the Company issued $125 million aggregate principal
amount of 11.375% senior subordinated notes due August 15, 2004 (the "11.375%
Notes"). The 11.375% Notes are subordinated to the Company's Senior Credit
Facilities and subsidiary indebtedness but rank pari passu in right of payment
to the Company's 12.25% Notes and 10.25% Notes. Interest on the 11.375% Notes is
payable semiannually on February 15 and August 15 of each year. The 11.375%
Notes may be redeemed in whole or in part at the option of the Company on or
after August 15, 1999 through August 15, 2002, at specified redemption
F-44
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5--LONG-TERM DEBT (CONTINUED)
prices in excess of par and thereafter at par. Net proceeds of $121.0 million
from the sale of the 11.375% Notes were used to reduce the Company's Senior
Credit Facilities.
OTHER
At August 31, 1996, approximately $143.4 million of the Company's assets
were subject to mortgage or liens as collateral for approximately $71.9 million
of indebtedness, including capital leases.
Maturities of debt, including capitalized lease obligations, for the next
five fiscal years and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1997............................................ $ 59,750
1998............................................ 78,237
1999............................................ 89,493
2000............................................ 95,158
2001............................................ 125,970
Thereafter...................................... 841,072
---------
$1,289,680
---------
---------
</TABLE>
In connection with the Summit merger (see Note 2), the Company acquired a
38.6% interest in Summit Care Corporation ("Summit Care") which operates nursing
care and retirement centers. At August 31, 1994, approximately $37.4 million
aggregate principal amount of the Company's 7.5% Exchangeable Subordinated Notes
due 2003 (the "7.5% Notes"), which were exchangeable, at the option of the
holders, into the Company's 38.6% interest in the Summit Care Common Stock, were
outstanding. The investment in Summit Care was increased approximately $30.5
million in the Summit merger purchase price allocation to estimated fair value
of $37.4 million which was the carrying value of the 7.5% Notes at the merger
date. The 7.5% Notes, as well as accrued interest on the 7.5% Notes, and the
investment in Summit Care common stock were accounted for as an asset held for
sale and the net investment was included in other assets.
From September 1, 1994 through July 31, 1995, $9.6 million of the 7.5% Notes
were voluntarily exchanged for Summit Care common stock. Effective June 1, 1995,
with the consent of the holders of the 7.5% Notes, the Indenture in respect of
the 7.5% Notes was amended to change the earliest redemption date of the 7.5%
Notes from April 1, 1996 to June 1, 1995. The Company issued a redemption notice
for 100% of the outstanding 7.5% Notes on August 3, 1995, and the holders of
$27.8 million of the 7.5% Notes exchanged for Summit Care common stock prior to
the August 28, 1995, redemption date for the balance of the 7.5% Notes. As a
result, as of August 31, 1996, the Company owned 1,414 shares, .02% of the
common stock of Summit Care.
NOTE 6--LEASES
The Company leases hospitals, office facilities and equipment under
agreements that generally require the Company to pay all maintenance, property
taxes and insurance costs and that expire on various dates extending to the year
2023. Certain leases include options to purchase the leased property during or
at the end of the lease term at specified amounts. Minimum rental commitments
under operating leases having an initial or remaining noncancelable term of more
than one year for the next five fiscal years and thereafter; minimum payments
under capital leases at August 31, 1996, for the next five fiscal years and
F-45
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6--LEASES (CONTINUED)
thereafter; and the related present value of future minimum payments under
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1997................................................................... $ 5,663 $ 51,291
1998................................................................... 4,248 43,073
1999................................................................... 2,205 34,632
2000................................................................... 1,337 31,263
2001................................................................... 1,261 28,343
Thereafter............................................................. 17,229 261,534
--------- ----------
Total minimum rental payments.......................................... 31,943 $ 450,136
----------
----------
Less amounts representing interest..................................... 14,838
---------
Present value of future minimum lease payments......................... 17,105
Less current portion................................................... 4,088
---------
$ 13,017
---------
---------
</TABLE>
Operations for the years ended August 31, 1994, 1995, and 1996, include rent
expense on operating leases of $32.9 million, $58.1 million, and $62.2 million,
respectively.
Property under capital lease at August 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Building and improvements............................................... $ 37,220 $ 37,880
Equipment and fixtures.................................................. 19,603 19,200
--------- ---------
56,823 57,080
Less accumulated amortization........................................... 18,707 23,392
--------- ---------
$ 38,116 $ 33,688
--------- ---------
--------- ---------
</TABLE>
NOTE 7--SHAREHOLDERS' EQUITY, WARRANTS AND EMPLOYEE STOCK OPTIONS
COMMON STOCK
The Company has not paid any dividends on its common stock. Under the terms
of the Company's Restated Credit Facility, the Company may not pay dividends on
its common stock.
On November 6, 1995, the Company completed the sale of 10,000,000 shares of
its common stock at a $17.625 per share public offering price. On November 9,
1995, the underwriters exercised an option to purchase an additional 1,500,000
shares to cover over-allotments. The net proceeds of approximately $192.7
million, after deducting offering expenses and underwriting discounts, were used
to reduce all of the indebtedness under the revolving portion of the Restated
Credit Facility in the amount of $27.2 million. The remaining proceeds were used
for general corporate purposes.
F-46
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 7--SHAREHOLDERS' EQUITY, WARRANTS AND EMPLOYEE STOCK OPTIONS (CONTINUED)
WARRANTS
At August 31, 1996, there were warrants outstanding to purchase 92,600
shares of common stock at an exercise price of $17.89 per share. Warrants can be
exercised through April 30, 2000.
STOCK OPTIONS AND STOCK BONUS PLANS
On April 19, 1994, OrNda's shareholders approved the 1994 Management Equity
Plan to replace the 1992 Management Equity Plan. No awards were granted under
the 1992 Management Equity Plan. The 1994 Management Equity Plan provides for
the granting of stock options (either incentive or nonqualified), stock
appreciation rights, or limited stock appreciation rights to key employees and
consultants of the Company. Under the 1994 Management Equity Plan, the Company
may grant awards for up to 6,550,000 shares of common stock. Generally, the 1994
Management Equity Plan provides that options may be outstanding for a period of
up to ten years from the date of the grant and may become exercisable at such
time or under such conditions as the compensation committee of the Company's
Board of Directors shall determine. For incentive stock options granted, the
exercise price generally will equal the fair market value of the Company's
common stock on the date of the grant.
Effective November 29, 1995, OrNda's shareholders approved the Outside
Directors Stock Option Plan, under which the Company may grant options to
outside directors for up to 300,000 shares of common stock.
On April 19, 1994, the Company's shareholders approved the Incentive Stock
Bonus Plan which provides for the payment of cash and issuance of shares of the
Company's common stock to key employees as an annual incentive bonus based upon
the extent to which the Company achieves certain performance goals specified in
advance by the compensation committee of the Company's Board of Directors. Under
the Incentive Stock Bonus Plan, the Company may issue up to 600,000 shares of
the Company's common stock. As of August 31, 1996, no options have been granted
under this plan.
In addition to the 7,450,000 shares of common stock reserved for issuance
under the 1994 Management Equity Plan, the Outside Directors Stock Option Plan
and the Incentive Stock Bonus Plan, the Company has reserved 1,434,958 shares of
common stock at August 31, 1996, for issuance pursuant to options granted under
various stock option plans for OrNda, AHM and Summit prior to the AHM Merger and
the Summit merger. No options are available for future grant under the stock
option plans established prior to the April 19, 1994 mergers. On December 31,
1993, OrNda granted options to purchase 500,000 shares of common stock to key
employees at exercise prices ranging from $7.75 to $10.75 per share. Since the
exercise price was below the market value of the Company's common stock on the
date of grant, the Company recorded $2,530,000 of noncash stock option
compensation in fiscal 1994 with an offsetting increase to Additional Paid-In
Capital for the excess of the market price at the date of grant over the
exercise price.
F-47
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 7--SHAREHOLDERS' EQUITY, WARRANTS AND EMPLOYEE STOCK OPTIONS (CONTINUED)
The following is a summary of option transactions during fiscal 1994, 1995
and 1996:
<TABLE>
<CAPTION>
SHARES OF
COMMON OPTION PRICE
STOCK RANGE
---------- -----------------
<S> <C> <C>
Balance at August 31, 1993.................................... 2,823,479 $ 1.67 - $11.34
Options Granted............................................. 3,455,000 $ 7.75 - $15.00
Options Assumed in Summit Merger............................ 245,553 $ 2.21 - $13.34
Options Exercised........................................... (918,808) $ 1.67 - $13.34
Options Forfeited........................................... (115,002) $ 4.80 - $15.00
----------
Balance at August 31, 1994.................................... 5,490,222 $ 1.67 - $15.00
Options Granted............................................. 175,000 $19.50
Options Exercised........................................... (898,334) $ 3.92 - $13.34
Options Forfeited........................................... (450,542) $ 2.97 - $15.00
----------
Balance at August 31, 1995.................................... 4,316,346
Options Granted............................................. 1,554,500 $ 18.75 - $27.13
Options Exercised........................................... (470,280) $ 2.21 - $15.00
Options Forfeited........................................... (210,108) $ 15.00 - $27.13
----------
Balance at August 31, 1996.................................... 5,190,458 $ 3.92 - $27.13
----------
----------
Exercisable at August 31, 1996................................ 2,470,758 $ 3.92 - $15.00
Available for Future Grant at August 31, 1996................. 3,479,700
</TABLE>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On October 15, 1991, OrNda issued 1 million shares of $.01 par value Payable
in Kind Cumulative Redeemable Convertible Preferred Stock (the "PIK Preferred").
The PIK Preferred has an aggregate liquidation value of $15 million and is
entitled to dividends at the rate of 9% of the liquidation value thereof until
October 31, 1999, 9.9% from November 1, 1999 through October 31, 2000, 10.8%
from November 1, 2000 through October 31, 2001, and 15% thereafter. The Company
issued additional shares of PIK Preferred as paid-in-kind dividends of 123,468
in fiscal 1994, 133,474 in fiscal 1995, and 33,234 in fiscal 1996.
On November 7, 1995, the Company issued a notice of redemption to the
holders of its PIK Preferred for $15 per share with a redemption date of
December 8, 1995. In the fiscal quarter ended November 30, 1995, 1,355,519
shares of PIK Preferred were converted into 1,355,519 shares of the Company's
common stock. On December 8, 1995, the remaining 7,416 shares of PIK Preferred
were redeemed for $15 per share plus dividends of $0.16 per share accrued
through the redemption date.
NOTE 8--OTHER
Effective July 1, 1986, OrNda adopted the OrNda HealthCorp Savings and
Investment Plan (the "401(k) Plan"). The 401(k) Plan is a defined contribution
plan whereby employees who have completed one year of service in which they have
worked a minimum of 1,000 hours and are age 21 or older are
F-48
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 8--OTHER (CONTINUED)
eligible to participate. Through December 31, 1994, the 401(k) Plan allowed
eligible employees to make contributions of 2% to 7% of their annual
compensation and employer contributions were made at a rate of 50% of the
employee contributions up to a maximum of 3.5% of annual compensation. Effective
January 1, 1995, through December 31, 1995, the 401(k) Plan was amended to allow
eligible employees to make contributions of 2% to 15% of their annual
compensation and employer contributions were made at a rate of 50% of the
employee contributions up to a maximum of 1.5% of annual compensation. Effective
January 1, 1996, the 401(k) Plan was amended such that employer contributions
are now made in the Company's common stock at a rate of 50% of the employee
contributions up to a maximum of 2.0% of annual compensation. Employer
contributions vest 20% after three years of service and continue vesting at 20%
per year until fully vested. The Company's matching expense for fiscal years
1994, 1995, and 1996 was approximately $3.2 million, $4.5 million, and $4.8
million, respectively.
The carrying amounts and fair values of certain financial instruments,
disclosed elsewhere, consisted of the following at August 31, 1996 (in
thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
---------------- ----------
<S> <C> <C>
Long-Term Debt (see Note 6):
Senior Credit Facilities...................................... $ 692,250 $ 692,250
12.25% Senior Subordinated Notes due 2002..................... 400,000 430,500
10.25% Senior Subordinated Notes due 2003..................... 511 511
11.375% Senior Subordinated Notes due 2004.................... 125,000 138,750
Secured Debt--Other........................................... 71,919 71,919
</TABLE>
The carrying amounts of the Company's borrowings at August 31, 1996
approximate their fair value based on discounted cash flow analyses, using the
Company's current incremental borrowing rates for similar types of borrowing
arrangements or quoted market prices, if available, except that the fair value
of the 12.25% Senior Subordinated Notes approximates 107.625% of par value and
the fair value of the 11.375% Senior Subordinated Notes approximates 111.0% of
par value based on recent bid/ask indications.
NOTE 9--COMMITMENTS AND CONTINGENCIES
The Company continually evaluates contingencies based upon the best
available information. Final determination of amounts earned from certain
third-party payors is subject to review by appropriate governmental authorities
or their agents. In the opinion of management, adequate provision has been made
for any adjustments that may result from such reviews.
Broad provisions in the Medicare and Medicaid laws deal with fraud and
abuse, false claims and physician self-referrals as well as similar provisions
in many state laws. In recent years, government investigations of alleged
violations of these laws have become common place in the health care industry.
The Company is currently under civil investigation under the direction of the
Civil Division of the Department of Justice concerning possible violations of
Medicare rules and regulations. The investigation is primarily related to
arrangements between physicians and the twelve hospitals which the Company
acquired from Summit Health, Ltd. in 1994. The Company is fully cooperating with
the government investigation and is voluntarily producing documents related to
the investigation. Also, in an apparently unrelated matter, the government has
requested and the Company has agreed to provide similar records from a single
hospital outside the group acquired from Summit Health, Ltd. in 1994. Although
no
F-49
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
proceedings have been instituted, in the event that the Office of the Inspector
General of the United States Department of Health and Human Services believes
that any wrongdoing has occurred, civil and possibly criminal proceedings could
be instituted. If any such proceedings were instituted and the outcome were
unfavorable, the Company could be subject to fines, penalties and damages
("Monetary Payments") and also could be excluded from Medicare and other
government reimbursement programs. The aggregate amount of the Monetary Payments
and any such exclusion could have a material adverse effect on the Company's
financial position or results of operations. The result of this investigation
and its impact, if any, cannot be predicted or estimated at this time. Based on
information currently available to it, management believes that if the
investigation remains limited to relationships with physicians, remains civil in
nature and, with the single exception noted above, relates to the practices of
the hospitals of an acquired corporation, the final outcome of this
investigation will not have a material adverse effect on the Company's financial
position or results of operations.
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of business. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position or results of operations.
NOTE 10--SUBSEQUENT EVENTS
Effective September 1, 1996, the Company completed the acquisition of The
Fallon Healthcare System's Saint Vincent Healthcare System, located in
Worcester, Massachusetts, consisting of a 432-bed acute care teaching hospital,
three skilled nursing facilities and other health related companies, and a
minority interest in the 280-member multi-specialty group physician practice,
The Fallon Clinic. The Company has committed to fund the construction, estimated
at $225.0 million, of a new replacement hospital, known as Medical City.
On October 8, 1996, the Company entered into a definitive agreement with
United Western Medical Centers, a not-for-profit corporation headquartered in
Santa Ana, California, to acquire substantially all of United's assets which
consist primarily of Western Medical Center, a 288-bed acute care hospital in
Santa Ana, California; Western Medical Center-Anaheim, a 193-bed acute care
hospital in Anaheim, California; and Western Medical Center-Bartlett, a 202-bed
skilled nursing facility in Santa Ana, California. United Western Medical
Centers has approximately $185 million in annual net revenues in its most recent
fiscal year. The closing of this transaction is subject to customary closing
conditions, Board of Directors' approvals and review by the California Attorney
General.
On October 16, 1996, the Company entered into a definitive agreement to
merge with Tenet Healthcare Corporation ("Tenet"). Under the terms of the
definitive agreement, which was unanimously approved by the Board of Directors
of both companies, shareholders of OrNda common stock would receive 1.35 shares
of Tenet common stock and the associated preferred stock purchase rights for
each share of OrNda common stock. The merger transaction will be tax-free and
accounted for as a pooling of interests and is expected to close in March 1997.
Consummation of the merger is subject to a number of conditions, including
shareholder approval of both companies. The merger is also subject to the
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act, local regulatory approvals, and confirmation that the transaction qualifies
as a pooling-of-interests for accounting purposes and as a tax-free
reorganization under the Internal Revenue Code.
As of November 13, 1996, the Company is in discussion with its current
syndicate of banks to increase its credit facility to $1.2 billion, an amount
sufficient to cover the Company's pending acquisitions.
F-50
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 11--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended August 31, 1995 and 1996
is summarized below (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
1995
Total revenue................................................. $ 418,021 $ 442,725 $ 497,890 $ 484,065
Income before income taxes and extraordinary item............. $ 16,104 $ 22,571 $ 28,837 $ 19,572
Net income.................................................... $ 13,350 $ 19,919 $ 22,091 $ 15,952
Net income per common and common equivalent share............. $ 0.29 $ 0.43 $ 0.47 $ 0.34
Net income per common share assuming full dilution............ $ 0.29 $ 0.43 $ 0.47 $ 0.33
1996
Total revenue................................................. $ 493,565 $ 542,888 $ 557,866 $ 552,913
Income before income taxes.................................... $ 25,869 $ 37,782 $ 40,123 $ 31,339
Net income.................................................... $ 19,919 $ 27,455 $ 29,290 $ 23,207
Net income per common and common equivalent share............. $ 0.40 $ 0.46 $ 0.49 $ 0.39
Net income per common share assuming full dilution............ $ 0.39 $ 0.46 $ 0.49 $ 0.39
</TABLE>
F-51
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Total Revenue............................................................................. $ 493,565 $ 637,091
Costs and Expenses:
Salaries and benefits................................................................... 210,365 291,799
Supplies................................................................................ 64,890 87,884
Purchased services...................................................................... 52,219 56,971
Provision for doubtful accounts......................................................... 33,207 32,711
Other operating expenses................................................................ 59,953 66,552
Depreciation and amortization........................................................... 23,461 31,704
Interest expense........................................................................ 27,186 30,558
Interest income......................................................................... (1,154) (1,179)
Minority interest....................................................................... 1,353 2,335
---------- ----------
22,085 37,756
Income from investments in Houston
Northwest Medical Center................................................................ 3,784 --
---------- ----------
Income before income tax expense.......................................................... 25,869 37,756
Income tax expense........................................................................ 5,950 11,327
---------- ----------
Net income................................................................................ 19,919 26,429
Preferred stock dividend requirements..................................................... (332) --
---------- ----------
Net income applicable to common shares.................................................... $ 19,587 $ 26,429
---------- ----------
---------- ----------
Net income per common and common equivalent share......................................... $ 0.40 $ 0.44
Net income per common share assuming full dilution........................................ $ 0.39 $ 0.44
Weighted average common and dilutive common equivalent shares outstanding................. 49,519 60,509
Weighted average common shares outstanding assuming full dilution......................... 50,763 60,617
</TABLE>
F-52
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................................................... $ 17,435 $ 10,506
Patient accounts receivable, net of allowance for uncollectible accounts of $78,447
at August 31, 1996 and $77,747 at November 30, 1996.............................. 379,874 415,640
Supplies, at cost.................................................................. 42,168 44,982
Other.............................................................................. 86,338 88,102
------------ ------------
Total Current Assets............................................................. 525,815 559,230
Property, Plant and Equipment, at cost:
Land............................................................................... 152,449 153,422
Buildings and improvements......................................................... 1,062,953 1,110,272
Equipment and fixtures............................................................. 490,498 510,402
------------ ------------
1,705,900 1,774,096
Less accumulated depreciation and amortization..................................... 370,707 394,857
------------ ------------
1,335,193 1,379,239
Excess of Purchase Price Over Net Assets Acquired, net of accumulated amortization... 497,806 501,716
Other Assets......................................................................... 107,714 172,057
------------ ------------
$ 2,466,528 $2,612,242
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Accounts payable................................................................... $ 168,403 $ 155,688
Accrued expenses and other liabilities............................................. 209,525 228,562
Current maturities of long-term debt............................................... 59,750 36,864
------------ ------------
Total Current Liabilities........................................................ 437,678 421,114
Long-term Debt....................................................................... 1,229,930 1,334,861
Other Liabilities.................................................................... 158,503 182,038
Shareholders Equity:
Common stock, $.01 par value authorized 200,000,000 shares, issued and outstanding
58,250,996 shares at August 31, 1996 and 58,432,525 shares at November 30,
1996............................................................................. 583 584
Additional paid-in capital......................................................... 633,983 641,365
------------ ------------
Retained earnings.................................................................. 5,851 32,280
------------ ------------
640,417 674,229
------------ ------------
$ 2,466,528 $2,612,242
------------ ------------
</TABLE>
F-53
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED NOVEMBER ENDED NOVEMBER
30, 1995 30, 1996
----------------- -----------------
<S> <C> <C>
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income................................................................. $ 19,919 $ 26,429
Adjustments to reconcile net income to net cash provided by operating
activities:
Non-cash portion of income from investments in Houston Northwest
Medical Center....................................................... (3,160) --
Depreciation and amortization.......................................... 23,461 31,704
Provision for doubtful accounts........................................ 33,207 32,711
Changes in assets and liabilities net of effects from acquisitions and
dispositions of hospitals:
Patient accounts receivable.......................................... (45,946) (46,908)
Other current assets................................................. (10,040) 9,404
Other assets......................................................... 457 376
Accounts payable, accrued expenses and other current liabilities..... (53,739) (22,758)
Other liabilities.................................................... 11,702 1,342
Proceeds from sales of trading investment security..................... 19,115 --
-------- --------
Net cash provided by (used in) operating activities.................... (5,024) 32,300
-------- --------
CASH FLOW USED IN INVESTING ACTIVITIES:
Acquisitions of hospitals and related assets........................... (29,825) (81,973)
Capital expenditures................................................... (14,096) (26,147)
Issuance of notes receivable........................................... (7,606) (1,578)
Payments received on long-term notes and other receivables............. 3,297 1,123
Other investing activities................................................. 1,545 (2,269)
-------- --------
Net cash used in investing activities (46,685) (110,844)
-------- --------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock................................. 193,011 3,046
Principal payments on long-term debt borrowings........................ (37,636) (72,706)
Proceeds received on long-term debt borrowings......................... 15,003 145,000
Financing costs incurred in connection with long-term borrowings....... (3,744) (2,045)
Other.................................................................. (72) (1,680)
-------- --------
Net cash provided by financing activities.............................. 166,562 71,615
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 114,853 (6,929)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 4,963 17,435
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 119,816 $ 10,506
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)................................... $ 36,362 $ 38,694
Income taxes........................................................... 21,793 11,922
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Preferred stock dividends................................................ 332 --
Capital lease obligations incurred....................................... -- 69
Exchange of minority ownership in hospitals for minority interest
ownership in physician practices....................................... 9,400 --
</TABLE>
F-54
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER 30, 1996
NOTE 1 - REPORTING ENTITY
OrNda HealthCorp ("Company"), which is incorporated in the State of
Delaware, is a provider of health care services through the operation of general
acute care hospitals located primarily in the southern and western United
States. Of the 49 general acute care hospitals and one psychiatric hospital
operated by the Company at November 30, 1996, 19 hospitals are located in
California of which 16 hospitals are located in the southern California area. In
addition, 4 hospitals are located in southern Florida and 6 hospitals are
located in Arizona. The concentration of hospitals in California, southern
Florida and Arizona increases the risk that any adverse economic, regulatory or
other developments that may occur in such areas may adversely affect the
Company's operations or financial condition.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying unaudited consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for fair presentation have been included.
Certain prior year amounts have been reclassified to conform to the current year
presentation. Operating results for the three months ended November 30, 1996,
are not necessarily indicative of the results that may be expected for the
entire year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended August 31, 1996.
EARNINGS PER SHARE. Earnings per common and common equivalent share is based
on the Company's weighted average number of shares of common stock outstanding
during the period adjusted to give effect to dilutive stock options and warrants
using the treasury stock method. The dilutive effect of stock options and
warrants was 1.4 million and 2.1 million equivalent shares for the three months
ended November 30, 1995 and 1996, respectively. Earnings per common share
assuming full dilution for the three months ended November 30, 1995, assumes the
conversion of the Company's redeemable convertible preferred stock into common
shares.
ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF. Effective September 1, 1996, the Company adopted Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," (SFAS No. 121). The effect of
adoption was not material to the Company's operations or financial condition.
NOTE 3 - LONG-TERM DEBT
On November 26, 1996, the Company executed an amendment to its credit
agreement (the "Credit Facility") which increased the borrowing capacity under
the revolving commitment from $440.0 million to $773.8 million bringing the
total credit facility to $1.2 billion. As of November 30, 1996, $767.3 million
was outstanding under the Credit Facility, and commitment availability had been
reduced by $25.3 million as a result of issued letters of credit. The amendment
also postponed the next three quarterly principal payments of the term loan
facility. The Credit Facility still matures on October 30, 2001.
Loans under the Credit Facility bear interest, at the option of the Company,
at a rate equal to either (i) the "alternate base rate" or (ii) LIBOR plus 1.0%,
in each case subject to potential decreases or increases dependent on the
Company's leverage ratio. Interest is payable quarterly if a rate based on the
F-55
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 30, 1996
NOTE 3 - LONG-TERM DEBT (CONTINUED)
alternate base rate is elected or at the end of the LIBOR period (but in any
event not to exceed 90 days) if a rate based on LIBOR is elected. The weighted
average interest rate on the Company's borrowings under the Senior Credit
Facilities at November 30, 1996, was 6.4%.
In certain circumstances, the Company is required to make principal
prepayments on the Credit Facility, including the receipt of proceeds from the
issuance of additional subordinated indebtedness, certain asset sale proceeds
not used to acquire additional assets within a specified period, and 50% of the
proceeds in excess of $50 million from the issuance of additional equity not
used to acquire additional assets, fund capital expenditures or repay
subordinated debt within one year. The Company may prepay at any time all or
part of the outstanding Credit Facility without penalty.
The Credit Facility limits, under certain circumstances, the Company's
ability to incur additional indebtedness, sell material assets, acquire the
capital stock or assets of another business, or pay dividends. The Credit
Facility also requires the Company to maintain a specified net worth and meet or
exceed certain coverage, leverage, and indebtedness ratios. Indebtedness under
the Credit Facility is secured by a perfected, first priority security interest
in the stock of all existing and future subsidiaries of the Company,
intercompany notes of indebtedness, majority-owned partnerships and certain
specified investments.
NOTE 4 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). Under SFAS No. 109, an asset and liability approach for financial
accounting and reporting for income taxes is required.
The 1994 merger with AHM caused an "ownership change" within the meaning of
Section 382(g) of the Internal Revenue Code for both OrNda and AHM.
Consequently, allowable federal deductions relating to NOL's of OrNda and AHM
arising in periods prior to the AHM Merger are thereafter subject to annual
limitations of approximately $19 million and $16 million for OrNda and AHM,
respectively. In addition, approximately $55 million of the NOL's are subject to
an annual limitation of approximately $3 million due to prior "ownership
changes" of OrNda. The annual limitations may be increased in order to offset
certain built-in gains which are recognized during the five year period
following an ownership change. In addition, the NOL's from pre-merger tax years
of AHM may only be applied against the prospective taxable income of the AHM
entities. The limitations described above are not currently expected to
significantly affect the ability of the Company to ultimately recognize the
benefit of these NOL's in future years.
The Company's federal income tax returns are not presently under audit by
the Internal Revenue Service (the "IRS"), except in respect to Summit as
disclosed below. Furthermore, the Company's federal income tax returns for
taxable years through August 31, 1991 are no longer subject to IRS audit, except
for net operating loss and credit carry forwards for income tax purposes from
prior years which may be subject to IRS audit as net operating loss and credit
carry forwards are utilized in subsequent tax years. Also, Summit Health has
extended the statute of limitations for fiscal years 1987 to 1992 through March
31, 1997.
In recent years the IRS was examining the federal income tax returns for
fiscal years 1984, 1985 and 1986 of Summit Health, which became a wholly-owned
subsidiary of the Company in April 1994 and merged into the Company in September
1994. Summit Health received a revenue agent's report from the IRS with proposed
adjustments for the years 1984 through 1986 aggregating as of August 31, 1996
F-56
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 30, 1996
NOTE 4 - INCOME TAXES (CONTINUED)
approximately $16.6 million of income tax, $66.4 million of interest on the tax,
$43.9 million of penalties and $25.6 million of interest on the penalties. After
receiving the revenue agent's report, Summit Health filed a protest contesting
the proposed adjustments. On October 28, 1996, the Company entered into a
Closing Agreement on Final Determination with the IRS for the above audit
period, by agreeing and paying additional tax of $647,000 and interest of
$888,000 to close the audit of Summit Health for the fiscal years 1984 through
1986.
NOTE 5 - ACQUISITIONS
Effective September 1, 1996, the Company completed the acquisition of The
Fallon Healthcare System's Saint Vincent Healthcare System, located in
Worcester, Massachusetts ("St. Vincent's"), consisting of a 432-bed acute care
teaching hospital, three skilled nursing facilities and other health related
companies, and a minority interest in the 280-member multi-specialty group
physician practice, The Fallon Clinic. The Company has committed to fund the
construction, estimated at $225.0 million, of a new replacement hospital, known
as Medical City.
On December 23, 1996, the Company completed its acquisition of substantially
all of the assets of United Western Medical Centers, a not-for-profit
corporation headquartered in Santa Ana, California ("UWMC"), which consists
primarily of Western Medical Center, a 288-bed acute care hospital in Santa Ana,
California; Western Medical Center-Anaheim, a 193-bed acute care hospital in
Anaheim, California; and Western Medical Center-Bartlett, a 202-bed skilled
nursing facility in Santa Ana, California. UWMC has approximately $185 million
in annual net revenues in its most recent fiscal year.
The following proforma information reflects the fiscal 1996 acquisitions,
the St. Vincent's and UWMC acquisitions and the November 1995 offering of common
stock as if they occurred on September 1, 1995 and 1996 (in thousands, except
per share data):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Total revenue................................................................... $ 677,766 $ 683,165
Net income...................................................................... 21,106 26,460
Net income applicable to common shares.......................................... 20,774 26,460
Net income per common share..................................................... $ 0.36 $ 0.44
</TABLE>
NOTE 6 - PROPOSED MERGER WITH TENET
On October 16, 1996, the Company entered into a definitive agreement to
merge with Tenet Healthcare Corporation ("Tenet"). Under the terms of the
definitive agreement, which was unanimously approved by the Board of Directors
of both companies, shareholders of OrNda common stock would receive 1.35 shares
of Tenet common stock and the associated preferred stock purchase rights for
each share of OrNda common stock. The merger transaction will be tax-free and
accounted for as a pooling of interests and is expected to close in January 1997
pending receipt of shareholder and government approvals. Both OrNda and Tenet
have announced special shareholder meetings for January 28, 1997, for
shareholder approval of the proposed merger.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company continually evaluates contingencies based upon the best
available information. Final determination of amounts earned from certain
third-party payors is subject to review by appropriate
F-57
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 30, 1996
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
governmental authorities or their agents. In the opinion of management, adequate
provision has been made for any adjustments that may result from such reviews.
Broad provisions in the Medicare and Medicaid laws deal with fraud and
abuse, false claims and physician self-referrals as well as similar provisions
in many state laws. In recent years, government investigations of alleged
violations of these laws have become common place in the health care industry.
In February 1996, the Company's Midway Hospital Medical Center ("Midway") in
Los Angeles, California, which was acquired when the Company acquired Summit
Health Ltd. ("Summit Health") in April 1994, received an investigative subpoena
from the Office of the Inspector General of the United States Department of
Health and Human Services (the "OIG"). The subpoena states that it was issued in
connection with an investigation being conducted by the OIG concerning possible
violations of Medicare rules and regulations (the "OIG Investigation"). The
Company believes that the basis for the investigative subpoena from the OIG that
was served on Midway was a civil qui tam action that had been filed in July 1995
against Midway Hospital Medical Center, Inc. (a subsidiary of the Company which
owns Midway), Summit Health and the Company in the United States District Court
for the Central District of California (the "California Action"). The California
Action originally was filed under a court-ordered seal that prohibited the
Company from disclosing the action prior to this time.
The California Action alleges, among other things, that there were
violations of the federal False Claims Act and the federal fraud and abuse and
anti-kickback provisions of the Medicare and Medicaid laws in connection with
certain of Midway's compensation arrangements with its physicians. The
California Action alleges that as a result of this allegedly wrongful conduct,
the United States is entitled to monetary damages and penalties. The California
Action also alleges in a second cause of action violations of the fraud and
abuse, medical staff and wrongful discharge laws of the State of California and
claims as a result of such wrongful conduct compensatory as well as punitive
damages.
The OIG has expanded the California Action, which initially related to only
one of OrNda's hospitals (Midway, which was acquired by the Company from Summit
Health), and the OIG Investigation to 11 other former Summit Health hospitals
owned by the Company. In an apparently unrelated matter, the government has
requested and the Company has provided records from a single hospital outside
the group acquired from Summit Health. The Company is fully cooperating with the
OIG. The Company and its outside counsel have held numerous meetings with
government attorneys with respect to this matter and, as a result, the Company
believes that the OIG Investigation continues to be a civil investigation
focused primarily on arrangements between physicians and the hospitals that may
violate Medicare rules and regulations and not on the hospitals' Medicare or
Medicaid billing practices. If the outcome of the California Action or OIG
Investigation were unfavorable, the Company could be subject to fines, penalties
and damages ("Monetary Payments") and also could be excluded from Medicare and
other government reimbursement programs, which Monetary Payments or exclusion
could have a material adverse effect on the Company's financial condition or
results of operations. The result of the California Action, the OIG
Investigation and their impact, if any, cannot be predicted or estimated at this
time. Based on information currently available to the Company, however,
management of the Company believes that if the California Action and the OIG
Investigation remain primarily limited to physician arrangements, remain civil
in nature and, with the exception of only one of the hospitals, relate only to
the practices of the former Summit Health hospitals, the final outcome of the
California Action and the OIG Investigation will not have a material adverse
effect on the Company's financial condition or results of operations.
F-58
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 30, 1996
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is not aware of any additional litigation or investigations
concerning the matters described in the three paragraphs immediately above.
There can be no assurance, however, that in the event any such additional
litigation or investigation is instituted and there is an unfavorable outcome,
such result would not have a material adverse effect on the Company's financial
condition or results of operations.
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of business. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial condition or results of operations.
F-59
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE NOTES OFFERED HEREBY OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents
by Reference............................................................ 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 11
Related Transactions...................................................... 19
Use of Proceeds........................................................... 21
Historical and Pro Forma Capitalization................................... 22
Pro Forma Financial Information........................................... 23
Selected Operating Statistics............................................. 33
Selected Historical Financial Information
of Tenet................................................................ 34
Management's Discussion and
Analysis of Financial Condition and
Results of Operations of Tenet.......................................... 36
Selected Historical Financial
Information of OrNda.................................................... 47
Management's Discussion and Analysis
of Financial Condition and Results of
Operations of OrNda..................................................... 49
Business.................................................................. 57
Management................................................................ 77
Description of Notes...................................................... 80
Description of the New Credit Facility.................................... 102
Underwriting.............................................................. 103
Legal Matters............................................................. 104
Experts................................................................... 104
Index to Financial Statements............................................. F-1
</TABLE>
GH
TENET HEALTHCARE
CORPORATION
$200,000,000
% SENIOR NOTES DUE 2003
$600,000,000
% SENIOR NOTES DUE 2005
$500,000,000
% SENIOR
SUBORDINATED NOTES DUE 2007
------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SMITH BARNEY INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the SEC registration fee and the NASD filing fee. The Company will bear
all of such expenses.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 393,939
NASD filing fee................................................. 30,500
Rating Agency Fee............................................... 100,000
Blue sky fees and expenses...................................... 25,000
Printing and engraving expenses................................. 330,000
Legal fees and expenses......................................... 1,250,000
Accounting fees and expenses.................................... 150,000
Trustee fees.................................................... 10,000
Miscellaneous................................................... 110,561
---------
Total....................................................... $2,400,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law ("Nevada Law") provides
generally and in pertinent part that a Nevada corporation may indemnify its
directors and officers against expenses, judgments, fines, and settlements
actually and reasonably incurred by them in connection with any civil suit or
action, except actions by or in the right of the corporation, or any
administrative or investigative proceeding if, in connection with the matters in
issue, they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation, and in connection
with any criminal suit or proceeding, if in connection with the matters in
issue, they had no reasonable cause to believe their conduct was unlawful.
Section 78.751 further provides that, in connection with the defense or
settlement of any action by or in the right of the corporation, a Nevada
corporation may indemnify its directors and officers against expenses actually
and reasonably incurred by them if, in connection with the matters in issue,
they acted in good faith, in a manner they reasonably believed to be in, or not
opposed to, the best interest of the corporation. Section 78.751 further permits
a Nevada corporation to grant its directors and officers additional rights of
indemnification through by-law provisions and otherwise.
Article IX of the Restated By-Laws, as amended, of the Registrant provide
that the Registrant shall indemnify its directors and officers to the fullest
extent permitted by Nevada Law. The Registrant has entered into indemnification
agreements with each of its directors and executive officers. Such
indemnification agreements are intended to provide a contractual right to
indemnification, to the maximum extent permitted by law, for expenses (including
attorneys' fees), judgments, penalties, fines, and amounts paid in settlement
actually and reasonably incurred by the person to be indemnified in connection
with any proceeding (including, to the extent permitted by applicable law, any
derivative action) to which they are, or are threatened to be made, a party by
reason of their status in such positions. Such indemnification agreements do not
change the basic legal standards for indemnification set forth under Nevada Law
or the Restated Articles of Incorporation, as amended, of the Registrant. Such
agreements are intended to be in furtherance, and not in limitation of, the
general right to indemnification provided in the Registrant's Restated Articles
of Incorporation, as amended.
Section 78.037 of the Nevada Law provides that the articles of incorporation
may contain a provision eliminating or limiting the personal liability of a
director or officer to the corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director provided that such provision shall
not
II-1
<PAGE>
eliminate or limit the liability of a director or officer (i) for acts or
omissions which involve intentional misconduct or a knowing violation of law, or
(ii) under Section 78.300 of the Nevada Law (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock).
Article X of the Restated Articles of Incorporation contains a provision
eliminating the liability of directors and officers to the extent permitted
under Section 78.037 of Nevada law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement between Tenet Healthcare Corporation (formerly known as National
Medical Enterprises, Inc., the "Company") and the Underwriters
2.1 Agreement and Plan of Merger, dated as of October 16, 1996 (the "Merger Agreement"), by and among
the Company, OHC Acquisition Co. ("Merger Sub") and OrNda HealthCorp ("OrNda") (Incorporated by
reference to Exhibit 1 to the Company's Current Report on Form 8-K dated October 17, 1996)
2.2 Amendment No. 1 to the Merger Agreement, by and among the Company, Merger Sub and OrNda
4.1 Form of Indenture between the Company and The Bank of New York, as Trustee, relating to the Senior
Notes due 2005 (including the form of certificate representing the Senior Notes due 2005)
4.2 Form of Indenture between the Company and The Bank of New York, as Trustee, relating to the Senior
Subordinated Notes due 2007 (including the form of certificate representing the Senior
Subordinated Notes due 2007)
4.3 Form of Indenture between the Company and The Bank of New York, as Trustee, relating to the Senior
Notes due 2003 (including the form of certificate representing the Senior Notes due 2003)
4.4 Indenture, dated as of March 1, 1991, between the Company and The Bank of New York, as Trustee,
relating to Tenet's Medium Term Notes (Incorporated by reference to Exhibit 4(a) to the Company's
Annual Report on Form 10-K dated August 26, 1996 for the fiscal year ended May 31, 1996)
4.5 Indenture, dated as of March 1, 1995, between the Company 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 the
Company's Quarterly Report on Form 10-Q dated April 14, 1995, for the fiscal quarter ended
February 28, 1995)
4.6 Indenture, dated as of March 1, 1995, between the Company 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 the Company's Quarterly Report on Form 10-Q dated April 14, 1995, for the fiscal quarter ended
February 28, 1995)
4.7 Indenture, dated as of October 16, 1995, between the Company and The Bank of New York, as Trustee,
relating to 8 5/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(d) to the
Company's Annual Report on Form 10-K dated August 26, 1996, for the fiscal year ended May 31,
1996)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------
<C> <S>
4.8 Indenture, dated as of January 10, 1996, between the Company and The Bank of New York, as Trustee,
relating to 6% Exchangeable Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(a)
to the Company's Quarterly Report on Form 10-Q dated January 15, 1996, for the fiscal quarter
ended November 30, 1995)
4.9 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 the Company's Quarterly Report on Form 10-Q, dated as of January 15, 1996, for the
fiscal quarter ended November 30, 1995)
5.1 Opinion of Scott M. Brown, Senior Vice President, Secretary and General Counsel of the Company
12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges
12.2 Statement Re: Computation of Pro Forma Ratio of Earnings to Fixed Charges
23.1 Consent of Scott M. Brown, Esq. (included in the opinion filed as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Ernst & Young LLP
24.1* Power of Attorney
25.1 Statement of Eligibility of The Bank of New York, as Trustee with respect to the Notes
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(b) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, the Nevada Law, the
Restated Articles of Incorporation, and the Restated Bylaws, as amended, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the
II-3
<PAGE>
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Barbara, State of California on January 13,
1997.
TENET HEALTHCARE CORPORATION
By: /s/ SCOTT M. BROWN
-----------------------------------------
Scott M. Brown
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Executive Vice President
/s/ TREVOR FETTER* and Chief Financial
- ------------------------------ Officer (Principal January 13, 1997
Trevor Fetter Financial Officer)
/s/ SCOTT M. BROWN
- ------------------------------ Senior Vice President January 13, 1997
Scott M. Brown
Senior Vice President and
/s/ RAYMOND L. MATHIASEN* Chief Accounting Officer
- ------------------------------ (Principal Accounting January 13, 1997
Raymond L. Mathiasen Officer)
Chairman of the Board of
/s/ JEFFREY C. BARBAKOW* Directors and Chief
- ------------------------------ Executive Officer January 13, 1997
Jeffrey C. Barbakow (Principal Executive
Officer)
/s/ MICHAEL H. FOCHT, SR.*
- ------------------------------ President, Chief Operating January 13, 1997
Michael H. Focht, Sr. Officer and Director
/s/ BERNICE B. BRATTER*
- ------------------------------ Director January 13, 1997
Bernice B. Bratter
/s/ MAURICE J. DEWALD*
- ------------------------------ Director January 13, 1997
Maurice J. DeWald
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PETER DE WETTER*
- ------------------------------ Director January 13, 1997
Peter de Wetter
/s/ EDWARD EGBERT, M.D.*
- ------------------------------ Director January 13, 1997
Edward Egbert, M.D.
/s/ RAYMOND A. HAY*
- ------------------------------ Director January 13, 1997
Raymond A. Hay
/s/ LESTER B. KORN*
- ------------------------------ Director January 13, 1997
Lester B. Korn
/s/ JAMES P. LIVINGSTON*
- ------------------------------ Director January 13, 1997
James P. Livingston
- ------------------------------ Director
Thomas J. Pritzker
/s/ RICHARD S. SCHWEIKER*
- ------------------------------ Director January 13, 1997
Richard S. Schweiker
</TABLE>
<TABLE>
<S> <C> <C> <C>
/s/ SCOTT M. BROWN
------------------------------
Scott M. Brown January 13, 1997
*By: Attorney-in-Fact
</TABLE>
II-6
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT No. 1, dated as of November 22, 1996 (the "Amendment"), to the
Agreement and Plan of Merger dated as of October 16, 1996 (the "Merger
Agreement"), among Tenet Healthcare Corporation, a Nevada corporation
("Parent"), OHC Acquisition Co., a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub"), and OrNda Healthcorp., a Delaware corporation (the
"Company").
WHEREAS, Parent, Sub and the Company have agreed to amend the Merger
Agreement to make certain modifications to certain provisions governing employee
benefit matters;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AMENDMENT TO THE MERGER AGREEMENT. Exhibit C to the Merger Agreement is
hereby amended and restated to read in its entirety as set forth in Attachment 1
hereto.
2. MISCELLANEOUS. Except as expressly amended and modified hereby, the
Merger Agreement is hereby reaffirmed and remains in full force and effect. This
Amendment may be executed in several counterparts, each of which shall be deemed
an original and all of which together shall constitute one and the same
instrument.
1
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
TENET HEALTHCARE CORPORATION
By: /s/ JEFFREY C. BARBAKOW
-----------------------------------
Name: Jeffrey C. Barbakow
Title: Chairman and Chief Executive
Officer
Attest:
By: /s/ LINDA DAVIS
- --------------------------------------
Name: Linda Davis
Title: Senior Administrative
Assistant
OHC ACQUISITION CO.
By: /s/ JEFFREY C. BARBAKOW
-----------------------------------
Name: Jeffrey C. Barbakow
Title: Chairman and Chief Executive
Officer
Attest:
By: /s/ LINDA DAVIS
- --------------------------------------
Name: Linda Davis
Title: Senior Administrative
Assistant
ORNDA HEALTHCORP
By: /s/ W. LARRY HOUGH
-----------------------------------
Name: W. Larry Hough
Title: Executive Vice President and
Chief Operating Officer
Attest:
By: /s/ RONALD P. SOLTMAN
- --------------------------------------
Name: Ronald P. Soltman
Title: Senior Vice President
2
<PAGE>
ATTACHMENT 1
CERTAIN BENEFITS
1. From and after the Effective Time, Parent will cause the Surviving
Corporation to honor, pay and perform all obligations under each Plan (including
but not limited to under each employment, severance, termination or similar
agreement or arrangement with any current or former officer or other employee of
Company or any Company Subsidiary) in accordance with the terms thereof in
effect as of the date hereof (or, with the written approval of Parent, as the
same may be amended from time to time after the date hereof).
2. Except as may otherwise be required under any collective bargaining
agreement, Parent will cause each employee pension, welfare, incentive, fringe
and other benefit and compensation plan and program of Parent and its
subsidiaries (the "Parent Benefit Programs") to provide for the participation
therein of the officers and other employees of Company and the Company
Subsidiaries (collectively, the "Company Employees"), in each case, pursuant to
the terms of such Parent Benefit Program applicable to similarly situated
officers and other employees of Parent and its subsidiaries. In connection
therewith, Parent will cause each Parent Benefit Program to (i) recognize for
all purposes under each such program all service completed by each Company
Employee prior to the Effective Time with Company, any Company Subsidiary or any
of their respective affiliates or predecessors to the same extent such service
was recognized immediately prior to the Effective Time under a comparable Plan
and (ii) waive (except with respect to any Parent Benefit Program providing
disability benefits) any actively-at-work requirements and exclusions for
pre-existing conditions of the Company Employees and their dependents and to
recognize any co-payments, deductibles or similar amounts or costs incurred by
any such Company Employee under a comparable Plan during the plan year in which
the commencement of such Company Employee's participation in the applicable
Parent Benefit Program occurs.
3. Effective on the date hereof, Company (subject to consultation with
Parent as to the specific terms thereof) will implement and, for the two-year
period following the Effective Time, Parent will, or will cause the Surviving
Corporation to, continue to maintain a severance plan (the "Severance Plan") (i)
covering all of the employees of Company located at (or otherwise employed
full-time to perform services for) the Company's headquarters in Nashville,
Tennessee or one of its regional offices located in Irvine, California, Phoenix,
Arizona or Miami, Florida and the Chief Executive Officer of each hospital
operated by Company or a Company Subsidiary (each, a "Hospital CEO"), other than
any such employee who, as of the Effective Time, is covered by an effective
employment agreement or Severance Protection Agreement, and (ii) otherwise
containing the terms and providing the benefits described herein. The Severance
Plan will provide for the payment of the severance benefits described herein to
each covered employee whose employment is terminated after the date hereof and
on or prior to the second anniversary of the Effective Time by Company, a
Company Subsidiary or the Surviving Corporation (other than for "cause" as to be
defined in the Severance Plan) or by such employee for "Good Reason," as defined
in Section 4. Severance benefits provided under the Severance Plan will be paid
in cash, on a salary continuation basis consistent with Parent's existing
payroll practices, commencing upon an eligible employee's termination of
employment, at a rate equal to such employee's highest rate of annual base
salary in effect during the period from the date hereof to the date of such
termination (the "Measurement Period") for a period of time as follows: (i) in
the case of an employee having the title at the relevant time of Assistant
Vice-President or Hospital CEO, one year, (ii) in the case of an employee having
the title at the relevant time of Director, nine months, (iii) in the case of an
employee having the title at the relevant time of Manager, six months, (iv) in
the case of an employee who, at the relevant time, is otherwise classified as an
exempt employee, four months and (v) in the case of an employee who, at the
relevant
1
<PAGE>
time, is classified as a non-exempt employee, a period of months determined in
accordance with the following schedule:
<TABLE>
<CAPTION>
NUMBER OF YEARS
OF SERVICE COMPLETED FACTOR FOR
PRIOR TO TERMINATION DETERMINING
OF EMPLOYMENT SEVERANCE PAY
- ------------------------------------------------------------------ ----------------
<S> <C>
less than one year................................................ two months
one year but less than three years................................ three months
three years but less than five years.............................. four months
five or more years................................................ five months
</TABLE>
Solely in the case of an employee having the title at the relevant time of
Assistant Vice-President, such employee will also receive at the time such
employee would next have been eligible to receive an annual bonus, an amount
equal to the greatest of (I) such employee's highest annual target incentive
bonus for any fiscal or calendar year beginning during the Measurement Period,
(II) such employee's highest annual bonus paid for any fiscal or calendar year
ending during the Measurement Period or (III) such employee's annual target
bonus for the fiscal year of the Company ending August 31, 1996.
Any covered Employee entitled to severance benefits under the Severance Plan
will, in addition to the payments described above, be entitled to continue
participation in Parent's 401(k) qualified savings plan (or, if such
participation is not permitted under the terms of such plan, equivalent benefits
on a non-qualified basis) and in those Parent Benefit Programs providing
medical, life, and other welfare benefits (excluding any Parent Benefit Program
providing disability benefits) in which such employee was a participant
immediately prior to the date of termination of employment, for the period
ending on the earlier of (x) the last date with respect to which salary
continuation payments are required to be made to such employee in accordance
with the terms hereof and (y) the date comparable coverage (including coverage
of pre-existing conditions) is provided to such employee under a plan of a new
employer, at a cost to such employee no greater than the cost, if any, of such
coverage to such employee immediately prior to his termination of employment.
Benefits under the Sever ance Plan will be in lieu of any other severance
benefits to which any such covered employee may otherwise be entitled under the
terms of any other plan or arrangement of Parent, Company or any subsidiary.
4. For purposes of Section 3, "Good Reason" for termination by the employee
of the employee's employment shall mean the occurrence (without the employee's
express written consent) of any one of the following acts or failures to act by
Parent, the Company, or the Surviving Corporation, as the case may be, unless,
in the case of any act or failure to act described below, such act or failure to
act is corrected prior to the date of termination of employment:
(I) a material diminution in the employee's title, authorities or
responsibilities from those in effect immediately prior to such termination
or, if greater, those in effect immediately prior to the Effective Time;
(II) a reduction in the employee's annual base salary or hourly salary as
in effect immediately prior to the Effective Time except for
across-the-board salary reductions similarly affecting all similarly
situated employees of the Company and all similarly situated employees of
any person in control of the Company;
(III) the relocation of the employee's office at which he is to perform
his duties, to a location that increases his one-way commute by more than
thirty (30) miles from his commute to the location at which the employee
performed his duties immediately prior to the Effective Time, except for
required travel on Company's business to an extent substantially consistent
with his business travel obligations prior to the Effective Time; or
(IV) the failure to continue to provide the employee with benefits
substantially similar in value to the employee in the aggregate to those
enjoyed by the employee under Company's pension, life
2
<PAGE>
insurance, medical, health and accident, or disability plans in which the
employee was participating immediately prior to the Effective Time, unless
the employee participates after the Effective Time in other comparable
benefit plans generally available to employees of the Company and employees
of any person in control of the Company.
5. The Company shall take all necessary action to provide that, not later
than five (5) business days prior to the Effective Time, (i) any outstanding
options to purchase Shares under Company's Stock Purchase Plan shall terminate
(the "Stock Purchase Plan Termination Date"), and (ii) all amounts allocated to
each participant's account under the Company Stock Purchase Plan shall thereupon
(x) be used to purchase from Company newly-issued whole Shares at a price equal
to the lesser of (a) 85% of the closing price per Share on the New York Stock
Exchange on September 1, 1996 and (b) 85% of the closing price per Share on the
New York Stock Exchange on the Stock Purchase Plan Termination Date, or (y)
returned to the participant. At the Effective Time, any Shares so purchased will
be treated as provided in Section 3.1 of the Agreement. From and after the date
hereof, participants in the Stock Purchase Plan will not be permitted to
increase the rate of their contributions to the Stock Purchase Plan.
6. With respect to the Plans listed on Schedule A hereto (the "Change in
Control Plans"), Parent and Company confirm that, pursuant to the terms of the
Change in Control Plans as in effect on the date hereof, the approval by Company
shareholders of the Merger (or, with respect to the form of Indemnification
Agreement, the consummation of the Merger) will constitute a Change in Control
for purposes of such plans (assuming, where explicitly provided in the
applicable plan or agreement, that the Company's Chief Executive Officer, Chief
Operating Officer or Chief Financial Officer (i) changes after the Change of
Control or within 180 days thereafter, except as the result of their death or
Disability, or (ii) changes prior to the Change of Control at the direction of
Parent).
7. Parent hereby acknowledges and agrees that, effective as of the date
hereof and to induce Executive (as defined below) to remain in the employment of
Company during the transition period beginning on the date hereof, the
Employment Agreement, dated as of May 1, 1996 (the "Employment Agreement"), by
and between Company and William L. Hough (the "Executive") will be amended and
supplemented to provide that (i) on or prior to December 31, 1996, the Company
will make a lump sum cash payment to Executive (the "Advance") in an amount
equal to approximately $2.1 million, as an advance payment of a portion of the
benefits that are payable to Executive under Section 11(d)(ii) of the Employment
Agreement in the event of a Change in Control of Company (as defined therein)
and the subsequent termination of Executive's employment, (ii) in the event of
the termination of Executive's employment under the circumstances described in
Section 11(d) of the Employment Agreement, the lump sum cash payment to which
Executive will then be entitled under Section 11(d)(ii) of the Employment
Agreement in connection with such termination will be reduced by an amount equal
to the Advance and will otherwise be paid to Executive in accordance with
Section 11(d)(iv) of the Employment Agreement and (iii) in the event that (x)
the Merger is not consummated on or prior to August 1, 1997 (the "Expiration
Date") or (y) Executive's employment is not terminated under the circumstances
described in Section 11(d) of the Employment Agreement prior to the first
anniversary of the Effective Time (the "First Anniversary"), Executive's base
salary, annual and long-term incentive compensation bonuses, stock option
compensation, severance payments and other compensation will be reduced by an
aggregate amount equal to the Advance in such manner and in such increments as
Company or the Surviving Corporation, as the case may be, deems appropriate;
provided, however, that in the event Executive's employment is terminated by
Executive without Good Reason or by Parent, Company or the Surviving Corporation
for "cause" (as defined in the Employment Agreement), Executive shall repay to
Company within ten (10) business days following the date of such termination of
employment an amount equal to the excess, if any, of (a) the amount of the
Advance over (b) the aggregate amount by which Executive's base salary, annual
and long-term incentive compensation bonuses, stock option compensation,
severance payments and other compensation have been reduced as provided above.
In addition, Company and Parent shall cooperate in taking such reasonable
actions as may be necessary to preserve the deductibility under section 162(m)
of the Code of the Advance, including (without limitation) by terminating
Executive's employment with or position as an executive officer of Company prior
to the Effective Time, provided, that
3
<PAGE>
no such action will be taken that would adversely affect Executive's entitlement
to the severance benefits provided under Section 11(d)(ii) of the Employment
Agreement or preclude the acceleration of the exercisability of Executive's
employee stock options pursuant to the terms of Company's 1994 Management Equity
Plan.
8. From and after the date hereof, Parent acknowledges and agrees that, in
the case of each Company Employee who (i) may be subject to the excise tax on
"excess parachute payments" under Section 280G of the Code by reason of the
acceleration of the vesting of certain Employee Stock Options in connection with
the Merger and (ii) elects to exercise any vested Employee Stock Options prior
to the end of the 1996 calendar year, to assist such Company Employee in
satisfying his obligations to pay the exercise price and income tax withholding
obligations associated with the exercise of any such Employee Stock Options (the
"Aggregate Exercise Obligations"), Company may, upon the request of such Company
Employee, and in accordance with the terms of the applicable stock option
agreement and stock option plan (i) withhold a number of Shares having a fair
market value, as defined in the Company's 1994 Management Equity Plan, equal to
the applicable Aggregate Exercise Obligations, or (ii) subject to all
applicable margin rules, extend a loan to such Company Employee, in the
principal amount of such Aggregate Exercise Obligations, which loan shall (w)
bear interest at an annual rate equal to the average cost of Company's bank
indebtedness obligations outstanding as of the date of such loan, (x) be secured
by all the Shares purchased with the proceeds of such loan (or by other property
of equal value acceptable to Company and Parent), (y) have a term not to exceed
one year, with such loan coming due upon the earlier sale of the Shares securing
such loan, and (z) be subject to such other terms and conditions as Company and
Parent shall reasonably require; provided, that such Share withholding or
secured loan shall be subject to the condition that such action would not
preclude the treatment of the Merger as a pooling of interests for accounting or
financial reporting purposes.
9. It is agreed that the "caps" described under the employment agreements
for Messrs. Martin, Pitts and Hough and under the form of Severance Protection
Agreement for purposes of Section 280G of the Code apply only to reduce
severance and other amounts payable under such agreements, and do not apply to
the acceleration of stock options under Company's 1994 Management Equity Plan.
10. Parent hereby acknowledges and agrees that, effective as of the date
hereof and to induce certain Company officers named below (the "Designated
Officers") to remain in the employment of the Company at least during the
transition period beginning on the date hereof, the Company and each such
Designated Officer will enter into an agreement which will provide that (i) on
or prior to December 31, 1996, the Company will make a lump sum cash payment to
each Designated Officer (each a "Special Advance" and, collectively, the
"Special Advances") in the following amounts: Anthony Krayer-$600,000; Dominick
Bianco-$506,250; Alan Thomas-$450,000; Phillip Roe-$400,000; and Kenneth
Westbrook-$5,000, as advance payments of a portion of the benefits that are
payable to each such Designated Officer under Sections 6.01(A) and 6.01(B) of
their respective Severance Protection Agreements in the event of a Change in
Control of Company (as defined therein) and the subsequent termination of any
such Designated Officer's employment, (ii) in the event of termination of a
Designated Officer's employment under the circumstances described in Section
6.01 of his Severance Protection Agreement, the lump sum cash payment to which
such Designated Officer will then be entitled under Sections 6.01(A) and 6.01(B)
of his Severance Protection Agreement in connection with such termination will
be reduced by an amount equal to the Special Advance previously paid to such
Designated Officer and will otherwise be paid to such Designated Officer in
accordance with Section 6.03 of his Severance Protection Agreement and (iii) in
the event that (x) the Merger is not consummated on or prior to August 1, 1997
(the "Expiration Date") or (y) the employment of any Designated Officer is not
terminated under the circumstances described in Section 6.01 of his Severance
Protection Agreement prior to the first anniversary of the Effective Time (the
"First Anniversary"), the base salary, annual and long-term incentive
compensation bonuses, stock option compensation, severance payments and other
compensation of any such Designated Officer will be reduced by an aggregate
amount equal to the Special Advance previously paid to such Designated Officer
in such manner and in such increments as Company or the Surviving Corporation,
as the case may be, deems appropriate; provided, however, that in the event the
employment of any Designated Officer is
4
<PAGE>
terminated by any Designated Officer without Good Reason or by Parent, Company
or the Surviving Corporation for "cause" (as defined in the respective Severance
Protection Agreements), any such Designated Officer shall repay to Company
within ten (10) business days following the date of such termination of
employment an amount equal to the excess, if any, of (a) the amount of the
Special Advance previously paid to such Designated Officer over (b) the
aggregate amount by which such Designated Officer's base salary, annual and
long-term incentive compensation bonuses, stock option compensation, severance
payments and other compensation have been reduced as provided above. In
addition, Company and Parent shall cooperate in taking such reasonable actions,
if any, as may be necessary to preserve the deductibility under section 162(m)
of the Code of the Special Advances, including (without limitation) by
terminating any such Designated Officer's employment with or position as an
officer of Company prior to the Effective Time, provided, that no such action
will be taken that would adversely affect any such Designated Officer's
entitlement to the severance benefits provided under Section 6.01 of his
Severance Protection Agreement or preclude the acceleration of the
exercisability of the employee stock options of any such Designated Officer
pursuant to the terms of Company's 1994 Management Equity Plan.
5
<PAGE>
SCHEDULE A
1. Martin, Pitts and Hough Employment Agreements
2. Indemnification Agreement with Ronald P. Soltman and any other
indemnification agreement of substantially the same form (the "form of
Indemnification Agreement")
3. 1994 Management Equity Plan and any stock option agreement evidencing
options granted thereunder that does not define the term "Change of Control"
other than as defined in such plan
4. Outside Directors Stock Option Plan and any stock option agreement
evidencing options granted thereunder that does not define the term "Change of
Control" other than as defined in such plan
5. Incentive Bonus Plan
6. 1994 Annual Incentive Plan for Officers
7. Severance Protection Agreement with Ronald P. Soltman and any other
severance protection agreement of substantially the same form (the "form of
Severance Protection Agreement")
6
<PAGE>
TENET HEALTHCARE CORPORATION
--------------------------------
$600,000,000
__% SENIOR NOTES due 2005
--------------------------------
-----------------------------
INDENTURE
Dated as of January 15, 1997
-----------------------------
--------------------------------
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........................................ 10
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA........................ 11
SECTION 1.04. RULES OF CONSTRUCTION.................................... 11
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.......................................... 11
SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY....................... 12
SECTION 2.03. EXECUTION AND AUTHENTICATION............................. 12
SECTION 2.04. REGISTRAR AND PAYING AGENT............................... 13
SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST...................... 13
SECTION 2.06. HOLDER LISTS............................................. 13
SECTION 2.07. TRANSFER AND EXCHANGE.................................... 14
SECTION 2.08. PERSONS DEEMED OWNERS.................................... 14
SECTION 2.09. REPLACEMENT SECURITIES................................... 15
SECTION 2.10. OUTSTANDING SECURITIES................................... 15
SECTION 2.11. TREASURY SECURITIES...................................... 15
SECTION 2.12. TEMPORARY SECURITIES..................................... 16
SECTION 2.13. CANCELLATION............................................. 16
SECTION 2.14. DEFAULTED INTEREST....................................... 16
SECTION 2.15. RECORD DATE.............................................. 16
SECTION 2.16. CUSIP NUMBER............................................. 16
ARTICLE 3
COVENANTS
SECTION 3.01. PAYMENT OF SECURITIES.................................... 17
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY.......................... 17
SECTION 3.03. COMMISSION REPORTS....................................... 17
SECTION 3.04. COMPLIANCE CERTIFICATE................................... 18
SECTION 3.05. TAXES.................................................... 19
SECTION 3.06. STAY, EXTENSION AND USURY LAWS........................... 19
SECTION 3.07. LIMITATIONS ON RESTRICTED PAYMENTS....................... 20
-i-
<PAGE>
SECTION 3.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES................................... 21
SECTION 3.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK.......................................... 22
SECTION 3.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.............. 24
SECTION 3.11. LIMITATIONS ON LIENS..................................... 24
SECTION 3.12. CHANGE OF CONTROL........................................ 24
SECTION 3.13. CORPORATE EXISTENCE...................................... 26
SECTION 3.14. LINE OF BUSINESS......................................... 26
SECTION 3.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY
SUBSIDIARIES............................................. 26
SECTION 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR
SUBORDINATED NOTE INDENTURE.............................. 27
ARTICLE 4
SUCCESSORS
SECTION 4.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS................................................... 27
SECTION 4.02. SUCCESSOR CORPORATION SUBSTITUTED........................ 28
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.01. EVENTS OF DEFAULT........................................ 28
SECTION 5.02. ACCELERATION............................................. 29
SECTION 5.03. OTHER REMEDIES........................................... 30
SECTION 5.04. WAIVER OF PAST DEFAULTS.................................. 30
SECTION 5.05. CONTROL BY MAJORITY...................................... 31
SECTION 5.06. LIMITATION ON SUITS...................................... 31
SECTION 5.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT..................... 31
SECTION 5.08. COLLECTION SUIT BY TRUSTEE............................... 31
SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM......................... 32
SECTION 5.10. PRIORITIES............................................... 32
SECTION 5.11. UNDERTAKING FOR COSTS.................................... 33
ARTICLE 6
TRUSTEE
SECTION 6.01. DUTIES OF TRUSTEE........................................ 33
SECTION 6.02. RIGHTS OF TRUSTEE........................................ 34
SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE............................. 34
SECTION 6.04. TRUSTEE'S DISCLAIMER..................................... 35
SECTION 6.05. NOTICE OF DEFAULTS....................................... 35
-ii-
<PAGE>
SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS............................ 35
SECTION 6.07. COMPENSATION AND INDEMNITY............................... 35
SECTION 6.08. REPLACEMENT OF TRUSTEE................................... 36
SECTION 6.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC................ 37
SECTION 6.10. ELIGIBILITY; DISQUALIFICATION............................ 37
SECTION 6.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY........ 37
ARTICLE 7
DISCHARGE OF INDENTURE
SECTION 7.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE
SECURITIES............................................... 37
SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE........................... 38
SECTION 7.03. COVENANT DEFEASANCE...................................... 38
SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE............... 38
SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.................... 40
SECTION 7.06. REPAYMENT TO COMPANY..................................... 40
SECTION 7.07. REINSTATEMENT............................................ 41
ARTICLE 8
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 8.01. WITHOUT CONSENT OF HOLDERS............................... 41
SECTION 8.02. WITH CONSENT OF HOLDERS.................................. 42
SECTION 8.03. COMPLIANCE WITH TIA...................................... 43
SECTION 8.04. REVOCATION AND EFFECT OF CONSENTS........................ 43
SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES.................... 43
SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.......................... 43
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. TIA CONTROLS............................................. 44
SECTION 9.02. NOTICES.................................................. 44
SECTION 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.............. 45
SECTION 9.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT....... 45
SECTION 9.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............ 45
SECTION 9.06. RULES BY TRUSTEE AND AGENTS.............................. 46
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<PAGE>
SECTION 9.07. LEGAL HOLIDAYS........................................... 46
SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS............................................. 46
SECTION 9.09. DUPLICATE ORIGINALS...................................... 46
SECTION 9.10. GOVERNING LAW............................................ 46
SECTION 9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS............ 46
SECTION 9.12. SUCCESSORS............................................... 46
SECTION 9.13. SEVERABILITY............................................. 46
SECTION 9.14. COUNTERPART ORIGINALS.................................... 47
SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC......................... 47
EXHIBIT A FORM OF SECURITY
EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE
-iv-
<PAGE>
CROSS-REFERENCE TABLE(1)
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). . . . . . . . . . . . . . . . . . . . . . . . . 2.06
(b). . . . . . . . . . . . . . . . . . . . . . . . . 9.03
(c). . . . . . . . . . . . . . . . . . . . . . . . . 9.03
313 (a). . . . . . . . . . . . . . . . . . . . . . . . . 6.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . 6.06
(c). . . . . . . . . . . . . . . . . . . . . . . . . 6.06; 9.02
(d). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
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) . . . . . . . . . . . . . . . . . 2.11
(a)(1)(A). . . . . . . . . . . . . . . . . . . . . . 5.05
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . . 5.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b). . . . . . . . . . . . . . . . . . . . . . . . . 5.07
(c). . . . . . . . . . . . . . . . . . . . . . . . . 2.15; 8.04
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . 5.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 5.09
(b). . . . . . . . . . . . . . . . . . . . . . . . . 2.05
- ---------------
(1)This Cross-Reference Table is not part of the indenture.
-v-
<PAGE>
318 (a). . . . . . . . . . . . . . . . . . . . . . . . . 9.01
(b). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c). . . . . . . . . . . . . . . . . . . . . . . . . 9.01
N.A. means not applicable
-vi-
<PAGE>
INDENTURE dated as of January 15, 1997 between Tenet Healthcare
Corporation, a Nevada corporation (the "COMPANY"), and The Bank of New York, as
trustee (the "TRUSTEE").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the __% Senior
Notes due 2005 (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 and (ii) the issuance or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $25.0
million or (b) for net proceeds in excess $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.
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"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a Capital Lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any Person or group (as such
term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than
to a Person or group who, prior to such transaction, held a majority of the
voting power of the voting stock of the Company, (ii) the acquisition by any
Person or group, as defined above, of a direct or indirect interest in more than
50% of the voting power of the voting stock of the Company, by way of merger,
consolidation or otherwise, or (iii) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a
Change of Control and a Rating Decline.
"COMMISSION" means the Securities and Exchange Commission.
"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.
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"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP but
excluding any one-time charge or expense incurred in order to consummate the
Refinancing; PROVIDED that (i) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition 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.
"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.
"DEPOSITARY" means a clearing agency registered under the Exchange Act
that is designated to act as Depositary for the Securities.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to December
1, 2003.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"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 New Credit Facility 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 New Credit Facility).
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period; PROVIDED, HOWEVER, that in
the event that the Company or any of its Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be
calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period; and PROVIDED FURTHER that for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period, and (ii) the Consolidated Cash Flow and Fixed
Charges attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, and net payments or receipts (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.
"GLOBAL SECURITY" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 2.02.
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"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) forward 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 or business that is used or useful in or related to
the provision of healthcare services.
"HOSPITAL SWAP" means an exchange of assets by the Company or a
Subsidiary of the Company for one or more Hospitals and/or one or more Related
Businesses or for the Capital Stock of any Person owning one or more Hospitals
and/or one or more Related Businesses.
"INDEBTEDNESS" means with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (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.
"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.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction with respect to any such lien, pledge, charge or
security interest).
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"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).
"NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of
January __, 1997, by and among the Company and Morgan Guaranty Trust Company of
New York and the other banks that are party thereto, providing for up to $2.5
billion in aggregate principal amount of Indebtedness, including any related
notes, instruments and agreements executed in connection therewith, and in each
case as amended, modified, extended, renewed, refunded, replaced or refinanced,
in whole or in part, from time to time.
"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.
"PERMITTED LIENS" means (i) Liens in favor of the Company; (ii) 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 (unless such
Liens secure Indebtedness that was incurred in connection with or in
contemplation of such acquisition and is used to refinance tax-exempt
Indebtedness) and do not extend to any assets or the Company or its Subsidiaries
other than those of the Person merged into or consolidated with the Company or
that becomes a Subsidiary of the Company; (iii) 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 (unless such Liens secure Indebtedness that
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was incurred in connection with or in contemplation of such acquisition and is
used to refinance tax-exempt Indebtedness); (iv) Liens to secure the performance
of statutory obligations, tender, bid, performance, government contract, surety
or appeal bonds or other obligations of a like nature incurred in the ordinary
course of business; (v) Liens existing on the date hereof; (vi) 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; (vii) 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 (viii) Liens to
secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness
that was secured by a Lien permitted hereunder and that was incurred in
accordance with the provisions hereof; PROVIDED that such Liens do not extend to
or cover any property or assets of the Company or any Subsidiary other than
assets or property securing the Indebtedness so refinanced.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used solely to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED
that, except in the case of Indebtedness of the Company issued in exchange for,
or the net proceeds of which are used solely to extend, refinance, renew,
replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i)
the principal amount of such Permitted Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of any premiums paid and
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Securities, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Securities on terms at least as
favorable to the Holders of Securities as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iv) such Indebtedness is incurred by the Company if the
Company is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (v) such Indebtedness is incurred by the
Company or a Subsidiary if a Subsidiary 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).
"PHYSICIAL 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
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advance, loan or payment to, or on behalf of or for the benefit of any
physician, pharmacist or other allied healthcare professional for the purpose of
recruiting, redirecting or retaining the physician, pharmacist or other allied
healthcare professional to provide service to patients in the service area of
any Hospital or Related Business owned or operated by the Company or any of its
Subsidiaries; EXCLUDING, HOWEVER, compensation for services provided by
physicians, pharmacists or other allied healthcare professionals to any Hospital
or Related Business owned or operated by the Company or any of its Subsidiaries.
"QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the
Company other than Disqualified Stock of the Company.
"RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both shall not make a rating of the Securities publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, shall be substituted for S&P or Moody's or both, as the
case may be.
"RATING CATEGORY" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining
whether the rating of the Securities has decreased by one or more gradations,
gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or
the equivalent gradations for another Rating Agency) shall be taken into 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 January __, 1997 relating to the Company's ___% Senior Notes due 2003,
___% Senior Notes due 2005 and the ___% Senior Subordinated Notes due 2007.
"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 information or the investment in, management, leasing
or operation of a Hospital.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the
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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.
"SECURITIES" means the securities described above, issued under this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR SUBORDINATED NOTES" means the ____% Senior Subordinated Notes
due 2007 of the Company in an aggregate principal amount of $500.0 million,
issued pursuant to the Senior Subordinated Note Indenture.
"SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of
January 15, 1997 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.
"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 EXCHANGE" means any retirement of Indebtedness upon the
exercise by a holder of such Indebtedness, pursuant to the terms thereof, of any
right to exchange such Indebtedness for shares of common stock of Vencor, Inc.
or any successor thereto or any other equity securities, other than Equity
Interests of a Subsidiary, owned by the Company as of October 11, 1995, or for
any securities or other property received with respect to such common stock or
equity securities or cash in lieu thereof, whether or not such right is subject
to the Company's ability to pay an amount in cash in lieu thereof.
"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).
"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.
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"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.
"2005 EXCHANGEABLE SUBORDINATED NOTES" means the 6% Exchangeable
Subordinated Notes due 2005 of the Company in an aggregate principal amount of
$320.0 million, issued pursuant to the Indenture dated as of January 10, 1996,
between the Company and The Bank of New York, as trustee, as amended or
supplemented from time to time.
"2005 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 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.
SECTION 1.02. OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
- ---- ----------
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . 3.10
"Bankruptcy Law". . . . . . . . . . . . . . . . . . . . . . 5.01
"Change of Control Offer" . . . . . . . . . . . . . . . . . 3.12
"Change of Control Payment" . . . . . . . . . . . . . . . . 3.12
"Change of Control Payment Date". . . . . . . . . . . . . . 3.12
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . 7.03
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . 5.01
"Event of Default". . . . . . . . . . . . . . . . . . . . . 5.01
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Legal Defeasance". . . . . . . . . . . . . . . . . . . . . 7.02
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . 9.07
"Notice of Default" . . . . . . . . . . . . . . . . . . . . 5.01
"Paying Agent". . . . . . . . . . . . . . . . . . . . . . . 2.03
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"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . . . . . . 3.07
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;
(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
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
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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. The
Securities may be Global Securities, as determined by the officers executing
such Securities, as evidenced by their execution of such Securities.
SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY.
Every Global Security authenticated and delivered hereunder shall bear
a legend in substantially the following form:
"This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of a
Depositary or a nominee thereof. This Security may not be exchanged in
whole or in part for a Security registered, and no transfer of this
Security in whole or in part may be registered, in the name of any person
other than such Depositary or a nominee thereof, except in the limited
circumstances described in the Indenture."
SECTION 2.03. EXECUTION AND AUTHENTICATION.
An Officer of the Company shall sign the Securities for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The
form of Trustee's certificate of authentication to be borne by the Securities
shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities. The
aggregate principal amount of Securities outstanding at any time shall not
exceed the amount set forth herein except as provided in Section 2.09 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.
Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
The Company initially appoints The Depositary Trust Company as the
Depositary.
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SECTION 2.04. 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 2.05. PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to the due date of principal of, premium, if any, and
interest on any Securities, the Company shall deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, and
interest becoming due. The Company shall require each Paying Agent other than
the Trustee to agree in writing that the Paying Agent shall hold in trust for
the benefit of the Holders or the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, and interest on the Securities,
and shall notify the Trustee of any Default by the Company in making any such
payment. While any such Default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company) shall have no
further liability for the money delivered to the Trustee. If the Company acts
as Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent.
SECTION 2.06. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, including
the aggregate principal amount of the Securities held by each thereof, and the
Company shall otherwise comply with TIA Section 312(a).
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SECTION 2.07. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar with a request to
register the transfer or to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall register the transfer or
make the exchange if its requirements for such transactions are met; PROVIDED,
HOWEVER, that any Security presented or surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar and the Trustee duly executed by
the Holder thereof or by his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue and the Trustee
shall authenticate Securities at the Registrar's request, subject to such rules
as the Trustee may reasonably require.
Neither the Company nor the Registrar shall be required to register
the transfer or exchange of a Security between the record date and the next
succeeding interest payment date.
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.12 or 8.05 hereof, which shall be paid by the Company).
Notwithstanding the foregoing, a Global Security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or any such nominee to a successor of the Depositary or a nominee of such
successor, unless:
(i) the Depositary is at any time unwilling or unable to
continue as depository or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act and a successor
depository is not appointed by the Company within 90 days,
(ii) an Event of Default under this Indenture with respect
to the Securities has occurred and is continuing and the beneficial owners
representing a majority in principal amount of the Securities advise the
Depositary to cease acting as depositary or
(iii) the Company, in its sole discretion, determines at any
time that the Securities shall no longer be represented by a Global
Security, the Company will issue individual Securities of the applicable
amount and in certificated form in exchange for a Global Security. In any
such instance, an owner of a beneficial interest in the Global Security
will be entitled to physical delivery of individual securities in
certificated form of like tenor, equal in principal amount to such
beneficial interest and to have such Securities in certificated form
registered in its name.
SECTION 2.08. PERSONS DEEMED OWNERS.
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.
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So long as the Depositary or its nominee is the registered Holder of a
Global Security, the Depositary or its nominee, as the case may be, will be
treated as the sole owner of it for all purposes under the Indenture and the
beneficial owners of the Securities will be entitled only to those rights and
benefits afforded to them in accordance with the Depositary's regular operating
procedures. Except as provided in Section 2.07, owners of beneficial interests
in a Global Security will not be entitled to have Securities represented by a
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of Securities in certificated form and will not be
considered the registered Holders thereof under the Indenture.
None of the Company, the Trustee, any Paying Agent or the 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 2.09. 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 2.10. 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 2.09 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 3.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
Subject to Section 2.11 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
SECTION 2.11. 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,
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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 2.12. 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 2.13. 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 Securities that it has paid or that have been delivered to
the Trustee for cancellation.
SECTION 2.14. 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 2.15. 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 2.16. 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
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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.
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.
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 2.04 hereof.
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SECTION 3.03. COMMISSION REPORTS.
(i) So long as any of the Securities remain outstanding, the
Company shall provide to the Trustee within 15 days after the filing
thereof with the Commission copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any
of the foregoing as the Commission may by rules and regulations prescribe)
that the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. All obligors on the Securities
shall comply with the provisions of TIA Section 314(a). Notwithstanding
that the Company may not be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act or otherwise report on an annual
and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Commission,
the Company shall file with the Commission and provide to the Trustee (a)
within 90 days after the end of each fiscal year, annual reports on Form
10-K (or any successor or comparable form) containing the information
required to be contained therein (or required in such successor or
comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and a report thereon by the
Company's certified public accountants; (b) within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, reports on
Form 10-Q (or any successor or comparable form) containing the information
required to be contained therein (or required in any successor or
comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and (c) promptly from time
to time after the occurrence of an event required to be therein reported,
such other reports on Form 8-K (or any successor or comparable form)
containing the information required to be contained therein (or required in
any successor or comparable form); PROVIDED, HOWEVER, that the Company
shall not be in default of the provisions of this Section 3.03(i) for any
failure to file reports with the Commission solely by the refusal of the
Commission to accept the same for filing. Each of the financial statements
contained in such reports shall be prepared in accordance with GAAP.
(ii) The Trustee, at the Company's expense, shall promptly mail
copies of all such annual reports, information, documents and other reports
provided to the Trustee pursuant to Section 3.03(i) hereof to the Holders
at their addresses appearing in the register of Securities maintained by
the Registrar.
(iii) Whether or not required by the rules and regulations of the
Commission, the Company shall file a copy of all such information and
reports with the Commission for public availability and make such
information available to securities analysts and prospective investors upon
request.
(iv) The Company shall provide the Trustee with a sufficient
number of copies of all reports and other documents and information that
the Trustee may be required to deliver to the Holders under this Section
3.03.
(v) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 3.04. COMPLIANCE CERTIFICATE.
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(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.
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
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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; or (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 a Specified Exchange or the
Refinancing (all such payments and other actions set forth in clauses (i)
through (iii) above being collectively referred to as "RESTRICTED PAYMENTS"),
unless, at the time of and after giving effect to such Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the fair
market value (as conclusively evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee within
60 days prior to the date of such Restricted Payment) of the asset(s) proposed
to be transferred by the Company or such Subsidiary, as the case may be,
pursuant to such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving PRO FORMA effect thereto as if such Restricted Payment had
been made at the beginning of the most recently ended four full fiscal
quarter period for which internal financial statements are available
immediately preceding the date of such Restricted Payment, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 3.09 hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after March 1,
1995 (excluding Restricted Payments permitted by clauses (ii), (iii), (iv)
and (v) of the next succeeding paragraph), 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:
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(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions hereof;
(ii) the payment of cash dividends on any series of Disqualified
Stock issued after the date hereof in an aggregate amount not to exceed the
cash received by the Company since the date hereof upon issuance of such
Disqualified Stock;
(iii) the 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;
(iv) 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;
(v) 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 $15.0 million in any twelve-month
period; and
(vi) the making and consummation of (A) a senior subordinated
asset sale offer in accordance with the provisions of the indenture
relating to the 2005 Senior Subordinated Notes 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 or change of control
offer with respect to the 2005 Senior Subordinated Notes or the 2005
Exchangeable Subordinated Notes in accordance with the provisions of the
indentures relating thereto.
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,
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(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, unless
such Indebtedness was incurred in connection with or in contemplation of
such acquisition for the purpose of refinancing Indebtedness which was
tax-exempt, 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,
(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 New Credit Facility 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 New Credit Facility 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 2.5 to 1, 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.
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The foregoing provisions shall not apply to:
(a) the incurrence by the Company of Indebtedness pursuant to the New
Credit Facility in an aggregate principal amount at any time outstanding
not to exceed an amount equal to $2.5 billion less the aggregate amount of
all mandatory repayments applied to permanently reduce the commitments with
respect to such Indebtedness;
(b) the incurrence by the Company of Indebtedness represented by the
Securities;
(c) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(d) 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);
(e) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate or currency
risk with respect to any fixed or floating rate Indebtedness that is
permitted by the terms hereof to be outstanding or any receivable or
liability the payment of which is determined by reference to a foreign
currency; PROVIDED that the notional principal amount of any such Hedging
Obligation does not exceed the principal amount of the Indebtedness to
which such Hedging Obligation relates;
(f) the incurrence by the Company or any of its Subsidiaries of
Physician Support Obligations;
(g) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(h) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by tender, bid, performance, government contract,
surety or appeal, bonds, standby letters of credit or warranty or
contractual service obligations of like nature, in each case to the extent
incurred in the ordinary course of business of the Company or such
Subsidiary;
(i) 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 2.5 to 1 determined on a PRO FORMA basis (including a
PRO FORMA application of the net proceeds therefrom), as if such
Indebtedness had been incurred at the beginning of such four-quarter
period; and
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(j) 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. 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 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 3.11. 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 3.12. 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
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on the Business Day next preceding the Change of Control Payment Date. The
notice, which shall govern the terms of the Change of Control Offer, shall
contain all instructions 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 3.12 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
(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.
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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 3.13. CORPORATE EXISTENCE.
Subject to Section 3.12 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 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 3.14. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its Subsidiaries
to, engage in any material extent in any business other than the ownership,
operation and management of Hospitals and Related Businesses.
SECTION 3.15. 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.
The foregoing provisions shall not be applicable to any one or more Guarantees
that otherwise would be prohibited of up to $25.0 million in aggregate principal
amount of Indebtedness of the Company or its Subsidiaries at any time
outstanding.
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SECTION 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED
NOTE INDENTURE.
The Company shall not amend, modify or alter the Senior Subordinated
Note Indenture or the indentures relating to the 2005 Senior Subordinated Notes
or the 2005 Exchangeable Subordinated Notes in any way that would (i) increase
the principal of, advance the final maturity date of or shorten the Weighted
Average Life to Maturity of (a) any 2005 Senior Subordinated Notes or 2005
Exchangeable Subordinated Notes or (b) 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 Senior Notes or (ii) amend the
provisions of Article 10 of the Senior Subordinated Note Indenture (which
relates to subordination) or the subordination provisions of the indentures
relating to the 2005 Senior Subordinated Notes or the 2005 Exchangeable
Subordinated Notes or any of the defined terms used therein in a manner that
would be adverse to the Holders of the Securities.
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.
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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 or 3.12 hereof;
(iv) failure by the Company to comply with any other covenant or
agreement in the Indenture or the Securities for the period and after the
notice specified below;
(v) any default that occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any of
its Significant Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Significant Subsidiaries), whether such Indebtedness
or Guarantee exists on the date 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
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such final judgment or judgments remain unpaid or undischarged for a period
(during which execution shall not be effectively stayed) of 60 days after
their entry;
(vii) the Company or any Significant Subsidiary thereof pursuant
to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in
an involuntary case in which it is the debtor,
(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors,
or
(e) admits in writing its inability generally to pay its debts
as the same become due; and
(viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any Significant
Subsidiary thereof in an involuntary case in which it is the debtor,
(b) appoints a Custodian of the Company or any Significant
Subsidiary thereof or for all or substantially all of the property of
the Company or any Significant Subsidiary thereof, or
(c) orders the liquidation of the Company or any Significant
Subsidiary thereof, and the order or decree remains unstayed and in
effect for 60 days.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "CUSTODIAN" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clause (iv) is not an Event of Default until the
Trustee notifies the Company in writing, or the Holders of at least 25% in
principal amount of the then outstanding Securities notify the Company and the
Trustee in writing, of the Default and the Company does not cure the Default
within 60 days after receipt of such notice. The written notice must specify
the Default, demand that it be remedied and state that the notice is a "NOTICE
OF DEFAULT."
SECTION 5.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (vii) or (viii) of Section 5.01 hereof) occurs and is continuing, the
Trustee by notice to the Company, or the Holders of at least 25% in aggregate
principal amount of the then outstanding Securities by written notice to the
Company and the Trustee, may declare the unpaid principal of, premium, if any,
and any accrued and unpaid interest on all the Securities to be due and payable
immediately. Upon such declaration the principal, premium, if any, and interest
shall be due and payable immediately. If an
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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 January 15 of the years set forth below:
Year Percentage
---- ----------
1997. . . . . . . . . . . . . . . .
1998. . . . . . . . . . . . . . . .
1999. . . . . . . . . . . . . . . .
2000. . . . . . . . . . . . . . . .
2001. . . . . . . . . . . . . . . .
2002. . . . . . . . . . . . . . . .
2003. . . . . . . . . . . . . . . .
2004. . . . . . . . . . . . . . . .
Any determination regarding the primary purpose of any such action or
inaction, as the case may be, shall be made by and set forth in a resolution of
the Board of Directors (including the concurrence of a majority of the
independent directors of the Company then serving) delivered to the Trustee
after consideration of the business reasons for such action or inaction, other
than the avoidance of payment of such premium or prohibition on redemption. In
the absence of fraud, each such determination shall be final and binding upon
the Holders of Securities. Subject to Section 6.01 hereof, the Trustee shall be
entitled to rely on the determination set forth in any such resolutions
delivered to the Trustee.
SECTION 5.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the Securities
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
SECTION 5.04. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount
of the Securities then outstanding by written notice to the Trustee may on
behalf of the Holders of all of the Securities waive any existing Default or
Event of Default and its consequences under this Indenture except a continuing
Default or Event of Default in the payment of the principal of, premium, if any,
or interest
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on any Security. Upon any such waiver, such Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 5.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders or that may involve the Trustee in
personal liability. The Trustee may take any other action which it deems proper
which is not inconsistent with any such direction.
SECTION 5.06. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the
Securities only if:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(iii) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee a
direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
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
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lawful, interest and such further amount as shall be sufficient to cover amounts
due the Trustee under Section 6.07 hereof, including the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Securities), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 6.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties which the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of 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;
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.
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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 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
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(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 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
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same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee is subject to Sections 6.10 and 6.11
hereof.
SECTION 6.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, nor shall it
be accountable for the Company's use of the proceeds from the Securities or any
money paid to the Company or upon the Company's direction under any provision of
this Indenture, nor shall it be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, nor shall it be
responsible for any statement or recital herein or any statement in the
Securities or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
SECTION 6.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders a notice of the Default
or Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment on any Security, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders.
SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each December 31 beginning with the December 31
following the date hereof, the Trustee shall mail to the Holders a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders shall
be mailed to the Company and filed with the Commission and each stock exchange
on which the Securities are listed. The Company shall promptly notify the
Trustee when the Securities are listed on any stock exchange.
SECTION 6.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
Company and Trustee shall agree in writing. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities, damages, claims or expenses incurred by it arising out of or in
connection with the acceptance of its duties and the administration of the
trusts under this Indenture, except as set forth below. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have
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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 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.
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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.
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.
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SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 7.05 hereof and the other
Sections of this Indenture referred to in clauses (i) and (ii) of this Section
7.02, and to have satisfied all its other obligations under such Securities and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Section 7.04 hereof, and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Securities when such payments are due,
(ii) the Company's obligations with respect to such Securities under Sections
2.04, 2.06, 2.07 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 3.07, 3.08, 3.09, 3.10,
3.11, 3.12, 3.14, 3.15, and 3.16 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 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
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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 before
the date that is one year prior to the final maturity of the Securities,
the Company shall have delivered to the Trustee an Opinion of Counsel in
the United States confirming that the Holders of the outstanding Securities
will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred.
(iv) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds to
be applied to such deposit) or, insofar as Section 5.01(vii) or 5.01(viii)
hereof is concerned, at any time in the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall not
be deemed satisfied until the expiration of such period).
(v) Such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound (other than a breach, violation or default resulting
from the borrowing of funds to be applied to such deposit).
(vi) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally.
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(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 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.
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 that such
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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 3.15 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;
(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
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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.
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
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(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.
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 2.06 hereof or (ii) such other date as the Company shall
designate.
SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES.
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment or waiver.
SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 8 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive
and, subject to Section 6.01, shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that such
amendment or Supplemental Indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it shall be valid and
binding upon the Company in accordance with its terms. The Company may not sign
an amendment or supplemental indenture until the Board of Directors approves it.
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ARTICLE 9
MISCELLANEOUS
SECTION 9.01. TIA CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 9.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
Tenet Healthcare Corporation
3820 State Street
Santa Barbara, California 93105
Telecopier No.: (805) 563-7070
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.
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
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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.
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.
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SECTION 9.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 9.07. LEGAL HOLIDAYS.
A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of the Securities
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the 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
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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.
SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
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SIGNATURES
Dated as of January 15, 1997 TENET HEALTHCARE CORPORATION
By:
---------------------------
Name:
Title:
Attest:
(SEAL)
- ---------------------------
Richard B. Silver
Dated as of January 15, 1997 THE BANK OF NEW YORK,
as Trustee
By:
---------------------------
Name:
Title:
Attest:
(SEAL)
- ---------------------------
By:
------------------------
Authorized Signatory
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EXHIBIT A
(Face of Security)
__% Senior Note
due January 15, 2005
CUSIP:
No. $____________
TENET HEALTHCARE CORPORATION
promises to pay to
______________________________________________________________
or its registered assigns, the principal sum of_______________ Dollars on
January 15, 2005.
Interest Payment Dates: January 15 and July 15, commencing July 15, 1997.
Record Dates: January 1 and July 1 (whether or not a Business Day).
[(If Security is a Global Security--) This Security is a Global Security within
the meaning of the Indenture hereinafter referred to and is registered in the
name of a Depositary or a nominee thereof. This Security may not be exchanged
in whole or in part for a Security registered, and no transfer of this Security
in whole or in part may be registered, in the name of any person other than such
Depositary or a nominee thereof, except in the limited circumstances described
in the Indenture.]
TENET HEALTHCARE CORPORATION
By:
-------------------------
Dated: ,
---------- ----
(SEAL)
Trustee's Certificate of Authentication:
This is one of the Securities referred
to in the within-mentioned Indenture:
The Bank of New York, as Trustee
By:
---------------------------
Authorized Signatory
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(Back of Security)
__% SENIOR NOTE
due January 15, 2005
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. INTEREST. Tenet Healthcare Corporation, a Nevada corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Security at
the rate and in the manner specified below.
The Company shall pay interest in cash on the principal amount of this
Security at the rate per annum of __%. The Company shall pay interest
semiannually in arrears on January 15 and July 15 of each year, commencing July
15, 1997 to Holders of record on the immediately preceding January 1 and July 1,
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.
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 January 15, 1997 (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
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general obligations of the Company. The Securities are limited to $600,000,000
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. 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.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered
form without coupons, and in denominations of $1,000 and integral multiples of
$1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Securities between a record date and the corresponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for
registration of the transfer of this Security, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Security is registered
as its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Security and for all other 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
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<PAGE>
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 3.15 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.
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," 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.
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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, 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.
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:
A-5
<PAGE>
Tenet Healthcare Corporation
3820 State Street
Santa Barbara, California 93105
Attention: Treasurer
A-6
<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-7
<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 3.12 of the Indenture, check the
box below:
/ / Section 3.12
(Change of Control)
If you want to have only part of the Security purchased by the Company
pursuant to Section 3.12 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-8
<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 January 15, 1997, providing
for the issuance of an aggregate principal amount of $600,000,000 of __% Senior
Notes due 2005 (the "Securities");
WHEREAS, Section 3.15 of the Indenture provides that under certain
circumstances the Company is required to cause the Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the Guarantor
shall guarantee the payment of the Securities pursuant to a Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the holders of the Securities as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of the Indenture, the Securities or the Obligations
of the Company hereunder and thereunder, that: (a) the principal of, premium, if
any, and interest on the Securities will be promptly paid in full when due,
whether at maturity, by acceleration, redemption or otherwise, and interest on
the overdue principal, premium, if any, and (to the extent permitted by law)
interest on any interest on the Securities and all other 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
B-1
<PAGE>
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 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-2
<PAGE>
(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
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. 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. 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, the
Trustee shall execute any documents reasonably required in order to evidence the
release of the Guarantor from its Obligations under its Guarantee.
6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the
Guarantor's liability will be that amount from time to time equal to the
aggregate liability of the Guarantor hereunder, but shall be limited to the
lesser of (i) the aggregate amount of the Obligations of the Company under the
Securities and the Indenture and (ii) the amount, if any, which would not have
(A) rendered the Guarantor "insolvent" (as such term is defined in the federal
Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or
(B) left it with unreasonably small capital at the time its
B-3
<PAGE>
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.
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:
B-4
<PAGE>
The Bank of New York,
as Trustee
By:
------------------------------
Name:
Title:
B-5
<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.
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
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<PAGE>
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-7
<PAGE>
TENET HEALTHCARE CORPORATION
--------------------------------
$500,000,000
__% SENIOR SUBORDINATED NOTES due 2007
--------------------------------
-----------------------------
INDENTURE
Dated as of January 15, 1997
-----------------------------
--------------------------------
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. . . . . . . . . . . . . . . . . . . . 10
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA. . . . . . . . . . . . 11
SECTION 1.04. RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . 11
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING. . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY.. . . . . . . . . . . 12
SECTION 2.03. EXECUTION AND AUTHENTICATION.. . . . . . . . . . . . . . 12
SECTION 2.04. REGISTRAR AND PAYING AGENT . . . . . . . . . . . . . . . 13
SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . . 13
SECTION 2.06. HOLDER LISTS . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.07. TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . 14
SECTION 2.08. PERSONS DEEMED OWNERS. . . . . . . . . . . . . . . . . . 15
SECTION 2.09. REPLACEMENT SECURITIES . . . . . . . . . . . . . . . . . 15
SECTION 2.10. OUTSTANDING SECURITIES . . . . . . . . . . . . . . . . . 15
SECTION 2.11. TREASURY SECURITIES. . . . . . . . . . . . . . . . . . . 16
SECTION 2.12. TEMPORARY SECURITIES . . . . . . . . . . . . . . . . . . 16
SECTION 2.13. CANCELLATION . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.14. DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . 16
SECTION 2.15. RECORD DATE. . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.16. CUSIP NUMBER . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . . 17
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED . . . . . . . . . 17
SECTION 3.03. NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . 18
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . . 19
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . . . . . 19
SECTION 3.06. SECURITIES REDEEMED IN PART. . . . . . . . . . . . . . . 19
SECTION 3.07. OPTIONAL REDEMPTION. . . . . . . . . . . . . . . . . . . 19
SECTION 3.08. MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . . 20
-i-
<PAGE>
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES. . . . . . . . . . . . . . . . . . 20
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . 20
SECTION 4.03. COMMISSION REPORTS . . . . . . . . . . . . . . . . . . . 21
SECTION 4.04. COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . 22
SECTION 4.05. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.06. STAY, EXTENSION AND USURY LAWS . . . . . . . . . . . . . 22
SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS . . . . . . . . . . . 23
SECTION 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES . . . . . . . . . . . . . . . . . 24
SECTION 4.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE
OF PREFERRED STOCK . . . . . . . . . . . . . . . . . . . 25
SECTION 4.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. . . . . . . 27
SECTION 4.11. LIMITATIONS ON LIENS . . . . . . . . . . . . . . . . . . 27
SECTION 4.12. CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . . 27
SECTION 4.13. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . 29
SECTION 4.14. LINE OF BUSINESS . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
BY SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.16. NO SENIOR SUBORDINATED DEBT. . . . . . . . . . . . . . . 30
ARTICLE 5
SUCCESSORS
SECTION 5.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. . . . . . . . . . . . 31
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 31
SECTION 6.02. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.03. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.04. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . 34
SECTION 6.05. CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . . 34
SECTION 6.06. LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . 34
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT . . . . . . . . . . 34
SECTION 6.08. COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . 35
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . 35
SECTION 6.10. PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.11. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . 36
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 36
SECTION 7.02. RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 37
-ii-
<PAGE>
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . 37
SECTION 7.04. TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . 38
SECTION 7.05. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . 38
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. . . . . . . . . . . . . . 38
SECTION 7.07. COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . 38
SECTION 7.08. REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . 39
SECTION 7.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC. . . . . . . . 40
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. . . . . . . . . . . . . . 40
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. . . . 40
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . 41
SECTION 8.03. COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . 41
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE . . . . . . . 41
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS. . . . . . . . . . 43
SECTION 8.06. REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . . . 43
SECTION 8.07. REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS . . . . . . . . . . . . . . . 44
SECTION 9.02. WITH CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . 45
SECTION 9.03. COMPLIANCE WITH TIA. . . . . . . . . . . . . . . . . . . 46
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. . . . . . . . . . . . 46
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. . . . . . . . . . 46
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . . . 46
ARTICLE 10
SUBORDINATION
SECTION 10.01 AGREEMENT TO SUBORDINATE . . . . . . . . . . . . . . . . 47
SECTION 10.02. CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . 47
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.. . . . . . . . . . 47
SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT. . . . . . . . . . . . 48
SECTION 10.05. ACCELERATION OF SECURITIES . . . . . . . . . . . . . . . 48
SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. . . . . . . . . . . 49
SECTION 10.07. NOTICE BY COMPANY. . . . . . . . . . . . . . . . . . . . 49
SECTION 10.08. SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.09. RELATIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY . . . . . . 50
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE . . . . . . . . 50
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<PAGE>
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT . . . . . . . . . . . 50
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. . . . . . . . . . 50
SECTION 10.14. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TIA CONTROLS . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. . . . . . . 52
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . 52
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. . . . . . 52
SECTION 11.06. RULES BY TRUSTEE AND AGENTS. . . . . . . . . . . . . . . 53
SECTION 11.07. LEGAL HOLIDAYS . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.09. DUPLICATE ORIGINALS. . . . . . . . . . . . . . . . . . . 53
SECTION 11.10. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 53
SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . 53
SECTION 11.12. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.13. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.14. COUNTERPART ORIGINALS. . . . . . . . . . . . . . . . . . 54
SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC.. . . . . . . . . . . . 54
SIGNATURES
EXHIBIT A FORM OF SECURITY
EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE
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<PAGE>
CROSS-REFERENCE TABLE*
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
- --------------- -----------------
310 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.06
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(iii)(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(i)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(iii)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence). . . . . . . . . . . . . . . . . . . 2.11
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.15; 9.04
317 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
_______________________
*This Cross-Reference Table is not part of the indenture.
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<PAGE>
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable
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<PAGE>
INDENTURE dated as of January 15, 1997 between Tenet Healthcare
Corporation, a Nevada corporation (the "COMPANY"), and The Bank of New York, as
trustee (the "TRUSTEE").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the __% Senior
Subordinated Notes due 2007 (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 and (ii) the issuance or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $25.0
million or (b) for net proceeds in excess $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 4.07 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.
<PAGE>
"CAPITAL LEASE" means, at the time any determination thereof is to be
made, any lease of property, real or personal, in respect of which the present
value of the minimum rental commitment would be capitalized on a balance sheet
of the lessee in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a Capital Lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any Person or group (as such
term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than
to a Person or group who, prior to such transaction, held a majority of the
voting power of the voting stock of the Company, (ii) the acquisition by any
Person or group, as defined above, of a direct or indirect interest in more than
50% of the voting power of the voting stock of the Company, by way of merger,
consolidation or otherwise, or (iii) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a
Change of Control and a Rating Decline.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means Tenet Healthcare Corporation, as obligor under the
Securities, unless and until a successor replaces Tenet Healthcare Corporation,
in accordance with Article 5 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
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<PAGE>
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP but
excluding any one-time charge or expense incurred in order to consummate the
Refinancing; PROVIDED that (i) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition 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 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"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.
"DEPOSITARY" means a clearing agency registered under the Exchange Act
that is designated to act as Depositary for the Securities.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to December
1, 2003.
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<PAGE>
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility 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 New Credit Facility).
"EXISTING SENIOR NOTES" means the 2002 Senior Notes and the 2003
Senior Notes.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period; PROVIDED, HOWEVER, that in
the event that the Company or any of its Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be
calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period; and PROVIDED FURTHER that for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period, and (ii) the Consolidated Cash Flow and Fixed
Charges attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, and net payments or receipts (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
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<PAGE>
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.
"GLOBAL SECURITY" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 2.02.
"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) forward 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 or business that is used or useful in or related to
the provision of healthcare services.
"HOSPITAL SWAP" means an exchange of assets by the Company or a
Subsidiary of the Company for one or more Hospitals and/or one or more Related
Businesses or for the Capital Stock of any Person owning one or more Hospitals
and/or one or more Related Businesses.
"INDEBTEDNESS" means with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (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.
"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.
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<PAGE>
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction with respect to any such lien, pledge, charge or
security interest).
"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).
"NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of
January __, 1997, by and among the Company and Morgan Guaranty Trust Company of
New York and the other banks that are party thereto, providing for up to $2.5
billion in aggregate principal amount of Indebtedness, including any related
notes, instruments and agreements executed in connection therewith, and in each
case as amended, modified, extended, renewed, refunded, replaced or refinanced,
in whole or in part, from time to time.
"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.
"PERMITTED LIENS" means (i) Liens in favor of the Company; (ii) Liens
on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any
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<PAGE>
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 (unless such Liens secure Indebtedness that was
incurred in connection with or in contemplation of such acquisition and is used
to refinance tax-exempt Indebtedness) and do not extend to any assets or the
Company or its Subsidiaries other than those of the Person merged into or
consolidated with the Company or that becomes a Subsidiary of the Company; (iii)
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 (unless such Liens secure Indebtedness
that was incurred in connection with or in contemplation of such acquisition and
is used to refinance tax-exempt Indebtedness); (iv) Liens to secure the
performance of statutory obligations, tender, bid, performance, government
contract, surety or appeal bonds or other obligations of a like nature incurred
in the ordinary course of business; (v) Liens existing on the date hereof;
(vi) 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; (vii) 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 (viii) Liens to secure Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that was secured by a Lien permitted hereunder and that
was incurred in accordance with the provisions hereof; PROVIDED that such Liens
do not extend to or cover any property or assets of the Company or any
Subsidiary other than assets or property securing the Indebtedness so
refinanced.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used solely to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED
that, except in the case of Indebtedness of the Company issued in exchange for,
or the net proceeds of which are used solely to extend, refinance, renew,
replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i)
the principal amount of such Permitted Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of any premiums paid and
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Securities, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Securities on terms at least as
favorable to the Holders of Securities as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iv) such Indebtedness is incurred by the Company if the
Company is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (v) such Indebtedness is incurred by the
Company or a Subsidiary if a Subsidiary 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).
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"PHYSICIAL JOINT VENTURE DISTRIBUTIONS" means distributions made by
the Company or any of its Subsidiaries to any physician, pharmacist or other
allied healthcare professional in connection with the unwinding, liquidation or
other termination of any joint venture or similar arrangement between any such
Person and the Company or any of its Subsidiaries.
"PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee
incurred in the ordinary course of business by the Company or a Subsidiary of
the Company in connection with any advance, loan or payment to, or on behalf of
or for the benefit of any physician, pharmacist or other allied healthcare
professional for the purpose of recruiting, redirecting or retaining the
physician, pharmacist or other allied healthcare professional to provide service
to patients in the service area of any Hospital or Related Business owned or
operated by the Company or any of its Subsidiaries; EXCLUDING, HOWEVER,
compensation for services provided by physicians, pharmacists or other allied
healthcare professionals to any Hospital or Related Business owned or operated
by the Company or any of its Subsidiaries.
"QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the
Company other than Disqualified Stock of the Company.
"RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both shall not make a rating of the Securities publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, shall be substituted for S&P or Moody's or both, as the
case may be.
"RATING CATEGORY" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining
whether the rating of the Securities has decreased by one or more gradations,
gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or
the equivalent gradations for another Rating Agency) shall be taken into 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 January __, 1997 relating to the Company's ___% Senior Notes due 2003,
___% Senior Notes due 2005 and the ___% Senior Subordinated Notes due 2007.
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"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 information or the investment in, management, leasing
or operation of a Hospital.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"SECURITIES" means the securities described above, issued under this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR NOTES" means the ___% Senior Notes due 2003 and the ___%
Senior Notes due 2005 of the Company in an aggregate principal amount of
$800.0 million, issued pursuant to the Senior Note Indentures.
"SENIOR NOTE INDENTURES" means the Indentures dated as of January
15, 1997 between the Company and The Bank of New York, as trustee, as amended
or supplemented from time to time, under which the Senior Notes were issued.
"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 EXCHANGE" means any retirement of Indebtedness upon the
exercise by a holder of such Indebtedness, pursuant to the terms thereof, of any
right to exchange such Indebtedness for shares of common stock of Vencor, Inc.
or any successor thereto or any other equity securities, other than Equity
Interests of a Subsidiary, owned by the Company as of October 11, 1995, or for
any securities or other property received with respect to such common stock or
equity securities or cash in lieu thereof, whether or not such right is subject
to the Company's ability to pay an amount in cash in lieu thereof.
"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).
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"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 9.03 hereof.
"TRANSFER RESTRICTION" means, with respect to the Company's
Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary to
(i)(a) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or
advances to the Company or any of its Subsidiaries, or (iii) transfer any of its
properties or assets to the Company or any of its Subsidiaries.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"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.
"2002 SENIOR NOTES" means the 9 5/8% Senior Notes due 2002 of the
Company in an aggregate principal amount of $300.0 million, issued pursuant to
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.
"2003 SENIOR NOTES" means the 8 5/8% Senior Notes due 2003 of the
Company in an aggregate principal amount of $500.0 million, issued pursuant to
the Indenture dated as of October 16, 1995, between the Company and The Bank of
New York, as trustee, as amended or supplemented from time to time.
"2005 EXCHANGEABLE SUBORDINATED NOTES" means the 6% Exchangeable
Subordinated Notes due 2005 of the Company in an aggregate principal amount of
$320.0 million, issued pursuant to the Indenture dated as of January 10, 1996,
between the Company and The Bank of New York, as trustee, as amended or
supplemented from time to time.
"2005 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 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.
SECTION 1.02. OTHER DEFINITIONS.
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DEFINED IN
TERM SECTION
- ---- --------
"Affiliate Transaction". . . . . . . . . . . . . . . . . . . . . . 4.10
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Change of Control Offer". . . . . . . . . . . . . . . . . . . . . 4.12
"Change of Control Payment". . . . . . . . . . . . . . . . . . . . 4.12
"Change of Control Payment Date" . . . . . . . . . . . . . . . . . 4.12
"Covenant Defeasance". . . . . . . . . . . . . . . . . . . . . . . 8.03
"Designated Senior Debt" . . . . . . . . . . . . . . . . . . . . . 10.02
"Custodian". . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"incur". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . 8.02
"Legal Holiday". . . . . . . . . . . . . . . . . . . . . . . . . . 11.07
"Notice of Default". . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Blockage Notice". . . . . . . . . . . . . . . . . . . . . 10.04
"Registrar". . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Representative" . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
"Restricted Payments". . . . . . . . . . . . . . . . . . . . . . . 4.07
"Senior Debt". . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
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;
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(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
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. The Securities may be
Global Securities, as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY.
Every Global Security authenticated and delivered hereunder shall bear
a legend in substantially the following form:
"This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of a
Depositary or a nominee thereof. This Security may not be exchanged in
whole or in part for a Security registered, and no transfer of this
Security in whole or in part may be registered, in the name of any person
other than such Depositary or a nominee thereof, except in the limited
circumstances described in the Indenture."
SECTION 2.03. EXECUTION AND AUTHENTICATION.
An Officer of the Company shall sign the Securities for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The
form of Trustee's certificate of authentication to be borne by the Securities
shall be substantially as set forth in Exhibit A hereto.
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The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities. The
aggregate principal amount of Securities outstanding at any time shall not
exceed the amount set forth herein except as provided in Section 2.09 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.
Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
The Company initially appoints The Depositary Trust Company as the
Depositary.
SECTION 2.04. 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 7.07 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 2.05. PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to the due date of principal of, premium, if any, and
interest on any Securities, the Company shall deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, and
interest becoming due. The Company shall require each Paying Agent other than
the Trustee to agree in writing that the Paying Agent shall hold in trust for
the benefit of the Holders or the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, and interest on the Securities,
and shall notify the Trustee of any Default by the Company in making any such
payment. While any such Default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a
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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 2.06. 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 2.07. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar with a request to
register the transfer or to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall register the transfer or
make the exchange if its requirements for such transactions are met; PROVIDED,
HOWEVER, that any Security presented or surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar and the Trustee duly executed by
the Holder thereof or by his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue and the Trustee
shall authenticate Securities at the Registrar's request, subject to such rules
as the Trustee may reasonably require.
Neither the Company nor the Registrar shall be required to register
the transfer or exchange of a Security between the record date and the next
succeeding interest payment date.
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.12 or 9.05 hereof, which shall be paid by the Company).
Notwithstanding the foregoing, a Global Security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or any such nominee to a successor of the Depositary or a nominee of such
successor, unless:
(i) the Depositary is at any time unwilling or unable to
continue as depository or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act and a successor
depository is not appointed by the Company within 90 days,
(ii) an Event of Default under this Indenture with respect to the
Securities has occurred and is continuing and the beneficial owners
representing a majority in principal amount of the Securities advise the
Depositary to cease acting as depositary or
(iii) the Company, in its sole discretion, determines at any time
that the Securities shall no longer be represented by a Global Security,
the Company will issue
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individual Securities of the applicable amount and in certificated form in
exchange for a Global Security. In any such instance, an owner of a
beneficial interest in the Global Security will be entitled to physical
delivery of individual securities in certificated form of like tenor, equal
in principal amount to such beneficial interest and to have such Securities
in certificated form registered in its name.
SECTION 2.08. PERSONS DEEMED OWNERS.
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.
So long as the Depositary or its nominee is the registered Holder of a
Global Security, the Depositary or its nominee, as the case may be, will be
treated as the sole owner of it for all purposes under the Indenture and the
beneficial owners of the Securities will be entitled only to those rights and
benefits afforded to them in accordance with the Depositary's regular operating
procedures. Except as provided in Section 2.07, owners of beneficial interests
in a Global Security will not be entitled to have Securities represented by a
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of Securities in certificated form and will not be
considered the registered Holders thereof under the Indenture.
None of the Company, the Trustee, any Paying Agent or the 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 2.09. 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 2.10. 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.
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If a Security is replaced pursuant to Section 2.09 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
Subject to Section 2.11 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
SECTION 2.11. 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 2.12. 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 2.13. 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 Securities that it has paid or that have been delivered to
the Trustee for cancellation.
SECTION 2.14. 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 4.01 hereof. The Company
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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 2.15. 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 2.16. 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.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the Section of this Indenture pursuant
to which the redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Securities to be redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Securities
pursuant to the provisions of Section 4.12 hereof, it shall furnish to the
Trustee an Officers' Certificate setting forth (i) the Section of this Indenture
pursuant to which the purchase shall occur, (ii) the purchase date, (iii) the
principal amount of Securities to be purchased, (iv) the purchase price and (v)
a statement to the effect that a Change of Control has occurred and the
conditions set forth in Section 4.12 hereof have been satisfied, as applicable.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed at any time, the
Trustee shall select the Securities to be redeemed among the Holders in
compliance with the requirements of the principal national securities exchange,
if any, on which the Securities are then listed, or, if the Securities are not
so listed, on a PRO RATA basis, by lot or by such method the Trustee shall deem
fair and appropriate; PROVIDED that Securities with a principal amount of $1,000
shall not be redeemed in part.
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The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed. Securities and
portion of them selected shall be in the amounts of $1,000 or whole multiples of
$1,000; except that if all of the Securities of a Holder are to be redeemed, the
entire outstanding amount of Securities held by such Holders, even if not a
multiple $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed by first class mail a notice of redemption to each Holder of
Securities to be redeemed at its registered address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after
the redemption date upon surrender of such Security, a new
Security or Securities in principal amount equal to the
unredeemed portion shall be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities called for redemption ceases to
accrue on and after the redemption date;
(7) the paragraph of the Securities and/or Section of this Indenture
pursuant to which the Securities called for redemption are being
redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on
the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the
Company shall have delivered to the Trustee, at least 40 days prior to the
redemption date, unless the Trustee shall agree to a shorter period, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph. The notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security shall not affect the validity of the
proceeding for the redemption of any other Security.
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SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Securities called for redemption become due and payable on the
redemption date at the redemption price plus accrued and unpaid interest, if
any, to such date.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of, and accrued interest on, all Securities to be redeemed on
that date. The Trustee or the Paying Agent shall promptly return to the Company
any money deposited with the Trustee or the Paying Agent by the Company in
excess of the amounts necessary to pay the redemption price of (including any
applicable premium), and accrued interest on, all Securities to be redeemed.
On and after the redemption date, interest ceases to accrue on the
Securities or the portions of Securities called for redemption. If a Security
is redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid to the
Person in whoso name such Security was registered at the close of business on
such record date. If any Security called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, interest shall be paid on the unpaid principal,
from the redemption date until such principal is paid, and to the extent lawful
on any interest not paid on such unpaid principal, in each case the rate
provided in the Securities and in Section 4.01 hereof.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense of
the Company a new Security equal in principal amount to the unredeemed portion
of the Security surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
On or after January 15, 2002, the Company may redeem all or any
portion of the Securities at the redemption prices (expressed as a percentage of
the principal amount thereof), as set forth in the immediately succeeding
paragraph, plus accrued and unpaid interest, if any, to the redemption date.
The redemption price (expressed as a percentage of the principal
amount) shall be as follows, if the Securities are redeemed during the twelve-
month period beginning on January 15 of the following years:
Year Percentage
---- ----------
2002 %
2003 %
2004 %
2005 and thereafter %
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SECTION 3.08. MANDATORY REDEMPTION.
Subject to the Company's obligation to make an offer to repurchase
Securities under certain circumstances pursuant to Section 4.12 hereof, the
Company shall have no mandatory redemption or sinking fund obligations with
respect to the Securities.
ARTICLE 4
COVENANTS
SECTION 4.01. 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.
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 4.02. 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.
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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 2.04 hereof.
SECTION 4.03. COMMISSION REPORTS.
(i) So long as any of the Securities remain outstanding, the Company
shall provide to the Trustee within 15 days after the filing thereof with
the Commission copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe) that
the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. All obligors on the Securities shall comply
with the provisions of TIA Section 314(a). Notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting pursuant to
rules and regulations promulgated by the Commission, the Company shall file
with the Commission and provide to the Trustee (a) within 90 days after the
end of each fiscal year, annual reports on Form 10-K (or any successor or
comparable form) containing the information required to be contained
therein (or required in such successor or comparable form), including a
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and a report thereon by the Company's certified public
accountants; (b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor
or comparable form) containing the information required to be contained
therein (or required in any successor or comparable form), including a
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS"; and (c) promptly from time to time after the occurrence of an
event required to be therein reported, such other reports on Form 8-K (or
any successor or comparable form) containing the information required to be
contained therein (or required in any successor or comparable form);
PROVIDED, HOWEVER, that the Company shall not be in default of the
provisions of this Section 4.03(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 4.03(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 4.03.
(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
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therein or determinable from information contained therein, including the
Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 4.04. 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 4.03 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 4 or of Article 5 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
6.01(v) hereof, an Officers' Certificate specifying such Default, Event of
Default or event of default and what action the Company is taking or
proposes to take with respect thereto.
SECTION 4.05. 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 4.06. STAY, EXTENSION AND USURY LAWS.
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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 4.07. 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; or (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 a Specified Exchange or the
Refinancing (all such payments and other actions set forth in clauses (i)
through (iii) above being collectively referred to as "RESTRICTED PAYMENTS"),
unless, at the time of and after giving effect to such Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the fair
market value (as conclusively evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee within
60 days prior to the date of such Restricted Payment) of the asset(s) proposed
to be transferred by the Company or such Subsidiary, as the case may be,
pursuant to such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving PRO FORMA effect thereto as if such Restricted Payment had
been made at the beginning of the most recently ended four full fiscal
quarter period for which internal financial statements are available
immediately preceding the date of such Restricted Payment, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after March 1,
1995 (excluding Restricted Payments permitted by clauses (ii), (iii), (iv)
and (v) of the next succeeding paragraph), 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
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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;
(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 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;
(iv) 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;
(v) 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 $15.0 million in any twelve-month period; and
(vi) the making and consummation of (A) a senior subordinated asset
sale offer in accordance with the provisions of the indenture relating to
the 2005 Senior Subordinated Notes or (B) a Change of Control Offer with
respect to the Securities in accordance with the provisions of this
Indenture or change of control offer with respect to the 2005 Senior
Subordinated Notes or the 2005 Exchangeable Subordinated Notes in
accordance with the provisions of the indentures relating thereto.
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 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
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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, unless
such Indebtedness was incurred in connection with or in contemplation of
such acquisition for the purpose of refinancing Indebtedness which was tax-
exempt, or in violation of Section 4.09 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,
(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 New Credit Facility 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 New Credit Facility and related
documentation as in effect on the date hereof.
SECTION 4.09. 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
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have been at least 2.5 to 1, 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 foregoing provisions shall not apply to:
(a) the incurrence by the Company of Indebtedness pursuant to the New
Credit Facility in an aggregate principal amount at any time outstanding
not to exceed an amount equal to $2.5 billion less the aggregate amount of
all mandatory repayments applied to permanently reduce the commitments with
respect to such Indebtedness;
(b) the incurrence by the Company of Indebtedness represented by the
Securities;
(c) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(d) 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);
(e) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate or currency
risk with respect to any fixed or floating rate Indebtedness that is
permitted by the terms hereof to be outstanding or any receivable or
liability the payment of which is determined by reference to a foreign
currency; PROVIDED that the notional principal amount of any such Hedging
Obligation does not exceed the principal amount of the Indebtedness to
which such Hedging Obligation relates;
(f) the incurrence by the Company or any of its Subsidiaries of
Physician Support Obligations;
(g) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(h) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by tender, bid, performance, government contract,
surety or appeal, bonds, standby letters of credit or warranty or
contractual service obligations of like nature, in each case to the extent
incurred in the ordinary course of business of the Company or such
Subsidiary;
(i) 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
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have been at least 2.5 to 1 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
(j) 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 4.10. 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 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 4.07 hereof, in each
case, shall not be deemed to be Affiliate Transactions.
SECTION 4.11. 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 to
secure Indebtedness that is PARI PASSU with or subordinated in right of payment
to the Securities (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 4.12. 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").
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Within 30 days following any Change of Control Triggering Event, the
Company shall mail, or at the Company's request the Trustee shall mail, a notice
of a Change of Control to each Holder (at its last registered address with a
copy to the Trustee and the Paying Agent) offering to repurchase the Securities
held by such Holder pursuant to the procedure specified in such notice. The
Change of Control Offer shall remain open from the time of mailing until the
close of business on the Business Day next preceding the Change of Control
Payment Date. The notice, which shall govern the terms of the Change of Control
Offer, shall contain all instructions 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 4.12 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
(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.
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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 4.13. CORPORATE EXISTENCE.
Subject to Section 4.12 and Article 5 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 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 4.14. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its Subsidiaries
to, engage in any material extent in any business other than the ownership,
operation and management of Hospitals and Related Businesses.
SECTION 4.15. 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 subordinated to such
Subsidiary's Guarantee of or pledge to secure such other Indebtedness to the
same extent as the Securities are subordinated to such other Indebtedness under
this Indenture. 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
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the Company, of all of the Company's stock in, or all or substantially all the
assets of, such Subsidiary. The foregoing provisions shall not be applicable to
any one or more Guarantees that otherwise would be prohibited of up to $25.0
million in aggregate principal amount of Indebtedness of the Company or its
Subsidiaries at any time outstanding.
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
The Company shall not incur any Indebtedness that is subordinate or
junior in right of payment to any Senior Debt and senior in any respect in right
of payment to the Securities.
ARTICLE 5
SUCCESSORS
SECTION 5.01. 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 4.09 hereof.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel, covering clauses (i) through (iv) above, stating that the
proposed transaction and such supplemental indenture
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comply with this Indenture. The Trustee shall be entitled to conclusively rely
upon such Officers' Certificate and Opinion of Counsel.
SECTION 5.02. 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 5.01 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 6
DEFAULTS AND REMEDIES
SECTION 6.01. 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, whether or not such payment is prohibited by the provisions of
Article 10 hereof;
(ii) default in payment when due of the principal of or premium, if
any, on the Securities at maturity or otherwise, whether or not such
payment is prohibited by the provisions of Article 10 hereof;
(iii) failure by the Company to comply with the provisions of Sections
4.07, 4.09 or 4.12 hereof;
(iv) failure by the Company to comply with any other covenant or
agreement in the Indenture or the Securities for the period and after the
notice specified below;
(v) any default that occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company or any of
its Significant Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Significant Subsidiaries), whether such Indebtedness
or Guarantee exists on the date hereof or is created after the date hereof,
which default (a) constitutes a failure to pay principal at final maturity
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 that has not been paid at final maturity 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
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such final judgment or judgments remain unpaid or undischarged for a period
(during which execution shall not be effectively stayed) of 60 days after
their entry;
(vii) the Company or any Significant Subsidiary thereof pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in
an involuntary case in which it is the debtor,
(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors,
or
(e) admits in writing its inability generally to pay its debts
as the same become due; and
(viii) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any Significant
Subsidiary thereof in an involuntary case in which it is the
debtor,
(b) appoints a Custodian of the Company or any Significant
Subsidiary thereof or for all or substantially all of the property
of the Company or any Significant Subsidiary thereof, or
(c) orders the liquidation of the Company or any Significant
Subsidiary thereof, and the order or decree remains unstayed and in
effect for 60 days.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "CUSTODIAN" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clause (iv) is not an Event of Default until the
Trustee notifies the Company in writing, or the Holders of at least 25% in
principal amount of the then outstanding Securities notify the Company and the
Trustee in writing, of the Default and the Company does not cure the Default
within 60 days after receipt of such notice. The written notice must specify
the Default, demand that it be remedied and state that the notice is a "NOTICE
OF DEFAULT."
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (vii) or (viii) of Section 6.01 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
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Event of Default specified in clause (vii) or (viii) of Section 6.01 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.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Securities pursuant to
Section 3.07 hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law upon the acceleration of the
Securities.
If an Event of Default occurs under this Indenture prior to January
15, 2002 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 January 15, 2002 pursuant to Section 3.07
hereof, 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 January 15 of the years set forth below:
Year Percentage
---- ----------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . .
1998 . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 . . . . . . . . . . . . . . . . . . . . . . . . . .
2000 . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . . . . . . . .
Any determination regarding the primary purpose of any such action or
inaction, as the case may be, shall be made by and set forth in a resolution of
the Board of Directors (including the concurrence of a majority of the
independent directors of the Company then serving) delivered to the Trustee
after consideration of the business reasons for such action or inaction, other
than the avoidance of payment of such premium or prohibition on redemption. In
the absence of fraud, each such determination shall be final and binding upon
the Holders of Securities. Subject to Section 7.01 hereof, the Trustee shall be
entitled to rely on the determination set forth in any such resolutions
delivered to the Trustee.
SECTION 6.03. 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.
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SECTION 6.04. 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 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders or that may involve the Trustee in
personal liability. The Trustee may take any other action which it deems proper
which is not inconsistent with any such direction.
SECTION 6.06. 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 6.07. 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.
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SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(i) or (ii) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor for the whole amount of principal, premium, if any, and interest
remaining unpaid on the Securities and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
amounts due the Trustee under Section 7.07 hereof, including the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. 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 7.07 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 7.07 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 6.10. 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 7.07, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to Holders for amounts due and unpaid on the Securities for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Securities
for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.10 upon five Business Days prior notice to
the Company.
SECTION 6.11. 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 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(i) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(ii) Except during the continuance of an Event of Default known to the
Trustee:
(a) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture or the TIA and the Trustee need
perform only those duties that are specifically set forth in this
Indenture or the TIA and no others, and no implied covenants or
obligations shall be read into this Indenture against the Trustee, and
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of any such certificates or
opinions which by any provisions hereof are required to be furnished
to the Trustee, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(iii) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(a) this paragraph does not limit the effect of paragraph (ii)
of this Section;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
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(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 6.05 hereof.
(iv) Whether or not therein expressly so provided every provision of
this Indenture that in any way relates to the Trustee is subject to
paragraphs (i), (ii), and (iii) of this Section.
(v) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may
refuse to perform any duty or exercise any right or power unless it
receives security and indemnity satisfactory to it against any loss,
liability or expense.
(vi) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Absent written instruction from the Company, the Trustee shall not be
required to invest any such money. Money held in trust by the Trustee need
not be segregated from other funds except to the extent required by law.
(vii) The Trustee shall not be deemed to have knowledge of any matter
unless such matter is actually known to a Responsible Officer.
SECTION 7.02. 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 7.03. 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
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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 7.10 and 7.11
hereof.
SECTION 7.04. 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 7.05. 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 7.06. 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 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
Company and Trustee shall agree in writing. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities, damages, claims or expenses incurred by it arising out of or in
connection with the acceptance of its duties and the administration of the
trusts under this Indenture, except as set forth below. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have
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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 7.07 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 6.01(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 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a majority
in principal amount of the then outstanding Securities may remove the Trustee by
so notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10 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.
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If the Trustee after written request by any Holder who has been a
Holder for at least six months fails to comply with Section 7.10 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 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 hereof shall continue
for the benefit of the retiring Trustee.
SECTION 7.09. 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 7.10. 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 7.11. 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 8
DISCHARGE OF INDENTURE
SECTION 8.01. 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 8.02 or 8.03 hereof be applied to
all outstanding Securities upon compliance with the conditions set forth below
in this Article 8.
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SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in clauses (i) and (ii) of this Section
8.02, 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 8.04 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 and 4.02 hereof, (iii) the rights, powers, trusts, duties and
immunities of the Trustee hereunder, including, without limitation, the
Trustee's rights under Section 7.07 hereof, and the Company's obligations in
connection therewith and (iv) this Article 8. Subject to compliance with this
Article 8, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof with
respect to the Securities.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.14, 4.15, and 4.16 and Article 5 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 6.01(iii)
hereof, but, except as specified above, the remainder of this Indenture and such
Securities shall be unaffected thereby. In addition, upon the Company's
exercise under Section 8.01 hereof of the option applicable to this Section
8.03, Sections 6.01(iv) through 6.01(vi) hereof shall not constitute Events of
Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
8.02 or Section 8.03 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 7.10 who shall agree to
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comply with the provisions of this Article 8 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 8.02 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 8.03 hereof before the
date that is one year prior to the final maturity of the Securities, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States confirming that the Holders of the outstanding Securities
will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred.
(iv) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds to
be applied to such deposit) or, insofar as Section 6.01(vii) or 6.01(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.
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(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 8.02 or 8.03 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 stating that all conditions precedent provided for relating to
either the Legal Defeasance under Section 8.02 hereof or the Covenant
Defeasance under Section 8.03 hereof (as the case may be) have been
complied with as contemplated by this Section 8.04.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 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 8.05, the
"Trustee") pursuant to Section 8.04 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 8.04 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 8 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 8.04 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
8.04(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 8.06. 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 that such
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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 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Dollars or
non-callable Government Securities in accordance with Section 8.02 or 8.03
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 8.02 or 8.03 hereof until such time as the Trustee or Paying
Agent is permitted to apply all such money in accordance with Section 8.02 or
8.03 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 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. 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 4.16 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 5 hereof;
(v) to make any change that would provide any additional rights or
benefits to the Holders of the Securities or that does not adversely affect
the legal rights hereunder of any such Holder; or
(vi) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such supplemental indenture,
and upon receipt by the Trustee of the documents described in Section 9.06
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
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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 9.02. 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 9.06 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.
It shall not be necessary for the consent of the Holders under this
Section 9.02 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 6.04 and 6.07 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 or alter the provisions with respect to the redemption of the
Securities (other than provisions relating to covenants in Section 4.12
hereof);
(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;
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(vi) make any change in Section 6.04 or 6.07 hereof;
(vii) waive a redemption payment with respect to any Security
(other than a payment required under Section 4.12 hereof); or
(viii) make any change in this sentence of this Section 9.02.
Notwithstanding the foregoing, any amendment to the provisions of
Article 10 hereof shall require the consent of the Holders of at least 75% in
aggregate principal amount of the Securities then outstanding if such amendment
would adversely affect the rights of the Holders of Securities.
SECTION 9.03. 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.
SECTION 9.04. 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 2.06 hereof or (ii) such other date as the Company shall
designate.
SECTION 9.05. 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 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 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 7.01, 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
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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.
ARTICLE 10
SUBORDINATION
SECTION 10.01 AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Security agrees,
that the Indebtedness evidenced by the Security is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full of all Senior Debt (whether outstanding on the date here
or hereafter created, incurred, assumed or Guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
SECTION 10.02. CERTAIN DEFINITIONS.
"Designated Senior Debt" means (i) so long as any Obligations are
outstanding under the New Credit Facility, such Obligations and (ii) thereafter,
any other Senior Debt permitted hereunder the principal amount of which is
$100.0 million or more and that has been designated by the Company as
"Designated Senior Debt".
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Debt.
"Senior Debt" means (i) Indebtedness under the New Credit Facility,
(ii) the Senior Notes and the Existing Senior Notes, (iii) any other
Indebtedness that is permitted to be incurred by the Company under the terms of
this Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Securities and (iv) all Obligations with respect to any of the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt shall not include (v) the Senior Subordinated Notes, the 2005 Senior
Subordinated Notes and the 2005 Exchangeable Subordinated Notes, (w) any
liability for federal, state, local or other taxes owed or owning by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of this Indenture.
A distribution may consist of cash, securities or other property, by
set-off or otherwise.
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, holders of Senior Debt shall be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt (including
interest accruing after the commencement of any such proceedings at the rate
specified in the applicable Senior Debt, whether or not allowed or allowable as
a claim in such proceeding) before the Holders shall be entitled to receive any
payment with respect to the Securities, and until all Obligations with respect
to Senior
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Debt are paid in full, any distribution to which the Holders would be entitled
shall be made to the holders of Senior Debt (except (a) that Holders may receive
securities that (i) are subordinated at least to the same extent as the
Securities to Senior Debt and any securities issued in exchange for Senior Debt,
(ii) are unsecured (except to the extent the Securities are secured) (iii) are
not Guaranteed by any Subsidiary of the Company (except to the extent the
Securities are so Guaranteed), and (iv) have a Weighted Average Life to Maturity
and final maturity that are not shorter than the Weighted Average Life to
Maturity of the Securities or any securities issued to holders of Senior Debt
under the New Credit Facility pursuant to a plan of reorganization or
readjustment and (b) payments made from the trust described in Section 8.04).
SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment upon or in respect of the
Securities (except in securities that (i) are subordinated to at least the same
extent as the Securities to Senior Debt and any securities issued in exchange
for Senior Debt, (ii) are unsecured (except to the extent the Securities are
secured), (iii) are not Guaranteed by any Subsidiary of the Company (except to
the extent the Securities are so Guaranteed), and (iv) have a Weighted Average
Life to Maturity and final maturity that are not shorter than the Weighted
Average Life to Maturity of the Securities or any securities issued to Holders
of Senior Debt under the New Credit Facility pursuant to a plan or
reorganization or readjustment or from the trust described in Section 8.04
hereof) if;
(i) a default in the payment of the principal of, premium, if any or
interest on Designated Senior Debt occurs and is continuing beyond any
applicable period of grace in the agreement, indenture or other document
governing such Designated Senior Debt; or
(ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice"), for so long as any
Obligations are outstanding under the New Credit Facility, from the
Representative thereunder and, thereafter, from the holder or Representative of
any Designated Senior Debt. No new period of payment blockage may be commenced
within 360 days after the receipt by the Trustee of any prior Payment Blockage
Notice. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on the Securities:
(1) in the case of a payment default, upon the date on which such
default is cured or waived, and
(2) in the case of a nonpayment default referred to in Section
10.04(ii) hereof, the earlier of the date on which such nonpayment default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior Debt
has been accelerated.
SECTION 10.05. ACCELERATION OF SECURITIES.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
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SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of
any Obligations with respect to the Securities at a time when the Trustee or
such Holder, as applicable, has actual knowledge that such payment is prohibited
by Section 10.04 hereof, such payment shall be held by the Trustee or such
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which such Senior Debt may have been issued, as
their respect interests may appear, for application for the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such obligations in full in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.07. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Securities to violate this Article, but failure to give such
notice shall not affect the subordination of the Securities to the Senior Debt
as provided in this Article.
SECTION 10.08. SUBROGATION.
After all Senior Debt is paid in full and until the Securities are
paid in full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Securities) to the rights of holders of Senior
Debt to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of Senior Debt. A distribution made under this Article 10 to holders of Senior
Debt that otherwise would have been made to Holders is not, as between the
Company and Holders, a payment by the Company on the Securities.
SECTION 10.09. RELATIVE RIGHTS.
This Article defines the relative rights of Holders and holders of
Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of an interest on
the Securities in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the
Company other than their rights in relation to holders of Senior Debt; or
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(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders
and owners of Senior Debt to receive distributions and payments otherwise
payable to Holders.
If the Company fails because of this Article 10 to pay principal of or
interest on a Security on the due date, the failure is still a Default or Event
of Default.
SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or any Holder or by the failure of the Company or
any Holder to comply with this Indenture.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provisions of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Securities, unless the Trustee shall have received at
its Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Securities to violate this Article 10. Only the Company or
a Representative may give the notice. Nothing to this Article 10 shall impair
the claims of, or payments to, the Trustee under or pursuant to Section 7.07
hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights.
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Security by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes.
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SECTION 10.14. AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of all Senior Debt.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. 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 11.02. 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
3820 State Street
Santa Barbara, California 93105
Telecopier No.: (805) 563-7070
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.
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
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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 11.03. 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 11.04. 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 11.05 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 11.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been satisfied.
SECTION 11.05. 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;
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(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 11.06. 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 11.07. 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 11.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of the Securities
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the 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 11.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 11.10. 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 11.11. 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.
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SECTION 11.12. 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 11.13. 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 11.14. 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.
SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
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SIGNATURES
Dated as of January 15, 1997 TENET HEALTHCARE CORPORATION
By:___________________________
Name:
Title:
Attest:
___________________________ (SEAL)
Richard B. Silver
Dated as of January 15, 1997 THE BANK OF NEW YORK,
as Trustee
By:___________________________
Name:
Title:
Attest:
___________________________ (SEAL)
By:________________________
Authorized Signatory
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EXHIBIT A
(Face of Security)
__% Senior Subordinated Note
due January 15, 2007
CUSIP:
No. $____________
TENET HEALTHCARE CORPORATION
promises to pay to
_______________________________________________________
or its registered assigns, the principal sum of_______________ Dollars on
January 15, 2007.
Interest Payment Dates: January 15 and July 15, commencing July 15, 1997.
Record Dates: January 1 and July 1 (whether or not a Business Day).
[(If Security is a Global Security--) This Security is a Global Security within
the meaning of the Indenture hereinafter referred to and is registered in the
name of a Depositary or a nominee thereof. This Security may not be exchanged
in whole or in part for a Security registered, and no transfer of this Security
in whole or in part may be registered, in the name of any person other than such
Depositary or a nominee thereof, except in the limited circumstances described
in the Indenture.]
TENET HEALTHCARE CORPORATION
By: _________________________
Dated: __________, ____
(SEAL)
Trustee's Certificate of Authentication:
This is one of the Securities referred
to in the within-mentioned Indenture:
The Bank of New York, as Trustee
By: ___________________________
Authorized Signatory
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(Back of Security)
__% SENIOR SUBORDINATED NOTE
due January 15, 2007
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. INTEREST. Tenet Healthcare Corporation, a Nevada corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Security at
the rate and in the manner specified below.
The Company shall pay interest in cash on the principal amount of this
Security at the rate per annum of __%. The Company shall pay interest
semiannually in arrears on January 15 and July 15 of each year, commencing July
15, 1997 to Holders of record on the immediately preceding January 1 and July 1,
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.
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 January 15, 1997 (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
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general obligations of the Company. The Securities are limited to $500,000,000
in aggregate principal amount.
5. OPTIONAL REDEMPTION. On or after January 15, 2002, the Company may
redeem all or any portion of the Securities at a redemption price (expressed as
a percentage of the principal amount thereof), as set forth in the immediately
succeeding paragraph, plus accrued and unpaid interest, if any, to the
redemption date.
The redemption price as a percentage of the principal amount shall be
as follows, if the Securities are redeemed during the twelve-month period
beginning on January 15 of the following years:
Year Percentage
---- ----------
2002 %
2003 %
2004 %
2005 and thereafter %
6. MANDATORY REDEMPTION. Subject to the Company's obligation to make an
offer to repurchase Securities under certain circumstances pursuant to Sections
4.10 and 4.13 of the Indenture (as described in paragraph 7 below), the Company
shall have no mandatory redemption or sinking fund obligations with respect to
the Securities.
7. REPURCHASE AT OPTION OF HOLDER. 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.
8. SUBORDINATION. The Securities are subordinated to Senior Debt (as
defined in the Indenture), which includes any Indebtedness arising under or in
connection with (a) the Senior Notes and the Existing Senior Notes, (b) the New
Credit Facility (but only to the extent permitted under Section 4.09 of the
Indenture), and (c) all other Indebtedness permitted by the Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the Securities and
all Obligations (as defined in the Indenture) of the Company with respect to any
of the foregoing. To the extent provided in the Indenture, Senior Debt must be
paid before the Securities may be paid. The Company agrees, and each Holder by
accepting a Security consents and agrees, to the subordination provided in the
Indenture and authorizes the Trustee to give it effect.
9. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days and not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at its registered address. Securities may be redeemed
in part but only in whole multiples of $1,000, unless all of the Securities held
by a Holder are to be redeemed. On and after the redemption date, interest
ceases to accrue on Securities or portions of them called for redemption.
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10. 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.
11. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for
registration of the transfer of this Security, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Security is registered
as its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Security and for all other 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.
12. 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 or alter the provisions with
respect to the redemption of the Securities (other than provisions relating to
Section 4.12 of the Indenture), (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, (vii) or waive a redemption payment with
respect to any Security (other than a payment required under Section 4.12 of the
Indenture) or (viii) make any change in the foregoing amendment and waiver
provisions.
Any amendment to the provisions of Article 10 of the Indenture shall
require the consent of the Holders of at least 75% in aggregate principal amount
of the Securities then outstanding if such amendment would adversely affect the
rights of the Holders of the Securities.
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 4.15 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
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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.
13. 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,
whether or not such payment is prohibited by the provisions of Article 10 of the
Indenture; (ii) a default in payment when due of the principal of or premium, if
any, on the Securities, at maturity or otherwise, whether or not such payment is
prohibited by the provisions of Article 10 of the Indenture; (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," 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 failure to pay principal at final
maturity 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
that has not been paid at final maturity 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, or premiums related to,
redemptions of the Securities contained in the Indenture or the Securities, an
amount of premium that would have been 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.
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.
A-5
<PAGE>
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.
14. 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, 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.
15. 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.
16. 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.
17. AUTHENTICATION. This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
18. 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).
19. 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
3820 State Street
Santa Barbara, California 93105
Attention: Treasurer
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<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).
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<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 4.12 of the Indenture, check the
box below:
/ / Section 4.12
(Change of Control)
If you want to have only part of the Security purchased by the Company
pursuant to Section 4.12 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-8
<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 January 15, 1997, providing
for the issuance of an aggregate principal amount of $500,000,000 of __% Senior
Subordianted Notes due 2007 (the "Securities");
WHEREAS, Section 4.15 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 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the holders of the Securities as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of the Indenture, the Securities or the Obligations
of the Company hereunder and thereunder, that: (a) the principal of, premium, if
any, and interest on the Securities will be promptly paid in full when due,
whether at maturity, by acceleration, redemption or otherwise, and interest on
the overdue principal, premium, if any, and (to the extent permitted by law)
interest on any interest on the Securities and all other 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
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<PAGE>
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 6 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 6 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 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 4 and 5 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.
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(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
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. 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. 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, the
Trustee shall execute any documents reasonably required in order to evidence the
release of the Guarantor from its Obligations under its Guarantee.
6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the
Guarantor's liability will be that amount from time to time equal to the
aggregate liability of the Guarantor hereunder, but shall be limited to the
lesser of (i) the aggregate amount of the Obligations of the Company under the
Securities and the Indenture and (ii) the amount, if any, which would not have
(A) rendered the Guarantor "insolvent" (as such term is defined in the federal
Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or
(B) left it with unreasonably small capital at the time its
B-3
<PAGE>
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. SUBORDINATION. The Obligations of the Guarantor to the Holders of the
Securities and to the Trustee pursuant to this Guarantee are subordinated to the
Guarantor's Guarantee of or pledge to secure [the Indebtedness giving rise to
the requirement to execute this Guarantee pursuant to Section 4.15 of the
Indenture] to the same extent as the Securities are subordinated to such other
Indebtedness under the Indenture.
9. 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.
10. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
11. 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.
12. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _________________ ___, ____
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<PAGE>
[Guarantor]
By: ______________________________
Name:
Title:
The Bank of New York,
as Trustee
By: ______________________________
Name:
Title:
B-5
<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.
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
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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.
The Obligations of the Guarantor to the Holders of the Securities and
to the Trustee pursuant to this Guarantee are subordinated to the Guarantor's
Guarantee of or pledge to secure [the Indebtedness giving rise to the
requirement to execute this Guarantee pursuant to Section 4.15 of the Indenture]
to the same extent as the Securities are subordinated to such other Indebtedness
under the Indenture.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
[GUARANTOR]
By:_________________________
Name:
Title:
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<PAGE>
TENET HEALTHCARE CORPORATION
---------------
$200,000,000
__% SENIOR NOTES due 2003
---------------
---------------
INDENTURE
Dated as of January 15, 1997
---------------
---------------
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. . . . . . . . . . . . . . . . . . . . 10
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA. . . . . . . . . . . . 11
SECTION 1.04. RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . 11
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING. . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY.. . . . . . . . . . . 12
SECTION 2.03. EXECUTION AND AUTHENTICATION.. . . . . . . . . . . . . . 12
SECTION 2.04. REGISTRAR AND PAYING AGENT . . . . . . . . . . . . . . . 13
SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . . 13
SECTION 2.06. HOLDER LISTS . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.07. TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . 14
SECTION 2.08. PERSONS DEEMED OWNERS. . . . . . . . . . . . . . . . . . 14
SECTION 2.09. REPLACEMENT SECURITIES . . . . . . . . . . . . . . . . . 15
SECTION 2.10. OUTSTANDING SECURITIES . . . . . . . . . . . . . . . . . 15
SECTION 2.11. TREASURY SECURITIES. . . . . . . . . . . . . . . . . . . 15
SECTION 2.12. TEMPORARY SECURITIES . . . . . . . . . . . . . . . . . . 16
SECTION 2.13. CANCELLATION . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.14. DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . 16
SECTION 2.15. RECORD DATE. . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.16. CUSIP NUMBER . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 3
COVENANTS
SECTION 3.01. PAYMENT OF SECURITIES. . . . . . . . . . . . . . . . . . 17
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . 17
SECTION 3.03. COMMISSION REPORTS . . . . . . . . . . . . . . . . . . . 17
SECTION 3.04. COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . 18
SECTION 3.05. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.06. STAY, EXTENSION AND USURY LAWS . . . . . . . . . . . . . 19
SECTION 3.07. LIMITATIONS ON RESTRICTED PAYMENTS . . . . . . . . . . . 20
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SECTION 3.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES . . . . . . . . . . . . . . . . . 21
SECTION 3.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE
OF PREFERRED STOCK . . . . . . . . . . . . . . . . . . . 22
SECTION 3.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. . . . . . . 24
SECTION 3.11. LIMITATIONS ON LIENS . . . . . . . . . . . . . . . . . . 24
SECTION 3.12. CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . . 24
SECTION 3.13. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . 26
SECTION 3.14. LINE OF BUSINESS . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
BY SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR
SUBORDINATED NOTE INDENTURE. . . . . . . . . . . . . . . 27
ARTICLE 4
SUCCESSORS
SECTION 4.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.02. SUCCESSOR CORPORATION SUBSTITUTED. . . . . . . . . . . . 28
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.01. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 28
SECTION 5.02. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.03. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.04. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . 30
SECTION 5.05. CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . . 31
SECTION 5.06. LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . 31
SECTION 5.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT . . . . . . . . . . 31
SECTION 5.08. COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . 31
SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . 32
SECTION 5.10. PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.11. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . 33
ARTICLE 6
TRUSTEE
SECTION 6.01. DUTIES OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 33
SECTION 6.02. RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 34
SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . 34
SECTION 6.04. TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . 35
SECTION 6.05. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . 35
-ii-
<PAGE>
SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS. . . . . . . . . . . . . . 35
SECTION 6.07. COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . 35
SECTION 6.08. REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . 36
SECTION 6.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC. . . . . . . . 37
SECTION 6.10. ELIGIBILITY; DISQUALIFICATION. . . . . . . . . . . . . . 37
SECTION 6.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. . . . 37
ARTICLE 7
DISCHARGE OF INDENTURE
SECTION 7.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . 38
SECTION 7.03. COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . 38
SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE . . . . . . . 38
SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS. . . . . . . . . . 40
SECTION 7.06. REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . . . 40
SECTION 7.07. REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 8
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 8.01. WITHOUT CONSENT OF HOLDERS . . . . . . . . . . . . . . . 41
SECTION 8.02. WITH CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . 42
SECTION 8.03. COMPLIANCE WITH TIA. . . . . . . . . . . . . . . . . . . 43
SECTION 8.04. REVOCATION AND EFFECT OF CONSENTS. . . . . . . . . . . . 43
SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES. . . . . . . . . . 43
SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . . . 43
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. TIA CONTROLS . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. . . . . . . 45
SECTION 9.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . 45
SECTION 9.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. . . . . . 45
SECTION 9.06. RULES BY TRUSTEE AND AGENTS. . . . . . . . . . . . . . . 46
-iii-
<PAGE>
SECTION 9.07. LEGAL HOLIDAYS . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.09. DUPLICATE ORIGINALS. . . . . . . . . . . . . . . . . . . 46
SECTION 9.10. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . 46
SECTION 9.12. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.13. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.14. COUNTERPART ORIGINALS. . . . . . . . . . . . . . . . . . 47
SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC.. . . . . . . . . . . . 47
EXHIBIT A FORM OF SECURITY
EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE
-iv-
<PAGE>
CROSS-REFERENCE TABLE(1)
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) . . . . . . . . . . . . . . . . . . . 2.06
(b) . . . . . . . . . . . . . . . . . . . 9.03
(c) . . . . . . . . . . . . . . . . . . . 9.03
313 (a) . . . . . . . . . . . . . . . . . . . 6.06
(b)(1) . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . 6.06
(c) . . . . . . . . . . . . . . . . . . . 6.06; 9.02
(d) . . . . . . . . . . . . . . . . . . . N.A.
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) . . . . . . . . . . . . 2.11
(a)(1)(A) . . . . . . . . . . . . . . . . 5.05
(a)(1)(B) . . . . . . . . . . . . . . . . 5.04
(a)(2) . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . 5.07
(c) . . . . . . . . . . . . . . . . . . . 2.15; 8.04
317 (a)(1) . . . . . . . . . . . . . . . . . . 5.08
(a)(2) . . . . . . . . . . . . . . . . . . 5.09
(b) . . . . . . . . . . . . . . . . . . . 2.05
- ---------------------------
(1)This Cross-Reference Table is not part of the indenture.
-v-
<PAGE>
318 (a) . . . . . . . . . . . . . . . . . . . 9.01
(b) . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . 9.01
N.A. means not applicable
-vi-
<PAGE>
INDENTURE dated as of January 15, 1997 between Tenet Healthcare
Corporation, a Nevada corporation (the "COMPANY"), and The Bank of New York, as
trustee (the "TRUSTEE").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the __% Senior
Notes due 2003 (the "SECURITIES"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices and (ii) the issuance or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $25.0
million or (b) for net proceeds in excess $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.
<PAGE>
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a Capital Lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any Person or group (as such
term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than
to a Person or group who, prior to such transaction, held a majority of the
voting power of the voting stock of the Company, (ii) the acquisition by any
Person or group, as defined above, of a direct or indirect interest in more than
50% of the voting power of the voting stock of the Company, by way of merger,
consolidation or otherwise, or (iii) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a
Change of Control and a Rating Decline.
"COMMISSION" means the Securities and Exchange Commission.
"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.
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<PAGE>
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP but
excluding any one-time charge or expense incurred in order to consummate the
Refinancing; PROVIDED that (i) the Net Income of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition 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.
"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.
"DEPOSITARY" means a clearing agency registered under the Exchange Act
that is designated to act as Depositary for the Securities.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to December
1, 2003.
"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).
-3-
<PAGE>
"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 New Credit Facility 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 New Credit Facility).
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period; PROVIDED, HOWEVER, that in
the event that the Company or any of its Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be
calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period; and PROVIDED FURTHER that for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period, and (ii) the Consolidated Cash Flow and Fixed
Charges attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, and net payments or receipts (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.
"GLOBAL SECURITY" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 2.02.
-4-
<PAGE>
"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) forward 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 or business that is used or useful in or related to
the provision of healthcare services.
"HOSPITAL SWAP" means an exchange of assets by the Company or a
Subsidiary of the Company for one or more Hospitals and/or one or more Related
Businesses or for the Capital Stock of any Person owning one or more Hospitals
and/or one or more Related Businesses.
"INDEBTEDNESS" means with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (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.
"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.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction with respect to any such lien, pledge, charge or
security interest).
-5-
<PAGE>
"MOODY'S" means Moody's Investors Services, Inc. and its successors.
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of
January __, 1997, by and among the Company and Morgan Guaranty Trust Company of
New York and the other banks that are party thereto, providing for up to $2.5
billion in aggregate principal amount of Indebtedness, including any related
notes, instruments and agreements executed in connection therewith, and in each
case as amended, modified, extended, renewed, refunded, replaced or refinanced,
in whole or in part, from time to time.
"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.
"PERMITTED LIENS" means (i) Liens in favor of the Company; (ii)
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 (unless
such Liens secure Indebtedness that was incurred in connection with or in
contemplation of such acquisition and is used to refinance tax-exempt
Indebtedness) and do not extend to any assets or the Company or its
Subsidiaries other than those of the Person merged into or consolidated with
the Company or that becomes a Subsidiary of the Company; (iii) 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 (unless such Liens secure
Indebtedness that
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was incurred in connection with or in contemplation of such acquisition and
is used to refinance tax-exempt Indebtedness); (iv) Liens to secure the
performance of statutory obligations, tender, bid, performance, government
contract, surety or appeal bonds or other obligations of a like nature incurred
in the ordinary course of business; (v) Liens existing on the date hereof;
(vi) 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; (vii) 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 (viii) Liens to secure Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that was secured by a Lien permitted hereunder and that
was incurred in accordance with the provisions hereof; PROVIDED that such Liens
do not extend to or cover any property or assets of the Company or any
Subsidiary other than assets or property securing the Indebtedness so
refinanced.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used solely to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED
that, except in the case of Indebtedness of the Company issued in exchange for,
or the net proceeds of which are used solely to extend, refinance, renew,
replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i)
the principal amount of such Permitted Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of any premiums paid and
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Securities, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Securities on terms at least as
favorable to the Holders of Securities as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iv) such Indebtedness is incurred by the Company if the
Company is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (v) such Indebtedness is incurred by the
Company or a Subsidiary if a Subsidiary 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).
"PHYSICIAL 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
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advance, loan or payment to, or on behalf of or for the benefit of any
physician, pharmacist or other allied healthcare professional for the purpose of
recruiting, redirecting or retaining the physician, pharmacist or other allied
healthcare professional to provide service to patients in the service area of
any Hospital or Related Business owned or operated by the Company or any of its
Subsidiaries; EXCLUDING, HOWEVER, compensation for services provided by
physicians, pharmacists or other allied healthcare professionals to any Hospital
or Related Business owned or operated by the Company or any of its Subsidiaries.
"QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the
Company other than Disqualified Stock of the Company.
"RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both shall not make a rating of the Securities publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, shall be substituted for S&P or Moody's or both, as the
case may be.
"RATING CATEGORY" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii)
with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and
D (or equivalent successor categories); and (iii) the equivalent of any such
category of S&P or Moody's used by another Rating Agency. In determining
whether the rating of the Securities has decreased by one or more gradations,
gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or
the equivalent gradations for another Rating Agency) shall be taken into 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
January __, 1997 relating to the Company's ___% Senior Notes due 2003, ___%
Senior Notes due 2005 and the ___% Senior Subordinated Notes due 2007.
"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 information or the investment in, management, leasing
or operation of a Hospital.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the
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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.
"SECURITIES" means the securities described above, issued under this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR SUBORDINATED NOTES" means the ____% Senior Subordinated Notes
due 2007 of the Company in an aggregate principal amount of $500.0 million,
issued pursuant to the Senior Subordinated Note Indenture.
"SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of
January 15, 1997 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.
"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 EXCHANGE" means any retirement of Indebtedness upon the
exercise by a holder of such Indebtedness, pursuant to the terms thereof, of any
right to exchange such Indebtedness for shares of common stock of Vencor, Inc.
or any successor thereto or any other equity securities, other than Equity
Interests of a Subsidiary, owned by the Company as of October 11, 1995, or for
any securities or other property received with respect to such common stock or
equity securities or cash in lieu thereof, whether or not such right is subject
to the Company's ability to pay an amount in cash in lieu thereof.
"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).
"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.
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"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.
"2005 EXCHANGEABLE SUBORDINATED NOTES" means the 6% Exchangeable
Subordinated Notes due 2005 of the Company in an aggregate principal amount of
$320.0 million, issued pursuant to the Indenture dated as of January 10, 1996,
between the Company and The Bank of New York, as trustee, as amended or
supplemented from time to time.
"2005 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 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.
SECTION 1.02. OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
---- ----------
"Affiliate Transaction" . . . . . . . . . . . . . . 3.10
"Bankruptcy Law" . . . . . . . . . . . . . . . . . 5.01
"Change of Control Offer" . . . . . . . . . . . . . 3.12
"Change of Control Payment" . . . . . . . . . . . . 3.12
"Change of Control Payment Date" . . . . . . . . . 3.12
"Covenant Defeasance" . . . . . . . . . . . . . . . 7.03
"Custodian" . . . . . . . . . . . . . . . . . . . . 5.01
"Event of Default" . . . . . . . . . . . . . . . . 5.01
"incur" . . . . . . . . . . . . . . . . . . . . . . 3.09
"Legal Defeasance" . . . . . . . . . . . . . . . . 7.02
"Legal Holiday" . . . . . . . . . . . . . . . . . . 9.07
"Notice of Default" . . . . . . . . . . . . . . . . 5.01
"Paying Agent" . . . . . . . . . . . . . . . . . . 2.03
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"Registrar" . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . . 3.07
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;
(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
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
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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. The
Securities may be Global Securities, as determined by the officers executing
such Securities, as evidenced by their execution of such Securities.
SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY.
Every Global Security authenticated and delivered hereunder shall bear
a legend in substantially the following form:
"This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of a
Depositary or a nominee thereof. This Security may not be exchanged in
whole or in part for a Security registered, and no transfer of this
Security in whole or in part may be registered, in the name of any person
other than such Depositary or a nominee thereof, except in the limited
circumstances described in the Indenture."
SECTION 2.03. EXECUTION AND AUTHENTICATION.
An Officer of the Company shall sign the Securities for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture. The
form of Trustee's certificate of authentication to be borne by the Securities
shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities. The
aggregate principal amount of Securities outstanding at any time shall not
exceed the amount set forth herein except as provided in Section 2.09 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.
Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
The Company initially appoints The Depositary Trust Company as the
Depositary.
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SECTION 2.04. 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 2.05. PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to the due date of principal of, premium,
if any, and interest on any Securities, the Company shall deposit
with the Trustee or the Paying Agent money sufficient to pay such
principal, premium, if any, and interest becoming due. The
Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for
the benefit of the Holders or the Trustee all money held by the
Paying Agent for the payment of principal of, premium, if any,
and interest on the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. While any
such Default continues, the Trustee may require a Paying Agent to
pay all money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if
other than the Company) shall have no further liability for the
money delivered to the Trustee. If the Company acts as Paying
Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Holders all money held by it as Paying Agent.
SECTION 2.06. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of
the names and addresses of Holders and shall otherwise comply
with TIA Section 312(a). If the Trustee is not the Registrar,
the Company shall furnish to the Trustee at least seven Business
Days before each interest payment date and at such other times as
the Trustee may request in writing a list in such form and as of
such date as the Trustee may reasonably require of the names and
addresses of Holders, including the aggregate principal amount of
the Securities held by each thereof, and the Company shall
otherwise comply with TIA Section 312(a).
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SECTION 2.07. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar with a
request to register the transfer or to exchange them for an equal
principal amount of Securities of other denominations, the
Registrar shall register the transfer or make the exchange if its
requirements for such transactions are met; PROVIDED, HOWEVER,
that any Security presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a
written instruction of transfer in form satisfactory to the
Registrar and the Trustee duly executed by the Holder thereof or
by his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue
and the Trustee shall authenticate Securities at the Registrar's
request, subject to such rules as the Trustee may reasonably
require.
Neither the Company nor the Registrar shall be required
to register the transfer or exchange of a Security between the
record date and the next succeeding interest payment date.
No service charge shall be made to any Holder for any
registration of transfer or exchange (except as otherwise
expressly permitted herein), but the Company may require payment
of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than
such transfer tax or similar governmental charge payable upon
exchanges pursuant to Sections 2.12 or 8.05 hereof, which shall
be paid by the Company).
Notwithstanding the foregoing, a Global Security may
not be transferred except as a whole by the Depositary to a
nominee of the Depositary or any such nominee to a successor of
the Depositary or a nominee of such successor, unless:
(i) the Depositary is at any time unwilling or
unable to continue as depository or if at any time the
Depositary ceases to be a clearing agency registered under
the Exchange Act and a successor depository is not appointed
by the Company within 90 days,
(ii) an Event of Default under this Indenture with
respect to the Securities has occurred and is continuing and
the beneficial owners representing a majority in principal
amount of the Securities advise the Depositary to cease
acting as depositary or
(iii) the Company, in its sole discretion,
determines at any time that the Securities shall no longer
be represented by a Global Security, the Company will issue
individual Securities of the applicable amount and in
certificated form in exchange for a Global Security. In any
such instance, an owner of a beneficial interest in the
Global Security will be entitled to physical delivery of
individual securities in certificated form of like tenor,
equal in principal amount to such beneficial interest and to
have such Securities in certificated form registered in its
name.
SECTION 2.08. PERSONS DEEMED OWNERS.
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.
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So long as the Depositary or its nominee is the
registered Holder of a Global Security, the Depositary or its
nominee, as the case may be, will be treated as the sole owner of
it for all purposes under the Indenture and the beneficial owners
of the Securities will be entitled only to those rights and
benefits afforded to them in accordance with the Depositary's
regular operating procedures. Except as provided in Section 2.07,
owners of beneficial interests in a Global Security will not be
entitled to have Securities represented by a Global Security
registered in their names, will not receive or be entitled to
receive physical delivery of Securities in certificated form and
will not be considered the registered Holders thereof under the
Indenture.
None of the Company, the Trustee, any Paying Agent or
the 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 2.09. 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 2.10. 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 2.09
hereof, it ceases to be outstanding unless the Trustee receives
proof satisfactory to it that the replaced Security is held by a
bona fide purchaser.
If the principal amount of any Security is considered
paid under Section 3.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue.
Subject to Section 2.11 hereof, a Security does not
cease to be outstanding because the Company or an Affiliate of
the Company holds the Security.
SECTION 2.11. 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,
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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 2.12. 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 2.13. 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 Securities that it has paid or
that have been delivered to the Trustee for cancellation.
SECTION 2.14. 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 2.15. 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 2.16. 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
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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.
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.
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 2.04
hereof.
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SECTION 3.03. COMMISSION REPORTS.
(i) So long as any of the Securities remain
outstanding, the Company shall provide to the Trustee within
15 days after the filing thereof with the Commission copies
of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations
prescribe) that the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange
Act. All obligors on the Securities shall comply with the
provisions of TIA Section 314(a). Notwithstanding that the
Company may not be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act or otherwise report
on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Company shall
file with the Commission and provide to the Trustee (a)
within 90 days after the end of each fiscal year, annual
reports on Form 10-K (or any successor or comparable form)
containing the information required to be contained therein
(or required in such successor or comparable form),
including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and a report
thereon by the Company's certified public accountants; (b)
within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 10-Q
(or any successor or comparable form) containing the
information required to be contained therein (or required in
any successor or comparable form), including a "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS"; and (c) promptly from time to time after the
occurrence of an event required to be therein reported, such
other reports on Form 8-K (or any successor or comparable
form) containing the information required to be contained
therein (or required in any successor or comparable form);
PROVIDED, HOWEVER, that the Company shall not be in default
of the provisions of this Section 3.03(i) for any failure to
file reports with the Commission solely by the refusal of
the Commission to accept the same for filing. Each of the
financial statements contained in such reports shall be
prepared in accordance with GAAP.
(ii) The Trustee, at the Company's expense, shall
promptly mail copies of all such annual reports,
information, documents and other reports provided to the
Trustee pursuant to Section 3.03(i) hereof to the Holders at
their addresses appearing in the register of Securities
maintained by the Registrar.
(iii) Whether or not required by the rules and
regulations of the Commission, the Company shall file a copy
of all such information and reports with the Commission for
public availability and make such information available to
securities analysts and prospective investors upon request.
(iv) The Company shall provide the Trustee with a
sufficient number of copies of all reports and other
documents and information that the Trustee may be required
to deliver to the Holders under this Section 3.03.
(v) Delivery of such reports, information and
documents to the Trustee is for informational purposes only
and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or
determinable from information contained therein, including
the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on
Officers' Certificates).
SECTION 3.04. COMPLIANCE CERTIFICATE.
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(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.
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
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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; or (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 a Specified Exchange or the Refinancing
(all such payments and other actions set forth in clauses (i)
through (iii) above being collectively referred to as "RESTRICTED
PAYMENTS"), unless, at the time of and after giving effect to
such Restricted Payment (the amount of any such Restricted
Payment, if other than cash, shall be the fair market value (as
conclusively evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee
within 60 days prior to the date of such Restricted Payment) of
the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to such Restricted
Payment):
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
and
(b) the Company would, at the time of such Restricted
Payment and after giving PRO FORMA effect thereto as if such
Restricted Payment had been made at the beginning of the
most recently ended four full fiscal quarter period for
which internal financial statements are available
immediately preceding the date of such Restricted Payment,
have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 3.09
hereof; and
(c) such Restricted Payment, together with the
aggregate of all other Restricted Payments made by the
Company and its Subsidiaries after March 1, 1995 (excluding
Restricted Payments permitted by clauses (ii), (iii), (iv)
and (v) of the next succeeding paragraph), 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:
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(i) the payment of any dividend within 60 days after
the date of declaration thereof, if at said date of
declaration such payment would have complied with the
provisions hereof;
(ii) the payment of cash dividends on any series of
Disqualified Stock issued after the date hereof in an
aggregate amount not to exceed the cash received by the
Company since the date hereof upon issuance of such
Disqualified Stock;
(iii) the 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;
(iv) 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;
(v) 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 $15.0 million in any twelve-month
period; and
(vi) the making and consummation of (A) a senior
subordinated asset sale offer in accordance with the
provisions of the indenture relating to the 2005 Senior
Subordinated Notes 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 or
change of control offer with respect to the 2005 Senior
Subordinated Notes or the 2005 Exchangeable Subordinated
Notes in accordance with the provisions of the indentures
relating thereto.
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,
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(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,
unless such Indebtedness was incurred in connection with or
in contemplation of such acquisition for the purpose of
refinancing Indebtedness which was tax-exempt, 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,
(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 New Credit Facility 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 New Credit Facility 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 2.5 to 1, 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.
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The foregoing provisions shall not apply to:
(a) the incurrence by the Company of Indebtedness
pursuant to the New Credit Facility in an aggregate
principal amount at any time outstanding not to exceed an
amount equal to $2.5 billion less the aggregate amount of
all mandatory repayments applied to permanently reduce the
commitments with respect to such Indebtedness;
(b) the incurrence by the Company of Indebtedness
represented by the Securities;
(c) the incurrence by the Company and its Subsidiaries
of the Existing Indebtedness;
(d) 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);
(e) the incurrence by the Company of Hedging
Obligations that are incurred for the purpose of fixing or
hedging interest rate or currency risk with respect to any
fixed or floating rate Indebtedness that is permitted by the
terms hereof to be outstanding or any receivable or
liability the payment of which is determined by reference to
a foreign currency; PROVIDED that the notional principal
amount of any such Hedging Obligation does not exceed the
principal amount of the Indebtedness to which such Hedging
Obligation relates;
(f) the incurrence by the Company or any of its
Subsidiaries of Physician Support Obligations;
(g) the incurrence by the Company or any of its
Subsidiaries of intercompany Indebtedness between or among
the Company and any of its Subsidiaries;
(h) the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by tender, bid,
performance, government contract, surety or appeal, bonds,
standby letters of credit or warranty or contractual service
obligations of like nature, in each case to the extent
incurred in the ordinary course of business of the Company
or such Subsidiary;
(i) 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 2.5 to 1
determined on a PRO FORMA basis (including a PRO FORMA
application of the net proceeds therefrom), as if such
Indebtedness had been incurred at the beginning of such
four-quarter period; and
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(j) 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. 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 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 3.11. 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 3.12. 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
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on the Business Day next preceding the Change of Control Payment
Date. The notice, which shall govern the terms of the Change of
Control Offer, shall contain all instructions 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 3.12 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
(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.
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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 3.13. CORPORATE EXISTENCE.
Subject to Section 3.12 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 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 3.14. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its
Subsidiaries to, engage in any material extent in any business
other than the ownership, operation and management of Hospitals
and Related Businesses.
SECTION 3.15. 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. The foregoing provisions shall not be
applicable to any one or more Guarantees that otherwise would be
prohibited of up to $25.0 million in aggregate principal amount
of Indebtedness of the Company or its Subsidiaries at any time
outstanding.
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SECTION 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR
SUBORDINATED NOTE INDENTURE.
The Company shall not amend, modify or alter the Senior
Subordinated Note Indenture or the indentures relating to the
2005 Senior Subordinated Notes or the 2005 Exchangeable
Subordinated Notes in any way that would (i) increase the
principal of, advance the final maturity date of or shorten the
Weighted Average Life to Maturity of (a) any 2005 Senior
Subordinated Notes or 2005 Exchangeable Subordinated Notes or (b)
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 Senior Notes or (ii)
amend the provisions of Article 10 of the Senior Subordinated
Note Indenture (which relates to subordination) or the
subordination provisions of the indentures relating to the 2005
Senior Subordinated Notes or the 2005 Exchangeable Subordinated
Notes or any of the defined terms used therein in a manner that
would be adverse to the Holders of the Securities.
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.
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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 or 3.12 hereof;
(iv) failure by the Company to comply with any other
covenant or agreement in the Indenture or the Securities for
the period and after the notice specified below;
(v) any default that occurs under any mortgage,
indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Significant
Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Significant Subsidiaries), whether
such Indebtedness or Guarantee exists on the date 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
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such final judgment or judgments remain unpaid or
undischarged for a period (during which execution shall not
be effectively stayed) of 60 days after their entry;
(vii) the Company or any Significant Subsidiary
thereof pursuant to or within the meaning of any Bankruptcy
Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case in which it is the
debtor,
(c) consents to the appointment of a Custodian of
it or for all or substantially all of its property,
(d) makes a general assignment for the benefit of
its creditors, or
(e) admits in writing its inability generally to
pay its debts as the same become due; and
(viii) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(a) is for relief against the Company or any
Significant Subsidiary thereof in an involuntary case
in which it is the debtor,
(b) appoints a Custodian of the Company or any
Significant Subsidiary thereof or for all or
substantially all of the property of the Company or any
Significant Subsidiary thereof, or
(c) orders the liquidation of the Company or any
Significant Subsidiary thereof, and the order or decree
remains unstayed and in effect for 60 days.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or
any similar federal or state law for the relief of debtors. The
term "CUSTODIAN" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
A Default under clause (iv) is not an Event of Default
until the Trustee notifies the Company in writing, or the Holders
of at least 25% in principal amount of the then outstanding
Securities notify the Company and the Trustee in writing, of the
Default and the Company does not cure the Default within 60 days
after receipt of such notice. The written notice must specify
the Default, demand that it be remedied and state that the notice
is a "NOTICE OF DEFAULT."
SECTION 5.02. ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (vii) or (viii) of Section 5.01 hereof)
occurs and is continuing, the Trustee by notice to the Company,
or the Holders of at least 25% in aggregate principal amount of
the then outstanding Securities by written notice to the Company
and the Trustee, may declare the unpaid principal of, premium, if
any, and any accrued and unpaid interest on all the Securities to
be due and payable immediately. Upon such declaration the
principal, premium, if any, and interest shall be due and payable
immediately. If an
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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 January 15 of the years set forth below:
Year Percentage
---- ----------
1997.....................
1998.....................
1999.....................
2000.....................
2001.....................
2002.....................
Any determination regarding the primary purpose of any
such action or inaction, as the case may be, shall be made by and
set forth in a resolution of the Board of Directors (including
the concurrence of a majority of the independent directors of the
Company then serving) delivered to the Trustee after
consideration of the business reasons for such action or
inaction, other than the avoidance of payment of such premium or
prohibition on redemption. In the absence of fraud, each such
determination shall be final and binding upon the Holders of
Securities. Subject to Section 6.01 hereof, the Trustee shall be
entitled to rely on the determination set forth in any such
resolutions delivered to the Trustee.
SECTION 5.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy to collect the payment of
principal or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does
not possess any of the Securities or does not produce any of them
in the proceeding. A delay or omission by the Trustee or any
Holder in exercising any right or remedy accruing upon an Event
of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 5.04. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate
principal amount of the Securities then outstanding by written
notice to the Trustee may on behalf of the Holders of all of the
Securities waive any existing Default or Event of Default and its
consequences under this Indenture except a continuing Default or
Event of Default in the payment of the principal of, premium, if
any, or interest
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on any Security. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be
deemed to have been cured for every purpose of this Indenture;
but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 5.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the
Trustee may refuse to follow any direction that conflicts with
law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders or that may involve
the Trustee in personal liability. The Trustee may take any other
action which it deems proper which is not inconsistent with any
such direction.
SECTION 5.06. LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this
Indenture or the Securities only if:
(i) the Holder gives to the Trustee written notice of
a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of
the then outstanding Securities make a written request to
the Trustee to pursue the remedy;
(iii) such Holder or Holders offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(iv) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer
and, if requested, the provision of indemnity; and
(v) during such 60-day period the Holders of a
majority in principal amount of the then outstanding
Securities do not give the Trustee a direction inconsistent
with the request.
A Holder may not use this Indenture to prejudice the
rights of another Holder or to obtain a preference or priority
over another Holder.
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
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lawful, interest and such further amount as shall be sufficient
to cover amounts due the Trustee under Section 6.07 hereof,
including the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim
and other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and the Holders allowed
in any judicial proceedings relative to the Company (or any other
obligor upon the Securities), its creditors or its property and
shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on
any such claims and any custodian in any such judicial proceeding
is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section
6.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 6.07 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the same
shall be secured by a Lien on, and shall be paid out of, any and
all distributions, dividends, money, securities and other
properties which the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of
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;
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.
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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 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
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(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 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
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same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee is subject to Sections 6.10 and 6.11
hereof.
SECTION 6.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, nor shall it
be accountable for the Company's use of the proceeds from the Securities or any
money paid to the Company or upon the Company's direction under any provision of
this Indenture, nor shall it be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, nor shall it be
responsible for any statement or recital herein or any statement in the
Securities or any other document in connection with the sale of the Securities
or pursuant to this Indenture other than its certificate of authentication.
SECTION 6.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders a notice of the Default
or Event of Default within 90 days after it occurs. Except in the case of a
Default or Event of Default in payment on any Security, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders.
SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each December 31 beginning with the December 31
following the date hereof, the Trustee shall mail to the Holders a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders shall
be mailed to the Company and filed with the Commission and each stock exchange
on which the Securities are listed. The Company shall promptly notify the
Trustee when the Securities are listed on any stock exchange.
SECTION 6.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
Company and Trustee shall agree in writing. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities, damages, claims or expenses incurred by it arising out of or in
connection with the acceptance of its duties and the administration of the
trusts under this Indenture, except as set forth below. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have
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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 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.
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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.
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.
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SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 7.01 hereof of the option
applicable to this Section 7.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 7.05 hereof and the other
Sections of this Indenture referred to in clauses (i) and (ii) of this Section
7.02, and to have satisfied all its other obligations under such Securities and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Section 7.04 hereof, and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Securities when such payments are due,
(ii) the Company's obligations with respect to such Securities under Sections
2.04, 2.06, 2.07 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 3.07, 3.08, 3.09, 3.10,
3.11, 3.12, 3.14, 3.15, and 3.16 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 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
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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 before
the date that is one year prior to the final maturity of the Securities,
the Company shall have delivered to the Trustee an Opinion of Counsel in
the United States confirming that the Holders of the outstanding Securities
will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred.
(iv) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds to
be applied to such deposit) or, insofar as Section 5.01(vii) or 5.01(viii)
hereof is concerned, at any time in the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall not
be deemed satisfied until the expiration of such period).
(v) Such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound (other than a breach, violation or default resulting
from the borrowing of funds to be applied to such deposit).
(vi) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally.
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(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 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.
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 that such
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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 3.15 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;
(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
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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.
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
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(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.
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 2.06 hereof or (ii) such other date as the Company shall
designate.
SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES.
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment or waiver.
SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 8 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive
and, subject to Section 6.01, shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that such
amendment or Supplemental Indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it shall be valid and
binding upon the Company in accordance with its terms. The Company may not sign
an amendment or supplemental indenture until the Board of Directors approves it.
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ARTICLE 9
MISCELLANEOUS
SECTION 9.01. TIA CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 9.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
Tenet Healthcare Corporation
3820 State Street
Santa Barbara, California 93105
Telecopier No.: (805) 563-7070
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.
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
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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.
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.
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SECTION 9.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 9.07. LEGAL HOLIDAYS.
A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of the Securities
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the 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
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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.
SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
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SIGNATURES
Dated as of January 15, 1997 TENET HEALTHCARE CORPORATION
By:___________________________
Name:
Title:
Attest:
___________________________ (SEAL)
Richard B. Silver
Dated as of January 15, 1997 THE BANK OF NEW YORK,
as Trustee
By:___________________________
Name:
Title:
Attest:
___________________________ (SEAL)
By:________________________
Authorized Signatory
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EXHIBIT A
(Face of Security)
__% Senior Note
due January 15, 2003
CUSIP:
No. $____________
TENET HEALTHCARE CORPORATION
promises to pay to
______________________________________________________________
or its registered assigns, the principal sum of_______________ Dollars on
January 15, 2003.
Interest Payment Dates: January 15 and July 15, commencing July 15, 1997.
Record Dates: January 1 and July 1 (whether or not a Business Day).
[(If Security is a Global Security--) This Security is a Global Security within
the meaning of the Indenture hereinafter referred to and is registered in the
name of a Depositary or a nominee thereof. This Security may not be exchanged
in whole or in part for a Security registered, and no transfer of this Security
in whole or in part may be registered, in the name of any person other than such
Depositary or a nominee thereof, except in the limited circumstances described
in the Indenture.]
TENET HEALTHCARE CORPORATION
By: _________________________
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-1
<PAGE>
(Back of Security)
__% SENIOR NOTE
due January 15, 2003
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. INTEREST. Tenet Healthcare Corporation, a Nevada corporation (the
"COMPANY"), promises to pay interest on the principal amount of this Security at
the rate and in the manner specified below.
The Company shall pay interest in cash on the principal amount of this
Security at the rate per annum of __%. The Company shall pay interest
semiannually in arrears on January 15 and July 15 of each year, commencing July
15, 1997 to Holders of record on the immediately preceding January 1 and July 1,
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.
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 January 15, 1997 (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
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general obligations of the Company. The Securities are limited to $200,000,000
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. 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.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered
form without coupons, and in denominations of $1,000 and integral multiples of
$1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Securities between a record date and the corresponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for
registration of the transfer of this Security, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Security is registered
as its absolute owner for the purpose of receiving payment of principal of,
premium, if any, and interest on this Security and for all other 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
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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 3.15 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.
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," 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.
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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, 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.
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:
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Tenet Healthcare Corporation
3820 State Street
Santa Barbara, California 93105
Attention: Treasurer
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ASSIGNMENT FORM
To assign this Security, fill in the form below: For value received
(I) or (we) hereby sell, assign and transfer this Security to
_____________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(Print or type assignee's name, address and zip code)
and do hereby irrevocably constitute and appoint ____________________________
Attorney to transfer this Security on the books of the Company with full power
of substitution in the premises.
_____________________________________________________________________________
Date: ____________________________
Your Signature:______________________________
(Sign exactly as your name appears on the face of
this Security)
Signature Guarantee.*
_____________________________
*Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 3.12 of the Indenture, check the
box below:
/ / Section 3.12
(Change of Control)
If you want to have only part of the Security purchased by the Company
pursuant to Section 3.12 of the Indenture, state the amount you elect to have
purchased:
$ _______________
Date:____________
Your Signature:_________________________
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee.*
- -----------------------------------
*Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, between __________________ (the "Guarantor"), a subsidiary of
Tenet Healthcare Corporation (or its successor), a Nevada corporation (the
"Company"), and The Bank of New York, as trustee under the indenture referred to
below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of January 15, 1997, providing
for the issuance of an aggregate principal amount of $200,000,000 of __% Senior
Notes due 2003 (the "Securities");
WHEREAS, Section 3.15 of the Indenture provides that under certain
circumstances the Company is required to cause the Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the Guarantor
shall guarantee the payment of the Securities pursuant to a Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the holders of the Securities as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of the Indenture, the Securities or the Obligations
of the Company hereunder and thereunder, that: (a) the principal of, premium, if
any, and interest on the Securities will be promptly paid in full when due,
whether at maturity, by acceleration, redemption or otherwise, and interest on
the overdue principal, premium, if any, and (to the extent permitted by law)
interest on any interest on the Securities and all other 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
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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 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.
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(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
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. 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. 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, the
Trustee shall execute any documents reasonably required in order to evidence the
release of the Guarantor from its Obligations under its Guarantee.
6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the
Guarantor's liability will be that amount from time to time equal to the
aggregate liability of the Guarantor hereunder, but shall be limited to the
lesser of (i) the aggregate amount of the Obligations of the Company under the
Securities and the Indenture and (ii) the amount, if any, which would not have
(A) rendered the Guarantor "insolvent" (as such term is defined in the federal
Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or
(B) left it with unreasonably small capital at the time its
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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.
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:
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The Bank of New York,
as Trustee
By: ______________________________
Name:
Title:
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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.
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
B-6
<PAGE>
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-7
<PAGE>
[LETTERHEAD]
EXHIBIT 5.1
January __, 1997
Tenet Healthcare Corporation
3820 State Street
Santa Barbara, CA 93105
Re: Tenet Healthcare Corporation
Registration Statement No. 333-17907
Ladies and Gentlemen:
I am the General Counsel of Tenet Healthcare Corporation (the
"Company"), and have acted as counsel to the Company in connection with the
preparation of the above-referenced Registration Statement on Form S-3, filed
by the Company with the Securities and Exchange Commission (the "Commission")
on December 13, 1996, under the Securities Act of 1933, as amended (the
"Act") and Amendment No. 1 thereto, filed with the Commission on January __,
1997, including information deemed to be a part of the Registration Statement
at the time of effectiveness pursuant to Rule 430A of the General Rules and
Regulations under the Act (such Registration Statement, as so amended,
including any related Rule 462(b) registration statement being hereinafter
referred to as the "Registration Statement"). The Registration Statement
relates to the registration under the Act of debt securities (the "Debt
Securities") to be issued by the Company in an underwritten offering.
The Debt Securities are to be sold pursuant to an underwriting
agreement to be entered into among the Company and the underwriters named
therein (the "Underwriting Agreement"). The Debt Securities will be issued
pursuant to indentures (the "Indentures"), each between the Company and The
Bank of New York, as Trustee. The terms of the Debt Securities include those
stated in the Indentures and those made part of the Indentures by reference
to the Trust Indenture Act of 1939, as amended.
[TENET ADDRESS]
<PAGE>
Tenet Healthcare Corporation
Page 2
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.
In connection with this opinion, I have examined and am familiar with
originals or copies, certified or otherwise identified to my satisfaction, of
such records of the Company and all such agreements, certificates of public
officials, certificates of officers or other representatives of the Company
and others and such other documents, certificates and records as I have
deemed necessary or appropriate as a basis for the opinions set forth herein,
including, without limitation, (i) the Registration Statement (together with
the form of preliminary prospectus forming a part thereof), (ii) the Restated
Articles of Incorporation and Restated By-laws of the Company, as amended to
date, (iii) copies of certain resolutions adopted by the Board of Directors
of the Company relating to the filing of the Registration Statement and any
amendments or supplements thereto, the proposed issuance of the Debt
Securities and related matters, (iv) the form of Underwriting Agreement and
(v) forms of the Indentures. In my examination, I have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
authenticity of all documents submitted to me as originals, the conformity to
original documents of all documents submitted to me as certified, conformed
or photostatic copies and the authenticity of the originals of such copies.
As to any facts material to the opinions expressed herein which I have not
independently established or verified, I have relied upon statements and
representations of officers and other representatives of the Company and others.
I am a member of the California Bar and for purposes of this opinion
do not express any opinion as to the laws of any jurisdiction other than
California and the General Corporation Law of the State of Nevada.
Based on and subject to the foregoing, I am of the opinion that the
Debt Securities will be, when issued and sold in accordance with the
Registration Statement and the respective Indenture, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except that the enforcement of such obligations may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting the enforcement of creditors'
rights generally, and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
<PAGE>
Tenet Healthcare Corporation
Page 3
This opinion is furnished to you solely for your benefit in connection
with the filing of the Registration Statement and is not to be used,
circulated, quoted or otherwise referred to for any other purpose without my
prior written consent. I hereby consent to the filing of this opinion with
the Commission as Exhibit 5 to the Registration Statement. I also consent to
the reference to me under the heading "Legal Matters" in the Registration
Statement. In giving this consent, I do not thereby admit that I am included
in the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission promulgated thereunder.
This opinion is expressed as of the date hereof unless otherwise expressly
stated and I disclaim any undertaking to advise you of any subsequent changes
of the facts stated or assumed herein or any subsequent changes in applicable
law.
Very truly yours,
/s/ SCOTT M. BROWN
---------------------------------
Scott M. Brown
<PAGE>
EXHIBIT 12.1
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------------ --------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations before income taxes $359.2 $418.6 $359.9 $329.4 $746.0 $534.8 $265.2
Less: equity in earnings of unconsolidated affiliates 6.7 12.5 23.8 28.4 19.4 14.0 1.3
Add:
Cash dividends received from unconsolidated affiliates 0.2 8.3 6.3 2.2 2.0
Portion of rents representative of interest 35.5 35.8 30.7 35.0 55.5 27.5 30.2
Interest, net of capitalized portion 89.4 75.3 70.0 138.1 311.9 158.4 141.1
Amortization of previously capitalized interest 3.4 3.6 3.8 4.0 4.0 2.0 2.0
----- ----- ----- ----- ------- ----- -----
Income, as adjusted $480.8 $520.8 $440.8 $486.4 $1,104.3 $710.9 $439.2
----- ----- ----- ----- ------- ----- -----
----- ----- ----- ----- ------- ----- -----
Fixed charges:
Interest, net of capitalized portion $89.4 $75.3 $70.0 $138.1 $311.9 $158.4 $141.1
Capitalized interest 11.0 9.0 3.7 6.2 10.2 5.2 4.8
Portion of rents representative of interest 35.5 35.8 30.7 35.0 55.5 27.5 30.2
----- ----- ----- ----- ----- ----- -----
Total fixed charges $135.9 $120.1 $104.4 $179.3 $377.6 $191.1 $176.1
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
Ratio of earnings to fixed charges: 3.5x 4.3x 4.2x 2.7x 2.9x 3.7x 2.5x
</TABLE>
<PAGE>
EXHIBIT 12.2
TENET HEALTHCARE CORPORATON AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PRO FORMA RATIO
OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------------
1994 1995 1996 1995 1996
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before income taxes $313.9 $416.5 $557.9 $273.5 $343.1
Less: Equity in earnings of unconsolidated affiliates 27.4 42.4 3.4 1.7 1.3
Add:
Cash dividends received from unconsolidated affiliates 0.2 8.3 6.3 2.2 2.0
Portion of rents representative of interest 41.6 54.3 79.0 38.8 36.8
Interest, net of capitalized portion 156.7 251.3 442.0 229.7 206.4
Amortization of previously capitalized interest 3.8 4.0 4.0 2.0 2.0
------ ------ -------- ------ ------
Income, as adjusted $488.8 $692.0 $1,085.8 $544.5 $589.0
------ ------ -------- ------ ------
------ ------ -------- ------ ------
Fixed charges:
Interest, net of capitalized portion $156.7 $251.3 $442.0 $229.7 $206.4
Capitalized interest 5.0 7.5 11.4 4.9 5.2
Portion of rents representative of interest 41.6 54.3 79.0 38.8 36.8
------ ------ -------- ------ ------
Total fixed charges $203.3 $313.1 $532.4 $273.4 $248.4
------ ------ -------- ------ ------
------ ------ -------- ------ ------
Ratio of earnings to fixed charges: 2.4x 2.2x 2.0x 2.0x 2.4x
</TABLE>
<PAGE>
EXHIBIT 23.2
AUDITORS' CONSENT
The Board of Directors
Tenet Healthcare Corporation
We consent to the use of our reports dated July 25, 1996 included and
incorporated by reference in the Registration Statement on Form S-3 (no.
333-17907) of Tenet Healthcare Corporation, relating to 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, and the related schedule, and to the reference to our firm under the
headings "Selected Historical Financial Information" and "Experts" in the
prospectus. Our report on the consolidated financial statements refers to a
change in the method of accounting for income taxes in 1994.
KPMG PEAT MARWICK LLP
Los Angeles, California
January 10, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Historical Financial Information of OrNda" and "Experts" and to the use of our
report dated October 25, 1996 with respect to the financial statements of OrNda
HealthCorp, in Amendment No. 1 to the Registration Statement (Form S-3, No.
333-17907) and related Prospectus of Tenet Healthcare Corporation for the
registration of $200,000,000 Senior Notes due 2003, $600,000,000 Senior Notes
due 2005 and $500,000,000 Senior Subordinated Notes due 2007.
ERNST & YOUNG LLP
Nashville, Tennessee
January 13, 1997
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
TENET HEALTHCARE CORPORATION
(Exact name of obligor as specified in its charter)
Nevada 95-2557091
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3820 State Street
Santa Barbara, California 93105
(Address of principal (Zip code)
executive offices)
______________________
Senior Notes due 2003
Senior Notes due 2005
Senior Subordinated Notes due 2007
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Name Address
- -----------------------------------------------------------------
<S> <C> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and
Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
-4-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 3rd day of January, 1997.
THE BANK OF NEW YORK
By: /s/ BYRON MERINO
-------------------------
Name: BYRON MERINO
Title: ASSISTANT TREASURER
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin. . . . . . . . . . . . . . . . . $ 4,404,522
Interest-bearing balances. . . . . . . . . . . . . 732,833
Securities:
Held-to-maturity securities. . . . . . . . . . . . 789,964
Available-for-sale securities. . . . . . . . . . . 2,005,509
Federal funds sold in domestic offices
of the bank:
Federal funds sold . . . . . . . . . . . . . . . . . 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income . . . . . . . . . . . . . . . .28,728,602
LESS: Allowance for loan and
lease losses . . . . . . . . . . . . . . 584,525
LESS: Allocated transfer risk
reserve. . . . . . . . . . . . . . . . . . . 429
Loans and leases, net of unearned
income, allowance, and reserve . . . . . . . . . 28,143,648
Assets held in trading accounts. . . . . . . . . . . 1,004,242
Premises and fixed assets (including
capitalized leases). . . . . . . . . . . . . . . . 605,668
Other real estate owned. . . . . . . . . . . . . . . 41,238
Investments in unconsolidated
subsidiaries and associated
companies. . . . . . . . . . . . . . . . . . . . . 205,031
Customers' liability to this bank on
acceptances outstanding. . . . . . . . . . . . . . 949,154
Intangible assets. . . . . . . . . . . . . . . . . . 490,524
Other assets . . . . . . . . . . . . . . . . . . . . 1,305,839
-----------
Total assets . . . . . . . . . . . . . . . . . . . . $44,043,010
-----------
-----------
<PAGE>
LIABILITIES
Deposits:
In domestic offices. . . . . . . . . . . . . . . . $20,441,318
Noninterest-bearing. . . . . . . . . . . .8,158,472
Interest-bearing . . . . . . . . . . . . 12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs . . . . . . . . . 11,710,903
Noninterest-bearing. . . . . . . . . . . . . 46,182
Interest-bearing. . . . . . . . . . . . 11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased. . . . . . . . . . . . . . 1,565,288
Demand notes issued to the U.S.
Treasury . . . . . . . . . . . . . . . . . . . . . 293,186
Trading liabilities. . . . . . . . . . . . . . . . . 826,856
Other borrowed money:
With original maturity of one year
or less. . . . . . . . . . . . . . . . . . . . . 2,103,443
With original maturity of more than
one year . . . . . . . . . . . . . . . . . . . . 20,766
Bank's liability on acceptances exe-
cuted and outstanding. . . . . . . . . . . . . . . 951,116
Subordinated notes and debentures. . . . . . . . . . 1,020,400
Other liabilities. . . . . . . . . . . . . . . . . . 1,522,884
-----------
Total liabilities. . . . . . . . . . . . . . . . . . 40,456,160
-----------
-----------
EQUITY CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . 942,284
Surplus. . . . . . . . . . . . . . . . . . . . . . . 525,666
Undivided profits and capital
reserves . . . . . . . . . . . . . . . . . . . . . 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . ( 2,073)
Cumulative foreign currency transla-
tion adjustments . . . . . . . . . . . . . . . . . ( 8,403)
-----------
Total equity capital . . . . . . . . . . . . . . . . 3,586,850
-----------
Total liabilities and equity
capital. . . . . . . . . . . . . . . . . . . . . . $44,043,010
-----------
-----------
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
<PAGE>
Report of Condition and declare that it has been examined by us and to the best
of our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true and correct.
-
J. Carter Bacot |
Thomas A. Renyi | Directors
Alan R. Griffith |
-
- --------------------------------------------------------------------------------
