<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
FEBRUARY 28, 1999.
OR
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ....... TO ....... .
COMMISSION FILE NUMBER 1-7293
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TENET HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
NEVADA 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3820 STATE STREET
SANTA BARBARA, CA 93105
(Address of principal executive offices)
(805) 563-7000
(Registrant's telephone number, including area code)
-----------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
--- ---
AS OF MARCH 31, 1999 THERE WERE 310,537,022 SHARES OF $0.075 PAR VALUE
COMMON STOCK OUTSTANDING.
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<PAGE>
TENET HEALTHCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
------------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - May 31, 1998
and February 28, 1999............................................................ 2
Condensed Consolidated Statements of Income - Three Months and Nine Months ended
February 28, 1998 and 1999....................................................... 4
Condensed Consolidated Statements of Comprehensive Income - Nine Months ended
February 28, 1998 and 1999....................................................... 5
Condensed Consolidated Statements of Cash Flows - Nine Months ended February 28,
1998 and 1999.................................................................... 6
Notes to Condensed Consolidated Financial Statements................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 20
Item 6. Exhibits and Reports on Form 8-K..................................................... 20
Signature............................................................................ 21
- -----------------
</TABLE>
Note: Item 3 of Part I and Items 2, 3, 4 and 5 of Part II are omitted because
they are not applicable.
1
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1998 1999
------------ ------------
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................ $ 23 $ 61
Short-term investments in debt securities................................ 132 130
Accounts receivable, less allowance for doubtful accounts ($191 at
May 31 and $244 at February 28)...................................... 1,742 2,303
Inventories of supplies, at cost......................................... 214 244
Deferred income taxes.................................................... 275 166
Other current assets..................................................... 504 418
------------ ------------
Total current assets............................................ 2,890 3,322
------------ ------------
Investments and other assets.................................................. 515 524
Property and equipment, at cost............................................... 7,779 8,465
Less accumulated depreciation and amortization........................... 1,765 2,033
------------ ------------
Net property and equipment............................................... 6,014 6,432
------------ ------------
Intangible assets, at cost less accumulated amortization
($327 at May 31 and $420 at February 28)................................. 3,414 3,607
------------ ------------
$ 12,833 $ 13,885
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Condition and
Results of Operations.
2
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1998 1999
------------ ------------
(DOLLAR AMOUNTS IN MILLIONS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.................................... $ 10 $ 35
Accounts payable..................................................... 657 642
Accrued employee compensation and benefits........................... 355 377
Accrued interest payable............................................. 106 80
Reserves related to discontinued operations, merger, facility
consolidation and impairment charges............................. 137 61
Other current liabilities............................................ 502 650
------------ ------------
Total current liabilities................................... 1,767 1,845
------------ ------------
Long-term debt, net of current portion.................................... 5,829 6,496
Other long-term liabilities and minority interests........................ 1,256 1,134
Deferred income taxes..................................................... 423 437
Shareholders' equity:
Common stock, $0.075 par value; authorized 700,000,000 shares; 313,044,417
shares issued at May 31 and 314,279,558 shares
issued at February 28............................................ 23 24
Other shareholders' equity........................................... 3,605 4,019
Less common stock in treasury, at cost, 3,754,891 shares at May 31
and 3,754,555 at February 28 .................................... (70) (70)
------------ ------------
Total shareholders' equity.................................. 3,558 3,973
------------ ------------
$ 12,833 $ 13,885
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Condition and
Results of Operations.
3
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1998 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
----------------------- -----------------------
1998 1999 1998 1999
--------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues............................... $ 2,564 $ 2,822 $ 7,324 $ 7,938
--------- --------- --------- ---------
Operating expenses:
Salaries and benefits........................... 1,040 1,160 3,013 3,217
Supplies........................................ 365 403 1,016 1,104
Provision for doubtful accounts................. 163 190 447 533
Other operating expenses........................ 518 611 1,516 1,710
Depreciation.................................... 89 109 257 307
Amortization.................................... 32 33 83 96
--------- --------- --------- ---------
Operating income..................................... 357 316 992 971
--------- --------- --------- ---------
Interest expense, net of capitalized portion......... (114) (122) (344) (360)
Investment earnings.................................. 5 8 17 21
Minority interests in income of consolidated
subsidiaries.................................... (6) - (19) (5)
Gain from change in value of indexed debt............ - - 18 -
--------- --------- --------- ---------
Income before income taxes........................... 242 202 664 627
Taxes on income...................................... (94) (78) (262) (241)
--------- --------- --------- ---------
Net income........................................... $ 148 $ 124 $ 402 $ 386
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings per share............................... $ 0.48 $ 0.40 $ 1.32 $ 1.25
Diluted earnings per share............................. $ 0.47 $ 0.40 $ 1.29 $ 1.23
Weighted average shares and dilutive securities
outstanding (in thousands):
Basic............................................. 306,607 310,272 305,449 309,823
Diluted........................................... 312,816 312,945 311,258 313,512
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Condition and
Results of Operations.
4
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED FEBRUARY 28, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Net income ........................................................... $ 402 $ 386
Other comprehensive income (loss):
Foreign currency translation adjustments......................... - 2
Unrealized net holding losses arising during period on securities
held as available for sale....................................... (47) (3)
----------- -----------
Other comprehensive loss before income taxes..................... (47) (1)
Income tax benefit related to items of other comprehensive income 18 -
----------- -----------
Other comprehensive loss......................................... (29) (1)
----------- -----------
Comprehensive income.................................................. $ 373 $ 385
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Condition and
Results of Operations.
5
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Cash flows from operating activities:
Recurring operations...................................................... $ 444 $ 352
Net expenditures for discontinued operations and non-recurring charges.... (307) (37)
----------- -----------
Net cash provided by operating activities..................... 137 315
Cash flows from investing activities:
Proceeds from sales of facilities and other assets................... 162 19
Collection of notes receivable....................................... 25 7
Purchases of property and equipment.................................. (371) (401)
Purchases of new businesses, net of cash acquired. .................. (679) (470)
Other items.......................................................... (77) (108)
----------- -----------
Net cash used in investing activities............................ (940) (953)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings............................................. 1,916 4,660
Payments of borrowings............................................... (1,189) (3,998)
Other items, primarily stock option exercises........................ 58 14
----------- -----------
Net cash provided by financing activities........................ 785 676
----------- -----------
Net increase (decrease) in cash and cash equivalents...................... (18) 38
Cash and cash equivalents at beginning of period.......................... 35 23
----------- -----------
Cash and cash equivalents at end of period................................ $ 17 $ 61
----------- -----------
----------- -----------
Supplemental disclosures:
Interest paid, net of amounts capitalized............................ $ 338 $ 378
Income taxes paid, net of refunds received........................... 11 (30)
Fair value of common stock issued for purchase of new business....... 9 -
Fair value of common stock tendered for note receivable.............. 16 -
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Condition and
Results of Operations.
6
<PAGE>
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The financial information furnished herein is unaudited; however, in the
opinion of management, the information reflects all adjustments that are
necessary to fairly state the financial position of Tenet Healthcare
Corporation (together with its subsidiaries, "Tenet" or the "Company"), the
results of its operations and its cash flows for the interim periods
indicated. All the adjustments are of a normal recurring nature.
The Company presumes that users of this interim financial information have
read or have access to the Company's audited financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the preceding fiscal year, and that the adequacy of
additional disclosure needed for a fair presentation may be determined in
that context. Accordingly, footnotes and other disclosure that would
substantially duplicate the disclosure contained in the Company's most
recent annual report to security holders have been omitted. Patient volumes
and net operating revenues of the Company's hospitals are subject to
seasonal variations caused by a number of factors, including but not
necessarily limited to, seasonal cycles of illness, climate and weather
conditions, vacation patterns of both hospital patients and admitting
physicians and other factors relating to the timing of elective hospital
procedures. Quarterly operating results are not necessarily representative
of operations for a full year for various reasons, including levels of
occupancy, interest rates, acquisitions, disposals, revenue allowance and
discount fluctuations, the timing of price changes, unusual or
non-recurring items and fluctuations in quarterly tax rates.
These same considerations apply to all year-to-year comparisons.
2. During the nine months ended February 28, 1999, Tenet acquired ten general
hospitals and related physician practices and certain other related
businesses in transactions accounted for as purchases. The Company also
sold one general hospital, closed another and combined the operations of
two. The results of operations of the acquired businesses, which are not
material, have been included in the Company's consolidated statements of
income and cash flows from the dates of acquisition. In March, 1999, the
Company acquired an 80% interest in two hospitals in Massachussetts in a
transaction accounted for as a purchase and sold a 69-bed general hospital
in California. The operations of the sold and closed businesses were also
not material.
3. There have been no material changes to the description of professional and
general liability insurance set forth in Note 9A or significant legal
proceedings set forth in Note 9B of Notes to Consolidated Financial
Statements of Tenet for its fiscal year ended May 31, 1998.
4. The following table presents a reconciliation of the Company's beginning
and ending liability balances in connection with the reserves for merger,
facility consolidation and impairment charges recorded in fiscal 1997 and
1998 by type of cost for the nine-month period ended February 28, 1999 (in
millions):
7
<PAGE>
<TABLE>
<CAPTION>
CASH
PAYMENTS,
NET OF BALANCES AT
BALANCES AT SPECIAL FACILITY SALES FEBRUARY 28,
RESERVES RELATED TO: MAY 31, 1998 CHARGES PROCEEDS OTHER ITEMS 1999
------------------------------------- ------------ ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
The OrNda Merger .................. $ 19 - $ (9) - $ 10
Fiscal 1997 impairment losses...... 10 - (2) - 8
Estimated costs to sell or close
facilities and lease accruals in
1997 Plan.......................... 57 - (1) (8) 48
Fiscal 1998 impairment losses ..... 42 - (2) (40) 0
Estimated costs to sell or close
hospitals in 1998 Plan............. 37 - (2) - 35
Severance and other exit costs
related to closure of home health
agencies........................... 27 - (15) 12
Termination of physician contracts. 9 - - - 9
------------ ---------- ------------- ------------- ------------
Total......................... $ 201 $ 0 $ (31) $ (48) $ 122
Less amounts included in long-term
liabilities........................ (94) (65)
------------ ------------
Current portion of reserves
related to merger, facility
consolidation and impairment
charges ........................... 107 57
Plus current portion of reserve
for discontinued operations........ 30 4
------------ ------------
Amount shown on
consolidated
balance sheets..................... $ 137 $ 61
------------ ------------
------------ ------------
</TABLE>
The non-cash transactions above consisted primarily of asset write-off's as
facilities were closed, sold or converted to alternate uses. Cash payments
to be applied against these accruals are expected to approximate $29
million in the remainder of fiscal 1999 and $85 million thereafter.
5. The following is a reconciliation of the numerators and the denominators of
the Company's basic and diluted earnings per share computations for the
three months and nine months ended February 28, 1998 and 1999. Income is
expressed in millions and weighted average shares are expressed in
thousands:
<TABLE>
<CAPTION>
1998 1999
--------------------------------------- ----------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
THREE MONTHS (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
-------------------------------- ----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income..................... $ 148 $ 124
----------- ------------
Basic earnings per share:
Income available to common
shareholders.............. $ 148 306,607 $ 0.48 $ 124 310,272 $ 0.40
----------- ------------
----------- ------------
Effect of dilutive stock
options and warrants........... - 6,209 - 2,673
----------- ------------ ----------- ------------
Diluted earnings per share:
Income available to common
shareholders.............. $ 148 312,816 $ 0.47 $ 124 312,945 $ 0.40
----------- ------------ ----------- ----------- ------------ ------------
----------- ------------ ----------- ----------- ------------ ------------
</TABLE>
8
<PAGE>
Outstanding options to purchase 45,000 and 18,224,951 shares of common
stock were not included in the computation of earnings per share for the
three-month periods ended February 28, 1998 and 1999, respectively, because
the options' exercise prices were greater than the average market price of
the common stock.
<TABLE>
<CAPTION>
1998 1999
------------------------------------------ ------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
NINE MONTHS (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
-------------------------------- -------------- ------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net income..................... $ 402 $ 386
-------------- -------------
-------------- -------------
Basic earnings per share:
Income available to common
shareholders.............. $ 402 305,449 $ 1.32 $ 386 309,823 $ 1.25
----------- -----------
----------- -----------
Effect of dilutive stock
options and warrants........ - 5,809 - 3,689
-------------- ------------ ------------- ------------
Diluted earnings per share:
Income available to common
shareholders.............. $ 402 311,258 $ 1.29 $ 386 313,512 $ 1.23
-------------- ------------ ----------- ------------- ------------ -----------
-------------- ------------ ----------- ------------- ------------ -----------
</TABLE>
Outstanding options to purchase 46,400 and 11,275,506 shares of common
stock were not included in the computation of earnings per share for the
nine-month periods ended February 28, 1998 and 1999, respectively, because
the options' excercise prices were greater than the average market price of
the common stock.
6. The following table sets forth the tax effects allocated to each component
of other comprehensive income for the nine months ended February 28, 1998
and 1999:
<TABLE>
<CAPTION>
1998 1999
----------------------------------- -----------------------------------
TAX
BEFORE- TAX NET-OF- BEFORE- (EXPENSE) NET-OF-
TAX (EXPENSE) TAX TAX OR TAX
AMOUNT OR BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT
----------- ----------- ----------- ----------- ------------ ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Foreign currency translation
adjustment $ - $ - $ - $ 2 $ (1) $ 1
Unrealized holding gains (losses)
on securities (47) 18 (29) (3) 1 (2)
----------- ----------- ----------- ----------- ------------ ----------
Other comprehensive income (loss) $ (47) $ 18 $ (29) $ (1) $ - $ (1)
----------- ----------- ----------- ----------- ------------ ----------
----------- ----------- ----------- ----------- ------------ ----------
</TABLE>
9
<PAGE>
The following table sets forth the accumulated other comprehensive income
balances, by component, as of February 28, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------ -------------------------------------------
UNREALIZED ACCUMULATED UNREALIZED ACCUMULATED
FOREIGN GAINS OTHER FOREIGN GAINS OTHER
CURRENCY (LOSSES) ON COMPREHENSIVE CURRENCY (LOSSES) ON COMPREHENSIVE
ITEMS SECURITIES INCOME (LOSS) ITEMS SECURITIES INCOME
------------ ------------- --------------- ------------ -------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ - $ 28 $ 28 - $ 50 $ 50
Current-period change - (29) (29) 1 (2) (1)
------------ ------------- --------------- ------------ -------------- ---------------
Ending balance $ - $ (1) $ (1) $ 1 $ 48 $ 49
------------ ------------- --------------- ------------ -------------- ---------------
------------ ------------- --------------- ------------ -------------- ---------------
</TABLE>
7. On December 7, 1998, the Company's Board of Directors adopted a new
stockholder rights plan to replace a similar plan upon its expiration on
December 22, 1998. The rights generally will be exercisable ten business
days after a person or group acquires beneficial ownership of, or commences
a tender offer or exchange offer that would result in such person or group
beneficially owning, 15 percent or more of Tenet's common stock.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The healthcare industry continues to undergo tremendous change, driven
primarily by (1) cost-containment pressures by government payors, managed care
providers and others, and (2) technological advances that require increased
capital expenditures. In addition to the above, the Company has also experienced
a significant shift in net patient revenues away from traditional Medicare and
indemnity payors to managed care. To address these changes, Tenet has
implemented various cost-control programs and overhead-reduction plans and
continues to create and enhance its integrated healthcare delivery systems.
Income before income taxes was $242 million in the quarter ended February
28, 1998 and $202 million in the quarter ended February 28, 1999. For the
nine-month periods ended February 28, 1998 and 1999, income before income taxes
was $664 million and $627 million, respectively. The 1998 figures include an $18
million gain from changes in indexed debt recorded in the November 1997 quarter.
The gain amounted to $11 million after tax, or $0.03 per share.
The following is a summary of operations for the three months and nine
months ended February 28, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
------------------------------------------------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS) (% OF NET OPERATING REVENUES)
<S> <C> <C> <C> <C>
Net operating revenues:
Domestic general hospitals........... $ 2,331 $ 2,581 90.9% 91.5%
Other domestic operations ........... 233 241 9.1% 8.5%
------------- ------------- ------------- -------------
Net operating revenues.................... 2,564 2,822 100.0% 100.0%
------------- ------------- ------------- -------------
Operating expenses:
Salaries and benefits................ (1,040) (1,160) 40.6% 41.1%
Supplies............................. (365) (403) 14.2% 14.3%
Provision for doubtful accounts...... (163) (190) 6.4% 6.7%
Other operating expenses............. (518) (611) 20.2% 21.6%
Depreciation......................... (89) (109) 3.5% 3.9%
Amortization......................... (32) (33) 1.2% 1.2%
------------- ------------- ------------- -------------
Operating income.......................... $ 357 $ 316 13.9% 11.2%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28,
------------------------------------------------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS) (% OF NET OPERATING REVENUES)
<S> <C> <C> <C> <C>
Net operating revenues:
Domestic general hospitals........... $ 6,652 $ 7,234 90.8% 91.1%
Other domestic operations ........... 672 704 9.2% 8.9%
------------- ------------- ------------- -------------
Net operating revenues.................... 7,324 7,938 100.0% 100.0%
------------- ------------- ------------- -------------
Operating expenses:
Salaries and benefits................ (3,013) (3,217) 41.1% 40.5%
Supplies............................. (1,016) (1,104) 13.9% 13.9%
Provision for doubtful accounts...... (447) (533) 6.1% 6.7%
Other operating expenses............. (1,516) (1,710) 20.7% 21.6%
Depreciation......................... (257) (307) 3.5% 3.9%
Amortization......................... (83) (96) 1.1% 1.2%
------------- ------------- ------------- -------------
Operating income.......................... $ 992 $ 971 13.5% 12.2%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Net operating revenues of other domestic operations in the table above consist
primarily of revenues from: (i) physician practices, (ii) rehabilitation
hospitals, long-term care facilities, psychiatric and specialty hospitals that
are located on or near the same campuses as the Company's general hospitals;
(iii) healthcare joint ventures operated by the Company; (iv) subsidiaries of
the Company offering managed care and indemnity products; and (v) equity in the
earnings of unconsolidated affiliates.
The table below sets forth certain selected historical operating statistics
for the Company's domestic general hospitals:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------------------- ------------------------------------
INCREASE INCREASE
1998 1999 (DECREASE) 1998 1999 (DECREASE)
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of hospitals (at end of
period)............................. 125 129 4 * 125 129 4 *
Licensed beds (at end of period).... 28,433 30,471 7.2% 28,433 30,471 7.2%
Net inpatient revenues (in millions) $ 1,564 $ 1,725 10.3% $ 4,316 $ 4,737 9.8%
Net outpatient revenues (in
millions)........................... $ 724 $ 807 11.5% $ 2,198 $ 2,348 6.8%
Admissions.......................... 230,955 248,646 7.7% 649,797 689,312 6.1%
Equivalent admissions............... 326,322 351,849 7.8% 943,733 996,683 5.6%
Average length of stay (days)....... 5.3 5.2 (0.1) * 5.2 5.2 -
Patient days........................ 1,230,830 1,304,313 6.0% 3,385,081 3,554,223 5.0%
Equivalent patient days............. 1,728,411 1,832,782 6.0% 4,876,520 5,094,834 4.5%
Net inpatient revenue per patient
day................................. $ 1,271 $ 1,323 4.1% $ 1,275 $ 1,333 4.5%
Net inpatient revenue per admission. $ 6,772 $ 6,938 2.5% $ 6,642 $ 6,872 3.5%
Utilization of licensed beds........ 48.3% 47.6% (0.7)%* 44.1% 44.9% 0.8% *
Outpatient visits................... 2,542,908 2,372,360 (6.7)% 7,837,645 7,119,700 (9.2)%
</TABLE>
* The change is the difference between 1998 and 1999 amounts shown.
12
<PAGE>
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals on a same-store basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------------------- ------------------------------------
INCREASE INCREASE
1998 1999 (DECREASE) 1998 1999 (DECREASE)
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Average licensed beds............... 25,730 25,645 (0.3)% 25,924 25,738 (0.7)%
Patient days........................ 1,192,926 1,160,418 (2.7)% 3,248,859 3,235,849 (0.4)%
Net inpatient revenue per patient $ 1,282 $ 1,295 1.0% $ 1,282 $ 1,309 2.1%
day.................................
Admissions.......................... 224,261 222,867 (0.6)% 625,595 634,088 1.4%
Net inpatient revenue per admission. $ 6,819 $ 6,742 (1.1)% $ 6,659 $ 6,680 0.3%
Outpatient visits................... 2,455,038 2,093,542 (14.7)% 7,493,076 6,495,401 (13.3)%
Average length of stay (days)....... 5.3 5.2 (0.1) * 5.2 5.1 (0.1) *
</TABLE>
* The change is the difference between 1998 and 1999 amounts shown.
In the year-ago period, volumes, as measured by same-store admissions and
outpatient visits, were high in December and January due to a severe flu season
in many of the Company's markets. This phenomena did not repeat itself in those
months in the current year, although same-store admissions improved 5.2% in the
month of February 1999 over February 1998.
Changes in Medicare payments mandated by the Balanced Budget Act of 1997
(the "1997 Act"), which became effective October 1, 1997, as well as certain
proposed changes to various states' Medicaid programs, have reduced and will
continue to reduce revenues and earnings significantly as these changes are
phased in over the next two years. The most significant changes were phased in
by October 1, 1998. The Medicare program accounted for approximately 37.8% of
the net patient revenues of the Company's domestic general hospitals for the
quarter ended February 28, 1998 and 34.5% for the current quarter. For the
nine-month periods ended February 28, 1998 and 1999, the percentages were 38.0%
and 34.5%, respectively.
The Company continues to experience increases in inpatient acuity and
intensity of services as less intensive services shift from an inpatient to an
outpatient basis or to alternative healthcare delivery services because of
technological and pharmaceutical improvements and continued pressures by payors
to reduce admissions and lengths of stay. In spite of the historical shifts from
inpatient to outpatient services, the Company experienced a 6.7% decline in the
number of outpatient visits during the quarter ended February 28, 1999 (a 14.7%
decline on a same-store basis) compared to the year-ago quarter and a 9.2%
decline for the corresponding nine-month periods (a 13.3% decline on a
same-store basis). In response to the changes in Medicare payments to home
health agencies mandated by the 1997 Act, the Company has consolidated certain
home health agencies, closed others and begun to increase the number of higher
intensity home visits, which resulted in fewer total home health care visits.
Excluding home health care visits for both periods, outpatient visits increased
approximately 9.2% over the year-ago quarter. For the nine- month periods, the
increase was approximately 7.9%.
13
<PAGE>
Pressures to control healthcare costs and a shift from traditional Medicare
after the 1997 Act was enacted have resulted in an increase in the number of
patients whose healthcare coverage is provided under managed care plans. The
percentage of net patient revenues of the Company's domestic general hospitals
attributable to managed care increased from approximately 33.7% for the three
months ended February 28, 1998 to approximately 38.4% for the current quarter.
For the corresponding nine-month periods managed care increased from 32.9% to
37.1%. The Company anticipates that its managed care business will continue to
increase in the future. The Company generally receives lower payments per
patient from managed care payors than it does from traditional indemnity
insurers. In certain instances, the Company also is assuming a greater share of
risk by entering into capitated arrangements with managed care payors and
employers. Under capitation, the Company receives a certain amount for each
person enrolled in a plan and assumes the risks and rewards of meeting the
healthcare needs of those persons so enrolled. The Company purchases insurance
to cover a portion of the cost of meeting the healthcare needs of those covered.
Approximately 5.5% of the Company's revenues were derived from capitated
arrangements in the quarter ended February 28, 1999, compared to 4.8% in the
quarter ended February 28, 1998.
To address the effect of reduced payments for services, while continuing to
provide quality care to patients, the Company has implemented strategies to
reduce inefficiencies, create synergies, obtain additional business and control
costs. Such strategies include hospital cost-control programs and overhead
reduction plans and the formation and enhancement of integrated healthcare
delivery systems. Implementation of additional cost-control programs and other
operating efficiencies may be undertaken in the future to offset the reduced
payments under the 1997 Act and the shift from traditional Medicare to managed
care. In March 1999, the Company announced a revised management structure
arranging the Company's hospitals in three divisions instead of two. Under this
new organization, each division will oversee 30 to 40 hospitals instead of 60 to
70. The Company expects to incur severance and other special charges as these
programs are implemented in its fourth quarter ending May 31, 1999.
Net operating revenues from the Company's other domestic operations were
$233 million for the three months ended February 28, 1998, compared to $241
million for the current quarter. For the nine-month periods ended February 28,
1998 and 1999, net operating revenues from other domestic operations were $672
million and $704 million, respectively. The increase for the nine months relates
primarily to growth in the first quarter of fiscal 1999 of its physician
practices, essentially all of which were acquired as part of hospital
acquisitions, offset in the second quarter by the effects of November 1997 sales
of one specialty and two rehabilitation hospitals.
Salaries and benefits expense as a percentage of net operating revenues was
40.6% in the quarter ended February 28, 1998 and 41.1% in the current quarter.
This increase was primarily due to (a) lower than anticipated revenue and (b)
seasonal hiring factors. Salaries and benefits expense as a percentage of net
operating revenues for the prior and current nine-month periods were 41.1% and
40.5%. This decrease is primarily the result of continuing cost control measures
and the outsourcing of certain hospital services. (See discussion of other
operating expenses below.)
Supplies expense as a percentage of net operating revenues was 14.2% in the
quarter ended February 28, 1998 and 14.3% in the current quarter. Supplies
expense as a percentage of net operating revenues for both
14
<PAGE>
the prior and current nine-month periods was 13.9%. The slight overall increase
in the quarter primarily was due to higher supplies expenses at recently
acquired facilities. The Company continues to focus on reducing supplies expense
through incorporating acquired facilities into the Company's existing
group-purchasing program and by developing and expanding various programs
designed to improve the purchasing and utilization of supplies.
The provision for doubtful accounts as a percentage of net operating
revenues was 6.7% in the current quarter, down from 7.2% in the quarter ended
November 30, 1998. It was 6.4% for the quarter ended February 28, 1998. The
provision for doubtful accounts as a percentage of net operating revenues for
the prior and current nine-month periods was 6.1% and 6.7%, respectively.
Management believes the rise in bad debts is generally attributable to a number
of factors, including (a) the continuing shift of business from traditional
Medicare, which has no associated bad debts, to managed care, (b) a rise in the
volume of care provided to uninsured patients in certain of the Company's
hospitals, and (c) conversions of patient accounting systems at hospitals
acquired over the past two years. Although management is unable to quantify the
effect of each factor, management believes that, to the extent that the Company
continues to experience a fundamental shift in its payor mix, this expense is
likely to remain at higher levels than in past years. The Company is taking a
series of actions to mitigate these recent increases in bad debt expense. In
March 1999, the Company announced the creation of a new, corporate-level
department combining all patient billing and account collection activities in
order to improve collection of receivables, accelerate payments from managed
care payors, standardize and improve billing systems and develop best practices
in the patient admission and registration process. The Company is also
strengthening its medical eligibility programs, as well as its business office
and related operations, including admitting, medical records and coding, and the
recruitment, training and compensation of business office staff. In certain
markets, the Company is placing employees on-site at managed care claims
processing centers to expedite payment. In certain circumstances, the Company
also is obtaining advance payments from managed care payors experiencing claims
processing or system problems.
Other operating expenses as a percentage of net operating revenues were
20.2% for the quarter ended February 28, 1998 and 21.6% for the quarter ended
February 28, 1999. For the prior and current nine-month periods, the percentages
were 20.7% and 21.6%, respectively. The increase in the nine-month period was
due primarily to increases in medical and other professional fees, including new
consolidated laboratory fees. These new fees are offset by reductions in
salaries and benefits, as certain of the Company's general hospitals
consolidated and outsourced laboratory, dietary, house keeping and other
services.
Depreciation and amortization expense as a percentage of net operating
revenues was 4.7% in the quarter ended February 28, 1998, and 5.1% in the
current quarter. Depreciation and amortization expense as a percentage of net
operating revenues for the prior and current nine-month periods was 4.6% and
5.1%, respectively. The increase is primarily due to hospital acquisitions and
capital expenditures.
Interest expense, net of capitalized interest, was $114 million in the
quarter ended February 28, 1998 and $122 million in the current quarter. For the
prior and current nine-month periods, it was $344 million and $360 million,
respectively. The increase is primarily due to increased borrowings for
acquisitions offset by the effect of interest rate reductions during these
periods.
15
<PAGE>
Taxes on income as a percentage of income before income taxes were 38.8%
for the three months ended February 28, 1998 and 38.6% in the current quarter.
The decrease in the tax rate is primarily due to the utilization of certain
operating loss carryforwards, reduced exposure to tax contingencies and, to a
lesser extent, the reduced impact of non-deductible goodwill amortization and
certain benefits from charitable contributions. The Company currently expects
its tax rate for the year ended May 31, 1999 to be approximately 38.5%.
On November 10, 1998, subsidiaries of the Company purchased eight general
hospitals with 2,484 licensed beds and certain other assets in the Philadelphia,
Pennsylvania area from the Allegheny Health Education and Research Foundation.
The purchase price was approximately $360 million (including the effect of
certain working capital and other adjustments), which the Company borrowed under
its existing bank credit facility. Based on information presently available and
management's assumptions as to future performance, the Company expects this
acquisition to be dilutive to its earnings per share in fiscal 1999 by
approximately $0.05 per share. Dilution through February 28, 1999 was $.03 per
share.
In April 1999, the Company, as part of the strategic initiatives noted
above to improve operations, announced preliminary plans for a possible sale of
approximately 20 hospitals that may not fit the Company's strategic profile.
Proceeds from any sales will be used to reduce long-term debt. Because the sales
plan is still subject to significant change and a potential buyer or buyers have
not yet been identified, the Company cannot presently estimate the effect of
these transactions on future operations or financial position.
In conjunction with the preparation of the Company's annual business plan
in April and May 1999, the Company will obtain sufficient information to enable
it to complete an ongoing analysis to determine whether the carrying values of
any of the long-lived assets of its hospitals, physician practices and home
health agencies are impaired as of May 31, 1999. Facilities whose cash flows are
negative in fiscal 1999 or trending significantly downward over the last three
years will be selected for further impairment analysis. The Company may
recognize (a) gains or losses on the hospitals being offered for sale in the
planned transaction described above and (b) additional impairment charges in its
fourth quarter ending May 31, 1999, depending on the progress of the sales
transaction, if any, and the impairment analysis of the other hospitals,
physician practices and home health agencies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity for the nine months ended February 28, 1999 was
derived primarily from borrowings under the Company's unsecured revolving bank
credit agreement (the "Credit Agreement") and net cash provided by operating
activities. Net cash provided by operating activities for the nine months ended
February 28, 1998 was $137 million after expenditures of $307 million for
discontinued operations, merger, facility consolidation and impairment charges.
The expenditures in 1998 include the settlement of significant litigation
relating to the Company's discontinued psychiatric business. Net cash provided
by operating activities for the nine months ended February 28, 1999 was $315
million after net expenditures of $37 million for discontinued operations,
merger, facility consolidation and impairment charges.
16
<PAGE>
Management believes that future cash provided by recurring operating
activities, the availability of credit under the Credit Agreement, the sale of
assets and, depending on capital market conditions and to the extent permitted
by the restrictive covenants of the Credit Agreement and the indentures
governing the Company's senior and senior subordinated notes, other borrowings
or the sale of equity securities should be adequate to meet known debt service
requirements and to finance planned capital expenditures, acquisitions and other
presently known operating needs over the next three years.
Proceeds from borrowings under the Credit Agreement were $4.7 billion
during the nine months ended February 28, 1999 compared to $1.9 billion in the
prior year period. Loan repayments under the Credit Agreement were $4.0 billion
in the current nine-month period compared to $1.0 billion in the period ended
February 28, 1998.
Cash payments for property and equipment were $401 million in the nine
months ended February 28, 1999, compared to $371 million in the prior nine-month
period. The Company expects to spend approximately $500 million to $600 million
annually on capital expenditures, before any significant acquisitions of
facilities and other healthcare operations and before an estimated $240 million
in remaining commitments to fund the construction of two new hospitals over the
next three years. Such capital expenditures primarily relate to the development
of integrated healthcare systems in selected geographic areas, design and
construction of new buildings, expansion and renovation of existing facilities,
equipment and systems additions and replacements, introduction of new medical
technologies and various other capital improvements.
Purchases of new businesses, net of cash acquired, were $470 million in the
nine months ended February 28, 1999 and $679 million for the nine months ended
February 28, 1998. These acquisitions were financed substantially by borrowings
under the Credit Agreement. The Company does not expect its acquisition activity
to continue at these levels.
The Credit Agreement and the indentures governing the Company's senior and
senior subordinated notes have, among other requirements, affirmative, negative
and financial covenants with which the Company must comply. These covenants
include, among other requirements, limitations on other borrowings, liens,
investments, the sale of all or substantially all assets and prepayment of
subordinated debt, a prohibition against the Company declaring or paying a
dividend or purchasing its common stock, unless its senior long-term unsecured
debt securities are rated BBB- or higher by Standard and Poors' Rating Services
and Baa3 or higher by Moody's Investors Service, Inc., and covenants regarding
maintenance of specified levels of net worth, debt ratios and fixed charge
coverages. Current debt ratings on the Company's senior debt securities are BB+
by Standard and Poors and Ba1 by Moody's. The Company is in compliance with its
loan covenants.
The Company's strategy continues to include the prudent development of
integrated healthcare delivery systems, including the acquisition of general
hospitals and related ancillary healthcare businesses or joining with others to
develop integrated healthcare delivery systems. All or portions of this
development may be financed by net cash provided by operating activities, the
availability of credit under the Credit Agreement, the sale of assets and,
depending on capital market conditions and to the extent permitted by the
restrictive
17
<PAGE>
covenants of the Credit Agreement and the indentures governing the Company's
senior and senior subordinated notes, other borrowings or the sale of equity
securities. The Company's unused borrowing capacity under the Credit Agreement
was $507 million as of April 9, 1999.
BUSINESS OUTLOOK
The general hospital industry in the United States and the Company's
general hospitals continue to have significant unused capacity, and thus there
is substantial competition for patients. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative healthcare delivery services for
less acutely ill patients. Increased competition, admission constraints and
payor pressure, as well as the shift in patient mix to managed care, are
expected to continue.
The continuing challenge facing the Company and the healthcare industry as
a whole is to continue to provide quality patient care in an environment of
rising costs, strong competition for patients and a general reduction of payment
rates by both private and government payors. Because of national, state and
private industry efforts to reform healthcare delivery and payment systems, the
healthcare industry as a whole faces increased uncertainty. The Company is
unable to predict whether any other healthcare legislation at the federal and/or
state level will be passed in the future and what action it may take in response
to such legislation, but it continues to monitor all proposed legislation and
analyze its potential impact in order to formulate its future business
strategies.
THE YEAR 2000 ISSUE
The Company is continuing its six-phase Year 2000 compliance program
described in its Annual Report on Form 10-K for its fiscal year ended May 31,
1998 (the "1998 10-K"). The first phase of the program, conducting an inventory
of systems and programs that may be affected by the Year 2000 issue, has been
substantially completed for both its information technology systems ("IT
Systems") and for its non-IT Systems such as bio-medical equipment ("Non-IT
Items"). The second phase, assessment of how the Year 2000 issues may affect
each piece of equipment and system, also has been substantially completed for
both the IT Systems and Non-IT Items. Phases three through six (planning
corrections of any problems discovered, executing the plans developed, testing
the corrections and implementing the corrections) have already commenced and
will run concurrently through the fall of calendar 1999 for both IT-Systems and
Non-IT Items.
The costs the Company has incurred to date in connection with its Year 2000
compliance program amount to approximately $25 million. Although the Company has
not yet completed its evaluation of the full scope of the Year 2000 issues
facing its systems and programs, based on the information currently available,
the Company estimates that its total cost for addressing all Year 2000 issues
will be approximately $100 million, substantially all of which will be accounted
for as capital expenditures. The Company cautions that its estimate is based on
the information available to the Company at this time. As noted above, the
Company has not yet completed its evaluation of the full scope of its Year 2000
issues and its estimate of the costs it may incur may change as it receives more
complete information.
18
<PAGE>
Although the total cost of the Company's Year 2000 compliance program is
presently not expected to have a material adverse effect on its operations,
liquidity or financial condition, many factors, such as the number of pieces of
equipment and systems with Year 2000 issues, the availability and cost of
various solutions to any Year 2000 issues and the cost of replacing equipment or
systems that cannot be brought into compliance or with respect to which it is
more cost-effective in the long run to replace or take out of service, are not
fully known at this time and could have an aggregate material impact on the
Company's estimate. The Company will receive additional information concerning
these and other matters as it completes each phase of its Year 2000 compliance
program.
The Company is continuing to develop contingency plans to address any Year
2000 issues that do arise. As part of its Year 2000 compliance program, the
Company is in the process of evaluating every IT System and Non-IT Item in each
of its offices, hospitals and other facilities. Since any piece of equipment
that is not Year 2000 compliant will be made compliant, replaced or taken out of
service, the Company does not expect the Year 2000 Issues to have an adverse
impact on patient care. Furthermore, the Company has developed or is developing
a back-up plan for each piece of critical equipment in case it unexpectedly
fails. Many contingency plans already are in place since contingency plans are
required in order for a hospital to obtain and retain its license. The Company's
contingency plans also include plans to address third parties' Year 2000 issues
that may arise. Examples include (i) making certain that each hospital's back-up
power generator is operational if there is a power failure, (ii) if the Company
does not receive assurance that delivery of key medical supplies will not be
interrupted by Year 2000 issues, the Company will identify reliable alternative
sources for those supplies or will make appropriate alternative arrangements,
and (iii) if regular payments from a principal payor might be adversely affected
by Year 2000 issues, the Company will endeavor to negotiate an alternative
payment system.
The SEC's recent guidance for Year 2000 disclosure also calls on companies
to describe their most likely worst case Year 2000 scenarios. While one can
imagine a scenario in which medical equipment fails as a result of a Year 2000
problem, which could lead to serious injury or death, the Company does not
believe that such a scenario is likely to occur. As noted above, since any piece
of equipment that is not Year 2000 compliant will be made compliant, replaced or
taken out of service, the Company does not expect the Year 2000 issues to have
an adverse impact on patient care. Furthermore, there will be a back-up plan for
each piece of critical equipment in case it unexpectedly fails. The most likely
worst case scenario is that the Company will have to replace or take out of
service some of its existing equipment and add additional staff and/or reassign
existing staff during the time period leading up to and immediately following
December 31, 1999, in order to address any Year 2000 issues that unexpectedly
arise.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," "will," "may," "might," and words of
similar import, and statements regarding 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 the Company is unable to predict
or control, that may cause
19
<PAGE>
the Company's or the healthcare industry's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally, and in the regions in which the Company operates;
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
traditional Medicare payment arrangements to Medicare managed care programs,
including capitated Medicare managed care programs; shifts from fee-for-service
payment to capitated and other risk-based payment systems; changes in Medicare
and Medicaid payments levels; liability and other claims asserted against the
Company; 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; the Company's significant indebtedness; the availability of suitable
acquisition opportunities and the length of time it takes to accomplish
acquisitions; the Company's ability to integrate new businesses with its
existing operations; the availability and terms of capital to fund the
expansion of the Company's business, including the acquisition of additional
facilities; the impact of Year 2000 issues; and other factors referenced in the
Company's 1998 10-K, its other periodic reports or herein. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. Tenet disclaims any obligation to update
any such factors or to publicly announce the results of any revisions to any of
the forward-looking statements contained herein to reflect future events or
developments.
20
<PAGE>
PART II. OTHER INFORMATION (CONT.)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Material Developments in Previously Reported Legal Proceedings:
There have been no material developments in the legal proceedings described
in the Company's Annual Report on Form 10-K for its fiscal year ended May
31, 1998.
Items 2, 3,4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(27.1) Financial Data Schedule for the nine months ended February
28, 1999 (included only in the EDGAR filing).
(99.1) Amendment No. 2 to Credit Agreement, dated as of March 16,
1999.
(99.2) Restated Bylaws of Tenet Healthcare Corporation, amended and
restated as of March 10, 1999.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, filed with the Securities and
Exchange Commission on November 24, 1998.
(ii) Current Report on Form 8-K, filed with the Securities and
Exchange Commission on December 11, 1998.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENET HEALTHCARE CORPORATION
(Registrant)
Date: April 14, 1999 /s/ TREVOR FETTER
---------------------------------------------------
Trevor Fetter
Office of the President,
Chief Corporate Officer and Chief Financial Officer
(Principal Financial Officer)
/s/ RAYMOND L. MATHIASEN
---------------------------------------------------
Raymond L. Mathiasen
Executive Vice President,
Chief Accounting Officer
(Principal Accounting Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT FEBRUARY 28, 1999, AND
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED
FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 61,000
<SECURITIES> 130,000
<RECEIVABLES> 2,547,000
<ALLOWANCES> 244,000
<INVENTORY> 244,000
<CURRENT-ASSETS> 3,322,000
<PP&E> 8,465,000
<DEPRECIATION> 2,033,000
<TOTAL-ASSETS> 13,885,000
<CURRENT-LIABILITIES> 1,845,000
<BONDS> 6,496,000
0
0
<COMMON> 24,000
<OTHER-SE> 3,949,000
<TOTAL-LIABILITY-AND-EQUITY> 13,885,000
<SALES> 0
<TOTAL-REVENUES> 7,938,000
<CGS> 0
<TOTAL-COSTS> 6,434,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 533,000
<INTEREST-EXPENSE> 360,000
<INCOME-PRETAX> 627,000
<INCOME-TAX> 241,000
<INCOME-CONTINUING> 386,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386,000
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.23
</TABLE>
<PAGE>
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT dated as of March 16, 1999 to the Credit Agreement dated as of
January 30, 1997, as amended as of July 25, 1997 (collectively, the "CREDIT
AGREEMENT") among TENET HEALTHCARE CORPORATION (the "BORROWER"), the LENDERS,
MANAGING AGENTS and CO-AGENTS party thereto, the SWINGLINE BANK party thereto,
THE BANK OF NEW YORK and THE BANK OF NOVA SCOTIA, as Documentation Agents, BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Syndication Agent, and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the
"ADMINISTRATIVE AGENT")
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement to (i) add
an additional carve-out to the definition of Restricted Asset Transfer to permit
the sale of certain identified assets, (ii) defer the step-down of the debt
ratio by six months and (iii) permit the Borrower to exchange its 6%
Exchangeable Subordinated Notes for non-exchangeable subordinated securities,
subject to certain terms and conditions;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
SECTION 2. DEFINITION OF RESTRICTED ASSET TRANSFER. The Definition of
Restricted Asset Transfer in Section 1.01 is amended as follows:
(a) subsections (vi) and (vii) are amended to read as follows:
"(vi) a sale or other transfer of Equity Interests in any Person
that is neither a Subsidiary nor an Equity Affiliate;
(vii) any sale or other transfer of assets to an Equity Affiliate;
and"
<PAGE>
(b) a new subsection (viii) is added to read as follows:
"(viii) any sale of assets identified in Schedule 5.06 hereto,
PROVIDED that such sale occurs not later than March 31, 2000."
SECTION 3. SCHEDULE OF PERMITTED ASSET SALES. A Schedule 5.06 of
Permitted Asset Sales is added to read as hereto attached.
SECTION 4. DEBT RATIO. Section 5.09 of the Credit Agreement is amended to
read as follows:
Section 5.09. DEBT RATIO. At the close of business on any day on or after
the Closing Date, the ratio of (i) Adjusted Total Debt at such time to (ii)
Adjusted EBITDA for the period of four consecutive Fiscal Quarters most recently
ended at or prior to such time will not be greater than the ratio set forth
below opposite the period in which such day is included:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
Closing Date through May 31, 1998 4.0 to 1
June 1, 1998 through November 30, 1999 3.75 to 1
On and after December 1, 1999 3.5 to 1
</TABLE>
SECTION 5. RESTRICTION ON PREPAYING SUBORDINATED DEBT. Section 5.15 of
the Credit Agreement is amended to read as follows:
SECTION 5.15. RESTRICTION ON PREPAYING SUBORDINATED DEBT. Neither the
Borrower nor any Subsidiary will prepay, defease or purchase, prior to the date
on which it is required by its terms to be repaid, repurchased or otherwise
retired, all or any portion of any Debt of the Borrower that is subordinated in
right of payment to the Loans; PROVIDED that (x) the Borrower may prepay,
defease or repurchase such Debt in an aggregate amount not in excess of the net
cash proceeds received by the Borrower from the issue and sale or incurrence of
additional subordinated Debt in the 12 month period prior to, or substantially
concurrently with, such prepayment, defeasance or repurchase, so long as such
additional subordinated Debt has a final maturity after the final maturity of,
and a weighted average life that is longer than the weighted average life of,
the subordinated Debt prepaid, defeased or repurchased, (y) the Borrower may
repurchase its 6% Exchangeable Subordinated Notes due 2005 in exchange for
additional Debt of the Borrower subordinated on substantially identical terms,
so long as such additional subordinated Debt requires no scheduled payment of
principal prior to the scheduled maturity of the Borrower's 6% Exchangeable
Subordinated Notes due 2005, and (z) in addition to any subordinated Debt
prepaid, defeased or repurchased pursuant to clause (x) or (y), the Borrower may
prepay, defease or repurchase such Debt so long as the aggregate cash (or value
of property) used therefor, plus the aggregate amount of Restricted Payments
made in accordance
2
<PAGE>
with Section 5.12, does not at any time exceed the sum of (i) $500,000,000 and
(ii) 50% of the Borrower's cumulative consolidated net income for the period
(treated as a single accounting period) commencing June 1, 1998 and ending on
the last day of the last Fiscal Quarter ended prior to the date of such
prepayment, defeasance or repurchase.
SECTION 6. REPRESENTATIONS OF BORROWER. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set forth
in Article 4 of the Credit Agreement will be true on and as of the Amendment
Effective Date and (ii) no Default will have occurred and be continuing on such
date.
SECTION 7. COVENANT OF THE BORROWER. The Borrower shall pay to the
Administrative Agent amendment fees for the account of the Banks in the amounts
heretofore mutually agreed on March 25, 1999.
SECTION 8. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 9. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 10. EFFECTIVENESS. This Amendment shall become effective on the
date (the "AMENDMENT EFFECTIVE DATE") when the Administrative Agent shall have
received from each of the Borrower and the Required Lenders a counterpart hereof
signed by such party or facsimile or other written confirmation (in form
satisfactory to the Administrative Agent) that such party has signed a
counterpart hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
TENET HEALTHCARE CORPORATION
By:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:
Title:
THE BANK OF NEW YORK
By:
Title:
THE BANK OF NOVA SCOTIA
By:
Title:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS
ANGELES AGENCY
By:
Title:
ABN AMRO BANK N.V.
LOS ANGELES INTERNATIONAL BRANCH
By:
Title:
By:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
Title:
THE CHASE MANHATTAN BANK
By:
Title:
DEUTSCHE BANK NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
<PAGE>
By:
Title:
By:
Title:
FLEET NATIONAL BANK
By:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By:
Title:
PNC BANK, N.A.
By:
Title:
THE SANWA BANK LIMITED, DALLAS AGENCY
By:
Title:
<PAGE>
SOCIETE GENERALE
By:
Title:
THE SUMITOMO BANK, LIMITED
By:
Title:
TORONTO DOMINION (TEXAS), INC.
By:
Title:
WACHOVIA BANK OF GEORGIA, N.A.
By:
Title:
COMMERZBANK AG
LOS ANGELES BRANCH
By:
Title:
By:
Title:
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By:
Title:
KREDIETBANK N.V.
By:
Title:
By:
Title:
BANK OF MONTREAL
By:
Title:
BANQUE PARIBAS
<PAGE>
By:
Title:
By:
Title:
CREDIT SUISSE FIRST BOSTON
By:
Title:
By:
Title:
THE ROYAL BANK OF SCOTLAND plc
By:
Title:
HIBERNIA NATIONAL BANK
By:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
Title:
<PAGE>
By:
Title:
MICHIGAN NATIONAL BANK
By:
Title:
THE TOYO TRUST & BANKING CO., Ltd.
By:
Title:
THE TOKAI BANK LIMITED, LOS ANGELES AGENCY
By:
Title:
UNITED STATES NATIONAL BANK OF OREGON
By:
Title:
BANCA COMMERCIALE ITALIANA
By:
Title:
<PAGE>
CALIFORNIA BANK & TRUST
By:
Title:
COMERICA BANK
By:
Title:
FIRST AMERICAN NATIONAL BANK
By:
Title:
FIRST UNION NATIONAL BANK
By:
Title:
MELLON BANK, N.A.
By:
Title:
<PAGE>
NATIONAL CITY BANK, KENTUCKY
By:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND"
By:
Title:
SOUTH TRUST BANK
By:
Title:
STB DELAWARE FUNDING TRUST I
By:
Title:
SUNTRUST BANK, CENTRAL FLORIDA NA
By:
Title:
<PAGE>
THE SAKURA BANK, LIMITED
By:
Title:
NATEXIS BANQUE-BFCE
By:
Title:
By:
Title:
<PAGE>
SCHEDULE 5.06
PERMITTED ASSET SALES
THE LIST OF PERMITTED ASSET SALES HAS BEEN AGREED TO BY THE COMPANY AND EACH OF
THE OTHER PARTIES TO THE CREDIT AGREEMENT.
<PAGE>
RESTATED BY-LAWS OF
TENET HEALTHCARE CORPORATION
A NEVADA CORPORATION
AS AMENDED MARCH 10, 1999
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1.1 PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the principal office of
the Corporation in the State of California, or at any other place within or
without the State of Nevada as may be designated for that purpose from time to
time by the Board of Directors.
SECTION 1.2 ANNUAL MEETINGS.
The Annual meeting of the shareholders shall be held not later than 210
days after the close of the fiscal year, on the date and at the time set by the
Board of Directors, at which time the shareholders shall elect by plurality vote
an annual Class of the Board of Directors, consider reports of the affairs of
the Corporation, and transact such other business as may properly be brought
before the meeting.
SECTION 1.3 SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose or purposes
whatsoever, may be called at any time by the Chief Executive Officer or by the
Board of Directors.
SECTION 1.4 NOTICE OF MEETINGS.
1.4.1. Notice of each meeting of shareholders, whether annual or
special, shall be given at least 10 and not more than 60 days prior to the day
thereof by the Secretary or any Assistant Secretary causing to be delivered to
each shareholder of record entitled to vote at such meeting a written notice
stating the time and place of the meeting and the purpose or purposes for which
the meeting is called. Such notice shall be signed by the Chief Executive
Officer, the President, the Secretary or any Assistant Secretary and shall be
mailed postage prepaid to each shareholder at his address as it appears on the
stock books of the Corporation. If any shareholder has failed to supply an
address, notice shall be deemed to have been given if mailed to the address of
the principal office of the Corporation, or published at least once in a
newspaper having general circulation in the county in which the principal office
is located.
1.4.2. It shall not be necessary to give any notice of the
adjournment of or the business to be transacted at an adjourned meeting other
than by announcement at the meeting at which such adjournment is taken;
provided that when a meeting is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting.
<PAGE>
- 2 -
SECTION 1.5 CONSENT BY SHAREHOLDERS.
Any action which may be taken at a regular meeting of the shareholders,
except election of directors, may be taken without a meeting, if authorized by a
writing signed by holders of the number of shares required under the law to give
their approval for such purpose.
SECTION 1.6 QUORUM.
1.6.1. The presence in person or by proxy of the persons entitled
to vote a majority of the voting shares at any meeting constitutes a quorum for
the transaction of business. Shares shall not be counted in determining the
number of shares represented or required for a quorum or in any vote at a
meeting, if voting of them at the meeting has been enjoined or for any reason
they cannot be lawfully voted at the meeting.
1.6.2. The shareholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
1.6.3. In the absence of a quorum, a majority of the shares present
in person or by proxy and entitled to vote may adjourn any meeting from time to
time, but not for a period of more than 30 days at any one time, until a quorum
shall attend.
SECTION 1.7 VOTING RIGHTS.
1.7.1. Every shareholder of record of the Corporation shall be
entitled at each meeting of the shareholders to one vote for each share of stock
standing in his name on the books of the Corporation. Except as otherwise
provided by law, or by the Articles of Incorporation or any amendment thereto,
or by the By-Laws, if a quorum is present, the majority of votes cast in person
or by proxy shall be binding upon all shareholders of the Corporation.
1.7.2. The Board of Directors shall designate a day not more than
60 days prior to any meeting of the shareholders as the day as of which
shareholders entitled to notice of and to vote at such meetings shall be
determined.
SECTION 1.8 PROXIES.
Every shareholder entitled to vote or to execute consents may do so either
in person or by written proxy executed in accordance with the provisions of
Section 78.355 of the Nevada Revised Statutes and filed with the Secretary of
the Corporation.
SECTION 1.9 MANNER OF CONDUCTING MEETINGS.
To the extent not in conflict with the provisions of the law relating
thereto, the Articles of Incorporation, or express provisions of these By-Laws,
meetings shall be conducted pursuant to such rules as may be adopted by the
chairman presiding at, or a majority of the shares represented at, the meeting.
<PAGE>
- 3 -
SECTION 1.10. NATURE OF BUSINESS AT MEETINGS OF SHAREHOLDERS.
1.10.1 No business may be transacted at an annual meeting of
shareholders, or at any special meeting of shareholders, other than business
that is either (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or the Chief Executive Officer, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or the Chief Executive
Officer or (c) otherwise properly brought before the meeting by any shareholder
of the Corporation (i) who is a shareholder of record on the date of the giving
of the notice provided for in this Section 1.10 and on the record date for the
determination of shareholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 1.10.
1.10.2 In addition to any other applicable requirements, for
business to be properly brought by a shareholder before an annual meeting, or at
any special meeting, of shareholders, such shareholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.
1.10.3 To be timely, a shareholder's notice to the Secretary must
be delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of the annual meeting, not less than ninety (90)
days nor more than one hundred twenty (120) days prior to the anniversary date
of the immediately preceding annual meeting of shareholders; PROVIDED, HOWEVER,
that in the event that the annual meeting is called for a date that is not
within thirty (30) days before or after such anniversary date, notice by the
shareholder in order to be timely must be so received not later than the close
of business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs; and (b) in the case of a
special meeting of shareholders, not later than the close of business on the
tenth (10th) day following the day on which notice of the date of the special
meeting was mailed or public disclosure of the date of the special meeting was
made, whichever first occurs.
1.10.4 To be in proper written form, a shareholder's notice to the
Secretary must set forth as to each matter such shareholder proposes to bring
before the annual meeting, or at any special meeting, of shareholders (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
record address of such shareholder, (iii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such shareholder, (iv) a description of all arrangements or
understandings between such shareholder and any other person or persons
(including their names) in connection with the proposal of such business by such
shareholder and any material interest of such shareholder in such business and
(v) a representation that such shareholder intends to appear in person or by
proxy at the meeting to bring such business before the meeting.
1.10.5 No business shall be conducted at the annual meeting, or at
any special meeting, of shareholders except business brought before the meeting
in accordance with the procedures set forth in this Section 1.10. If the
chairman of any meeting determines that
<PAGE>
- 4 -
business was not properly brought before the meeting in accordance with the
foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business shall not
be transacted.
ARTICLE II
DIRECTORS - MANAGEMENT
SECTION 2.1 POWERS.
Subject to the limitation of the Articles of Incorporation, of the By-Laws,
and of the laws of the State of Nevada as to action to be authorized or approved
by the shareholders, all corporate powers shall be exercised by or under
authority of, and the business and affairs of this Corporation shall be
controlled by, a Board of Directors.
SECTION 2.2 NUMBER AND QUALIFICATION.
The authorized number of directors of this Corporation shall be not less
than eight nor more than 15, with the exact number to be established from time
to time by resolution of the Board of Directors of this Corporation. All
directors of this Corporation shall be at least 21 years of age and at least a
majority shall be citizens of the United States.
SECTION 2.3 CLASSIFICATION AND ELECTION.
The Board of Directors shall be classified into three annual Classes, with
four directors in Class 1, four directors in Class 2, and five directors in
Class 3. Each Class of directors shall be elected for terms of three years.
Each term shall continue for the number of years stated and until their
successors are elected and have qualified. Their term of office shall begin
immediately after election. These By-Laws are being adopted subsequent to the
initial classification of directors in 1975. The directors in office as of the
date of adoption hereof shall continue to serve the terms for which they have
been previously elected.
SECTION 2.4. NOMINATION OF DIRECTORS.
2.4.1. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the
Corporation, except as may be otherwise provided in the Articles of
Incorporation or any amendment thereto with respect to the right of holders of
preferred stock of the Corporation to nominate and elect a specified number of
directors in certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of shareholders, or at any
special meeting of shareholders, (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any shareholder
of the Corporation (i) who is a shareholder of record on the date of the giving
of the notice provided for in this Section 2.4 and on the record date for the
determination of shareholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 2.4.
<PAGE>
- 5 -
2.4.2. In addition to any other applicable requirements, for a
nomination to be made by a shareholder, such shareholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.
2.4.3. To be timely, a shareholder's notice to the Secretary must
be delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than ninety (90) days
nor more than one hundred twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; PROVIDED, HOWEVER, that in
the event that the annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the shareholder in
order to be timely must be so received not later than the close of business on
the tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever first occurs; and (b) in the case of a special
meeting of shareholders called for the purpose of electing directors, not later
than the close of business on the tenth (10th) day following the day on which
notice of the date of the special meeting was mailed or public disclosure of the
date of the special meeting was made, whichever first occurs.
2.4.4. To be in proper written form, a shareholder's notice to the
Secretary must set forth (a) as to each person whom the shareholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
shareholder giving the notice (i) the name and record address of such
shareholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such shareholder,
(iii) a description of all arrangements or understandings between such
shareholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
shareholder, (iv) a representation that such shareholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such shareholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
2.4.5. No person shall be eligible for election as a director of
the Corporation by the shareholders unless nominated in accordance with the
procedures set forth in this Section 2.4. If the chairman of the meeting
determines that a nomination was not made in accordance with the foregoing
procedures, the chairman shall declare to the meeting that the nomination was
defective and such defective nomination shall be disregarded.
<PAGE>
- 6 -
SECTION 2.5 INCREASE IN THE NUMBER OF DIRECTORS.
The Board of Directors may change the number of directors from time to
time; provided, however, neither the Board of Directors nor the shareholders may
ever increase the number of directorships by more than one during any
twelve-month period, except upon the affirmative vote of two-thirds of the
directors of each Class, or the affirmative vote of the holders of two-thirds of
all outstanding shares voting together and not by class. This provision may not
be amended except by a like vote.
SECTION 2.6 VACANCIES.
2.6.1. Any vacancies in the Board of Directors, except vacancies
first filled by the shareholders, may be filled by the affirmative vote of
two-thirds of the remaining directors of each Class, though less than a quorum,
or by a sole remaining director. Each director so elected shall hold office for
the balance of the term of the resigning director and until his successor is
elected. The power to fill vacancies shall in no event be delegated to any
committee appointed in accordance with these By-Laws.
2.6.2. The shareholders may at any time elect a director to fill
any vacancy not filled by the directors, and may elect the additional directors
at the meeting at which an amendment of the By-Laws is voted authorizing an
increase in the number of directors.
2.6.3. A vacancy or vacancies shall be deemed to exist in case of
the death, resignation, or removal of any director, or if the directors or
shareholders shall increase the authorized number of directors but shall fail at
a meeting at which such increase is authorized or at an adjournment thereof to
elect the additional director so provided for, or in case the shareholders fail
at any time to elect the full number of authorized directors.
2.6.4. If the Board of Directors accepts the resignation of a
director tendered to take effect at a future time, the Board or the shareholders
shall have power to immediately elect a successor who shall take office when the
resignation shall become effective.
2.6.5. No reduction of the number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
SECTION 2.7 REMOVAL OF DIRECTORS.
The entire Board of Directors or any individual director may be removed
from office, with or without cause, by the vote or written consent of
shareholders representing two-thirds of the issued and outstanding capital stock
entitled to vote.
SECTION 2.8 RESIGNATIONS.
Any director of the Corporation may resign at any time either by oral
tender of resignation at any meeting of the Board or by giving written notice
thereof to the Secretary, the Chief Executive Officer or the President. Such
resignation shall take effect at the time it specifies, and the acceptance of
such resignation shall not be necessary to make it effective.
<PAGE>
- 7 -
SECTION 2.9 PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at the principal office of
the Corporation in the State of California, or at such other place within or
without the State of Nevada as may be designated for that purpose by the Board
of Directors. Any meeting shall be valid, wherever held, if held by the written
consent of all members of the Board of Directors, given before or after the
meeting and filed with the Secretary of the Corporation.
SECTION 2.10 MEETINGS AFTER ANNUAL SHAREHOLDERS' MEETING.
The first meeting of the Board of Directors held after the annual
shareholders' meeting shall be held at such time and place within or without the
State of Nevada as shall be fixed by announcement of the Chief Executive Officer
or the President given at the annual shareholders' meeting, and no other notice
of such meeting shall be necessary, provided a majority of the whole Board shall
be present. Alternatively, such meeting may be held at such time and place as
shall be fixed pursuant to notice given under other provisions of these By-Laws.
SECTION 2.11 OTHER REGULAR MEETINGS.
2.11.1. Regular meetings of the Board of Directors shall be held at
such time and place within or without the State of Nevada as may be agreed upon
from time to time by the Board.
2.11.2. No notice need be given of regular meetings, except that a
written notice shall be given to each director of the resolution establishing
specific meeting dates or a regular meeting date, which notice shall set forth
the date of the month, the time, and the place of the meetings.
SECTION 2.12 SPECIAL MEETINGS.
Special meetings of the Board of Directors shall be held whenever called by
the Chief Executive Officer or the President or by two-thirds of the directors
of each Class. Notice of any such meeting shall be mailed to each director not
later than three days before the day on which the meeting is to be held, or
shall be sent to him by telegraph, or delivered personally or by telephone, not
later than midnight of the day before the day of the meeting. Any meeting of
the Board of Directors shall be a legal meeting without any notice thereof
having been given, if each director consents to the holding thereof or waives
notice by a writing filed with the Secretary, or is present thereat and their
oral consents are entered on the minutes, or they take part in the deliberations
thereat without objection. Except as otherwise provided in the By-Laws or as
may be indicated in the notice thereof, any and all business may be transacted
at any special meeting.
SECTION 2.13 WAIVER OF NOTICE.
Anything herein to the contrary notwithstanding, notice of any meeting of
directors shall not be required as to any director who shall waive notice in
writing (including telex, facsimile telephonic transmission, telegram, cablegram
or radiogram) before or after such meeting.
<PAGE>
- 8 -
SECTION 2.14 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place is fixed at the meeting
adjourned.
SECTION 2.15 QUORUM.
A majority of the number of directors as fixed by the Articles of
Incorporation or By-Laws shall be necessary to constitute a quorum for the
transaction of business, and the action of a majority of the directors present
at any meeting at which there is a quorum, when duly assembled, is valid as a
corporate act; provided, that a minority of the directors, in the absence of a
quorum, may adjourn from time to time or fill vacant directorships in accordance
with Section 2.5 but may not transact any business.
SECTION 2.16 ACTION BY UNANIMOUS WRITTEN CONSENT.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing thereto. Such written consent
shall be filed with the minutes of the proceedings of the Board and shall have
the same force and effect as a unanimous vote of such directors.
SECTION 2.17 COMPENSATION.
The directors may be paid their expenses of attendance at each meeting of
the Board of Directors. Additionally, the Board of Directors may from time to
time, in its discretion, pay to directors either or both a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary for
services as a director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
reimbursement and compensation for attending committee meetings.
SECTION 2.18 TRANSACTIONS INVOLVING INTERESTS OF DIRECTORS.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
directors of the Corporation are in any way interested in, or connected with,
any other party to, such contract or transaction or are themselves parties to
such contract or transaction, provided that such transaction satisfies Section
78.140 of the Nevada Revised Statutes; and each and every person who may become
a director of the Corporation is hereby relieved, to the extent permitted by
law, from any liability that might otherwise exist from contracting in good
faith with the Corporation for the benefit of himself or any person in which he
may be in any way interested or with which he may be in any way connected. Any
director of the Corporation may vote and act upon any matter, contract or
transaction between the Corporation and any other person without regard to the
fact that he is also a stockholder, director or officer of, or has any interest
in, such other person.
<PAGE>
- 9 -
SECTION 2.19 EMERITUS POSITIONS.
The Board of Directors may authorize parties to serve in an emeritus
position with respect to the Board of Directors, included by way of example but
not by way of limitation, as an Emeritus Director, as a Chairman Emeritus of the
Board of Directors or as a Vice-Chairman Emeritus of the Board of Directors.
These positions shall be honorary positions and parties elected to those
positions may be asked to attend meetings of the board of directors and meeting
of the shareholders from time to time. A party holding an emeritus position
shall not be an officer or director of the Company, shall have no vote at a
director's meeting, shall receive no fees for service in that position and shall
not be given access to material, non-published information pertaining, to the
Company. A party filling an emeritus position shall be requested to do so
because of his or her experience with and contributions to the Company.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a Chairman, a Vice
Chairman, a Chief Executive Officer, a President, one or more Senior Executive
Vice Presidents, one or more Executive Vice Presidents, one or more Group
Presidents and Chief Executive Officers, one or more Senior Vice Presidents, one
or more Vice Presidents, a Secretary, and a Treasurer. Any person may hold two
or more offices. The executive officers of the Corporation shall be elected
annually by the Board of Directors and shall hold office for one year or until
their respective successors shall be elected and shall qualify.
SECTION 3.2 APPOINTED OFFICERS: TITLES.
3.2.1. The Chief Executive Officer or the Secretary in the case of
Assistant Secretaries or the Treasurer in the case of Assistant Treasurers may
appoint one or more Assistant Secretaries or one or more Assistant Treasurers,
each of whom shall hold such title at the pleasure of the appointing officer,
have such authority and perform such duties as are provided in the By-Laws, or
as the Chief Executive Officer or the appointing officer may determine from time
to time. Any person appointed under this Section 3.2.1 to serve in any of the
foregoing positions shall be deemed by reason of such appointment or service in
such capacity to be an "officer" of the corporation.
3.2.2. The Chief Executive Officer or a person designated by the
Chief Executive Officer may also appoint a president, one or more executive vice
presidents, one or more senior vice presidents, one or more vice presidents and
one or more assistant vice presidents for each operating group and division of
the Corporation and one or more senior vice presidents, one or more vice
presidents and one or more assistant vice presidents for each corporate staff
function and a corporate controller and one or more assistant controllers. Each
of such persons will hold such title at the pleasure of the Chief Executive
Officer and have authority to act for and shall perform duties with respect to
only the group, division or corporate staff
<PAGE>
- 10 -
function for which the person is appointed. Any person appointed under this
Section 3.2.2 to serve in any of the foregoing positions shall not be deemed by
reason of such appointment or service in such capacity to be an "officer" of the
Corporation.
SECTION 3.3 REMOVAL AND RESIGNATION.
3.3.1. Any officer may be removed, either with or without cause, by
a majority of the directors at the time in office, at any regular or special
meeting of the Board. Any appointed person may be removed from such position at
any time by the person making such appointment or his successor.
3.3.2. Any officer may resign at any time, by giving written notice
to the Board of Directors, the Chief Executive Officer, the President or the
Secretary of the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice, or at any later time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3.4 VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the By-Laws for regular appointments to such office.
SECTION 3.5 CHAIRMAN AND VICE CHAIRMAN.
The Chairman shall preside at all meetings of the Board of Directors and
shall exercise and perform such other powers and duties as may be from time to
time assigned to him by the Board of Directors. The Vice Chairman shall, in the
absence of the Chairman, preside at all meetings of the Board of Directors and
shall exercise and perform such other powers and duties as may be from time to
time assigned to him by the Board of Directors.
SECTION 3.6 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
affairs of the Corporation. He shall preside at all meetings of the
shareholders and, in the absence of the Chairman of the Board and the Vice
Chairman of the Board, at all meetings of the Board of Directors. He shall be
ex officio a member of the Executive Committee and shall have the general powers
and duties of management usually vested in the office of chief executive officer
of a corporation and such other powers and duties as may be prescribed by the
Board of Directors.
SECTION 3.7 PRESIDENT.
In the absence or disability of the Chief Executive Officer, the President
shall perform all of the duties of the Chief Executive Officer and when so
acting shall have all the powers and be subject to all the restrictions upon the
Chief Executive Officer, including the power to sign all instruments and to take
all actions which the Chief Executive Officer is authorized to perform by the
Board of Directors or the By-Laws. The President shall have the general powers
and duties usually vested in the office of president of a corporation and such
other powers and duties as may be prescribed by the Chief Executive Officer or
the Board of Directors.
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SECTION 3.8 SENIOR EXECUTIVE VICE PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR
VICE PRESIDENT AND VICE PRESIDENT.
In the absence or disability of the Chief Executive Officer and the
President, a Senior Executive Vice President, an Executive Vice President or a
Group President and Chief Executive Officer, in the order of his rank and
seniority shall perform all of the duties of the Chief Executive Officer, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer, including the power to sign all
instruments and to take all actions which the Chief Executive Officer is
authorized to perform by the Board of Directors or the By-Laws. The Senior
Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents and
Vice Presidents shall have the general powers and duties usually vested in the
office of a vice president of a corporation; the Group Presidents and Chief
Executive Officers shall have the general powers and duties of a principal
executive officer of an operating group of a corporation; and each of them shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, the Executive
Committee of the Board of Directors, the Chief Executive Officer or the By-Laws.
SECTION 3.9 SECRETARY AND ASSISTANT SECRETARIES.
3.9.1. The Secretary shall (1) attend all sessions of the Board and
all meetings of the shareholders; and (2) record and keep, or cause to be kept,
all votes and the minutes of all proceedings in a book to be kept for that
purpose at the principal office of the Corporation, or at such other place as
the Board of Directors may from time to time determine, specifying therein (i)
the time and place of holding, (ii) whether regular or special, and if special,
how authorized, (iii) the notice thereof given, (iv) the names of those present
at directors' meetings, (v) the number of shares present or represented at
shareholders' meetings, and (vi) the proceedings thereof; and (3) perform like
duties for the Executive and other standing committees, when required. In
addition, he shall keep or cause to be kept, at the principal office of the
Corporation in the State of Nevada, those documents required to be kept thereat
by Section 5.2 of the By-Laws and Section 78.105 of the Nevada Revised Statutes.
3.9.2. The Secretary shall give, or cause to be given, notice of
meetings of the shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the Chief Executive Officer, under whose supervision he shall be. He shall
keep in safe custody the seal of the Corporation, and, when authorized by the
Board, affix the same to any instrument requiring it, and when so affixed, it
shall be attested by his signature or by the signature of the Treasurer or an
Assistant Secretary. The Secretary is hereby authorized to issue certificates,
to which the corporate seal may be affixed, attesting to the incumbency of
officers of this Corporation or to actions duly taken by the Board of Directors
or the shareholders.
3.9.3. The Assistant Secretaries, in the order of their seniority,
shall in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary, and shall perform such other duties as the
Chief Executive Officer or the Secretary shall prescribe.
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SECTION 3.10 TREASURER AND ASSISTANT TREASURERS.
3.10.1. The Treasurer shall deposit all moneys and other valuables
in the name, and to the credit, of the Corporation, with such depositories as
may be ordered by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
Chief Executive Officer and directors, whenever they request it, an account of
all his transactions as Treasurer, and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the By-Laws.
3.10.2. The Assistant Treasurers, in the order of their seniority,
shall in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer, and shall perform such other duties as the
Chief Executive Officer or the Treasurer shall prescribe.
SECTION 3.11 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS.
In addition to the foregoing powers and duties specifically prescribed for
the respective officers, the Board of Directors may from time to time by
resolution (i) impose or confer upon any of the officers such additional duties
and powers as the Board of Directors may see fit, (ii) determine the order of
seniority among the officers, and/or (iii) except as otherwise provided above,
provide that in the absence of any officer or officers, any other officer or
officers shall substitute for and assume the duties, powers and authority of the
absent officer or officers. Any such resolution may be final, subject only to
further action by the Board of Directors, or the resolution may grant such
discretion, as the Board of Directors deems appropriate, to the Chairman, the
Vice Chairman, the Chief Executive Officer, the President (or in his absence the
Senior Executive Vice President or the Executive Vice President serving in his
place) to impose or confer additional duties and powers, to determine the order
of seniority among officers, and/or to provide for substitution of officers as
above described.
SECTION 3.12 COMPENSATION.
The officers of the Corporation shall receive such compensation as shall be
fixed from time to time by the Board of Directors. No officer shall be
prohibited from receiving such salary by reason of the fact that he is also a
director of the Corporation.
SECTION 3.13 TRANSACTION INVOLVING INTEREST OF OFFICER.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
officers of the Corporation are in any way interested in, or connected with, any
other party to such contract or transaction, or are themselves parties to such
contract or transaction, provided that such transaction complies with
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Section 78.140 of the Nevada Revised Statutes; and each and every person who is
or may become an officer of the Corporation is hereby relieved, to the extent
permitted by law, when acting in good faith, from any liability that might
otherwise exist from contracting with the Corporation for the benefit of himself
or any person in which he may be in any way interested or with which he may be
in any way connected.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 4.1 STANDING COMMITTEES.
The Board of Directors shall appoint an Executive Committee, an Audit
Committee and a Compensation and Stock Option Committee, consisting of such
number of its members as it may designate, consistent with the Articles of
Incorporation, the By-Laws and the laws of the State of Nevada.
4.1.1. The Executive Committee shall have and may exercise, when
the Board is not in session, all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, but the Executive
Committee shall not have the power to fill vacancies on the Board, or to change
the membership of or to fill vacancies in the Executive Committee or any other
Committee of the Board, or to adopt, amend or repeal the By-Laws, or to declare
dividends.
4.1.2. The Audit Committee shall select and engage on behalf of
the Corporation, subject to the consent of the shareholders, and fix the
compensation of, a firm of certified public accountants whose duty it shall
be to audit the books and accounts of the Corporation and its subsidiaries
for the fiscal year in which they are appointed, and who shall report to such
Committee. The Audit Committee shall confer with the auditors and shall
determine, and from time to time shall report to the Board of Directors upon,
the scope of the auditing of the books and accounts of the Corporation and
its subsidiaries. The Audit Committee shall also be responsible for
determining that the business practices and conduct of employees and other
representatives of the Corporation and its subsidiaries comply with the
policies and procedures of the Corporation. None of the members of the Audit
Committee shall be officers or employees of the Corporation.
4.1.3. The Compensation and Stock Option Committee shall
establish a general compensation policy for the Corporation and shall have
responsibility for the approval of increases in directors' fees and in
salaries paid to officers and senior employees earning in excess of an annual
salary to be determined by the Committee. The Compensation and Stock Option
Committee shall have all of the powers of administration under all of the
Corporation's employee benefit plans, including any stock option plans,
long-term incentive plans, bonus plans, retirement plans, stock purchase
plans and medical, dental and insurance plans. In connection therewith, the
Compensation and Stock Option Committee shall determine, subject to the
provisions of the Corporation's plans, the directors, officers and employees
of the Corporation eligible to participate in any of the plans, the extent of
such participation and the terms and
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conditions under which benefits may be vested, received or exercised. None of
the members of the Compensation and Stock Option Committee shall be officers or
employees of the Corporation.
SECTION 4.2 OTHER COMMITTEES.
Subject to the limitations of the Articles of Incorporation, the By-Laws
and the laws of the State of Nevada as to action to be authorized or approved by
the shareholders, or duties not delegable by the Board of Directors, any or all
of the corporate powers may be exercised by or under authority of, and the
business and affairs of this Corporation may be controlled by, such other
committee or committees as may be appointed by the Board of Directors. The
powers to be exercised by any such committee shall be designated by the Board of
Directors.
SECTION 4.3 PROCEDURES.
Subject to the limitations of the Articles of Incorporation, the By-Laws
and the laws of the State of Nevada regarding the conduct of business by the
Board of Directors and its appointed committees, any committee created under
this Article may use any procedures for conducting its business and exercising
its powers, including but not limited to actions by the unanimous written
consent of its members in the manner set forth in Section 2.15. A majority (but
not less than two members) shall constitute a quorum. Notices of meetings may
be in any reasonable manner and may be waived as for meetings of directors.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
SECTION 5.1 RECORDS.
The Corporation shall maintain adequate and correct accounts, books and
records of its business and properties. All of such books, records and accounts
shall be kept at its principal place of business in the State of California, as
fixed by the Board of Directors from time to time.
SECTION 5.2 ARTICLES, BY-LAWS AND STOCK LEDGER.
The Corporation shall maintain and keep the following documents at its
principal place of business in the State of Nevada: (i) a certified copy of the
Articles of Incorporation and all amendments thereto; (ii) a certified copy of
the By-Laws and all amendments thereto; and (iii) a statement setting forth the
following: "The Secretary of the Corporation, whose address is 2700 Colorado
Avenue, Santa Monica California 90404, is the custodian of the duplicate stock
ledger of the Corporation."
SECTION 5.3 INSPECTION.
Any person who has been a shareholder of record for at least six months
immediately preceding his demand, or any person holding, or thereunto authorized
in writing by the holders
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of, at least five percent of all of the Corporation's outstanding shares, upon
at least five days' written demand, or any judgment creditor without prior
demand, shall have the right to inspect in person or by agent or attorney,
during usual business hours, the duplicate stock ledger of the Corporation and
to make extracts therefrom; provided, however, that such inspection may be
denied to any shareholder or other person upon his refusal to furnish to the
Corporation an affidavit that such inspection is not desired for a purpose which
is in the interest of a business or object other than the business of the
Corporation and that he has not at any time sold or offered for sale any list of
shareholders of any corporation or aided or abetted any person in procuring any
such record of shareholders for any such purpose.
SECTION 5.4 CHECKS, DRAFTS, ETC.
All checks, drafts, or other orders for payment of money, notes, or other
evidences of indebtedness, issued in the name of, or payable to, the
Corporation, shall be signed or endorsed by such person or persons, and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.
ARTICLE VI
OTHER AUTHORIZATIONS
SECTION 6.1 EXECUTION OF CONTRACTS.
The Board of Directors, except as the By-Laws otherwise provide, may
authorize any officer or officers or agent or agents to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation. Such
authority may be general, or confined to specific instances. Unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority, except in the ordinary course of business, to bind the
Corporation by any contract or engagement or to pledge its credit, or to render
it liable for any purpose or in any amount.
SECTION 6.2 REPRESENTATION OF OTHER CORPORATIONS.
All shares of any other corporation, standing in the name of the
Corporation, shall be voted, represented, and all rights incidental thereto
exercised as directed by written consent or resolution of the Board of Directors
expressly referring thereto. In general, such rights shall be delegated by the
Board of Directors under express instructions from time to time as to each
exercise thereof to the Chief Executive Officer, the President, any Senior
Executive Vice President, any Executive Vice President, any Senior Vice
President, any Vice President, the Treasurer or the Secretary of this
Corporation, or any other person expressly appointed by the Board of Directors.
Such authority may be exercised by the designated officers in person, or by any
other person authorized so to do by proxy, or power of attorney, duly executed
by such officers.
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SECTION 6.3 DIVIDENDS.
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and on the terms and
conditions provided by the laws of the State of Nevada, and the Articles of
Incorporation, subject to any contractual restrictions to which the Corporation
is then subject.
ARTICLE VII
CERTIFICATES FOR AND TRANSFER OF SHARES
SECTION 7.1 CERTIFICATES FOR SHARES.
7.1.1. Certificates for shares shall be of such form and device as
the Board of Directors may designate and shall be numbered and registered as
they are issued. Each shall state the name of the record holder of the shares
represented thereby; its number and date of issuance; the number of shares for
which it is issued; the par value; a statement of the rights, privileges,
preferences and restrictions, if any; a statement as to rights of redemption or
conversion, if any; and a statement of liens or restrictions upon transfer or
voting, if any, or, alternatively, a statement that certificates specifying such
matters may be obtained from the Secretary of the Corporation.
7.1.2. Every certificate for shares must be signed by the Chief
Executive Officer or the President and the Secretary or an Assistant Secretary,
or must be authenticated by facsimiles of the signatures of the Chief Executive
Officer or the President and the Secretary or an Assistant Secretary. Before it
becomes effective, every certificate for shares authenticated by a facsimile or
a signature must be countersigned by a transfer agent or transfer clerk, and
must be registered by an incorporated bank or trust company, either domestic or
foreign, as registrar of transfers.
7.1.3. Even though an officer who signed, or whose facsimile
signature has been written, printed, or stamped on a certificate for shares
ceases, by death, resignation, or otherwise, to be an officer of the Corporation
before the certificate is delivered by the Corporation, the certificate shall be
as valid as though signed by a duly elected, qualified and authorized officer,
if it is countersigned by the signature or facsimile signature of a transfer
clerk or transfer agent and registered by an incorporated bank or trust company,
as registrar of transfers.
7.1.4. Even though a person whose facsimile signature as, or on
behalf of, the transfer agent or transfer clerk has been written, printed or
stamped on a certificate for shares ceases, by death, resignation, or otherwise,
to be a person authorized to so sign such certificate before the certificate is
delivered by the Corporation, the certificate shall be deemed countersigned by
the facsimile signature of a transfer agent or transfer clerk for purposes of
meeting the requirements of this section.
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SECTION 7.2 TRANSFER ON THE BOOKS.
Upon surrender to the Secretary or transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 7.3 LOST OR DESTROYED CERTIFICATES.
The Board of Directors may direct, or may authorize the Secretary to
direct, a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate for shares so lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors or Secretary may, in its or his discretion, and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 7.4 TRANSFER AGENTS AND REGISTRARS.
The Board of Directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, who may be the same person, and may be the
Secretary of the Corporation, or an incorporated bank or trust company, either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the Corporation may necessitate and the Board of Directors may
designate.
SECTION 7.5 FIXING RECORD DATE FOR DIVIDENDS, ETC.
The Board of Directors may fix a time, not exceeding 50 days preceding the
date fixed for the payment of any dividend or distribution, or for the allotment
of rights, or when any change or conversion or exchange of shares shall go into
effect, as a record date for the determination of the shareholders entitled to
receive any such dividend or distribution, or any such allotment of rights, or
to exercise the rights in respect to any such change, conversion, or exchange of
shares, and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive such dividend, distribution, or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record date
fixed as aforesaid.
SECTION 7.6 RECORD OWNERSHIP.
The Corporation shall be entitled to recognize the exclusive right of a
person registered as such on the books of the Corporation as the owner of shares
of the Corporation's stock to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not the Corporation
shall have express or other notice thereof, except as otherwise provided by law.
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ARTICLE VIII
AMENDMENTS TO BY-LAWS
SECTION 8.1 BY SHAREHOLDERS.
New or restated by-laws may be adopted, or these By-Laws may be repealed or
amended, at the annual shareholders' meeting or at any other meeting of the
shareholders called for that purpose, by a vote of shareholders entitled to
exercise a majority of the voting power of the Corporation.
SECTION 8.2 BY DIRECTORS.
Subject to the right of the shareholders to adopt, amend, or repeal
by-laws, as provided in Section 8.1, the Board of Directors may adopt, amend, or
repeal any of these By-Laws by the affirmative vote of two-thirds of the
directors of each Class except as otherwise provided in Section 2.4. This power
may not be delegated to any committee appointed in accordance with these
By-Laws.
SECTION 8.3 RECORD OF AMENDMENTS.
Whenever an amendment or a new By-Law is adopted, it shall be copied in the
book of minutes with the original By-Laws, in the appropriate place. If any
By-Law is repealed, the fact of repeal, with the date of the meeting at which
the repeal was enacted, or written assent was filed, shall be stated in said
book.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 9.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE CORPORATION.
Subject to Section 9.3 of this Article IX, each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding") (other than an action by or in the right of the
Corporation), by reason of the fact that he, or a person of whom he is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as a director, officer,
employee, fiduciary or agent shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the laws of Nevada, as the same
exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, employee
benefit plan exercise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or
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suffered by such person in connection with such proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 9.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION.
Subject to Section 9.3 of this Article IX, the Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he, or
a person of whom he is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or agent of enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity or in any other capacity
while serving as a director, officer, employee, fiduciary or agent, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
SECTION 9.3 AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Article IX (unless ordered by a court or
advanced pursuant to Section 9.6 hereof) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 9.1 or Section 9.2 of this
Article IX, as the case may be. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if a majority vote
of a quorum consisting of directors who were not parties to the act, suit or
proceeding so orders, by independent legal counsel in a written opinion, or
(iii) if such a quorum is not obtainable, by independent legal counsel in a
written opinion, or (iv) by the shareholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith, without the necessity of authorization in the
specific case.
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SECTION 9.4 GOOD FAITH DEFINED.
For purposes of any determination under Section 9.3 of this Article IX, a
person shall be deemed to have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to have had no reasonable
cause to believe his conduct was unlawful, if his action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to him by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in
this Section 9.4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 9.4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 9.1
or 9.2 of this Article IX, as the case may be.
SECTION 9.5 INDEMNIFICATION BY A COURT.
If a claim under Sections 9.1 or 9.2 is not paid in full by the Corporation
within thirty days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Nevada law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including the Board, independent legal counsel, or
its shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he has met such standard of conduct, nor an actual determination by the
Corporation (including the Board, independent legal counsel, or its
shareholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.
SECTION 9.6 EXPENSES PAYABLE IN ADVANCE.
The right to indemnification conferred in this Article IX shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
Nevada General Corporation Law required, the payment of such expenses incurred
by a director or officer in his capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to any employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an
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undertaking, by or on behalf of such director of officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section 9.6 or otherwise.
SECTION 9.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article IX shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Articles of
Incorporation, By-Law, agreement, vote of shareholders or disinterested
directors or otherwise.
SECTION 9.8 INSURANCE.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee, fiduciary or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under Nevada law.
SECTION 9.9 CERTAIN DEFINITIONS.
For purposes of this Article IX, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers, so that any person who is or
was a director or officer of such constituent corporation, or is or was a
director or officer of such constituent corporation serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article IX with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article IX, references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article IX.
SECTION 9.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by or granted
pursuant to, this Article IX shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee, fiduciary or agent and shall inure to the benefit of his heirs,
executors and administrators.
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SECTION 9.11 LIMITATION ON INDEMNIFICATION.
Notwithstanding anything contained in this Article IX to the contrary,
except as provided in Section 9.3, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized or consented to by the Board.
SECTION 9.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS.
The Corporation may, by action of the Board, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
SECTION 9.13 INDEMNIFICATION OF WITNESSES.
To the extent that any director, officer, employee, fiduciary or agent of
the Corporation is by reason of such position, or a position with another entity
at the request of the Corporation, a witness in any action, suit or proceeding,
he shall be indemnified against all costs and expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 9.14 INDEMNIFICATION AGREEMENTS.
The Corporation may enter into agreements with any director, officer,
employee, fiduciary or agent of the Corporation providing for indemnification to
the full extent permitted by Nevada law.
SECTION 9.15 DEFINITION OF BOARD.
For purposes of this Article IX, the term "Board" shall mean the Board of
Directors of the Corporation or, to the extent permitted by the laws of Nevada,
as the same exist or may hereafter be amended, its Executive Committee. On vote
of the Board, the Corporation may assent to the adoption of this Article IX by
any subsidiary, whether or not wholly owned.
SECTION 9.16 ACTIONS PRIOR TO ADOPTION OF ARTICLE IX.
The rights provided by this Article IX shall be available whether or not
the claim asserted against the director, officer, employee, fiduciary or agent
is based on matters which antedate the adoption of this Article IX.
SECTION 9.17 SEVERABILITY.
If any provision of this Article IX shall for any reason be determined to
be invalid, the remaining provisions hereof shall not be affected thereby but
shall remain in full force and effect.
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SECTION 9.18 APPLICABILITY TO FEDERAL ELECTION CAMPAIGN ACT OF 1971, AS
AMENDED.
The rights provided by this Article IX shall be applicable to the officers
(including without limitation the Chairman, Vice Chairman, treasurer and
assistant treasurer) appointed from time to time by the Chief Executive Officer
of the Corporation or his designee to serve in the administration and management
of any separate, segregated fund established for purposes of collecting and
distributing voluntary employee political contributions to federal election
campaigns pursuant to the Federal Election Campaign Act of 1971, as amended.
ARTICLE X
CORPORATE SEAL
The corporate seal shall be circular in form and shall have inscribed
thereon the name of the Corporation, and the date of its incorporation, and the
word "Nevada".
ARTICLE XI
INTERPRETATION
Reference in these By-Laws to any provision of the Nevada Revised Statutes
shall be deemed to include all amendments thereto and the effect of the
construction and determination of validity thereof by the Nevada Supreme Court.
ARTICLE XII
APPLICABILITY OF CONTROL SHARE ACT
The provisions of Nevada Revised Statutes Sections 78.378 to 78.3792,
inclusive, shall not apply to any acquisition of a controlling interest by OrNda
HealthCorp in the Corporation pursuant to the terms of that certain Stock Option
Agreement between the Corporation and OrNda HealthCorp, as the same may be
amended, modified, supplemented or otherwise changed.
