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PROSPECTUS
MAY 3, 1999
OFFER TO EXCHANGE
TENET HEALTHCARE CORPORATION
7 5/8% SENIOR NOTES DUE 2008 AND
8 1/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR 7 5/8% SERIES B SENIOR NOTES DUE 2008 AND
8 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
Tenet Healthcare Corporation is offering to exchange an aggregate principal
amount of up to $350,000,000 of its new 7 5/8% Series B Senior Notes due 2008
and $1,005,000,000 of its new 8 1/8% Series B Senior Subordinated Notes due
2008, which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for its existing ("old") 7 5/8% Senior Notes due 2008
and its existing ("old") 8 1/8% Senior Subordinated Notes due 2008,
respectively.
The terms of the new notes are identical in all material respects to the
terms of the old notes, except that the new notes have been registered under the
Securities Act, and certain transfer restrictions and registration rights
relating to the old notes do not apply to the new notes.
We currently intend to apply to list the new notes on the New York Stock
Exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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AVAILABLE INFORMATION
We file reports, proxy statements, registration statements and other
information with the Commission. Our reports, proxy statements, registration
statements and other information filed with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
web site at http://www.sec.gov which contains our reports, proxy and information
statements and other information. Our common stock is listed on the New York
Stock Exchange and the Pacific Exchange under the symbol "THC." You also may
inspect our reports, proxy statements and other information at the offices of
the New York Stock Exchange at 20 Broad Street, New York, New York 10005 and at
the offices of the Pacific Exchange at 618 South Spring Street, Los Angeles,
California 90014 and 301 Pine Street, San Francisco, California 94104.
We have filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act with respect to our offering of new notes. This Prospectus
does not contain all of the information in the Registration Statement. You will
find additional information about us and the new notes in the Registration
Statement. Any statements made in this Prospectus concerning the provisions of
legal documents are not necessarily complete and you should read the documents
which are filed as exhibits to the Registration Statement or otherwise filed
with the Commission.
In the event that we are not required to comply with the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), we will be required under the indentures for the new notes to continue to
file with the Commission, and to furnish the holders of the new notes with, the
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference and are a part of this Prospectus.
1. Annual Report on Form 10-K for the fiscal year ended May 31, 1998, as
amended by the Company's Form 10-K/A (File No. 1-7293);
2. Quarterly Report on Form 10-Q for (i) the fiscal quarter ended August
31, 1998, as amended by the Company's Form 10-Q/A; (ii) for the fiscal
quarter ended November 30, 1998; and (iii) for the fiscal quarter ended
February 28, 1999, as amended by the Company's Form 10-Q/A (File No.
1-7293); and
3. Current Reports on Form 8-K, filed with the Commission on November 24
and December 11, 1998 (File No. 1-7293).
All documents that we file with the Commission, pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus and
before the termination of the offering of the new notes will be incorporated by
reference in this Prospectus and will be a part of this Prospectus from the day
we file such documents. Any statement in this Prospectus or in a document
incorporated or deemed to be incorporated in this Prospectus by reference will
be modified or superseded for purposes of this Prospectus if a statement
contained in this Prospectus or in any other document we file after this
Prospectus that also is incorporated or deemed to be incorporated by reference
in this Prospectus modifies or supersedes such statement. Only the modified or
superseded statement will be a part of this Prospectus.
This Prospectus incorporates documents by reference that are not part of
this Prospectus or delivered with this Prospectus. We will provide without
charge, if requested, a copy of any or all of the documents incorporated by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Please direct your
requests to Tenet Healthcare Corporation, 3820 State Street, Santa Barbara,
California 93105, Attention: Richard B. Silver, Esq., Vice President, Secretary
and Associate General Counsel (telephone number (805) 563-7000). Please make
your request by May 21, 1999 to insure a timely delivery of the documents.
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PROSPECTUS SUMMARY
THIS SECTION SUMMARIZES THE MORE DETAILED INFORMATION IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND YOU SHOULD READ ALL OF SUCH
INFORMATION CAREFULLY AND IN ITS ENTIRETY.
THE COMPANY
Tenet Healthcare Corporation is the second largest investor-owned healthcare
services company in the United States. At May 31, 1998, our subsidiaries owned
or operated 122 general hospitals with 27,867 licensed beds and related
healthcare facilities serving urban and rural communities in 18 states and held
investments in other healthcare companies. Our subsidiaries also own or operate
a small number of rehabilitation hospitals, specialty hospitals, long-term care
facilities and psychiatric facilities and many medical office buildings located
at or near its general hospitals. Our subsidiaries also own or operate ancillary
healthcare businesses, including outpatient surgery centers, home healthcare
agencies, occupational and rural healthcare clinics, health maintenance
organizations, a preferred provider organization, a managed care insurance
company and physician practices. We intend to continue our strategic
acquisitions of and partnerships or affiliations with additional general
hospitals and related healthcare businesses to expand and enhance our integrated
healthcare delivery systems. Our integrated healthcare delivery systems offer a
broad range of healthcare services throughout a given geographic area.
Our principal executive offices are located at 3820 State Street, Santa
Barbara, California 93105, and our telephone number is (805) 563-7000. At May
31, 1998, we employed approximately 116,800 people nationwide. We provide
central support services to our hospitals from an operations center based in
Dallas, Texas.
THE EXCHANGE OFFER
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Securities Offered......... We are offering up to $350,000,000 principal amount of new
7 5/8% Series B Senior Notes due 2008, and $1,005,000,000
principal amount of new 8 1/8% Series B Senior Subordinated
Notes due 2008, which have been registered under the Securities
Act.
The Exchange Offer......... We are offering to issue the new notes in exchange for a like
principal amount of your old notes. We are offering to issue
the new notes to satisfy our obligations contained in the
registration rights agreement entered into when the old notes
were sold in transactions pursuant to Rule 144A and Regulation
S under the Securities Act and therefore not registered with
the Commission. For procedures for tendering, see "The Exchange
Offer."
Tenders, Expiration Date;
Withdrawal............... The Exchange Offer will expire at 5:00 p.m. New York City time
on May 28, 1999, unless it is extended. If you decide to
exchange your old notes for new notes, you must acknowledge
that you are not engaging in, and do not intend to engage in, a
distribution of the new notes. If you decide to tender your old
notes pursuant to the Exchange Offer, you may withdraw them at
any time prior to May 28, 1999. If we decide for any reason not
to accept any old note for exchange, it will be returned to
you, without expense to you, promptly after the expiration or
termination of the Exchange Offer.
Listing.................... We will apply to have the new notes listed on the New York
Stock Exchange.
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Federal Income Tax
Consequences............. Your exchange of old notes for new notes pursuant to the
Exchange Offer will not result in any income, gain or loss to
you for Federal income tax purposes. See "Certain United States
Federal Income Tax Consequences."
Exchange Agent............. The Bank of New York is the exchange agent for the Exchange
Offer.
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CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your old notes in the Exchange Offer, your old notes
will continue to be subject to the restrictions on transfer set forth in the
legend on the certificate for your old notes. In general, you may offer or sell
your old notes only if they are registered under, offered or sold pursuant to an
exemption from, or offered or sold in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not currently intend
to register the old notes under the Securities Act. Under certain circumstances,
however, certain holders of old notes (including holders who are not permitted
to participate in the Exchange Offer or who may not freely resell new notes
received in the Exchange Offer) may require us to file and cause to become
effective, a shelf registration statement which would cover resales of old notes
by such holders. See "Description of Notes--Exchange Offer; Registration
Rights."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the old notes are identical in all material
respects, except that the new notes have been registered under the Securities
Act, and certain transfer restrictions and registration rights relating to old
notes do not apply to the new notes.
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Maturity Dates............. June 1, 2008 for the 7 5/8% new notes and December 1, 2008 for
the 8 1/8% new notes.
Interest Payment Dates..... June 1 and December 1, beginning December 1, 1998 for the old
notes and June 1, 1999 for the new notes.
Mandatory Redemption....... None.
Optional Redemption........ The 7 5/8% old notes are and the 7 5/8% new notes will be
redeemable, in whole, at any time, or in part, from time to
time, at our option at a redemption price equal to the
Make-Whole Price. See "Description of Notes--Optional
Redemption."
The 8 1/8% old notes are and the 8 1/8% new notes will be
redeemable at our option in whole or in part on or after June
1, 2003, at the redemption prices set forth on page 20, plus
accrued and unpaid interest to the date of redemption. See
"Description of Notes--Optional Redemption." Our existing bank
credit facility and the 7 5/8% notes indenture and our other
debt obligations limit our ability to redeem or otherwise
repurchase the 8 1/8% notes prior to the stated maturity
thereof, other than in connection with certain refinancing
transactions.
Change of Control.......... Upon a Change of Control Triggering Event, each holder of old
notes and new notes may require us to repurchase their notes at
101% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. Events that would
constitute a Change of Control also would constitute an event
of default under our existing credit facility. The occurrence
of an event of default under our existing credit facility will
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constitute an event of default under the indentures.
Accordingly, it is unlikely that we would be able to fulfill
our obligation to repurchase any notes if a Change of Control
Triggering Event occurs. The indentures relating to the 7 5/8%
old and new notes and certain of our other debt obligations
also may restrict our ability to purchase the 8 1/8% old and
new notes upon the occurrence of a Change of Control Triggering
Event. See "Risk Factors--Possible Inability to Purchase Notes
Upon a Change of Control" and "Description of Notes--Purchase
at the Option of Holders Upon a Change of Control."
Ranking.................... The 7 5/8% old notes were, and the 7 5/8% new notes will be,
general unsecured obligations ranking senior to our
subordinated indebtedness, including the 8 1/8% old and new
notes, and PARI PASSU in right of payment with all of our other
existing and future unsubordinated indebtedness. The 8 1/8% old
notes were, and the 8 1/8% new notes will be, our general
unsecured obligations subordinated to all of our existing and
future senior debt. As of February 28, 1999, the Company,
including its subsidiaries, had approximately $171 million of
indebtedness and $642 million of obligations to trade creditors
that were structurally senior to the 7 5/8% notes and $4.032
billion of indebtedness that ranked PARI PASSU with the 7 5/8%
notes. As of February 28, 1999, we had $171 million of
indebtedness and $642 million of obligations to trade creditors
that were structurally senior to the 8 1/8% notes; $4.382
billion of indebtedness that was contractually senior to the
8 1/8% notes; and $977 million of indebtedness that ranked PARI
PASSU with the 8 1/8% notes. Indebtedness of our subsidiaries
and obligations of our subsidiaries to trade creditors is
structurally senior to the notes since, in the event of
bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company, the assets of the Company's
subsidiaries will be available to pay the notes only after our
subsidiaries' indebtedness and obligations to trade creditors
is paid in full. Because the Company stands as an equity
holder, rather than a creditor, of our subsidiaries, creditors
of our subsidiaries will have their debt satisfied out of our
subsidiaries' assets before the Company's creditors (including
the note holders). See "Capitalization," "Description of
Notes--General" and "Description of Notes--Subordination of
8 1/8% Notes."
Certain Covenants.......... The indenture governing the 7 5/8% old and new notes and the
indenture governing the 8 1/8% old and new notes contain
certain covenants limiting or prohibiting: (i) our ability and
our subsidiaries ability to incur additional indebtedness; (ii)
our ability to pay dividends on, and the redemption of, capital
stock; (iii) our ability to create liens securing indebtedness;
(iv) our subsidiaries ability to pay dividends; (v)
transactions with affiliates; and (vi) our ability to
consolidate or merge with or into, or to transfer all or
substantially all of our assets to, another person. See
"Description of Notes--Certain Covenants."
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RISK FACTORS
You should consider carefully all of the information set forth or
incorporated by reference in this Prospectus and, in particular, the specific
risk factors, beginning at page 6, before deciding to tender your old notes in
the Exchange Offer.
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SUMMARY FINANCIAL INFORMATION
Certain summary financial information for fiscal years ended May 31, 1997
and 1998 and for the nine months ended February 28, 1998 and 1999 follows. The
information for each fiscal year is from our consolidated financial statements,
which have been audited by KPMG LLP, our independent auditors, and from our
underlying accounting records. The selected financial information for the
six-month periods has been derived from our unaudited condensed consolidated
financial statements and reflects all adjustments (consisting of normal
recurring adjustments) that, in the opinion of management, are necessary for a
fair presentation of such information. Operating results for the nine months
ended February 28, 1999 are not necessarily indicative of the results that may
be expected for fiscal 1999. We exclude from our operating results for all
periods presented the discontinued psychiatric operations of certain of our
subsidiaries and extraordinary charges from the early extinguishment of debt.
You also should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the consolidated financial statements and
related notes and the report of our independent auditors included in our Annual
Report on Form 10-K for the fiscal year ended May 31, 1998, as amended, and the
condensed consolidated financial statements included in the Quarterly Report on
Form 10-Q for the fiscal quarter ended February 28, 1999, as amended,
incorporated in this Prospectus by reference.
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<CAPTION>
YEAR ENDED MAY 31, NINE MONTHS ENDED
---------------------- FEB. 28,
1997(2) --------------------
(RESTATED) 1998 1998 1999
----------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenues............................................................... $ 8,691 $ 9,895 $ 7,324 $ 7,938
Operating expenses:
Salaries and benefits.............................................................. 3,595 4,052 3,013 3,217
Supplies........................................................................... 1,197 1,375 1,016 1,104
Provision for doubtful accounts.................................................... 498 588 447 533
Other operating expenses........................................................... 1,878 2,071 1,516 1,710
Depreciation....................................................................... 335 347 257 307
Amortization....................................................................... 108 113 83 96
Merger, facility consolidation and impairment charges(1)........................... 619 221 -- --
----------- --------- --------- ---------
Operating income..................................................................... 461 1,128 992 971
Interest expense, net of capitalized portion......................................... (417) (464) (344) (360)
Investment earnings.................................................................. 26 22 17 21
Equity in earnings of unconsolidated affiliates...................................... 1 -- -- --
Minority interests in income of consolidated subsidiaries............................ (27) (22) (19) (5)
Net gains (losses) on disposals of facilities and long-term investments.............. (18) (17) 18 --
----------- --------- --------- ---------
Income from continuing operations before income taxes................................ 26 647 664 627
Taxes on income...................................................................... (89) (269) (262) (241)
----------- --------- --------- ---------
Income (loss) from continuing operations............................................. $ (63) $ 378 $ 402 $ 386
----------- --------- --------- ---------
----------- --------- --------- ---------
Ratio of earnings to fixed charges(3)................................................ 1.0x 2.1x 2.6x 2.4x
</TABLE>
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<CAPTION>
AS OF MAY 31, AS OF
-------------------- FEBRUARY 28,
1997 1998 1999
--------- --------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................... $ 621 $ 1,182 $ 1,492
Total assets............................................................................ 11,606 12,774 13,870
Long-term debt, excluding current portion............................................... 5,022 5,829 6,496
Shareholders' equity.................................................................... 3,224 3,558 3,973
</TABLE>
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(1) In the year ended May 31, 1997, we recorded merger, facility consolidation
and impairment charges totaling $619 million, primarily in connection with
the acquisition of OrNda HealthCorp. ("OrNda"),
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which was accounted for as a pooling-of-interests (the "OrNda Merger"). In
the fourth quarter of the year ended May 31, 1998, we recorded charges of
$221 million relating to: (1) the planned closure or sale of five hospitals
and several home health agencies; (2) write-offs of goodwill and other
assets; and (3) write-downs of carrying values of long lived assets.
(2) In response to comments from the staff of the Commission regarding the
classification of certain expenses incurred in connection with the OrNda
Merger, and the classification of certain facility consolidation and
impairment charges, the Company has restated its consolidated financial
statements for the years ended May 31, 1994 through 1997 to correctly
present the effects of conforming accounting changes. The Company has
allocated $121 million of expenses originally included in fiscal 1997's
merger, facility consolidation and impairment charges (a) to other operating
expense line items within fiscal 1997 or (b) to earlier periods as follows:
$10 million to other operating expenses in fiscal 1994; $11 million to other
operating expenses in fiscal 1995; $12 million to other operating expenses,
$5 million to provision for doubtful accounts, and $9 million to salaries
and benefits in fiscal 1996; $49 million to other operating expenses, $4
million to provision for doubtful accounts, and $21 million to salaries and
benefits in fiscal 1997. The Company also restated the effect of a $19
million reduction of an income tax valuation allowance related to OrNda from
fiscal year 1997 to fiscal year 1995. The Summary Financial Information
above has been restated to reflect these restatements to the year ended May
31, 1997, all of which relate to the financial statements of OrNda for
periods prior to the January 1997 merger. The Company also has reclassified
certain May 31, 1997 and 1998 balance sheet items previously included in
reserves related to discontinued operations, merger, facility consolidation
and impairment charges and other long-term liabilities to other assets,
property and equipment and costs in excess of net assets acquired. The
effects of these changes on previously reported consolidated statements of
operations are more fully disclosed in Note 1 to the consolidated financial
statements included in our Annual Report on Form 10-K for the fiscal year
ended May 31, 1998, as amended.
(3) We calculate our ratio of earnings to fixed charges by dividing income or
loss 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
representing the interest component of rental expense.
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RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, AS WELL AS THE OTHER
INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN THE PROSPECTUS, BEFORE
TENDERING YOUR OLD NOTES IN THE EXCHANGE OFFER. WHEN WE USE THE TERM "NOTES" IN
THIS PROSPECTUS, THE TERM INCLUDES THE 7 5/8% OLD NOTES, THE 7 5/8% NEW NOTES,
THE 8 1/8% OLD NOTES AND THE 8 1/8% NEW NOTES.
CONSEQUENCES OF NOT EXCHANGING NOTES
If you do not exchange your old notes in the Exchange Offer, your old notes
will continue to be subject to the restrictions on transfer described in the
legend on the certificate for the old notes. In general, you may offer or sell
the old notes only if they are registered under, offered or sold pursuant to an
exemption from, or offered or sold in a transaction not subject to, the
Securities Act and applicable state securities laws.
We believe that new notes issued in exchange for old notes pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by you
without registering the new notes under the Securities Act or delivering a
prospectus so long as you (1) are not one of our "affiliates", which is defined
in Rule 405 of the Securities Act, and (2) acquire the new notes in the ordinary
course of your business and, unless you are a broker dealer, you do not have any
arrangement with any person to participate in the distribution of such new
notes. Our belief is based on interpretations by the Commission's staff in no-
action letters issued to third parties. Please note that the Commission has not
considered our Exchange Offer in the context of a no-action letter and we cannot
assure you that the Commission's staff would make a similar determination with
respect to our Exchange Offer.
Unless you are a broker-dealer, you must acknowledge that you are not
engaged in, and do not intend to engage in, a distribution of the new notes and
that you have no arrangement or understanding to participate in a distribution
of the new notes. If you are an affiliate of the Company, or you are engaged in,
intend to engage in or have any arrangement or understanding with respect to,
the distribution of new notes acquired in the Exchange Offer, you (1) should not
rely on our interpretations of the position of the Commission's staff and (2)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
If you are a broker-dealer and receive new notes for your own account
pursuant to the Exchange Offer, you must acknowledge that you will deliver a
prospectus in connection with any resale of such new notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, you
will not be deemed to admit that you are an "underwriter" within the meaning of
the Securities Act. If you are a broker-dealer, you may use this Prospectus, as
it may be amended or supplemented from time to time, in connection with the
resale of new notes received in exchange for old notes acquired by you as a
result of market-making or other trading activities. For a period of 90 days
after the expiration of the Exchange Offer, we will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
In addition, you may offer or sell the new notes in certain jurisdictions
only if they have been registered or qualified for sale there, or an exemption
from registration or qualification is available and is complied with. Subject to
the limitations specified in the registration rights agreement, we will register
or qualify the new notes for offer or sale under the securities laws of any
jurisdictions that you reasonably request in writing. Unless you request that
the sale of the new notes be registered or qualified in a jurisdiction, we
currently do not intend to register or qualify the sale of the new notes in any
jurisdiction.
CERTAIN FINANCING CONSIDERATIONS; LEVERAGE
AMOUNT OF LEVERAGE
As of February 28, 1999, we had approximately $6.5 billion of outstanding
indebtedness, including short-term borrowings and notes and the current portion
of long-term debt, and approximately $4.0 billion
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of shareholders' equity. Outstanding indebtedness was approximately 61.8% of our
total capitalization, which was approximately $10.5 billion. See
"Capitalization."
RESTRICTIVE COVENANTS
Our bank credit facility contains various covenants that limit our ability
to engage in certain transactions. Those covenants:
- limit our and our subsidiaries' ability to borrow and to place liens on
our assets;
- limit our investments and the sale of all or substantially all of our
assets;
- limit our prepayment of subordinated debt including the 8 1/8% notes;
- prohibit us from purchasing our stock or paying dividends unless our
senior long-term unsecured debt securities are rated BBB- or higher by
Standard and Poors' Rating Services and Baa3 or higher by Moody's
Investors Service, Inc.;
- require us to maintain a minimum consolidated net worth; and
- require us to comply with coverage ratio tests.
Indentures governing our debt securities, including the notes, include some
covenants of a similar nature. Although the old notes do not, and the new notes
will not, contain any requirement that we maintain minimum consolidated net
worth or other ratios, our failure to comply with any of these covenants could
result in an event of default under our indebtedness, including the notes. That
in turn could cause an event of default to occur under all or substantially all
of our other then outstanding indebtedness. See "Description of Notes--Certain
Covenants."
AFFECT ON ABILITY TO FINANCE FUTURE OPERATIONS
Our level of indebtedness relative to our total capitalization and the
covenants described above may adversely affect our ability to finance our future
operations. Those factors also could limit our ability to pursue business
opportunities that may be in our interests. In particular, changes in medical
technology, existing, proposed and future legislation, regulations and the
interpretation thereof, and the increasing importance of entering into contracts
with health maintenance organizations ("HMO's") and other managed care companies
and being part of or creating integrated healthcare delivery systems may require
significant investments in facilities, equipment, personnel and services.
Although we believe that cash generated from operations, amounts available under
our bank credit facility and our ability to access capital markets will be
sufficient to allow us to make such investments, we cannot assure you that we
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 us,
providing those competitors with a potential competitive advantage in making
such investments.
ACQUISITION STRATEGY
OUR STRATEGY
An important part of our business strategy is expanding and enhancing our
integrated healthcare delivery systems and services through the acquisition of,
and partnerships and affiliations with, hospitals, groups of hospitals, other
healthcare businesses, ancillary healthcare providers, physician practices and
physician practice assets. Although, we believe that this strategy will enable
us to better compete for managed care contracts, there can be no assurance that
this will be a successful strategy.
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INDUSTRY-RELATED CONSIDERATIONS
Several factors have caused our pace for acquisitions of, and partnerships
and affiliations with, general hospitals to slow. First, many states have
enacted, and other states are considering enacting, legislation that requires
public hearings about or state approval of conversions of not-for-profit
hospitals to for-profit status and acquisitions of not-for-profit hospitals by
for-profit companies. These reviews and hearings have resulted in it taking
longer to acquire not-for-profit hospitals. Second, not-for-profit boards have
become more deliberative in the process of selling their hospitals and
increasingly are engaging investment bankers or other third parties to assist
with the sale process. Third, start-up companies and financially strong not-
for-profit bidders--alone or in consortiums--continue to compete with us for
acquisitions. As a result, we did not acquire as many hospitals as we otherwise
might have in fiscal 1998. Finally, a recent revenue ruling by the Internal
Revenue Service has had a chilling effect on the formation of certain joint
ventures between not-for-profit and for-profit corporations. In the past,
relationships established through joint ventures have led to acquisition
opportunities.
AFFECT ON ABILITY TO CONSUMMATE AND INTEGRATE ADDITIONAL ACQUISITIONS,
PARTNERSHIPS OR AFFILIATIONS
We cannot assure you that suitable acquisitions, partnerships and/or
affiliations can be consummated on terms favorable to us or that we can obtain
financing for such acquisitions, if necessary. See "--Certain Financing
Considerations; Leverage." Furthermore, we cannot assure you that even if we
continue to acquire and/or enter into partnerships or affiliations with
additional facilities and related healthcare service providers in the geographic
areas in which we currently operate, federal and state regulatory agencies will
not constrain our ability to grow. Finally, we cannot assure you that we will be
able to operate profitably, or effectively integrate the operations of or
otherwise achieve the intended benefits from, any hospitals, facilities,
businesses or other assets we may acquire or with which we may enter into
partnerships or affiliations.
COMPETITION
The healthcare industry, including our company, in recent years has had to
contend with increased competition for patients and staff physicians, excess
capacity at general hospitals, a shift from inpatient to outpatient treatment
settings and increased consolidation. The increased competition as well as the
factors described below have led to increased emphasis on the use of alternative
healthcare delivery systems (such as home health services, outpatient surgery
and emergency and diagnostic centers). That in turn has resulted in certain
conditions being treated and certain procedures being performed outside of
general hospitals, which has reduced the number and the length of general
hospital stays and has led to a higher acuity level for patients who are
admitted to general hospitals. The principal factors contributing to these
trends are advances in medical technology and pharmaceuticals, cost-containment
efforts by managed care payors, employers and traditional healthcare insurers,
changes in regulations and reimbursement policies, increases in the number and
type of competing healthcare providers and changes in physician practice
patterns. We expect these trends and factors to continue to adversely impact our
general hospitals.
The revenues and operating results of most of our hospitals are
significantly affected by the hospitals' ability to negotiate favorable
contracts with HMO's and other managed care payors. Our future success will
depend, in part, on our hospitals' ability to continue to attract and retain
staff physicians, to enter into managed care contracts and to organize and
structure integrated healthcare delivery systems. We cannot assure you that our
hospitals will continue to be able to, on terms favorable to us, 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, including some with greater financial resources or a wider range of
services, may be competing. We expect pressures imposed by government and
private payors and the increasing percentage of business negotiated with
purchasers of group healthcare services to continue to affect our per-patient
revenues adversely.
8
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LIMITS ON PAYMENTS
GOVERNMENT PROGRAMS
Payments from government programs, such as Medicare and Medicaid, account
for approximately 42% of our net operating revenues. Recent legislative changes,
including the Balanced Budget Act of 1997 (the "1997 Act"), have resulted in
limitations on and, in some cases, reductions in levels of payments to,
healthcare providers under government programs. The 1997 Act is being phased in
over a period of five years beginning October 1, 1997. The 1997 Act
significantly changes the method of paying us under the Medicare and Medicaid
programs. These changes have resulted, and we expect will continue to result, in
significant reductions in payments to us for our inpatient, outpatient, home
health, capital and skilled nursing facilities costs. We do not expect the
aggregate effect of the reduced payments, however, to have a material adverse
effect on our business, financial condition or results of operations.
PRIVATE PAYOR FEE STRUCTURES AND PROCEDURES
Private payors, including indemnity and managed care payors, accounted for
approximately 48% of our net operating revenues for our fiscal year ended May
31, 1998. These 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. With capitated contracts, we receive
specific fixed periodic payments from an HMO, preferred provider organization,
or employer, based on the number of members of such organization we service. In
return, we agree to provide healthcare services to such members regardless of
the actual costs incurred and services provided. The profitability of such
contracts depends upon our ability to negotiate payments per patient that, in
the aggregate, are adequate to cover the cost of meeting the healthcare needs of
the covered persons. We cannot assure you that we will be able to enter into any
such contracts or that, if we do, the payments received will be adequate to
cover the cost of meeting the healthcare needs of the covered persons. No one
private payor accounts for more than 10% of our net operating revenues.
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. Efforts to impose
reduced allowances, greater discounts and more stringent cost controls by
government and other payors also are expected to continue. Although we are
unable to predict the effect these changes will have on our operations,
significant limits on the scope of services reimbursed and on reimbursement
rates and fees could have a material adverse effect on our business, financial
condition or results of operations.
UTILIZATION REVIEW
Controls imposed by government and private payors designed to reduce
admissions and lengths of stay have affected and are expected to continue to
affect our facilities. For example, certain treatments and procedures are
performed less often due to such controls, including what is commonly referred
to as "utilization review." 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 providing care paid for by Medicare and Medicaid. Utilization
review by third parties also is a requirement of many managed care arrangements.
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 and 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 payable under
the Medicare, Medicaid and other government programs, including the payment or
receipt of remuneration
9
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for the referral of patients whose care will be paid for by such 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.
In addition, Section 1877 of the Social Security Act (commonly referred to
as the "Stark" laws) restricts referrals by physicians of Medicare, Medicaid 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. 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. Our
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 federal government has issued regulations that describe some of the
conduct and business relationships that are permissible under the Antikickback
Amendments ("Safe Harbors"). The fact that certain conduct or a given business
arrangement does not fall within a Safe Harbor does not render the conduct or
business arrangement per se illegal under the Antikickback Amendments. Such
conduct and business arrangements, however, do risk increased scrutiny by
government enforcement authorities. We may be less willing than some of our
competitors to enter into conduct or business arrangements that do not clearly
satisfy the Safe Harbors. Declining opportunities in which our competitors are
willing to engage may put us at a competitive disadvantage.
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
add monetary penalties and include all health plans, whether or not they are
reimbursed as a federal program.
Both federal and state government agencies are continuing heightened and
coordinated civil and criminal enforcement efforts. As part of an announced work
plan, the government has begun to scrutinize, among other things, the terms of
acquisitions of physician practices by companies that own hospitals. We have
received a subpoena from The Department of Health and Human Services requesting
information concerning the purchase of certain physician practices, primarily by
a company that we acquired after the purchase of such physician practices. We
are cooperating with the investigation and we do not believe it will have a
material adverse affect on our business, financial condition or results of
operations. We believe that the healthcare industry will continue to be subject
to increased government scrutiny and investigations such as this.
Another trend impacting the healthcare industry today is the increased use
of the False Claims Act by individuals. Such QUI TAM or "whistleblower" actions
allow private individuals to bring actions on behalf of the government alleging
that the defendant has defrauded the federal government. If the government
intervenes in the action and prevails, the party filing the initial complaint
may share in any settlement or judgment. If the government does not intervene in
the action, the QUI TAM plaintiff may pursue the action independently. From time
to time companies in the healthcare industry, including ours, may be subject to
QUI TAM actions but, we are unable to predict the impact of such actions.
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
sometimes 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 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 May 31, 1998, we
operated hospitals in 12 states with Certificate of Need requirements. We are
unable to predict whether we will be able to obtain any required Certificates of
Need for future hospitals.
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<PAGE>
We are 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 our business, financial condition or results of operations.
HEALTHCARE REFORM LEGISLATION
The healthcare industry, one of the largest in the United States, attracts
much legislative interest and public attention. Changes in the Medicare,
Medicaid and other programs, hospital cost-containment initiatives by public and
private payors, proposals to limit payments and healthcare spending and
industry-wide 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
there is little history of regulatory or judicial interpretation to rely on.
Although we believe that we are in compliance in all material respects with such
laws, rules and regulations, if a determination were made that we were in
material violation of such laws, rules or regulations, it could have a material
adverse effect on our business, financial condition or results of operations.
As discussed under "--Risk Factors--Limits on Payments," the 1997 Act has
the effect of reducing payments to hospitals and other healthcare providers
under the Medicare program. This has had, and we expect it to continue to have,
a significant but not material impact on our revenues under the Medicare
program. In addition, there continue to be federal and state proposals that
would, and actions that do, impose more limitations on payments to providers
like ourselves and proposals to increase co-payments and deductibles from
patients.
Many states have enacted or are considering enacting measures that are
designed to reduce their Medicaid expenditures and to change 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 was
granted a waiver and has implemented a managed care program for some of its
Medicaid participants. Texas was denied a waiver under Section 1115 of the 1997
Act but is in the process of implementing regional managed care programs under a
more limited waiver. Texas also plans to apply for federal funds for children's
health programs under the 1997 Act. Louisiana is considering wider use of
managed care for its Medicaid population. California has created a voluntary
health insurance purchasing cooperative that seeks to make healthcare coverage
more affordable for businesses with five to 50 employees and, effective January
1, 1995, began changing the payment system for participants in its Medicaid
program in certain counties from fee-for-service arrangements to managed care
plans. Florida has enacted a program creating a system of local purchasing
cooperatives and has proposed other changes that have not yet been enacted.
Florida also has adopted, and other states are considering adopting, legislation
imposing a tax on net revenues of hospitals to help finance or expand their
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 include coverage for some people who are currently uninsured.
We are unable to predict the future course of federal, state or local
healthcare legislation. Further changes in the law or regulatory framework that
reduce our revenues or increase our costs could have a material adverse effect
on our business, financial condition or results of operations.
CERTAIN LEGAL PROCEEDINGS
We have been involved in significant legal proceedings of an unusual nature
related principally to our discontinued psychiatric business. In prior years, we
recorded provisions to estimate the cost of the ultimate disposition of these
proceedings, including estimated legal fees. We have settled the most
significant of these matters. The remaining reserves are for unusual litigation
costs that relate to matters that were not settled as of May 31, 1998, and an
estimate of the legal fees to be incurred subsequent to May 31, 1998. These
reserves represent management's estimate of the remaining net costs of the
ultimate disposition of these matters. We cannot assure you, however, that the
ultimate liability will not exceed such estimates. Based upon information
currently available to it, management believes that the amount of
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damages, if any, in excess of its reserves for unusual litigation costs that may
be awarded in any unresolved legal proceedings cannot reasonably be estimated;
however it does not believe it is likely that any such damages will have a
material adverse effect on our business, financial condition or results of
operations.
We continue to defend a greater-than-normal level of civil litigation
relating to certain subsidiaries' discontinued psychiatric operations. The
majority of such lawsuits allege medical malpractice, fraud and conspiracy by us
and certain of our subsidiaries and former employees and numerous doctors and
other healthcare professionals. Many of the cases alleging fraud and conspiracy
by us and certain of our subsidiaries have been resolved.
We believe that this litigation has arisen primarily from advertisements by
lawyers seeking former psychiatric patients in order to file claims against us
and certain of our subsidiaries. The advertisements focus, in many instances, on
the settlement of past disputes involving the operations of the subsidiaries'
discontinued psychiatric business. The number of advertisements has increased
and we expect that additional lawsuits with similar allegations will be filed.
We believe we have a number of defenses to each of these actions and will defend
these and any additional lawsuits vigorously. Until the lawsuits are resolved,
however, we will continue to incur substantial legal expenses.
In the normal course of business we are also subject to claims and lawsuits
relating to injuries arising from patient treatment. We believe that our
liability for damages resulting from such claims and lawsuits in the normal
course of business is adequately covered by insurance or is adequately provided
for in our consolidated financial statements.
POSSIBLE INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event (defined below),
you may require us to purchase your notes at 101% of their principal, plus
accrued and unpaid interest to the date of purchase. Please note, however, that
events that would constitute a Change of Control also would constitute an event
of default under our existing credit facility. The occurrence of an event of
default under our existing credit facility will constitute an event of default
the indentures. Accordingly, it is unlikely that we would be able to fulfill our
obligation to repurchase any notes if a Change of Control Triggering Event
occurs. Any of our future credit agreements or other agreements relating to
indebtedness may contain similar restrictions and provisions. The indentures
relating to the 7 5/8% new notes and the 7 5/8% old notes (together, the "7 5/8%
notes") and our other debt obligations also may restrict our ability to purchase
your 8 1/8% notes upon a Change of Control Triggering Event. Accordingly, we may
not be able to satisfy our obligations to purchase your 8 1/8% notes unless we
are able to refinance or obtain waivers with respect to our existing bank credit
facility and certain other indebtedness. We cannot assure that we will have the
financial resources to purchase your notes in the event of a Change of Control
Triggering Event, particularly if such Change of Control Triggering Event
requires us to refinance, or results in the acceleration of, other indebtedness.
SUBORDINATION
SUBSIDIARY OPERATIONS
Our operations are and will be conducted by our subsidiaries. Similarly,
substantially all of our assets are and will be owned by our subsidiaries.
Accordingly, your new notes and your old notes will be effectively subordinated
to all existing and future obligations and other liabilities (including trade
payables) of our subsidiaries. Any right we have to the assets of each of our
subsidiaries upon the liquidation, reorganization or insolvency of such
subsidiary (and consequently your right as a holder of 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 we have a claim against such subsidiary as a
creditor of such subsidiary.
As of February 28, 1999, the Company, including our subsidiaries, had
approximately $171 million of indebtedness and $642 million of obligations to
trade creditors that were structurally senior to the 7 5/8% notes and $4.032
billion of indebtedness that ranked PARI PASSU with the 7 5/8% notes. As of
February 28,
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1999, we had $171 million of indebtedness and $642 million of obligations to
trade creditors that was structurally senior to the 8 1/8% notes; $4.382 billion
of indebtedness that was contractually senior to the 8 1/8% notes; and $977
million of indebtedness that ranked PARI PASSU with the 8 1/8% notes.
Indebtedness of our subsidiaries and obligations of our subsidiaries to trade
creditors is structurally senior to the notes since, in the event of bankruptcy,
liquidation, dissolution, reorganization or other winding up of the Company, the
assets of the Company's subsidiaries will be available to pay the notes only
after our subsidiaries' indebtedness and obligations to trade creditors is paid
in full. Because the Company stands as an equity holder, rather than a creditor,
of our subsidiaries, creditors of our subsidiaries will have their debt
satisfied out of our subsidiaries' assets before the Company's creditors
(including the note holders).
If any claims we may have 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 us.
NOTES ARE NOT GUARANTEED BY SUBSIDIARIES
Our ability to make required principal and interest payments on our
indebtedness, including the notes, depends on the earnings of our subsidiaries
and on our ability to receive dividends or other payments from such
subsidiaries. Please note that the notes are our obligations only. Our
subsidiaries are not obligated or required to pay any amounts due pursuant to
the notes or to make dividends or advances to us.
8 1/8% NOTES ARE SUBORDINATED
Further, the 8 1/8% old notes are, and the 8 1/8% new notes will be,
subordinated to our other debt. The indentures provide that we may not pay
(other than certain payments in the form of subordinated securities or from a
defeasance trust) any principal of, premium, if any, or interest on the 8 1/8%
notes during the continuance of a payment default with respect to any designated
senior debt. The indentures also provide that we may not defease, repurchase,
redeem or otherwise acquire or retire the 8 1/8% notes (other than certain
payments in the form of subordinated securities or from a defeasance trust)
during the continuance of a payment default with respect to any designated
senior debt. Designated senior debt includes all borrowings under our bank
credit facility and, after the repayment of the bank credit facility, any other
senior debt permitted under the 8 1/8% indenture, the principal amount of which
is $100 million or more and that we designated as "designated senior debt." 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 us from making any payment upon or in respect of the 8 1/8% notes for a
period of up to 179 days. Upon any liquidation or dissolution of our Company or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to our Company, holders of senior debt will be entitled to receive
payment in full prior to your receiving any payment with respect to your 8 1/8%
notes (other than certain payments in the form of subordinated securities or
from a defeasance trust). See "Description of Notes--Subordination of 8 1/8%
notes."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes, anticipates, estimates,
expects, intends, should, will, may, and might" and words of similar import and
statements regarding our business strategy and plans, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
management's current expectations and involve known and unknown risks,
uncertainties and other factors, many of which we are unable to predict or
control, that may cause our actual results, performance or achievements 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
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nationally and regionally; industry capacity; demographic changes; existing laws
and government regulations and changes in, or the failure to comply with, laws
and governmental regulations; legislative proposals for healthcare reform; the
ability to enter into managed care provider arrangements on acceptable terms;
shifts from fee-for-service payment to capitated and other risk-based payment
systems; changes in Medicare and Medicaid payment levels; liability and other
claims asserted against us; competition; the loss of any significant customers;
technological and pharmaceutical improvements that increase the cost of
providing, or reduce the demand for, healthcare; changes in business strategy or
development plans; the ability to attract and retain qualified personnel,
including physicians and nurses; our significant indebtedness; the availability
of suitable acquisition opportunities and the length of time it takes to
accomplish acquisitions; our ability to integrate new businesses with our
existing operations; the availability and terms of capital to fund the expansion
of our business, including the acquisition of additional facilities; the impact
of the computer problems with respect to two-digit codes not being able to
properly recognize the year 2000 and related issues; and other factors
referenced in this Prospectus and the documents incorporated herein by
reference. Certain of these factors are discussed in more detail elsewhere in
this Prospectus and the documents incorporated herein by reference. GIVEN THESE
UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON SUCH FORWARD-LOOKING STATEMENTS. We disclaim 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.
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
We will apply to have the new notes listed on the New York Stock Exchange,
however, there is no existing market for your new notes. We cannot assure you
that any market for any of the new notes will develop or that any market that
may develop will be liquid. The credit markets are volatile and unpredictable,
which may have an adverse effect on the liquidity of and prices for the new
notes. The new notes could trade at prices that may be lower than the initial
offering price of the old notes as a result of many factors, including
prevailing interest rates, our financial condition or results of operations and
the markets for similar securities.
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth under "The Exchange Offer--Conditions to
the Exchange Offer," delivery of new notes in exchange for old notes tendered
and accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the exchange agent of the following: (1) certificates for old
notes or a book-entry confirmation of a book-entry transfer of old notes into
the Exchange Agent's account at The Depository Trust Company, New York, New York
as depository, including an Agent's Message (as defined) if the tendering holder
does not deliver a Letter of Transmittal, (2) a completed and signed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees, or,
in the case of a book-entry transfer, an Agent's Message in lieu of the Letter
of Transmittal, and (3) any other documents required by the Letter of
Transmittal. Therefore, holders of old notes who would like to tender old notes
in exchange for new notes should be sure to allow enough time for the old notes
to be delivered on time. We are not required to notify you of defects or
irregularities in tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but we do not accept for exchange will, following
consummation of the Exchange Offer, continue to be subject to the existing
transfer restrictions under the Securities Act and, upon consummation of the
Exchange Offer, certain registration and other rights under the registration
rights agreement will terminate. See "The Exchange Offer--Procedures For
Tendering Old Notes and--Consequences of Exchange and Old Notes."
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer.
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CAPITALIZATION
The following table sets forth our capitalization as of May 31, 1998 and as
of February 28, 1999.
<TABLE>
<CAPTION>
FEBRUARY 28,
MAY 31, 1998 1999
------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term borrowings and notes.................................................. $ 4 $ 4
Current portion of long-term debt................................................ 10 35
------ -------
Total current debt........................................................... 14 39
------ -------
Long-term debt, net of current portion:
Loans payable to banks--unsecured.............................................. 1,587 2,270
9 5/8% Senior Notes due 2002................................................... 14 14
8 5/8% Senior Notes due 2003................................................... 500 500
7 7/8% Senior Notes due 2003................................................... 400 400
8% Senior Notes due 2005....................................................... 900 900
7 5/8% Senior Notes due 2008................................................... 350 350
10 1/8% Senior Subordinated Notes due 2005..................................... 3 3
8 5/8% Senior Subordinated Notes due 2007...................................... 700 700
8 1/8% Senior Subordinated Notes due 2008...................................... 1,005 1,005
6% Exchangeable Subordinated Notes due 2005.................................... 320 320
Other debt(1).................................................................. 50 34
------ -------
Total long-term debt, net of current portion................................. 5,829 6,496
------ -------
Shareholders' equity:
Common stock, par value $0.075, authorized 700,000,000 shares; issued
313,044,417 shares at May 31, 1998 and 314,279,558 shares at February 28,
1999(2)...................................................................... 23 24
Other shareholders' equity..................................................... 3,605 4,019
Less treasury stock, at cost, 3,754,891 shares at May 31, 1998 and 3,754,555 at
February 28, 1999............................................................ (70) (70)
------ -------
Total shareholders' equity................................................... 3,558 3,973
------ -------
Total capitalization......................................................... $ 9,401 $ 10,508
------ -------
------ -------
</TABLE>
- ------------------------
(1) Includes other notes payable, capitalized lease obligations and unamortized
debt discounts ($107 million at May 31, 1998 and $98 million at February 28,
1999) related to several issues of debt.
(2) Does not include shares of our common stock reserved for issuance upon
exercise of options (42,123,917 shares at May 31, 1998 and 41,575,814 shares
reserved at February 28, 1999).
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SELECTED FINANCIAL INFORMATION
The following tables set forth our selected financial information for each
of the fiscal years in the five-year period ended May 31, 1998 and for the nine
months ended February 28, 1998 and 1999. The selected financial information for
each of the fiscal years is from our consolidated financial statements, which
have been audited by KPMG LLP, our independent auditors, and from our underlying
accounting records. The selected financial information for the nine-month
periods has been derived from our unaudited condensed consolidated financial
statements and reflects all adjustments (consisting of normal recurring
adjustments) that, in the opinion of management, are necessary for a fair
presentation of such information. Operating results for the nine months ended
February 28, 1999 are not necessarily indicative of the results that may be
expected for fiscal 1999. Operating results for all periods presented exclude
the discontinued psychiatric operations of certain of our subsidiaries and
extraordinary charges from the early extinguishment of debt.
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," the consolidated financial statements and related
notes and the report of our independent auditors included in our Annual Report
on Form 10-K for the fiscal year ended May 31, 1998, as amended, and the
condensed consolidated financial statements included in the Quarterly Report on
Form 10-Q for the quarterly period ended February 28, 1999, as amended,
incorporated herein by reference.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
YEAR ENDED MAY 31, FEBRUARY
------------------------------------------------------------- 28,
1994 1995 1996 1997 ---------
(RESTATED) (RESTATED) (RESTATED) (RESTATED) 1998 1998
----------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1) and (2)
Net operating revenues........................... $ 4,218 $ 5,161 $ 7,706 $ 8,691 $ 9,895 $ 7,324
Operating expenses:
Salaries and benefits(4)....................... 1,868 2,170 3,139 3,595 4,052 3,013
Supplies....................................... 498 668 1,056 1,197 1,375 1,016
Provision for doubtful accounts(4)............. 193 260 436 498 588 447
Other operating expenses(4).................... 952 1,189 1,658 1,878 2,071 1,516
Depreciation................................... 199 232 319 335 347 257
Amortization................................... 25 44 100 108 113 83
Merger, facility consolidation and impairment
charges(3)(4)................................ 110 37 86 619 221 --
----------- ----------- ----------- ----------- --------- ---------
Operating income................................. 373 561 912 461 1,128 992
Interest expense, net of capitalized portion..... (157) (251) (425) (417) (464) (344)
Investment earnings.............................. 31 32 27 26 22 17
Equity in earnings of unconsolidated
affiliates..................................... 27 43 25 1 -- --
Minority interests in income of consolidated
subsidiaries................................... (12) (10) (30) (27) (22) (19)
Net gains (losses) on disposals of facilities and
long-term investments.......................... 42 31 346 (18) (17) 18
----------- ----------- ----------- ----------- --------- ---------
Income from continuing operations before income
taxes.......................................... 304 406 855 26 647 664
Taxes on income.................................. (141) (128) (373) (89) (269) (262)
----------- ----------- ----------- ----------- --------- ---------
Income (loss) from continuing operations......... $ 163 $ 278 $ 482 $ (63) $ 378 $ 402
----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- --------- ---------
Ratio of earnings to fixed charges(4)............ 2.4x 2.2x 2.6x 1.0x 2.1x 2.6x
Basic earnings (loss) per share from continuing
operations..................................... $ 0.74 $ 1.17 $ 1.71 $ (0.21) $ 1.23 $ 1.32
Diluted earnings (loss) per share from continuing
operations..................................... $ 0.73 $ 1.12 $ 1.65 $ (0.21) $ 1.22 $ 1.29
<CAPTION>
1999
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:(1) and (2)
Net operating revenues........................... $ 7,938
Operating expenses:
Salaries and benefits(4)....................... 3,217
Supplies....................................... 1,104
Provision for doubtful accounts(4)............. 533
Other operating expenses(4).................... 1,710
Depreciation................................... 307
Amortization................................... 96
Merger, facility consolidation and impairment
charges(3)(4)................................ --
---------
Operating income................................. 971
Interest expense, net of capitalized portion..... (360)
Investment earnings.............................. 21
Equity in earnings of unconsolidated
affiliates..................................... --
Minority interests in income of consolidated
subsidiaries................................... (5)
Net gains (losses) on disposals of facilities and
long-term investments.......................... --
---------
Income from continuing operations before income
taxes.......................................... 627
Taxes on income.................................. (241)
---------
Income (loss) from continuing operations......... $ 386
---------
---------
Ratio of earnings to fixed charges(4)............ 2.4x
Basic earnings (loss) per share from continuing
operations..................................... $ 1.25
Diluted earnings (loss) per share from continuing
operations..................................... $ 1.23
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF MAY 31,
------------------------------------------------------------- AS OF
1994 1995 1996 1997 FEBRUARY 28,
(RESTATED) (RESTATED) (RESTATED) (RESTATED) 1998 1999
----------- ----------- ----------- ----------- --------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Working capital (deficit)................... $ (190) $ 273 $ 499 $ 621 $ 1,182 $ 1,492
Total assets................................ 5,543 9,787 10,768 11,606 12,774 13,870
Long-term debt, excluding current portion... 1,290 4,287 4,421 5,022 5,829 6,496
Shareholders' equity........................ 1,642 2,385 3,267 3,224 3,558 3,973
</TABLE>
- ------------------------
(1) On March 1, 1995, we acquired, in a transaction accounted for as a purchase,
all the outstanding common stock of American Medical Holdings, Inc. for $1.5
billion in cash and 33.2 million shares of the Company's common stock valued
at $488 million.
(2) On January 30, 1997, we acquired OrNda by issuing 81.4 million shares of its
common stock in the OrNda Merger. We have accounted for the transaction as a
pooling-of-interests and, accordingly, the consolidated financial statements
and all statistical data incorporated by reference herein with respect to
periods prior to the combination were restated in fiscal 1997 to include the
accounts and results of operations of OrNda for all periods presented.
(3) In the year ended May 31, 1994, we recorded charges totaling $110 million,
including $33 million in connection with the merger of American Healthcare
Management, Inc. and $77 million in connection with a plan to significantly
decrease overhead costs which consisted of: (1) costs of the write-down of
the corporate headquarters building; (2) employee severance benefits; and
(3) other expenses directly related to the overhead reduction plan. In the
year ended May 31, 1995, we recorded charges totaling $37 million in
connection with the acquisition of American Medical Holdings, Inc. In the
year ended May 31, 1996, we recorded an impairment loss of $86 million. In
the year ended May 31, 1997, we recorded charges totaling $619 million,
primarily in connection with the OrNda Merger. In the year ended May 31,
1998, we recorded charges of $221 million relating to: (1) the planned
closure or sale of five hospitals and several home health agencies; (2)
write-offs of goodwill and other assets; and (3) write-downs of carrying
values of long-lived assets.
(4) In response to comments from the staff of the Commission regarding the
classification of certain expenses incurred in connection with the OrNda
Merger, and the classification of certain facility consolidation and
impairment charges, the Company has restated its consolidated financial
statements for the years ended May 31, 1994 through 1997 to correctly
present the effects of conforming accounting changes. The Company has
allocated $121 million of expenses originally included in fiscal 1997's
merger, facility consolidation and impairment charges to (a) other operating
expense line items within fiscal 1997 or (b) earlier periods as follows: $10
million to other operating expenses in fiscal 1994; $11 million to other
operating expenses in fiscal 1995; $12 million to other operating expenses,
$5 million to provision for doubtful accounts, and $9 million to salaries
and benefits in fiscal 1996; $49 million to other operating expenses, $4
million to provision for doubtful accounts, and $21 million to salaries and
benefits in fiscal 1997. The Company also restated the effect of a $19
million reduction of an income tax valuation allowance related to OrNda from
fiscal year 1997 to fiscal year 1995. The Selected Financial Information
above has been restated to reflect these changes, all of which relate to the
financial statements of OrNda for periods prior to the January 1997 merger.
The Company also has reclassified certain May 31, 1997 and 1998 balance
sheet items previously included in reserves related to discontinued
operations, merger, facility consolidation and impairment charges and other
long-term liabilities to other assets, property and equipment and costs in
excess of net assets acquired. The effects of these changes on previously
reported consolidated statements of operations are more fully disclosed in
Note 1 to the consolidated financial statements included in our Annual
Report on Form 10-K for the fiscal year ended May 31, 1998, as amended.
(5) We calculate the ratio of earnings to fixed charges by dividing income or
loss 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.
17
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The 7 5/8% old notes were, and the 7 5/8% new notes will be, issued pursuant
to the 7 5/8% indenture between the Company and The Bank of New York, as Trustee
(the "7 5/8% Note Trustee"). The 8 1/8% old notes were, and the 8 1/8% new notes
will be, issued pursuant to the 8 1/8% indenture between the Company and The
Bank of New York, as Trustee (the "8 1/8% Note Trustee" and, together with the
7 5/8% Note Trustee, the "Trustees"). The terms of the new 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. Because this is
a summary, it does not contain all the information that may be important to you.
You should read the entire indentures, including the definitions therein of
certain terms used below. For definitions of certain terms used in the following
summary, see "--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 7 5/8% old notes are, and the 7 5/8% new notes will be, general
unsecured obligations of the Company, senior to all subordinated Indebtedness of
the Company, including the 8 1/8% 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% Notes, the Company's 8% Senior Notes due 2005
(the "8% Notes"), the Company's 7 7/8% Senior Notes due 2003 (the "7 7/8%
Notes") and the Company's 8 5/8% Senior Notes due 2003 (the "8 5/8% Senior
Notes" and, together with the untendered 9 5/8% Notes, the 8% Notes and the
7 7/8% Notes, the "Existing Senior Notes") and all Obligations under the
Existing Credit Facility. As of February 28, 1999, approximately $2.0 billion in
principal amount of outstanding indebtedness of the Company was, by its terms,
subordinated to the 7 5/8% new notes.
The 8 1/8% old notes are, and the 8 1/8% new 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 7 5/8% notes, the
Existing Senior Notes and all Obligations under the Existing Credit Facility,
and PARI PASSU in right of payment to the Company's 10 1/8% Notes and the 8 5/8%
Senior Subordinated Notes due 2007 and senior to the 6% Exchangeable
Subordinated Notes due 2005. As of February 28, 1999, Senior Debt of the Company
was $4.6 billion. See "Capitalization" and "--Subordination of 8 1/8% 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 old notes
are and the new 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. As of February 28, 1999, the
outstanding debt of the Company's Subsidiaries was approximately $171 million
(excluding trade payables of $642 million, intercompany debt and other
obligations). See "Risk Factors--Subsidiary Operations; Subordination."
PRINCIPAL, MATURITY AND INTEREST
The 7 5/8% old notes are, and the 7 5/8% new notes will be, unsecured,
senior obligations of the Company limited in aggregate principal amount to
$350.0 million and will mature on June 1, 2008. Interest on the 7 5/8% old notes
accrues, and on the 7 5/8% new notes will accrue, at the rate of 7 5/8% per
annum and
18
<PAGE>
will be payable semi-annually in arrears on June 1 and December 1 of each year,
commencing on December 1, 1998, to holders of record on the immediately
preceding May 15 and November 15, respectively. Interest on the 7 5/8% notes
will accrue, from the most recent date to which interest has been paid.
The 8 1/8% old notes are, and the 8 1/8% new notes will be, unsecured
obligations of the Company limited in aggregate principal amount to $1.05
billion and will mature on December 1, 2008. Interest on the 8 1/8% old notes
accrues, and on the 8 1/8% new notes will accrue, at the rate 8 1/8% per annum
and will be payable semi-annually in arrears on June 1 and December 1 of each
year, commencing on December 1, 1998, to holders of record on the immediately
preceding May 15 and November 15, respectively. Interest on the 8 1/8% notes
will accrue, from the most recent date to which interest has been paid. Old
notes accepted for exchange will not accrue any interest from and after the date
of consummation of the Exchange Offer.
Interest on the old notes is, and on the new 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 new notes will be payable at the office or agency of
the Company maintained for such purpose within The City and the 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 new notes at their respective addresses set forth
in the register of holders of new notes; PROVIDED that all payments with respect
to the new 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 new notes will initially be issued in
global form and, in the event they are subsequently certificated, in
denominations of $1,000 and integral multiples thereof.
The indentures contain waivers by the Company of the protections of usury
laws. Counsel is unable to express an opinion as to the enforceability of such
waivers.
OPTIONAL REDEMPTION
7 5/8% NOTES
The 7 5/8% old notes are, and the 7 5/8% new notes will be, redeemable, in
whole, at any time, or in part, from time to time, at the option of the Company
upon not less than 30 nor more than 60 days' notice at a redemption price equal
to the Make-Whole Price. "Make-Whole Price" means an amount equal to the greater
of (i) 100% of the principal amount of the 7 5/8% new notes and (ii) as
determined by an Independent Investment Banker (as defined), the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate
(as defined), plus, in each case, accrued interest thereon to the date of
redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined), assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price (as defined) for such redemption date, plus 0.5%.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the 7 5/8% new notes to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the 7 5/8% new notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal
19
<PAGE>
amount) on the third Business Day preceding such redemption date, as set forth
in the daily statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations
for U.S. Government Securities" or (ii) if such release (or any successor
release) is not published or does not contain such prices on such Business Day,
(A) the average of the Reference Treasury Dealer Quotations (as defined) for
such redemption date, after excluding the highest and lowest of such Reference
Treasury Dealer Quotations, or (B) if the 7 5/8% Note Trustee obtains fewer than
three such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
(as defined) appointed by the Company.
"Reference Treasury Dealer" means DLJ and its successors; PROVIDED, HOWEVER,
that if the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
7 5/8% Note Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Treasury Reference Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
8 1/8% NOTES
The 8 1/8% notes will not be redeemable at the option of the Company prior
to June 1, 2003. Thereafter, the 8 1/8% 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 June 1 of the following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 104.063%
2004.............................................................................. 102.708%
2005.............................................................................. 101.354%
2006 and thereafter............................................................... 100.000%
</TABLE>
GENERAL
If less than all of the notes are to be redeemed at any time, selection of
notes for redemption will be made by the appropriate Trustee in compliance with
the requirements of the principal national securities exchange, if any, on which
the notes to be redeemed are then listed, or, if the notes are not so listed, on
a PRO RATA basis, by lot or by such method as such Trustee shall deem fair and
appropriate; PROVIDED that 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
notes to be redeemed at its registered address. If any notes are to be redeemed
in part only, the notice of redemption that relates to such notes shall state
the portion of the principal amount thereof to be redeemed. A revised note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original note. On and after
the redemption date, interest will cease to accrue on notes or portions thereof
called for redemption.
The Existing Credit Facility limits the Company's ability to redeem or
otherwise purchase the 8 1/8% notes prior to the stated maturity thereof. In
addition, the terms of the indentures governing the 7 5/8% notes and the
Existing Senior Notes limit the Company's ability to redeem or otherwise
purchase the 8 1/8% notes prior to the stated maturity thereof.
20
<PAGE>
SUBORDINATION OF 8 1/8% NOTES
The payment of principal of, premium, if any, and interest on the 8 1/8% old
notes is, and on the 8 1/8% new notes will be, subordinated in right of payment,
as set forth in the 8 1/8% indenture, to the prior payment in full of all Senior
Debt, whether outstanding on the date of the 8 1/8% 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 8 1/8% notes will be entitled
to receive any payment with respect to the 8 1/8% notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the holders of 8 1/8% notes would be entitled shall be made to the holders
of Senior Debt (except (a) that holders of 8 1/8% notes may receive securities
that (i) are subordinated at least to the same extent as the 8 1/8% notes to
Senior Debt and any securities issued in exchange for Senior Debt, (ii) are
unsecured (except to the extent the 8 1/8% notes are secured), (iii) are not
Guaranteed by any Subsidiary of the Company (except to the extent the 8 1/8%
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 8 1/8% notes or any securities issued to holders of Senior Debt under the
Existing 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 8 1/8%
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 8 1/8% Note Trustee receives a notice of such
default (a "Payment Blockage Notice"), for so long as any Obligations are
outstanding under the Existing Credit Facility, from the Representative
thereunder and, thereafter, from the holders or Representative of any Designated
Senior Debt. Payments on the 8 1/8% 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 8 1/8% 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
8 1/8% Note Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
The 8 1/8% indenture further requires that the Company promptly notify
holders of Senior Debt if payment of the 8 1/8% 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 8 1/8% notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. As of February 28,
1999, Senior Debt of the Company would have been approximately $4.6 billion. The
8 1/8% indenture limits, 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."
21
<PAGE>
PURCHASE 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 purchase 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, 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 will mail, or at the Company's request the applicable Trustee will
mail, a notice to each holder offering to purchase 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 purchase 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 note equal in principal amount to
any unpurchased portion of the notes surrendered, if any; PROVIDED that each
such note will be in a principal amount of $1,000 or an integral multiple
thereof. The 8 1/8% 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 purchase of 8 1/8% 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 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."
Events that would constitute a Change of Control also would constitute an
event of default under the Company's existing credit facility. The occurrence of
an event of default under our existing credit facility will constitute an event
of default under the indentures. Accordingly, it is unlikely that the Company
would be able to fulfill its obligation to repurchase any notes if a Change of
Control Triggering Event occurs. 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 indenture relating to the
7 5/8% notes also restricts the Company's ability to purchase the 8 1/8% 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 8 1/8%
notes, the Company could seek the consent of its lenders or noteholders to
purchase the 8 1/8% 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's ability to purchase the 8 1/8% notes will
remain limited. In such case, the Company's failure to purchase tendered 8 1/8%
notes would constitute an Event of Default under the 8 1/8% indenture which
could, in turn, constitute a default under all or substantially all of the
Company's other outstanding Indebtedness. In such circumstances, the
subordination provisions in the 8 1/8% indenture would likely restrict payments
to the holders of 8 1/8% notes. See
22
<PAGE>
"Risk Factors--Possible Inability to Purchase Notes Upon a Change of Control"
and "Risk Factors-- Subordination--Subsidiary Operations."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The indentures 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 (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 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) $50.0 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
23
<PAGE>
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 (i) 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 or (ii) any
Equity Interests of the Company which are or are intended to be used to satisfy
issuances of Equity Interests upon exercise of employee stock options or upon
exercise or satisfaction of other similar instruments outstanding under employee
benefit plans of the Company or any subsidiary of the Company; PROVIDED that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $25.0 million in any twelve-month period; and
(z) the making and consummation of a Change of Control Offer with respect to the
8 1/8% notes in accordance with the provisions of the 8 1/8% indenture or a
change of control offer with respect to the untendered 10 1/8% Notes, the 8 5/8%
Subordinated Notes or the 6% 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 the covenant described under the caption "--Restricted Payments"
were computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The indentures 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 do not apply to:
(i) the incurrence by the Company of Indebtedness pursuant to the
Existing Credit Facility in an aggregate principal amount at any time
outstanding not to exceed an amount equal to $2.8 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;
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(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 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;
(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 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 covenant) in an aggregate
principal amount at any time outstanding not to exceed $400.0 million.
LIENS
The 7 5/8% indenture provides 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 7 5/8%
indenture and the 7 5/8% 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 8 1/8% indenture provides 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 8 1/8% 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 8 1/8% indenture and the 8 1/8% 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.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The indentures 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 Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, or (h) the Existing Credit Facility and related
documentation as the same is in effect on the date of the indentures and as
amended, modified, extended, renewed, refunded, refinanced, restated or replaced
from time to time, provided that no such amendment or replacement is more
restrictive as to the matters enumerated above than the Existing Credit Facility
and related documentation as in effect on the date of the indentures.
LINE OF BUSINESS
The indentures 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 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 applicable Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) the
Company or the
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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 a
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 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 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 under the caption "Limitations on Restricted Payments", in
each case, shall not be deemed to be Affiliate Transactions.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES
The 7 5/8% indenture provides 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 7 5/8% indenture providing for the Guarantee of
the payment of the 7 5/8% 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 8 1/8% indenture provides 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 8 1/8% indenture providing for the Guarantee of
the payment of the 8 1/8% 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 8 1/8% notes are subordinated to such
other Indebtedness under the 8 1/8% 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
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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 7 5/8% indenture provides that the Company will not amend, modify or
alter the 8 1/8% indenture or the indentures relating to the untendered 10 1/8%
Notes, the 8 5/8% Subordinated Notes or the 6% 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 untendered
10 1/8% Notes, 8 5/8% Senior Subordinated Notes or 6% Exchangeable Subordinated
Notes or (b) any 8 1/8% notes such that the final maturity date of the 8 1/8%
notes is earlier than the 91st day following the final maturity date of the
7 5/8% notes or (ii) amend the provisions of Article 10 of the 8 1/8% indenture
(which relates to subordination) or the subordination provisions of the
indentures relating to the untendered 10 1/8% Notes, the 8 5/8% Senior
Subordinated Notes or the 6% Exchangeable Subordinated Notes or any of the
defined terms used therein in a manner that would be adverse to the holders of
the 7 5/8% notes.
NO SENIOR SUBORDINATED DEBT
The 8 1/8% indenture provides 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 8 1/8% notes.
REPORTS
The indentures provide that, whether or not required by the rules and
regulations of the Commission, so long as any notes are outstanding, the Company
will furnish to the holders of notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability and make such information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The indentures provide that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
notes (whether or not prohibited by the subordination provisions of the 8 1/8%
indenture); (ii) default in payment when due of the principal of or premium, if
any, on the notes, at maturity or otherwise (whether or not prohibited by the
subordination provisions of the 8 1/8% indenture); (iii) failure by the Company
to comply with the provisions described under the captions "--Purchase at the
Option of holders Upon a Change of Control," "--Certain Covenants--Restricted
Payments" or "--Certain Covenants--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 7 5/8% 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 7 5/8% indenture or is thereafter created, which
default
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(a) constitutes a Payment Default or (b) results in the acceleration of such
Indebtedness prior to its expressed 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) in the case of the 8 1/8%
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 8 1/8% 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 a final judgment or
final judgments aggregating in excess of $25.0 million, which judgment or
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 appropriate Trustee or
the holders of at least 25% in principal amount of the then outstanding notes,
as the case may be, by written notice to the Company and the appropriate Trustee
may declare all the 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 notes pursuant to the
optional redemption provisions of the indentures, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an Event of Default occurs under the
8 1/8% indenture prior to June 1, 2003 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 the 8 1/8% notes prior to such
date, then the premium specified in the 8 1/8% indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the 8 1/8% notes.
The holders of not less than a majority in aggregate principal amount of the
notes, as the case may be, then outstanding by written notice to the applicable
Trustee on behalf of the holders of all of the 7 5/8% notes or 8 1/8% 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 the principal of, premium, if any, or interest on
any of the 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.
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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
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 new note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding notes to
receive payments in respect of the principal of, premium, if any, and interest
on such notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
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
applicable indenture ("Covenant Defeasance") and thereafter any failure to
comply with such obligations shall not constitute a Default or Event of Default
with respect to the applicable notes. 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
applicable notes.
The Company may exercise a Legal or Covenant Defeasance by making an
irrevocable deposit with the Trustee (a "Company Deposit"), in trust, for the
benefit of the holders of the notes, consisting of cash in United States
currency, non-callable Government Securities, or a combination thereof in
amounts that will be sufficient, in the opinion of a nationally-recognized firm
of independent public accountants, to pay the principal of and premium (if any),
interest, and liquidated damages (if any) on the outstanding notes at maturity
or on the applicable redemption date, as the case may be. An entity other than
the Company (a "New Lender") may also make such a deposit (a "New Lender
Deposit" and, together with the Company Deposit, the "Deposits").
Simultaneously with any Deposit, the Company must deliver to the Trustee (i)
a notice specifying whether the Company is exercising Legal or Covenant
Defeasance (or both) and whether the notes are being defeased to maturity or to
a particular redemption date; (ii) an opinion of counsel, reasonably acceptable
to the Trustee, confirming that: (a) the holders of outstanding notes will not
recognize income, gain, or loss for federal income tax purposes as a result of
the proposed 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 the defeasance had not occurred, except that, in the case of Legal
Defeasance, the opinion of counsel must recite that it is based upon a ruling to
that effect received by the Company from or published by the Internal Revenue
Service, or upon a change in applicable federal income tax law; (b) on and after
the date of the New Lender Deposit, or after the 90th day after the Company
Deposit, as the case may be, the cash or securities so deposited will not be
subject to avoidance and repayment under Sections 547 and 550 of the United
States Bankruptcy Code (the "Bankruptcy Code"); and (c) all conditions precedent
to the defeasance set forth in the indenture have been satisfied; and (iii) an
Officer's Certificate to the effect that (a) the Deposit was not made with
actual intent to hinder, delay, or defraud the Company's creditors, (b) all
conditions precedent to the defeasance set forth in the indenture have been
satisfied, and (c) in the case of a New Lender Deposit, (i) the New Lender made
the New Lender Deposit under an agreement (the "New Loan Agreement") with the
Company; (ii) under the New Loan Agreement, the New Lender
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Deposit constitutes an unsecured loan (the "New Loan) by the New Lender to the
Company; (iii) the maturity date of the New Loan is later than the 90th date
after the date of the New Lender Deposit; and (iv) the New Loan Agreement
prohibits prepayment of the New Loan on or before the 90th day after the date of
the New Lender Deposit, except in the event of a default thereunder, and the
remaining terms of the New Loan Agreement (including the interest rate on the
New Loan) are consistent with ordinary business practice.
The Legal or Covenant Defeasance will occur on the date of a New Lender
Deposit or on the 91st day after the date of a Company Deposit, as the case may
be, unless in either case (i) on and as of the date of the Deposit, a Default or
Event of Default has occurred and is continuing (other than one resulting from
the borrowing of funds used to make the Deposit); (ii) the defeasance will
result in or constitute a breach or default under any material agreement or
indenture to which the Company or any of its Subsidiaries is bound; or (iii) in
the case of a Company Deposit, an Event of Default relating to bankruptcy occurs
within 90 days after the date of the Deposit.
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 8 1/8% note
selected for redemption. Also, the Company is not required to transfer or
exchange any 8 1/8% note for a period of 15 days before the mailing of a notice
of redemption of 8 1/8% new notes.
The registered holder of a note will be treated as the owner of it for all
purposes.
GLOBAL NOTES
The old notes were and the new notes will 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 Depository 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.
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 applicable 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 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.
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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 Trustees or the Exchange Agent 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.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the initial purchasers entered into a registration rights
agreement on May 21, 1998. Pursuant to the registration rights agreement, the
Company agreed to file an exchange offer registration statement (the "Exchange
Offer Registration Statement") with the Commission within 30 days of filing its
1998 Form 10-K on the appropriate form under the Securities Act with respect to
an offer to exchange each of the old notes for the new notes. Pursuant to the
Exchange Offer, upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of the Transfer Restricted
Securities (as defined), who are able to make certain representations, the
opportunity to exchange their Transfer Restricted Securities for new notes. If
(i) the Exchange Offer is not permitted by applicable law or Commission policy
or (ii) any holder of notes which are Transfer Restricted Securities notifies
the Company prior to the twentieth business day following the consummation of
the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer, or (b) it may not resell the new notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by it, or (c) it is a
broker-dealer and owns old notes acquired directly from the Company or any of
the Company's affiliates, the Company will file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to register for
public resale the Transfer Restricted Securities held by any such holder who
provides the Company with certain information for inclusion in the Shelf
Registration Statement. The Company will use its commercially reasonable efforts
to cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than twenty
business days. For the purposes of the foregoing, "Transfer Restricted
Securities" means each old note until the earliest of the date on which (i) such
old note has been exchanged in the Exchange Offer by a person other than a
broker-dealer for a New note, (ii) such old note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iii) following the exchange by a broker-dealer in the
Exchange Offer of an old note for a new note, such new note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospects contained in the Exchange Offer Registration
Statement, or (iv) such old note is distributed to the public pursuant to Rule
144(k) under the Securities Act.
The registration rights agreement provides that (i) if the Company fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the thirtieth day after the Filing Date, (ii) if the
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Company fails to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to ninety days after the Filing Date,
(iii) if the Company fails to have the Exchange Offer consummated on or before
the thirtieth business day after the Exchange Offer Registration Statement is
declared effective, (iv) if obligated to file the Shelf Registration Statement
and the Company fails to file the Shelf Registration Statement with the
Commission on or prior to thirty days after such filing obligation arises and
fails to cause the Shelf Registration Statement to be declared effective on or
prior to sixty days after the obligation to file arises, or (vi) if the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is declared effective but thereafter ceases to be effective or useable
in connection with resales of the Transfer Restricted Securities during the
periods specified in the Registration Rights Agreement, (each such event
referred to in clauses (i) through (vi) above a "Registration Default"), then
the Company will pay to each holder of Transfer Restricted Securities affected
thereby liquidated damages ("Liquidated Damages") in an amount equal to $0.05
per week per $1,000 in principal amount of Transfer Restricted Securities held
by such holder for each week or portion thereof that the Registration Default
continues for the first 90-day period immediately following the occurrence of
such Registration Default. The amount of the Liquidated Damages shall increase
by an additional $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.35 per week per $1,000 in principal amount of Transfer Restricted
Securities. The Company shall not be required to pay Liquidated Damages for more
than one Registration Default at any given time. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by the Company to holders
entitled thereto by wire transfer to the accounts specified by them or by
mailing checks to their registered address if no such accounts have been
specified.
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 applicable notes then outstanding
(including consents obtained in connection with a tender offer or Exchange Offer
for such notes), and any existing default or compliance with any provision of
the indentures or the notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding applicable notes (including
consents obtained in connection with a tender offer or Exchange Offer for such
notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder): (i) reduce the
principal amount of notes whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any note
or, in the case of the 8 1/8% indenture, alter the provisions with respect to
the redemption of the 8 1/8% notes (other than provisions relating to the
covenants described 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 applicable notes by the holders of at least a
majority in aggregate principal amount thereof and a waiver of the payment
default that resulted from such acceleration); (v) make any note payable in
money other than that stated in the notes; (vi) make any change in the
provisions of the 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 8 1/8% indenture, waive a
redemption payment with respect to any 8 1/8% note (other than a payment
required by one of the covenants described 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. Notwithstanding the foregoing,
any amendment to the provisions of Article 10 of the 8 1/8% indenture (which
relate to subordination) will require the consent of the holders of at least 75%
in
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aggregate principal amount of the 8 1/8% notes then outstanding if such
amendment would adversely affect the rights of holders of 8 1/8% 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 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, consolidation or sale of assets
pursuant to the covenant described under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" 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 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.
"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.
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"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of any
assets (including, without limitation, by way of a sale and leaseback) other
than in the ordinary course of business consistent with past practices 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 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.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period PLUS in each case,
without duplication (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), (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, (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, (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, (v) the amount of any restructuring charges deducted in such period
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in computing Consolidated Net Income for such period, (vi) the amount of all
losses related to discontinued operations deducted in such period in computing
Consolidated Net Income for such period, (vii) the amount of all non-recurring
charges and expenses related to acquisitions and mergers deducted in such period
in computing Consolidated Net Income for such period and (viii) any non-cash
charges reducing Consolidated Net Income for such period (excluding any portion
of such charge requiring an accrual of a cash reserve for anticipated cash
charges for any future period).
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; 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.
"DESIGNATED SENIOR DEBT" means (i) so long as any Obligations are outstanding
under the Existing Credit Facility, such Obligations and (ii) thereafter, any
other Senior Debt permitted under the 8 1/8% indenture the principal amount of
which is $100.0 million or more and that has been designated by the Company as
"Designated Senior Debt."
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"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible or for which it is exchangeable),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder thereof, in whole or in part, on or prior to the date on which the
applicable new 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 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 $2.8 billion in aggregate principal amount of
Indebtedness, including any related notes, instruments, and agreements executed
in connection therewith, as amended, modified, extended, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries
(other than Indebtedness under the Company's Existing 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.
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"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, as in effect from time to time.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such
Person under (i) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements, (ii) 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).
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"OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"PAYMENT DEFAULT" means, for purposes of the 7 5/8% 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 (or if such Permitted Refinancing
Indebtedness is issued at a discount, the initial issuance price 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 Stated
Maturity date later than the Stated 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 7 5/8%
new notes, such Permitted Refinancing Indebtedness has a Stated Maturity date
later than the Stated Maturity date of, and is subordinated in right of payment
to, the 7 5/8% new notes on subordination terms at least as favorable to the
holders of 7 5/8% new 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
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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.
"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 neither S&P nor
Moody's shall make a rating of the 7 5/8% new notes or the 8 1/8% new notes, as
the case may be, 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 new 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 new notes is under publicly announced consideration
for possible downgrade by any of the Rating Agencies) of: (a) in the event the
new notes are rated by either Moody's or S&P on the Rating Date as Investment
Grade, a decrease in the rating of the new notes by both Rating Agencies to a
rating that is below Investment Grade, or (b) in the event the new notes are
rated below Investment Grade by both Rating Agencies on the Rating Date, a
decrease in the rating of the new 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.
"SENIOR DEBT" means (i) Indebtedness under the Existing Credit Facility, (ii)
the 7 5/8% new notes and the 7 5/8% old notes, the Existing Senior Notes and any
other Indebtedness permitted to be incurred by the
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Company under the terms of the 8 1/8% 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 8 1/8% new 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 8 1/8% new
notes, the Company's untendered 10 1/8% Notes, the Company's 8 5/8% Subordinated
Notes and the 6% 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 8 1/8%
indenture.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the 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.
"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.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal, we will accept for exchange old notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on May 28, 1999; PROVIDED, HOWEVER, that if we, in our sole
discretion, have extended the period of time during which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $350,000,000 principal amount of 7 5/8%
old notes and $1,005,000,000 principal amount of 8 1/8% old notes are
outstanding. This Prospectus, together with the Letter of Transmittal, is first
being sent on or about the date hereof, to all holders of old notes known to us.
Our obligation to accept old notes for exchange pursuant to the Exchange Offer
is subject to certain obligations as set forth under "--Certain Conditions to
the Exchange Offer."
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any old notes, by giving oral or written notice of
such extension to the holders thereof as described below. During any such
extension, all old notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by us. Any old notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
Old notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
We expressly reserves the right to amend or terminate the Exchange Offer,
and not to accept for exchange any old notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified under "--Certain Conditions to the Exchange Offer." We will give oral
or written notice, of any extension, amendment, non-acceptance or termination to
the holders of the old notes as promptly as practicable. Such notice, in the
case of any extension, to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to us of old notes by a holder as set forth below and our
acceptance of the old notes will constitute a binding agreement between us and
the tendering holder upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a holder who wishes to tender old notes for exchange pursuant to
the Exchange Offer must transmit a properly completed and duly executed Letter
of Transmittal, including all other documents required by such Letter of
Transmittal or in the case of a book-entry transfer, an Agent's Message in lieu
of such Letter of Transmittal, to The Bank of New York (the "Exchange Agent") at
the address set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such old notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such old
notes, if such procedure is available, into the Exchange Agent's account at DTC
pursuant to the procedure for book-entry transfer described on page 44 must be
received by the Exchange Agent, prior to the Expiration Date, with the Letter of
Transmittal or an Agent's Message in lieu of such Letter of Transmittal, or
(iii) the holder must comply with the guaranteed delivery procedures described
below. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the tendering
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participant, which acknowledgment states that such participant has received and
agrees to be bound the Letter of Transmittal and that we may enforce such Letter
of Transmittal against such participant.
The method of delivery of old notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If such delivery
is by mail, it is recommended that registered mail, properly insured, with
return receipt requested, be used. In all cases, sufficient time should be
allowed to assure timely delivery. No letter of transmittal or old notes should
be sent to us.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the old notes surrendered for exchange
pursuant thereto are tendered (i) by a holder of the old notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution (as defined). In the event that signatures on a Letter of
Transmittal or a notice of withdrawal are required to be guaranteed, such
guarantees must be by a firm which is a member of the Securities Transfer Agent
Medallion Program, the Stock Exchanges Medallion Program or the New York Stock
Exchange Medallion Program (each such entity being hereinafter referred to as an
"Eligible Institution"). If old notes are registered in the name of a person
other than the signer of the Letter of Transmittal, the old notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as we determine (which
decision we may delegate to the Exchange Agent) in our sole discretion, duly
executed by the registered holders with the signature thereon guaranteed by an
Eligible Institution.
We shall make a final and binding determination on all questions as to the
validity, form, eligibility (including time of receipt) and acceptance of old
notes tendered for exchange (which decision we may delegate to the Exchange
Agent) in our sole discretion. We reserve the absolute right to reject any and
all tenders of any particular old note not properly tendered or to not accept
any particular old note which acceptance might, in our judgment or our
counsel's, be unlawful. We also reserve the absolute right to waive any defects
or irregularities or conditions of the Exchange Offer as to any particular old
note either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender old notes in the Exchange
Offer). Our interpretation of the terms and conditions of the Exchange Offer as
to any particular old note either before or after the Expiration Date (including
the Letter of Transmittal and the instructions thereto) (which power we may
delegate to the Exchange Agent) shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of old
notes for exchange must be cured within such reasonable period of time as we
shall determine. We are not, nor is the Exchange Agent or any other person under
any duty to give notification of any defect or irregularity with respect to any
tender of old notes for exchange, and shall not incur any liability for failure
to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of old notes, such old notes must be endorsed or
accompanied by powers of attorney, in either case signed exactly as the name or
names of the registered holder or holders that appear on the old notes.
If the Letter of Transmittal or any old notes or powers of attorneys are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived us
(which power may be delegated to the Exchange Agent), proper evidence
satisfactory to us of their authority to so act must be submitted with the
Letter of Transmittal.
Any holder that tenders old notes to us represents that the new notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such new notes, whether or not such
person is the holder and that neither the holder nor such other person has any
arrangement or understanding with any person, to participate in the distribution
of the new notes. If any holder who is our "affiliate" as defined under Rule 405
promulgated under the Securities Act, engages in or intends to engage in or has
an arrangement or understanding with any person to participate in a
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distribution of such new notes to be acquired pursuant to the Exchange Offer,
such holder or any such other person (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives new
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. See "Plan of Distribution." The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
we will accept, promptly after the Expiration Date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "--Certain Conditions to the Exchange Offer." For purposes of the
Exchange Offer, we shall be deemed to have accepted properly tendered old notes
for exchange when, and if we give oral (confirmed in writing) or written notice
thereof to the Exchange Agent.
The holder of each old note accepted for exchange will receive a new note in
the amount equal to the surrendered old note. Accordingly, registered holders of
new notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid on the old notes.
Holders of old notes whose old notes are accepted for exchange will not receive
any payment in respect of accrued interest on such old notes otherwise payable
on any interest payment date the record date for which occurs on or after the
consummation of the Exchange Offer.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such old notes or a timely
Book-Entry Confirmation of such old notes into the Exchange Agent's account at
DTC, (ii) a properly completed and duly executed Letter of Transmittal or an
Agent's Message in lieu thereof and (iii) all other required documents. lf any
tendered old notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if old notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged old notes will be returned without expense to the tendering holder
thereof (or, in the case of old notes tendered by book-entry transfer into the
Exchange Agent's account at DTC pursuant to the book-entry procedures described
below, such non-exchanged old notes will be credited to an account maintained
with DTC) as promptly as practicable after the expiration or termination of the
Exchange Offer.
BOOK-ENTRY TRANSFERS
The Exchange Agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus, unless the Exchange Agent already has
established an account with DTC suitable for the Exchange Offer, and any
financial institution that is a participant in DTC may make book-entry delivery
of old notes by causing DTC to transfer such old notes into the Exchange Agent's
account at DTC in accordance with DTC's procedures for transfer. However,
although delivery of old notes may be effected through book-entry transfer at
DTC, the Letter of Transmittal or facsimile thereof or an Agent's Message in
lieu thereof, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
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GUARANTEED DELIVERY PROCEDURES
If a holder of the old notes desires to tender such old notes and the old
notes are not immediately available, or time will not permit such holder's old
notes or other required documents to reach the Exchange Agent before the
Expiration Date, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
received from such Eligible Institution a Notice of Guaranteed Delivery,
substantially in the form we provide (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of the old notes and the amount of old notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered old notes, in
proper form for transfer, or a book-entry confirmation, as the case may be,
together with a properly completed and duly executed appropriate Letter of
Transmittal or facsimile thereof or Agent's Message in lieu thereof, with any
required signature guarantees and any other documents required by the Letter of
Transmittal will be deposited by such Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered old notes, in
proper form for transfer, or a book-entry confirmation, as the case may be,
together with a properly completed and duly executed appropriate Letter of
Transmittal or facsimile thereof or Agent's Message in lieu thereof, with any
required signature guarantees and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three NYSE trading days
after the date of execution the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth under
"--Exchange Agent." Any such notice of withdrawal must (i) specify the name of
the person having tendered the old notes to be withdrawn, (ii) the old notes to
be withdrawn (including the principal amount of such old notes), and (iii)
(where certificates for old notes have been transmitted) specify the name in
which such old notes are registered, if different from that of the withdrawing
holder. If certificates for old notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If old notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn old
notes and otherwise comply with the procedures of DTC. We shall make a final and
binding determination on all questions as to the validity, form and eligibility
(including time of receipt) of such notices (or delegate our power to the
Exchange Agent). Any old notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any old notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of old notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described above,
such old notes will be credited to an account maintained with DTC for the old
notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn old notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
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CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the Exchange Offer, if at any time before the
acceptance of such old notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in our ability to
accept for exchange or exchange some or all of the old notes pursuant to the
Exchange Offer; or any statute, rule, regulation, order or injunction shall
be sought, proposed, introduced, enacted, promulgated or deemed applicable
to the Exchange Offer or any of the transactions contemplated by the
Exchange Offer by any government or governmental authority, domestic or
foreign, or any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or foreign,
that in the sole judgment might, directly or indirectly, result in any of
the consequences referred to in clauses (i) or (ii) above or, in our
reasonable judgment, might result in the holders of new notes having
obligations with respect to resales and transfers of new notes which are
greater than those described in the interpretation of the Commission
referred to on the cover page of this Prospectus, or would otherwise make it
inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by an governmental agency or authority which may adversely affect our
ability to complete the transactions contemplated by the Exchange Offer,
(iii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation by any governmental
agency or authority which adversely affects the extension of credit or (iv)
a commencement of a war, armed hostilities or other similar international
calamity directly or indirectly involving the United States, or, in the case
of any of the foregoing existing at the time of the commencement of the
Exchange Offer, a material acceleration or worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects and our subsidiaries taken as a whole that, in our reasonable
judgment, is or may be adverse to us, or we have become aware of facts that,
in our reasonable judgment, have or may have adverse significance with
respect to the value of the old notes or the new notes;
which in our reasonable judgment in any case, and regardless of the
circumstances (including any action by the Company) giving rise to any such
condition, makes it inadvisable to proceed with the Exchange Offer and/or with
such acceptance for exchange or with such exchange.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our
reasonable discretion. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the Registration
Statement, of which this Prospectus constitutes a part, or the qualification of
the indenture under the Trust Indenture Act.
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EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
The Bank of New York
AS EXCHANGE AGENT
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BY MAIL, BY HAND AND OVERNIGHT COURIER: BY FACSIMILE:
The Bank of New York (212) 815-6339
101 Barclay Street, 21 West CONFIRM BY TELEPHONE:
New York, New York 10286 (212) 815-3502
Attention: Millicent Burnett
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer, except for reimbursement of mailing expenses.
We will pay the estimated cash expenses to be incurred in connection with
the Exchange Offer, which are estimated to be $1,075,000.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct us
to register new notes in the name of, or request that old notes not tendered or
not accepted in the Exchange Offer be returned to, a person other that the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of old notes who do not exchange their old notes for new notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the indentures regarding transfer and exchange of the old notes and the
restrictions on transfer of such old notes as set forth in the legend thereon as
a consequence of the issuance of the old notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the old notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Under certain circumstances, certain holders
of old notes (including holders who are not permitted to participate in the
Exchange Offer or who may not freely resale new notes received in the Exchange
Offer, may require us to file and cause to become effective, a shelf
registration statement which would cover resales of old notes by such holders.
We do not currently anticipate that we will register old notes under the
Securities Act. However, subject to limitations specified in the registration
rights agreement, we will register or qualify the new notes for offer or sale
under the securities laws of any jurisdictions that you reasonably request in
writing. See "--Description of the Notes--Exchange Offer; Registration Rights."
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, the Company believes that new notes
issued pursuant to the Exchange Offer in exchange for old
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notes may be offered for resale, resold or otherwise transferred by holders
thereof (other than any such holder which is our "affiliate" within the meaning
of Rule 405 promulgated under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act;
PROVIDED that such new notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with any
person to participate in the distribution of such new notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such new
notes and has no arrangement or understanding to participate in a distribution
of new notes. If any holder who is our affiliate engages in or intends to engage
in or has any arrangement or understanding with respect to the distribution of
new notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives new notes for its own account in exchange for old notes must
acknowledge that such old notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such new notes. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the new notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied with.
We have agreed, pursuant to the registration rights agreement, subject to
certain limitations specified therein, to register or qualify the new notes for
offer or sale under the securities laws of such jurisdictions as any holder
reasonably requests in writing. Unless a holder so requests, we do not intend to
register or qualify the sale of the new notes in any such jurisdictions.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses Federal income tax consequences anticipated
to be material to holders who exchange the old notes for new notes, pursuant to
the Exchange Offer, and the disposition of the new notes. This summary is based
upon existing United States Federal income tax law, which is subject to change,
possibly retroactively. This summary does not discuss all aspects of United
States Federal income taxation which may be important to particular holders in
light of their individual investment circumstances, such as new notes held by
investors subject to special tax rules (e.g., financial institutions, insurance
companies, broker-dealers, and tax-exempt organizations, or, except to the
extent described below, Non-U.S. holders (as defined below)) or to persons that
hold the old notes or will hold the new notes as a part of a straddle, hedge, or
synthetic security transaction for United States Federal income tax purposes or
that have a functional currency other than the United States dollar, all of whom
may be subject to tax rules that differ significantly from those summarized
below. In addition, this summary does not discuss any foreign, state, or local
tax considerations. This summary addresses tax consequences only to current
holders of notes and assumes that such holders hold their new notes as "capital
assets" (generally, property held for investment) under the United States
Internal Revenue Code of 1986, as amended (the "Code"). holders are urged to
consult their tax advisors regarding the United States Federal, state, local,
and foreign income and other tax considerations associated with the exchange of
old notes for new notes and the disposition of the new notes.
For purposes of this summary, a "U.S. Holder" is (i) an individual who is a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized under the laws of the United States or any
state or political subdivision thereof, (iii) an estate that is subject to
United States federal income taxation without regard to the source of its
income, or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions of the
trust. A "Non-U.S. Holder" is a beneficial owner of an old note or new note who
is not a U.S. Holder.
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U.S. HOLDERS AND NON-U.S. HOLDERS
The Company has received an opinion from Skadden, Arps, Slate, Meagher &
Flom LLP that there will be no United States Federal income tax consequences to
a U.S. Holder or Non-U.S. Holder exchanging an old note for a new note pursuant
to the Exchange Offer and such holder will have the same adjusted basis and
holding period in the new note as it had in the old note immediately before the
exchange.
U.S. HOLDERS
DISPOSITION OF NEW NOTES. In general, subject to the market discount rules
discussed below, a U.S. Holder of a new note will recognize capital gain or loss
upon the sale, redemption, retirement or other disposition of the new note in an
amount equal to the difference between the amount realized (except to the extent
attributable to accrued but unpaid interest), in such disposition and the
holder's adjusted tax basis in the new note. Under the recently enacted Internal
Revenue Service Restructuring and Reform Act of 1998, net capital gain (i.e.
generally, capital gain in excess of capital loss) recognized by an individual
holder upon the disposition of a new note that has been held for more than 12
months will generally be subject to tax at a rate not to exceed 20%, or, in the
case of a new note that has been held for 12 months or less will be subject to
tax at ordinary income tax rates. In addition, capital gain recognized by a
corporate holder will be subject to tax at the ordinary income tax rates
applicable to corporations.
MARKET DISCOUNT. Holders, other than original purchasers of old notes in
the original offering, should be aware that the resale of the new notes may be
affected by the market discount provisions of the Code. These rules generally
provide that if a holder of a note purchases such note, subsequent to the
original offering, at a market discount in excess of a statutorily defined DE
MINIMUS amount, and thereafter recognizes gain upon a disposition (including a
partial redemption) of the new note received in exchange for such old note, the
lesser of such gain or the portion of the market discount that accrued while the
old note and the new note were held by such holder will be treated as ordinary
interest income at the time of the disposition. The rules also provide that a
holder who acquires a note at a market discount may be required to defer a
portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such note until the
holder disposes of such note in a taxable transaction. If a holder of such a
note elects to include market discount in income currently, both of the
foregoing rules would not apply.
NON-U.S. HOLDERS
PAYMENTS OF INTEREST. Interest paid by the Company to Non-U.S. Holders will
not be subject to United States Federal income or withholding tax provided that
(i) such holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(ii) such holder is not a controlled foreign corporation related to the Company
through stock ownership, a foreign tax-exempt organization or foreign private
foundation for United States Federal income tax purposes, and (iii) the
requirements of section 871(h) or 881(c) of the Code are satisfied as described
below under the heading "Owner's Statement Requirement." Notwithstanding the
above, unless the holder qualifies for an exemption from such tax or a lower tax
rate under an applicable treaty, a Non-U.S. Holder that is engaged in the
conduct of a United States trade or business will be subject to (i) United
States Federal income tax on interest that is effectively connected with the
conduct of such trade or business and (ii) if the Non-U.S. Holder is a
corporation, a United States branch profits tax equal to 30% of its "effectively
connected earnings and profits" as adjusted for the taxable year.
GAIN ON DISPOSITION. A Non-U.S. Holder will generally not be subject to
United States Federal income tax on gain recognized on a sale, redemption, or
other disposition of a new note unless (i) the gain is effectively connected
with the conduct of a trade or business within the United States by the Non-U.S.
Holder or (ii) in the case of a Non-U.S. Holder who is a nonresident alien
individual, such holder is present in the United States for 183 or more days
during the taxable year and certain other requirements are met. Any such gain
that is effectively connected with the conduct of a United States trade or
business
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by a Non-U.S. Holder will be subject to United States Federal income tax on a
net income basis in the same manner as if such holder were a United States
person and, if such Non-U.S. Holder is a corporation, such gain may also be
subject to the 30% United States branch profits tax described above.
FEDERAL ESTATE TAXES. A new note held by an individual who at the time of
death is not a citizen or resident of the United States will not be subject to
United States Federal estate tax as a result of such individual's death,
PROVIDED that (i) the individual does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote and (ii) the interest accrued on the new note was not
effectively connected with a United States trade or business of the individual
at the individual's death.
OWNER'S STATEMENT REQUIREMENT. Sections 871(h) and 881(c) of the Code
require that either the beneficial owner of the new note or a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and that holds the new note on behalf of such owner file a
statement with the Company or its agent to the effect that the beneficial owner
is not a United States person in order to avoid withholding of United States
Federal income tax. Under current regulations, this requirement will be
satisfied if the Company or its agent receives (i) a statement (an "Owner's
Statement") from the beneficial owner of a new note certifying under penalties
of perjury that such owner is not a United States person and that provides such
owner's name and address or (ii) a statement from the Financial Institution
holding the new note on behalf of the beneficial owner in which the Financial
Institution certifies, under penalties of perjury, that it has received the
Owner's Statement together with a copy of the Owner's Statement. The beneficial
owner must inform the Company or its agent (or, in the case of a statement
described in clause (ii) of the immediately preceding sentence, the Financial
Institution) within 30 days of any change in information on the Owner's
Statement.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Current United States Federal
income tax law provides that in the case of payments of interest to Non-U.S.
holders, the 31% backup withholding tax will not apply to payments made outside
the United States by the Company or a paying agent on a new note if an Owner's
Statement is received or an exemption has otherwise been established; PROVIDED
in each case that the Company or the paying agent, as the case may be, does not
have actual knowledge that the payee is a United States person.
Under current Treasury Regulations, payments of the proceeds of the sale of
a new note to or through a foreign office of a "broker" will not be subject to
backup withholding but will be subject to information reporting if the broker is
a United States person, a controlled foreign corporation for United States
Federal income tax purposes, a foreign person 50% or more of whose gross income
is from a United States trade or business for a specific three-year period, or,
with respect to payments made after December 31, 1999, a foreign partnership, if
at any time during its tax year, one or more of its partners are U.S. persons
(as defined in United States Treasury regulations) who, in the aggregate, hold
more than 50% of the income or capital interest in the partnership or if, at any
time during its tax year, such foreign partnership is engaged in a United States
trade or business unless the broker has in its records documentary evidence that
the holder is not a United States person and certain conditions are met or the
holder otherwise establishes an exemption. Payment of the proceeds of a sale to
or through the United States office of a broker is subject to backup withholding
and information reporting unless the holder certifies its non-United States
status under penalties of perjury or otherwise establishes an exemption.
Recently, the Treasury Department has promulgated final regulations (the
"Final Regulations") regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not significantly alter
the substantive withholding and information reporting requirements but unify
current certification procedures and forms and clarify reliance standards. Under
the Final Regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners and would alter the rules applicable to certain
partnerships by requiring partners, rather than the partnership, to provide the
Owner's Statement. The Final Regulations are generally effective for payments
made after December 31, 1999, subject to certain transition rules.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of ninety days after the
Expiration Date, we will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until August 26, 1999, all dealers effecting transactions in the new
notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market or, in negotiated transactions, or a
combination of such methods of resale, at market prices or negotiated prices.
Any such resale may be made directly to the purchaser or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such new notes.
Any broker-dealer that resells new notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of ninety days after the Expiration Date, we will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. We have agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the new notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the new notes (including any broker-dealer) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters as to the validity of the new notes offered hereby
will be passed upon for us by Christi R. Sulzbach, our Executive Vice President
and General Counsel. Ms. Sulzbach will rely upon the opinion of Woodburn &
Wedge, Reno, Nevada, as to matters of Nevada law.
EXPERTS
Our consolidated financial statements and schedule as of May 31, 1997 and
1998, and for each of the years in the three-year period ended May 31, 1998,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the reports of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION WHERE IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE USING THE PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE
REFERRED YOU TO IS CORRECT AFTER THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF.
TABLE OF CONTENTS
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Available Information...................................................................................... ii
Incorporation of Certain Documents by Reference............................................................ ii
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 14
Capitalization............................................................................................. 15
Selected Financial Information............................................................................. 16
Description of Notes....................................................................................... 18
The Exchange Offer......................................................................................... 42
Material Federal Income Tax Consequences................................................................... 48
Plan of Distribution....................................................................................... 51
Legal Matters.............................................................................................. 51
Experts.................................................................................................... 51
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