<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1994
REGISTRATION NO. 33-54651
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ORNDA HEALTHCORP
SUMMIT HEALTH LTD.
(Exact name of registrants as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1776092
CALIFORNIA 95-3154694
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3401 WEST END AVENUE, SUITE 700
NASHVILLE, TENNESSEE 37203
(615) 383-8599
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
---------------------
RONALD P. SOLTMAN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
ORNDA HEALTHCORP
3401 WEST END AVENUE, SUITE 700
NASHVILLE, TENNESSEE 37203
(615) 383-8599
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
MARK C. SMITH, ESQ. MORTON A. PIERCE, ESQ.
SKADDEN, ARPS, DEWEY BALLANTINE
SLATE, MEAGHER & FLOM 1301 AVENUE OF THE AMERICAS
919 THIRD AVENUE NEW YORK, NEW YORK 10019
NEW YORK, NEW YORK 10022 (212) 259-8000
(212) 735-3000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. / /
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 16, 1994
PROSPECTUS
$125,000,000
[LOGO]
ORNDA
HEALTHCORP
% SENIOR SUBORDINATED NOTES DUE 2004
---------------------
The % Senior Subordinated Notes due 2004 (the "Notes") are being offered
by OrNda HealthCorp (the "Company") and its wholly owned subsidiary, Summit
Health Ltd. ("Summit" and, together with the Company, the "Co-Obligors"). The
Notes are the joint and several obligations of the Co-Obligors. The Company will
receive all of the net proceeds from the offering of the Notes.
Interest on the Notes will be payable semi-annually on and
of each year, commencing , 1995. The Notes are redeemable at
the option of the Company, in whole or in part, at any time on or after
, 1999 at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. Upon a Change of
Control (as defined herein) and the satisfaction of certain conditions regarding
Designated Senior Debt (as defined herein), each holder of the Notes may require
the Company to repurchase such Notes at 100% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of repurchase.
The Notes will be subordinated in right of payment to all existing and
future Senior Debt (as defined herein) of the Co-Obligors and effectively
subordinated in right of payment to all existing and future liabilities of the
Company's subsidiaries (other than Summit). As of May 31, 1994, the amount of
Senior Debt and obligations of the Company's subsidiaries (excluding
intercompany indebtedness) that effectively ranked senior to the Notes was
approximately $622.4 million. As of May 31, 1994, after giving effect to the
Company's acquisition of Fountain Valley Regional Hospital and Medical Center
("Fountain Valley"), the offering of the Notes and the use of proceeds therefrom
as described herein, and assuming the repurchase of 100% of the aggregate
outstanding principal amount of the Company's 10 1/4% Senior Subordinated Notes
due 2003 (the "10 1/4% Notes") pursuant to the Change of Control Offer (as
defined herein), such amount would have been approximately $603.0 million. The
Notes will rank pari passu in right of payment to the Company's 12 1/4% Senior
Subordinated Notes due 2002 (the "12 1/4% Notes") and the 10 1/4% Notes. As of
May 31, 1994, there was $500 million aggregate principal amount of indebtedness
outstanding which would rank pari passu in right of payment to the Notes. As of
May 31, 1994, after giving effect to the offering of the Notes and the use of
proceeds therefrom as described herein, and assuming the repurchase of 100% of
the aggregate outstanding principal amount of the 10 1/4% Notes pursuant to the
Change of Control Offer, there would have been $400 million aggregate principal
amount of indebtedness outstanding which would rank pari passu in right of
payment to the Notes. See "Description of the Notes -- Subordination."
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................... % % %
- ------------------------------------------------------------------------------------------------------
Total.................................. $ $ $
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1994.
(2) The Co-Obligors have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses of the offering payable by the Company, estimated
at $ .
---------------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, subject to approval
of certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify any
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York on or about
, 1994.
---------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CITICORP SECURITIES, INC.
---------------------
The date of this Prospectus is , 1994.
<PAGE> 3
[MAP]
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus or incorporated herein by reference. The term the "Company" as used
herein refers to OrNda HealthCorp and its direct and indirect subsidiaries,
unless otherwise stated or indicated by context. References herein to the
Company's "EBITDA" refer to the Company's earnings before interest, taxes,
depreciation, amortization, minority interest, income (loss) from investments in
Houston Northwest Medical Center and non-recurring items. References herein to
Fountain Valley's "EBITDA" refer to Fountain Valley's earnings before interest,
taxes, depreciation, amortization and non-recurring items. References herein to
Summit's "EBITDA" refer to Summit's earnings before interest, taxes,
depreciation, amortization and minority interest. References herein to American
Healthcare Management, Inc.'s ("AHM") EBITDA refer to AHM's earnings before
interest, taxes, depreciation, amortization and non-recurring items. References
herein to the Company's "fiscal year" refer to the fiscal year ended August 31
of such year.
THE COMPANY
The Company is a leading provider of health care services in the United
States, delivering a broad range of inpatient and outpatient health care
services principally through the operation of 46 hospitals located in urban and
suburban communities in 15 states, primarily in the southern and western United
States. Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, diagnostic
services, coronary care, pediatric services and psychiatric services. On an
outpatient basis, the Company's services include, among others, same-day
surgery, diagnostic radiology (e.g. magnetic resonance imaging, CT scanning,
X-ray), rehabilitative therapy, clinical laboratory services, pharmaceutical
services and psychiatric services. The Company also operates a number of
free-standing surgery centers, which provide a cost-effective alternative to
inpatient care for the performance of minor surgeries. Certain of the Company's
hospitals offer other specialized services, including cardiac surgery, home
health services, hemodialysis, rehabilitation, AIDS treatment and clinics
specializing in the treatment of industrial accidents and women's health. In
addition, the Company operates a managed health care plan (the "Medicaid HMO")
pursuant to which the Company currently provides health care services, under a
fixed price contract, to over 20,000 members of the Arizona state Medicaid
system.
Since January 1992, when Charles N. Martin, Jr. was elected Chairman,
President and Chief Executive Officer, the Company has (i) substantially
increased its revenue while improving operating profitability and (ii) actively
participated in the consolidation of the health care industry through a series
of strategic acquisitions. Through such acquisitions the Company has diversified
into new markets and expanded its service capabilities in order to position the
Company as a leading provider of low cost, high quality health care services.
The Company has grown in size from 11 hospitals at August 31, 1991 to 46
hospitals at August 9, 1994 and its revenue has grown from approximately $460
million for the 1991 fiscal year (prior to giving pro forma effect to the
Mergers and the acquisition of Fountain Valley described below) to approximately
$1.6 billion for the 1993 fiscal year (after giving pro forma effect to the
Mergers and the acquisition of Fountain Valley). The operating margin of its
hospitals has grown from 12.2% for the 1991 fiscal year (prior to giving pro
forma effect to the Mergers and the acquisition of Fountain Valley) to 14.4% for
the nine months ended May 31, 1994 (after giving pro forma effect to the Mergers
and the acquisition of Fountain Valley).
On April 19, 1994, the Company completed a merger with AHM, which operated
16 acute care hospitals providing basic primary care services (the "AHM
Merger"), and acquired Summit, which operated 12 hospitals and a variety of
outpatient specialty health care clinics and programs (the "Summit Merger" and,
together with the AHM Merger, the "Mergers"). The Company believes that the
Mergers have created a company positioned to compete more effectively in the
changing health care environment. The Company's revenue, EBITDA and income from
continuing operations for the 1993 fiscal year approximated $1.6 billion, $223.7
million, and $29.3 million, respectively, after giving pro forma effect to the
Mergers, the Offering and
3
<PAGE> 5
the acquisition of Fountain Valley and assuming the Company's repurchase of 100%
of the aggregate principal amount of the 10 1/4% Notes pursuant to the Change of
Control Offer.
The Mergers enhanced the Company's position in several of its existing
markets, primarily Southern California, by allowing the Company to coordinate
the services provided by the hospitals acquired with those provided by its
existing hospitals and thereby eliminate redundant services and benefit from
other operating efficiencies and economies of scale. In addition, the Mergers
provided the Company with access to new markets, including Arizona and Nevada,
and new health care delivery capabilities, such as the Medicaid HMO and
outpatient specialty service clinics. The Mergers also strengthened the
Company's management team through the addition of management personnel from
Summit and AHM with experience in improving operating performance.
The Company recently acquired Fountain Valley, a provider of tertiary care
services, from Fountain Valley Medical Development Co. ("FVMDC"). Fountain
Valley, located on a 38-acre campus in Fountain Valley, California, contains a
413-bed acute care hospital, a surgery center, an imaging center and four
medical office buildings aggregating approximately 250,000 square feet of office
space. The aggregate consideration paid for Fountain Valley was approximately
$145 million, approximately $104 million of which was paid in cash by Summit.
The balance of the purchase price, approximately $41 million, was paid by an
unrelated real estate investment trust(the "REIT") which, pursuant to a Real
Estate Purchase Agreement (the "Real Estate Purchase Agreement"), purchased and
is leasing to the Company certain of Fountain Valley's real estate, including
the four medical office buildings. For the fiscal year ended October 31, 1993,
Fountain Valley's total revenues, EBITDA and income from continuing operations
were approximately $120.8 million, $21.6 million and $8.0 million, respectively.
See "Business -- Recent Acquisitions."
The Company intends to continue to increase revenue and market share
through implementation of the following business strategies:
- Development of Integrated Health Care Delivery Networks. In order
to succeed in the changing health care environment, the Company is
developing relationships with managed care organizations, other health care
providers and physicians in each of its markets to offer a full range of
integrated patient services on a cost effective basis. The Company believes
that the establishment of integrated networks will allow it to, among other
things, (i) improve the quality of care provided by concentrating
specialized service expertise within each market and (ii) reduce costs
through consolidation of facilities, increased purchasing power and other
economies of scale. Through the development of health care networks, the
Company believes it will augment revenues and market share by attracting an
increasing share of large, sophisticated governmental and private sector
managed care contracts. In addition, the Company intends to continue to
pursue strategic acquisitions of health care providers in geographic areas
and with service capabilities that will facilitate the development of
integrated networks. The Company believes that the recently completed
acquisition of Fountain Valley will further the development of a health
care network in the greater Los Angeles, California area by allowing the
Company to integrate the tertiary care services provided by Fountain Valley
with the primary care services provided by the Company's 13 other hospitals
in neighboring communities.
- Outpatient Services. The Company has responded to the recent shift
toward increased outpatient care by enhancing its hospitals' outpatient
facilities and services. The Company will emphasize those outpatient
services that it believes will grow in demand and which can be provided on
a cost effective, high revenue growth basis. The Company believes that it
is well positioned to compete effectively with alternate site providers of
outpatient services because its acute care hospitals are able to offer a
broader range of services at competitive prices.
- Cost Reduction. The Company intends to continue to position itself
as a low cost provider of health care services in each of its markets by
implementing programs designed to improve financial performance and
efficiency. These programs include, among others, (i) monitoring and
adjusting staffing levels and equipment usage in response to resource
consumption; (ii) more efficient use of professional and paraprofessional
staff such as nurses and nurses' aides; (iii) improving patient management
and reporting procedures; and (iv) improving the collection and sharing of
utilization and patient mix data
4
<PAGE> 6
with providers, employers and payors. In addition, the Company intends to
take advantage of reductions in corporate overhead and other economies of
scale from the Mergers and any future acquisitions. The Company estimates
realizing annualized operating cost savings of approximately $15 million
from improved operating efficiencies resulting from the Mergers.
- Community Based Services. The Company intends to continue to
implement specialty programs on a selective basis to maintain and enhance
the range and quality of its health care services. The Company focuses on
the particular needs of each community it serves and tailors its services
based upon local conditions and the Company's ability to provide such
services on a competitive basis. Examples of specialty services provided by
the Company in response to local demand include rehabilitation services,
home health services, AIDS treatment, cardiac surgery, weight loss
services, pain treatment programs and women's health clinics.
- Modernization of Facilities. The Company believes that maintaining
and modernizing its facilities is an important means of continuing revenue
and market share growth. After giving pro forma effect to the Mergers, the
Company's capital expenditures have totalled approximately $200 million
over the past three fiscal years. Such spending resulted in hospital
renovations and equipment purchases to expand and enhance the Company's
range of services as well as the expansion of high growth outpatient
facilities and other specialty services, including outpatient surgery and
home health services. The Company believes that capital expenditures
(exclusive of hospital acquisitions) during the 12 months following the
Mergers will not exceed $75 million, and will be used for expansion of
services at existing facilities and the replacement of outdated equipment.
- Management Information Systems. The Company believes that the
ability to collect and analyze information on the quality of care and to
develop appropriate responses thereto is critical to achieving growth in
the managed care environment. Prior to the Mergers, the Company, Summit and
AHM each designed or successfully implemented systems which measure
selected outcome quality indicators and identify needed improvements to
patient care. For example, these systems help identify and track quality
indicators such as unplanned transfers to intensive care units and returns
to the operating room. This information, which is shared with physicians
and other health care professionals, is being utilized to develop improved
protocols of care and to direct treatment to the most appropriate level of
care. The Company is consolidating its quality and utilization system with
that of each of AHM and Summit to enhance its operational efficiency and
reduce costs.
The Company's and Summit's principal executive offices are located at 3401
West End Avenue, Suite 700, Nashville, Tennessee 37203, and their telephone
number is (615) 383-8599.
5
<PAGE> 7
THE OFFERING
Notes Offered.............. $125,000,000 principal amount of % Senior
Subordinated Notes due 2004.
Co-Obligors................ The Notes are the joint and several obligations of
the Company and its wholly owned subsidiary,
Summit.
Maturity Date.............. , 2004.
Interest Payment Dates..... and of each year, commencing
, 1995.
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, on or after
, 1999, at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption.
Change of Control.......... Upon the occurrence of a Change of Control and the
satisfaction of certain conditions regarding
Designated Senior Debt (as defined herein), each
holder of the Notes may require the Company to
repurchase all or a portion of such holder's Notes
at a purchase price in cash equal to 100% of the
principal amount thereof, together with accrued and
unpaid interest, if any, to the date of repurchase.
See "Description of the Notes -- Restrictive
Covenants."
Ranking.................... The Notes will be senior subordinated obligations
of the Co-Obligors and, as such, will be
subordinated to all existing and future Senior Debt
(as defined herein) of the Co-Obligors. The Notes
will also be effectively subordinated in right of
payment to all existing and future liabilities of
the Company's subsidiaries other than Summit. As of
May 31, 1994, the amount of Senior Debt and
obligations of the Company's subsidiaries
(excluding intercompany indebtedness) that
effectively ranked senior to the Notes was
approximately $622.4 million. As of May 31, 1994,
after giving pro forma effect to the acquisition of
Fountain Valley, the offering of the Notes (the
"Offering") and the use of proceeds therefrom as
described in "Use of Proceeds," and assuming the
repurchase of 100% of the aggregate outstanding
principal amount of the 10 1/4% Notes pursuant to
the Change of Control Offer, such amount would have
been approximately $603.0 million. The Notes will
rank pari passu in right of payment to the
Company's 12 1/4% Notes and the 10 1/4% Notes and
will rank senior to all other subordinated
indebtedness of the Co-Obligors. As of May 31,
1994, there was $500 million aggregate principal
amount of indebtedness outstanding which ranked
pari passu in right of payment to the Notes. As of
May 31, 1994, after giving pro forma effect to the
acquisition of Fountain Valley, the Offering and
the use of proceeds therefrom as described in "Use
of Proceeds," and assuming the repurchase of 100%
of the aggregate outstanding principal amount of
the 10 1/4% Notes pursuant to the Change of Control
Offer, there would have been $400 million aggregate
principal amount of indebtedness outstanding which
would have ranked pari passu in right of payment to
the Notes. See "Description of the
Notes -- Subordination."
Restrictive Covenants...... The Indenture will contain certain covenants,
including, but not limited to, covenants with
respect to the following matters: (i) limitation on
additional indebtedness; (ii) limitation on
restricted payments; (iii) limitation on liens
securing indebtedness; (iv) limitation on the
6
<PAGE> 8
creation of any restriction on the ability of
the Company's subsidiaries to make distributions;
(v) limitation on transactions with affiliates;
(vi) limitation on other subordinated
indebtedness; and (vii) restrictions on mergers,
consolidations and the transfer of all or
substantially all of the assets of the Company to
another person. See "Description of the Notes --
Restrictive Covenants."
Use of Proceeds............ The net proceeds to the Company from the sale of
the Notes are estimated to be approximately
$ million. The Company intends to use the
net proceeds from the Offering to reduce amounts
outstanding under the revolving facility of the
Company's existing bank credit facility (the "Bank
Credit Facility"), which amounts the Company has
utilized or anticipates utilizing in connection
with the repurchase of the 10 1/4% Notes, the
financing of the acquisition of Fountain Valley and
other strategic acquisitions and for general
corporate purposes. Pursuant to the terms of the
indenture under which the 10 1/4% Notes were
issued, the AHM Merger constituted a "Change of
Control" and the Company was required to offer to
purchase (the "Change of Control Offer") the $100
million aggregate principal amount of the 10 1/4%
Notes at a purchase price of 101% of the principal
amount thereof plus accrued interest. As of July
18, 1994, the expiration date of the Change of
Control Offer, approximately $99.3 million
aggregate principal amount of the outstanding
10 1/4% Notes were tendered and were purchased by
the Company on July 19, 1994 pursuant to the Change
of Control Offer. See "Use of Proceeds."
Absence of Public Market... There is no public market for the Notes and the
Co-Obligors do not intend to list the Notes on any
securities exchange or for quotation through the
National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). The
Co-Obligors have been advised by the Underwriters
(as defined herein) that, following the completion
of the Offering, the Underwriters presently intend
to make a market in the Notes. However, the
Underwriters are under no obligation to do so and
may discontinue any market making activities at any
time without notice. There can be no assurance as
to the liquidity of the trading market for the
Notes or that an active public market for the Notes
will develop or, if developed, will continue.
INVESTMENT CONSIDERATIONS
See "Investment Considerations" for a discussion of certain factors that
should be considered by prospective purchasers in evaluating an investment in
the Notes.
7
<PAGE> 9
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table presents summary pro forma condensed combined financial
data derived from the unaudited pro forma condensed combined financial
statements included elsewhere in this Prospectus. The summary pro forma
condensed combined financial data gives effect to the following transactions and
events as if all such transactions had occurred, in the case of statement of
operations and operating data, on September 1, 1992 and in the case of balance
sheet data, on April 19, 1994 for the Summit Merger and on May 31, 1994 for all
other transactions: (i) the acquisition of Florida Medical Center (applying the
purchase method of accounting) on June 30, 1993; (ii) the Summit Merger
(applying the purchase method of accounting); (iii) the acquisition of Fountain
Valley (applying the purchase method of accounting); (iv) the consummation of
the Offering and the application of the net proceeds therefrom; and (v) the
Company's repurchase of 100% of the aggregate outstanding principal amount of
the 10 1/4% Notes pursuant to the Change of Control Offer. Because the Company
accounted for the AHM Merger as a pooling-of-interests transaction, the
historical financial data of the Company include AHM's historical results of
operations. The following summary unaudited pro forma condensed combined
financial data does not reflect cost savings, if any, which may be realized by
the Company from the consummation of the Mergers or the acquisition of Fountain
Valley.
The summary pro forma condensed combined financial data are unaudited and
do not purport to represent what the Company's results of operations would
actually have been if the transactions assumed therein had in fact occurred at
the times assumed or to project the Company's results of operation for any
future periods or its financial condition at any future date. The summary pro
forma condensed combined financial data should be read in conjunction with the
respective historical financial statements of the Company, Summit and Fountain
Valley incorporated by reference or included herein and the unaudited pro forma
condensed combined financial statements included herein.
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEAR ENDED
ENDED MAY 31, AUGUST 31,
1994(1) 1993(2)
------------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS:
Total revenue(3).......................................................................... $ 1,256,340 $1,605,951
Costs and expenses
Operating expenses...................................................................... 1,001,607 1,287,176
Provision for doubtful accounts......................................................... 73,562 95,046
Depreciation and amortization........................................................... 66,723 81,707
Interest expense........................................................................ 81,941 108,269
Interest income......................................................................... (3,455) (5,115)
Minority interest....................................................................... 4,230 4,601
Special executive compensation.......................................................... 2,530 --
Loss on sale of asset................................................................... 9,761 --
------------- ----------
19,441 34,267
Income (loss) from investments in Houston Northwest Medical Center........................ (136) 173
------------- ----------
Income from continuing operations before income tax....................................... 19,305 34,440
Income tax expense........................................................................ 5,406 5,160
------------- ----------
Income from continuing operations......................................................... 13,899 29,280
Preferred stock dividend requirements..................................................... (1,462) (1,699)
------------- ----------
Income from continuing operations applicable to common and common equivalent shares....... $ 12,437 $ 27,581
============ =========
Earnings per common and common equivalent share from continuing operations................ $ 0.28 $ 0.65
============ =========
Shares used in earnings per common and common equivalent share computations (in
thousands).............................................................................. 44,398 42,560
OPERATING DATA:
Number of hospitals owned at period end................................................... 46 46
Licensed beds at period end............................................................... 8,031 8,031
Interest expense, net..................................................................... $ 78,486 $ 103,154
EBITDA(4)................................................................................. $ 181,171 $ 223,729
EBITDA margin(5).......................................................................... 14.4% 13.9%
Capital expenditures...................................................................... $ 38,742 $ 59,160
Ratio of EBITDA to interest expense, net.................................................. 2.31x 2.17x
Ratio of earnings to fixed charges(6)..................................................... 1.20x 1.28x
<CAPTION>
MAY 31, 1994
-------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................................................. $ 1,914,378
Working capital........................................................................... 59,233
Long-term debt, excluding amounts due within one year..................................... 1,120,647
Total stockholders' equity................................................................ 361,012
</TABLE>
(footnotes on following page)
8
<PAGE> 10
(footnotes from previous page)
- ---------------
(1) The summary unaudited pro forma condensed combined statement of operations
and operating data for the nine months ended May 31, 1994 include the
Company's historical results of operations for the nine months ended May 31,
1994 (which include the results of operations of AHM); Summit's historical
results of operations for the nine months ended March 31, 1994; and Fountain
Valley's historical results of operations for the nine months ended April
30, 1994. The unaudited pro forma condensed combined balance sheet data
presents the historical balance sheet of the Company as of May 31, 1994
(which includes the effect of the Mergers) and the historical balance sheet
of Fountain Valley as of April 30, 1994.
(2) The summary unaudited pro forma condensed combined statement of operations
and operating data for the year ended August 31, 1993 include the Company's
historical results of operations for the fiscal year ended August 31, 1993
(which include the results of operations of AHM) (adjusted on a pro forma
basis to include the acquisition of Florida Medical Center); Summit's
historical results of operations for the fiscal year ended June 30, 1993;
and Fountain Valley's historical results of operations for the fiscal year
ended October 31, 1993.
(3) Total revenue is comprised of patient revenue, net of contractual
adjustments, and other revenue.
(4) While EBITDA should not be construed as a substitute for income from
operations or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements.
(5) EBITDA divided by total revenue.
(6) The ratio of earnings to fixed charges is calculated by dividing earnings
before income taxes plus fixed charges by the sum of fixed charges which
consists of interest expense, amortization of financing costs and the
portion of rental expense which is deemed to be representative of the
interest component of rental expense.
9
<PAGE> 11
INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully, in addition to the other
information contained in or incorporated by reference in this Prospectus, the
following factors before purchasing the Notes offered hereby.
CERTAIN FINANCIAL CONSIDERATIONS
The Company has substantial indebtedness and, as a result, significant debt
service obligations. As of May 31, 1994, the Company had approximately $1.0
billion of long-term indebtedness which approximated 73.5% of its total
capitalization. As of May 31, 1994, after giving effect to the acquisition of
Fountain Valley, the Offering and the use of proceeds therefrom and assuming the
repurchase of 100% of the aggregate outstanding principal amount of the 10 1/4%
Notes pursuant to the Change of Control Offer, the Company's long-term
indebtedness would have been approximately $1.1 billion, representing
approximately 75.5% of its total capitalization. See "Capitalization."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations; (iii)
certain of the Company's borrowings are and will continue to be at variable
rates of interest, which causes the Company to be vulnerable to increases in
interest rates; and (iv) certain of the Company's indebtedness contains numerous
financial and other restrictive covenants, including those restricting the
incurrence of additional indebtedness, the creation of liens, the payment of
dividends, sales of assets and minimum net worth requirements. Failure by the
Company to comply with such covenants may result in an event of default which,
if not cured or waived, could have a material adverse effect on the Company.
The Company's ability to make scheduled payments or to refinance its
obligations with respects to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
Although the Company's cash flow from its operations has been sufficient to meet
its debt service obligations in the past, there can be no assurance that the
Company's operating results will continue to be sufficient for payment of the
Company's indebtedness.
SUBORDINATION; EFFECT OF ENCUMBRANCES
The Notes will be subordinated in right of payment to all existing and
future Senior Debt (as defined herein) of the Co-Obligors and will rank pari
passu in right of payment with the Company's 12 1/4% Notes and the 10 1/4%
Notes. The 10 1/4% Notes are the joint and several obligations of the Company
and AHM Acquisition Co., Inc. ("AHM Acquisition Co."), a wholly owned subsidiary
of the Company, and, therefore, holders of any of the 10 1/4% Notes outstanding
following the Change of Control Offer will be entitled to satisfy their claims
out of the assets of AHM Acquisition Co. prior to holders of the Notes. AHM
Acquisition Co. owns substantially all of the operations acquired by the Company
from AHM in the AHM Merger. The Notes also will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries (other than
Summit). As of May 31, 1994, the amount of Senior Debt and obligations of the
Company's subsidiaries (excluding intercompany indebtedness) that effectively
ranked senior to the Notes was approximately $622.4 million. As of May 31, 1994,
after giving effect to the acquisition of Fountain Valley, the Offering and the
use of proceeds therefrom and assuming the repurchase of 100% of the aggregate
outstanding principal amount of the 10 1/4% Notes pursuant to the Change of
Control Offer, the amount of Senior Debt and obligations of the Company's
subsidiaries (excluding intercompany indebtedness) that effectively ranked
senior to the Notes would have been approximately 603.0 million. All
indebtedness incurred under the Bank Credit Facility constitutes Senior Debt.
The 12 1/4% Notes, the 10 1/4% Notes and indebtedness under the Bank Credit
Facility will mature prior to the Notes.
The Co-Obligors may not pay the principal of, premium, if any, or interest
on, the Notes or repurchase, redeem or otherwise retire the Notes if any Senior
Debt is not paid when due or any other default on any
10
<PAGE> 12
Senior Debt occurs and the maturity of such Senior Debt is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived, any such acceleration has been rescinded or such Senior Debt has been
paid in full. In addition, if any default exists with respect to certain Senior
Debt and certain other conditions are satisfied, the Co-Obligors may not make
any payments on the Notes for a designated period of time. Upon any payment or
distribution of assets of the Company upon liquidation, dissolution,
reorganization or any similar proceeding, the holders of Senior Debt will be
entitled to receive payment in full before the holders of the Notes are entitled
to receive any payment. See "Description of the Notes -- Subordination."
The Company has granted the lenders under the Bank Credit Facility a senior
security interest in the capital stock of the Company's subsidiaries, including
Summit, the partnership interests in partnerships in which the Company owns a
majority interest and instruments evidencing indebtedness owed to the Company by
its subsidiaries, including Summit. As of May 31, 1994, there was approximately
$451.7 million outstanding under the Bank Credit Facility. As of May 31, 1994,
after giving effect to the acquisition of Fountain Valley, the Offering and the
use of proceeds therefrom and assuming the repurchase of 100% of the aggregate
outstanding principal amount of the 10 1/4% Notes pursuant to the Change of
Control Offer, there would have been approximately $532.3 million outstanding
under the Bank Credit Facility. The Notes will be unsecured. If the Company
becomes insolvent or is liquidated, or if its indebtedness is accelerated, the
lenders under the Bank Credit Facility will be entitled to payment in full from
the proceeds of their security prior to any payment to the holders of Notes. In
such event, it is possible that there would be no assets remaining from which
claims of the holders of Notes could be satisfied or, if any assets remain, such
assets may be insufficient to satisfy fully such claims. See "Description of the
Notes."
SUBSIDIARY OPERATIONS
Since substantially all of the Co-Obligors' operations are conducted, and
substantially all of the Co-Obligors' assets are owned, by their respective
subsidiaries, the Notes will effectively be subordinated to all existing and
future liabilities of the Company's subsidiaries (other than Summit but
including Summit's subsidiaries), including the subsidiaries' guarantees of
indebtedness incurred under the Bank Credit Facility. Any right of the Company's
subsidiaries upon the liquidation, reorganization or insolvency of such
subsidiary (and the consequent right of the holders of the Notes to participate
in those assets) will be subject to the claims of the creditors (including trade
creditors) and preferred stockholders, if any, of such subsidiary, except to the
extent the Company or Summit has a claim against such subsidiary as a creditor
of such subsidiary. In addition, in the event that claims of the Company or
Summit as a creditor of a subsidiary are recognized, such claims would be
subordinate to any security interest in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company or Summit.
The ability of the Co-Obligors and their respective subsidiaries to incur
indebtedness is limited by certain of the restrictive covenants set forth in the
Bank Credit Facility and in the indentures relating to certain of the Company's
other long-term indebtedness, including the indenture governing the Notes.
Additionally, the indenture governing the Notes does not prohibit the Company
from transferring or disposing of the assets of Summit, and thereby diminishing
the assets available to satisfy the claims of holders of the Notes against
Summit.
In addition, the Co-Obligors' ability to make required principal and
interest payments with respect to the Co-Obligors' indebtedness, including the
Notes, depends on the earnings of their respective subsidiaries and on their
ability to receive funds from such subsidiaries through dividends or other
payments. Since the Notes are obligations of the Co-Obligors only, the
Co-Obligors' subsidiaries are not obligated or required to pay any amounts due
pursuant to the Notes or to make funds available therefor in the form of
dividends or advances to the Co-Obligors.
HEALTH CARE REFORM
On November 20, 1993, President Clinton submitted proposed comprehensive
health care reform legislation to Congress. A key component of the President's
proposal is the restructuring of health insurance markets through the use of
"managed competition." Under the proposal, states would be required to establish
regional purchasing cooperatives to act as the exclusive source of coverage for
individuals and employers with
11
<PAGE> 13
less than 5,000 employees. These cooperatives would contract with health plans
that demonstrate an ability to provide a full range of benefits. All employers
would be required to make coverage available to their employees, and individuals
would be required to enroll in approved health plans. The costs of the
President's proposal would be funded in significant part by reductions in
payments to providers by the Medicare and Medicaid programs. The President's
proposal would also impose stringent limits on increases in the premiums of
health plans, which would indirectly impact the fees paid to health care
providers. In addition, other comprehensive health care reform bills have been
and are expected to be introduced in Congress. These bills contain and are
expected to contain benefit standards, coverage guarantees, cost controls and
financing that differ from the President's proposal. The Company is unable to
predict whether any reforms will be adopted or when any such reforms will be
implemented. No assurance can be given that such reforms will not have a
material adverse effect on the Company.
REIMBURSEMENT AND REGULATION
The Company derives a substantial portion of its revenue from third party
payors, including the Medicare and Medicaid programs. Changes in existing
government reimbursement programs have resulted in reduced levels of
reimbursement for health care services, and additional changes are anticipated.
Such changes are likely to result in further reductions in reimbursement levels.
In addition, private payors are increasingly demanding discounts from health
care providers. Significant limits on reimbursement rates could adversely affect
the Company's results of operations. Effective January 1, 1995, the California
Department of Health Services will begin changing the payment system for
participants in the California Medicaid program ("Medi-Cal") in certain
counties, including those in which the Company principally operates, from
fee-for-service arrangements to managed care plans. The Company is unable to
predict the effect these changes will have on its operations. No assurance can
be given that such reforms will not have a material adverse effect on the
Company.
The health care industry is subject to extensive federal, state and local
regulation relating to licensure, conduct of operations, addition of facilities
and services and prices for services. Antifraud and abuse amendments codified
under the Social Security Act of 1935, as amended (the "Social Security Act"),
prohibit certain business practices and relationships that may affect the
provision and cost of health care services reimbursable under the Medicare and
Medicaid programs. The U.S. Department of Health and Human Services ("HHS") has
issued regulations defining practices and business arrangements which are
permissible under such amendments. Certain of the Company's current financial
arrangements with physicians and other providers do not qualify for the safe
harbor exemptions and therefore risk scrutiny by HHS and may be subject to
enforcement action. In addition, Section 1877 under the Social Security Act has
recently been amended to significantly broaden the scope of prohibited physician
referrals to providers with which they have a financial arrangement, effective
January 1, 1995. The Company's participation in and development of joint
ventures and other financial arrangements with physicians could be adversely
affected by these amendments. The Company is unable to predict the future course
of federal, state and local regulation. Further changes in the regulatory
framework could have an adverse impact on the Company.
COMPETITION
The health care industry is highly competitive and subject to excess
capacity. In recent years, competition among health care providers for patients
has intensified as hospital occupancy rates in the United States have declined
due to, among other things, regulatory and technological changes, increasing use
of managed care payment systems, cost containment pressures, a shift toward
outpatient treatment and an increasing supply of physicians. Certain of the
Company's competitors have greater financial resources and offer a broader range
of services than the Company. In addition, hospitals owned by governmental
agencies and other tax-exempt entities benefit from endowments, charitable
contributions and tax-exempt financing, which advantages are not enjoyed by the
Company's facilities.
12
<PAGE> 14
ACQUISITION STRATEGY
The Company has recently completed several acquisitions of health care
providers, and intends to use a portion of the proceeds from the Offering to
reduce amounts outstanding under the Bank Credit Facility, which amounts the
Company anticipates utilizing, among other things, to finance additional
strategic acquisitions of businesses with facilities and service capabilities
that will enhance the Company's operations. See "Business -- Business Strategy."
There can be no assurance that the Company will be able to realize expected
operating and economic efficiencies from its recent acquisitions or from any
future acquisitions. In addition, there can be no assurance that the Company
will be able to locate suitable acquisition candidates, consummate acquisitions
on favorable terms, or successfully integrate newly acquired businesses and
facilities with the Company's operations. The consummation of acquisitions could
result in the incurrence or assumption by the Company of additional
indebtedness.
POTENTIAL SUMMIT INCOME TAX LIABILITY
The Internal Revenue Service (the "IRS") is currently engaged in an
examination of the Federal income tax returns for fiscal years 1984, 1985 and
1986 of Summit, which subsequent to the Company's acquisition thereof became a
wholly owned subsidiary of the Company. Summit has received a revenue agent's
report with proposed adjustments for the years 1984 through 1986 and Summit has
filed a protest with the district director opposing the proposed adjustments.
The IRS has challenged, among other things, the propriety of certain accounting
methods utilized by Summit for tax purposes, including the use of the cash
method of accounting by certain of Summit's subsidiaries (the "Summit
Subsidiaries") prior to fiscal year 1988. For the taxable years prior to 1988,
most of the Summit Subsidiaries primarily reported taxable income using the cash
method of accounting. The cash method was prevalent within the hospital industry
and the Summit Subsidiaries applied the method in accordance with prior
agreements reached with the IRS. The IRS now asserts that an accrual method of
accounting should have been used. The Tax Reform Act of 1986 (the "1986 Act")
requires most large corporate taxpayers (including Summit) to use an accrual
method of accounting beginning in 1987. Consequently, the Summit Subsidiaries
changed to the accrual method beginning July 1, 1987. In accordance with the
provisions of the 1986 Act, income that was deferred by use of the cash method
at the end of 1986 is being recognized as taxable income by the Summit
Subsidiaries in equal annual installments over ten years beginning on July 1,
1987. The Company believes that Summit properly reported its income and paid its
taxes in accordance with applicable laws and in accordance with previous
agreements established with the IRS. The Company believes that the final outcome
of the IRS's examinations of prior years' income taxes will not have a material
adverse effect on the results of operations or financial position of the
Company.
CONCENTRATION OF MARKETS
Of the 46 hospitals operated by the Company, 14 hospitals are located in
the greater Los Angeles, California area and 18 hospitals, which generated
approximately 41.0% of the Company's revenue for the 1993 fiscal year (after
giving pro forma effect to the Mergers and the acquisition of Fountain Valley),
are located in California. In addition, five hospitals which generated
approximately 18.9% of the Company's revenue for the 1993 fiscal year (after
giving pro forma effect to the Mergers) are located in Florida. The
concentration of hospitals in California and Florida increases the risk that any
adverse economic, regulatory or other developments that may occur in such areas
may adversely affect the Company's operations or financial condition. In
addition, the Company has experienced, and expects that it will continue to
experience, delays in payment and in rate increases by Medi-Cal. Although these
delays have not had a material adverse effect on the Company, there can be no
assurance that future delays will not have such an effect.
DEPENDENCE ON KEY PERSONNEL AND PHYSICIANS
The Company's operations are dependent on the efforts, ability and
experience of certain key management personnel, including Charles N. Martin,
Jr., Chief Executive Officer and Chairman of the Board of Directors of the
Company, and Donald J. Amaral, President and Chief Operating Officer of the
Company. An event of default occurs under the Bank Credit Facility if either Mr.
Martin or Mr. Amaral is no longer a
13
<PAGE> 15
member of the Company's senior management, unless replaced within 120 days with
an executive reasonably satisfactory to the bank lenders. In addition, since
physicians generally control the majority of hospital admissions, the success of
the Company, in part, is dependent upon the number and quality of physicians on
its hospitals' medical staffs. The loss of some or all of the Company's key
management personnel or an inability to attract and retain sufficient numbers of
qualified physicians could have an adverse impact on the Company's future
results of operations.
LIABILITY AND INSURANCE
As is typical in the health care industry, the Company is subject to claims
and legal actions by patients and others in the ordinary course of business. The
Company is partially self-insured for its hospital professional liability and
comprehensive general liability risks and maintains an unfunded reserve for such
risks. For hospital professional liability and comprehensive general liability
claims asserted, the Company assumes such liability risks under its self-insured
retention up to $3 million per claim, or $30 million in the aggregate, for
claims reported after June 1, 1994. The Company also purchases excess levels of
coverage above such self-insured retention. For the twelve months ending June 1,
1995, the Company purchased a $50 million layer of excess insurance above
self-insured retentions that may be applied towards hospital professional
liability and comprehensive general liability claims. Although the Company's
cash flow and reserves for self-insured liabilities have been adequate in the
past to provide for such self-insured liabilities, and the Company believes that
it has adequately provided for future self-insured liabilities, there can be no
assurance that the Company's cash flow and reserves will continue to be
adequate. If actual payments of claims with respect to the Company's
self-insured liabilities exceed projected payments of claims, the result of
operations of the Company could be adversely affected. In addition, while the
Company's professional and other liability insurance have been adequate in the
past to provide for liability claims, there can be no assurance that adequate
insurance will continue to be available at favorable price levels.
LACK OF PUBLIC MARKET FOR SECURITIES
There is no public market for the Notes and the Co-Obligors do not intend
to list the Notes on any securities exchange or for quotation through NASDAQ.
The Co-Obligors have been advised by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc and Citicorp Securities, Inc. (together, the
"Underwriters") that, following the completion of the Offering, the Underwriters
presently intend to make a market in the Notes. However, the Underwriters are
under no obligation to do so and may discontinue any market making activity at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes or that an active public market for the Notes will
develop or, if developed, will continue. If an active public market does not
develop or is not maintained, the market price and liquidity of the Notes may be
adversely affected.
USE OF PROCEEDS
The Company will receive all of the net proceeds from the Offering. The net
proceeds to the Company from the sale of the Notes in the Offering (after
deducting estimated expenses and underwriting discount and commissions) are
estimated to be approximately $ million. The Company intends to apply
such net proceeds to reduce amounts outstanding under the revolving facility of
the Bank Credit Facility, which amounts the Company has utilized or anticipates
utilizing in connection with the repurchase of the 10 1/4% Notes, the financing
of the acquisition of Fountain Valley and other strategic acquisitions and for
general corporate purposes. Pursuant to the terms of the indenture under which
the 10 1/4% Notes were issued, the AHM Merger constituted a "Change of Control"
and the Company was required to make the Change of Control Offer for the $100
million aggregate principal amount of the 10 1/4% Notes at a purchase price of
101% of the principal amount thereof plus accrued interest. As of July 18, 1994,
the expiration date of the Change of Control Offer, approximately $99.3 million
aggregate principal amount of the outstanding 10 1/4% Notes were tendered and
were purchased by the Company on July 19, 1994 pursuant to the Change of Control
Offer. The
14
<PAGE> 16
Company currently has no definitive agreements with respect to any acquisition,
and there can be no assurance that any acquisitions will be consummated.
Borrowings under the revolving facility of the Bank Credit Facility bear
interest at a fluctuating rate equal to either (i) the alternate base rate (as
defined) plus 1.0% or (ii) LIBOR plus 2.0%, in each case subject on or after
November 1, 1994 to potential decreases or increases dependent upon the
Company's interest coverage and debt to cash flow ratios. The revolving facility
of the Bank Credit Facility expires on April 19, 2000.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company at May 31,
1994 and as adjusted to give pro forma effect to (i) the consummation of the
Offering and the application of the net proceeds therefrom, (ii) the acquisition
of Fountain Valley and (iii) the assumed repurchase of 100% of the aggregate
outstanding principal amount of the 10 1/4% Notes pursuant to the Change of
Control Offer.
<TABLE>
<CAPTION>
MAY 31, 1994
--------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt.............................. $ 7,368 $ 7,368
========= =========
Long-term debt:
Capitalized lease obligations, interest at 8.8% to 17.2%.......... $ 21,789 $ 21,789
Bank Credit Facility:
Revolving Credit Facility...................................... 58,200 138,847
Term Loan...................................................... 325,000 325,000
Delayed Term Loan.............................................. 68,500 68,500
Notes payable, effective interest at 9.3% to 14.5%, maturities
through 2004................................................... 48,879 48,879
% Senior Subordinated Notes due 2004............................ -- 125,000
12 1/4% Notes..................................................... 400,000 400,000
10 1/4% Notes(1).................................................. 100,000 --
Less current maturities........................................... (7,368) (7,368)
---------- -----------
Total long-term debt (excluding current maturities)(2).... 1,015,000 1,120,647
---------- -----------
Stockholders' equity:
Payable In Kind Cumulative Redeemable Convertible Preferred
Stock.......................................................... 19,341 19,341
Common Stock...................................................... 432 432
Additional paid-in capital........................................ 403,751 403,751
Retained Deficit.................................................. (136,322) (140,822)
Unrealized gains on securities available-for-sale................. 78,310 78,310
---------- -----------
Total stockholders' equity................................ 365,512 361,012
---------- -----------
Total capitalization...................................... $1,380,512 $ 1,481,659
========= =========
</TABLE>
- ---------------
(1) Pursuant to the terms of the indenture under which the 10 1/4% Notes were
issued, the AHM Merger constituted a "Change of Control" and the Company was
required to make the Change of Control Offer. On May 19, 1994, the Company
commenced the Change of Control Offer for all of the outstanding 10 1/4%
Notes at 101% of the principal amount thereof plus accrued interest. As of
July 18, 1994, the expiration date of the Change of Control Offer,
approximately $99.3 million aggregate principal amount of the outstanding
10 1/4% Notes were tendered and were purchased by the Company on July 19,
1994 pursuant to the Change of Control Offer. See "Use of Proceeds."
(2) Summit, a wholly owned subsidiary of the Company, currently owns 38.6% of
Summit Care Corporation ("Summit Care"). At May 31, 1994 approximately
$37,440 aggregate principal amount of Summit's 7 1/2% Exchangeable
Subordinated Notes due 2003 (the "7 1/2% Notes"), which are exchangeable, at
the option of the holders, into Summit's 38.6% interest in the Summit Care
Common Stock, were outstanding. The 7 1/2% Notes have not been included in
long-term debt as the investment in Summit Care and related debt has been
accounted for as an asset held for sale.
16
<PAGE> 18
SELECTED HISTORICAL FINANCIAL DATA
ORNDA HEALTHCORP AND SUBSIDIARIES
The following table sets forth selected historical financial data and other
operating information of the Company giving effect to the Mergers. The selected
historical financial data for the five fiscal years ended August 31, 1993 are
derived from the consolidated financial statements of the Company. The selected
historical financial data for the nine months ended May 31, 1994 and 1993 are
derived from the unaudited condensed consolidated financial statements of the
Company and reflect all adjustments (consisting of normal recurring adjustments)
that, in the opinion of the Company, are necessary for a fair presentation of
such information. Operating results for the nine months ended May 31, 1994 are
not necessarily indicative of the results that may be expected for the Company's
fiscal year ending August 31, 1994. Because the Company accounted for the AHM
Merger as a pooling-of-interests transaction, the historical financial data of
the Company include AHM's historical results of operations. The nine months
ended May 31, 1994 include financial data for the Company for the nine months
ended May 31, 1994 and the financial data of Summit from the date of the
Mergers, April 19, 1994, through May 31, 1994. All information contained in the
following table should be read in conjunction with the consolidated financial
statements and related notes of the Company included or incorporated by
reference herein.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED MAY 31, FOR THE YEARS ENDED AUGUST 31,
------------------- -----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Total Revenue(1)............................... $882,917 $702,551 $961,795 $808,523 $752,164 $ 793,251 $796,725
Costs and Expenses
Operating expenses........................... 697,537 562,098 765,743 674,174 618,826 668,004 648,888
Provision for doubtful accounts.............. 57,443 43,968 63,907 52,426 40,979 52,846 50,652
Depreciation and amortization................ 45,918 34,246 47,669 40,003 32,115 40,185 49,205
Interest expense............................. 59,331 49,948 68,660 40,229 59,167 80,815 104,378
Interest income.............................. (2,032) (3,167) (3,380) (3,226) (3,541) (8,332) (3,500)
Minority interest............................ 4,230 2,988 4,601 7,610 3,955 5,315 8,289
Special executive compensation(2)............ 2,530 -- -- 6,140 -- -- --
Severance agreements......................... -- -- -- 5,090 -- -- --
Merger transaction expense................... 29,992 -- -- -- -- -- --
Loss (gain) on asset sale.................... 9,761 -- -- 44,903 11,412 76,504 (536)
Costs associated with 1990
recapitalization........................... -- -- -- -- -- 6,245 5,124
Corporate office relocation expense.......... -- -- -- 1,800 -- -- --
-------- -------- -------- -------- -------- --------- --------
(21,793) 12,470 14,595 (60,626) (10,749) (128,331) (65,775)
Income (loss) from investments in Houston
Northwest Medical Center..................... (136) (775) 173 (8,210) (6,147) (1,834) --
-------- -------- -------- -------- -------- --------- --------
Income (loss) before income tax expense and
extraordinary item........................... (21,929) 11,695 14,768 (68,836) (16,896) (130,165) (65,775)
Income tax expense (benefit)................... 1,048 930 1,129 1,266 364 -- (5,444)
-------- -------- -------- -------- -------- --------- --------
Income (loss) before extraordinary item........ (22,977) 10,765 13,639 (70,102) (17,260) (130,165) (60,331)
Extraordinary item, net of tax................. (8,191) -- (3,842) 49,667 -- 30,545 --
-------- -------- -------- -------- -------- --------- --------
Net income (loss).............................. (31,168) 10,765 9,797 (20,435) (17,260) (99,620) (60,331)
Preferred stock dividend requirements.......... (1,462) (1,259) (1,699) (1,363) -- (3,931) (12,182)
-------- -------- -------- -------- -------- --------- --------
Net income (loss) applicable to common and
common equivalent shares..................... $(32,630) $ 9,506 $ 8,098 $(21,798) $(17,260) $(103,551) $(72,513)
======== ======== ======== ======== ======== ========= ========
Net income (loss) per common and common
equivalent share before extraordinary
item(3)...................................... $ (0.68) $ 0.27 $ 0.34 $ (2.32) $ (1.15) $ -- $ --
======== ======== ======== ======== ======== ========= ========
Net income (loss) per common and common
equivalent share(3).......................... $ (0.91) $ 0.27 $ 0.23 $ (0.71) $ (1.15) $ -- $ --
======== ======== ======== ======== ======== ========= ========
Shares used in earnings per common and common
equivalent share computations (in
thousands)(3)................................ 36,047 34,743 34,960 30,741 15,014 -- --
(continued on the following page)
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED MAY 31, FOR THE YEARS ENDED AUGUST 31,
------------------- -----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
EBITDA(4)...................................... $127,937 $ 96,485 $132,145 $ 81,923 $ 92,359 $ 72,401 $ 97,185
EBITDA margin(5)............................... 14.5% 13.7% 13.7% 10.1% 12.3% 9.1% 12.2%
Capital expenditures........................... $ 31,556 $ 27,300 $ 35,558 $ 52,823 $ 32,200 $ 27,282 $ 42,664
Ratio of earnings to fixed charges(7).......... -- 1.20x 1.18x -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
MAY 31, ----------------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 16,342 $ 25,914 $ 60,908 $ 29,102 $ 39,783 $ 83,796
Working capital.................................. 52,324 26,173 46,669 10,881 (20,684) (548,283)(6)
Net property, plant, and equipment............... 1,020,946 803,994 677,440 570,558 597,508 606,641
Total assets..................................... 1,789,704 1,205,137 994,407 852,029 937,128 986,022
Long-term debt (excluding current maturities).... 1,015,000 705,425 570,971 522,837 629,971 131,445(6)
Preferred stock.................................. 19,341 18,062 16,363 -- -- --
Total shareholders' equity (deficit)............. 365,512 212,108 185,882 98,306 71,814 (446,923)
</TABLE>
- ---------------
(1) Total revenue is comprised of patient revenue, net of contractual
adjustments, and other revenue.
(2) Special executive compensation for 1992 includes: (i) $3,000 of compensation
expense related to the Company's sale of the Company's Common Stock and
granting of options to Mr. Martin on January 15, 1992 and (ii) a non-cash
reserve of $1,900 established for payments to be made in connection with the
termination of employment with the Company of Mr. Bryan P. Marsal and Mr.
Joseph A. Bondi in 1992. The payments related to the Marsal and Bondi
terminations will be made monthly through October 1994. Special executive
compensation for 1994 represents compensation expense related to the
Company's granting of options to key members of senior management during the
second quarter of 1994.
(3) Per share information for the years August 31, 1990 and 1989 is not
presented because a different capital structure existed.
(4) While EBITDA should not be construed as a substitute for income from
operations or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements.
(5) EBITDA divided by total revenue.
(6) Long-term debt of $493,510 for the Company is classified as current at
August 31, 1989.
(7) The ratio of earnings to fixed charges is calculated by dividing earnings
before income taxes plus fixed charges by the sum of fixed charges which
consists of interest expense, amortization of financing costs and the
portion of rental expense which is deemed to be representative of the
interest component of rental expense. Earnings were inadequate to cover
fixed charges by approximately $66,518, $130,165, $17,095, $68,836, and
$23,111 for the years ended August 31, 1989, 1990, 1991, 1992, and for the
nine months ended May 31, 1994, respectively.
18
<PAGE> 20
SUMMIT HEALTH LTD.
The following table sets forth selected historical financial data and other
operating information of Summit prior to giving effect to the Summit Merger. The
selected historical financial data for the five years ended June 30, 1993 are
derived from the consolidated financial statements of Summit. The selected
historical financial data for the nine months ended March 31, 1994 and 1993 are
derived from the unaudited condensed consolidated financial statements of Summit
and reflect all adjustments (consisting of normal recurring adjustments) that,
in the opinion of the Company, are necessary for a fair presentation of such
information. Operating results for the nine months ended March 31, 1994 are not
necessarily indicative of the results that may be expected for Summit's fiscal
year ending June 30, 1994. The information contained in the following table
should be read in conjunction with the consolidated financial statements and
related notes of Summit.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED JUNE 30,
------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS:
Total Revenue(1).................. $404,650 $382,844 $508,504 $475,218 $415,667 $393,566 $394,064
Costs and Expenses
Operating expenses.............. 332,452 319,279 425,242 406,632 355,631 344,842 358,559
Provision for doubtful
accounts...................... 17,202 19,447 23,113 23,584 23,389 18,278 18,240
Depreciation and amortization... 15,879 13,492 19,185 14,620 13,940 13,379 17,066
Interest expense, net........... 5,080 4,174 5,772 8,291 10,819 12,838 14,489
Minority interest............... 2,138 1,773 2,421 519 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax
expense and extraordinary
item(2)......................... 31,899 24,679 32,771 21,572 11,888 4,229 (14,290)
Income tax expense (benefit)...... 14,759 10,707 14,201 8,629 4,703 1,848 (5,904)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................ 17,140 13,972 18,570 12,943 7,185 2,381 (8,386)
Extraordinary item, net of
taxes(3)........................ -- -- -- (1,779) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................. $ 17,140 $ 13,972 $ 18,570 $ 11,164 $ 7,185 $ 2,381 $ (8,386)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common and
common equivalent share before
extraordinary item.............. $ 0.51 $ 0.42 $ 0.56 $ 0.40 $ 0.23 $ 0.08 $ (0.27)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common and
common equivalent share......... $ 0.51 $ 0.42 $ 0.56 $ 0.34 $ 0.23 $ 0.08 $ (0.27)
========= ========= ========= ========= ========= ========= =========
Shares used in earnings per common
and common equivalent share
computations (in thousands)..... 33,870 33,217 33,201 32,750 31,251 31,250 31,250
OPERATING DATA:
EBITDA(4)......................... $ 54,996 $ 44,118 $ 60,149 $ 45,002 $ 36,647 $ 30,466 $ 17,265
EBITDA margin(5).................. 13.6% 11.5% 11.8% 9.5% 8.8% 7.7% 4.4%
Capital expenditures.............. $ 23,033 $ 39,051 $ 50,391 $ 23,933 $ 17,895 $ 10,300 $ 15,514
</TABLE>
<TABLE>
<CAPTION>
MARCH JUNE 30,
31, ----------------------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 19,350 $ 40,857 $ 24,937 $ 5,766 $ 3,727 $ 8,049
Working capital.............................. 20,447 10,057 1,138 21,788 23,364 45,837
Net property, plant, and equipment........... 236,548 221,945 187,051 175,577 171,822 174,352
Total assets................................. 406,265 394,559 353,568 296,566 299,019 323,514
Long-term debt (excluding current
maturities)................................ 87,186 84,711 62,300 101,302 112,457 136,676
Total shareholders' equity................... 132,229 114,123 98,628 79,169 71,956 69,575
</TABLE>
(footnotes on the following page)
19
<PAGE> 21
(footnotes from the previous page)
- ---------------
(1) Total revenue is comprised of patient revenue, net of contractual
adjustments, and other revenue.
(2) Includes losses of $15,532 and $1,056 in fiscal 1989 and 1990, respectively,
resulting principally from the closure of a 76-bed hospital located in
Lubbock, Texas and the sale of a 78-bed hospital located in Levelland,
Texas, the closure of a 122-bed hospital located in Colorado Springs,
Colorado, and the sale of a partnership interest involving eight hospitals
which were managed in the Kingdom of Saudi Arabia.
(3) Net of income tax benefit of $1,186 from the redemption and retirement of
Summit's 14% Senior Subordinated Debentures due 2005.
(4) While EBITDA should not be construed as a substitute for income from
operations or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of Summit to meet its future debt
service, capital expenditure and working capital requirements.
(5) EBITDA divided by total revenue.
20
<PAGE> 22
SELECTED OPERATING STATISTICS
The following table sets forth certain operating statistics for the
hospitals operated by the Company, AHM, and Summit for each of the periods
indicated without giving effect to the Mergers.
ORNDA HEALTHCORP
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MAY 31, YEARS ENDED AUGUST 31,
--------------------- ----------------------------------
1994 1993 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of hospitals at period end............. 18 17 18 15 11
Licensed beds at period end................... 4,086 3,627 4,086 3,182 2,543
Patient days.................................. 394,533 343,633 547,571 475,295 430,535
Adjusted patient days(1)...................... 553,892 493,601 762,837 685,575 600,471
Average length of stay (days)................. 6.4 6.7 6.9 6.9 8.4
Admissions.................................... 61,637 51,619 79,463 68,936 51,452
Adjusted admissions(2)........................ 86,534 74,145 110,703 99,433 71,759
Occupancy rate(3)............................. 35.2% 34.6% 36.7% 40.9% 46.4%
</TABLE>
AMERICAN HEALTHCARE MANAGEMENT, INC.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MAY 31, TWELVE MONTHS ENDED SEPTEMBER 30,
--------------------- ----------------------------------
1994 1993 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of hospitals at period end............. 16 16 16 16 16
Licensed beds at period end................... 2,028 2,028 2,028 2,028 2,028
Patient days.................................. 198,462 194,026 258,381 251,931 254,792
Adjusted patient days(1)...................... 258,001 254,950 340,783 333,213 334,418
Average length of stay (days)................. 5.0 5.3 5.2 5.2 5.3
Admissions.................................... 39,652 36,908 49,982 48,312 48,214
Adjusted admissions(2)........................ 51,548 48,497 65,926 63,917 63,305
Occupancy rate(3)............................. 35.7% 34.9% 34.9% 34.0% 34.4%
</TABLE>
SUMMIT HEALTH LTD.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31, YEARS ENDED JUNE 30,
--------------------- ----------------------------------
1994 1993 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of hospitals at period end............. 12 12 12 12 12
Licensed beds at period end................... 1,618 1,641 1,641 1,629 1,648
Patient days.................................. 143,969 147,356 193,560 203,626 217,541
Adjusted patient days(1)...................... 209,368 211,939 281,171 297,837 306,395
Average length of stay (days)................. 4.3 4.4 4.4 4.6 5.0
Admissions.................................... 33,727 33,461 44,238 44,083 43,790
Adjusted admissions(2)........................ 49,048 48,126 64,261 64,479 61,676
Occupancy rate(3)............................. 32.5% 32.7% 32.3% 34.2% 36.2%
</TABLE>
- ---------------
(1) Total patient days for the period multiplied by the ratio of total patient
revenue divided by total inpatient revenue.
(2) Total admissions for the period multiplied by the ratio of total patient
revenue divided by total inpatient revenue.
(3) Average daily census for the period divided by licensed beds.
21
<PAGE> 23
BUSINESS
THE COMPANY
The Company is a leading provider of health care services in the United
States, delivering a broad range of inpatient and outpatient health care
services principally through the operation of 46 hospitals located in urban and
suburban communities in 15 states, primarily in the southern and western United
States. Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, diagnostic
services, coronary care, pediatric services and psychiatric services. On an
outpatient basis, the Company's services include, among others, same day
surgery, diagnostic radiology (e.g. magnetic resonance imaging, CT scanning,
X-ray), rehabilitative therapy, clinical laboratory services, pharmaceutical
services and psychiatric services. The Company also operates a number of
free-standing surgery centers, which provide a cost-effective alternative to
inpatient care for the performance of minor surgeries. Certain of the Company's
hospitals offer other specialized services, including cardiac surgery, home
health services, hemodialysis, rehabilitation, AIDS treatment and clinics
specializing in the treatment of industrial accidents and women's health. In
addition, the Company operates the Medicaid HMO, pursuant to which the Company
currently provides health care services, under a fixed price contract, to over
20,000 members of the Arizona state Medicaid system.
Since January 1992, when Charles N. Martin, Jr. was elected Chairman,
President and Chief Executive Officer, the Company has (i) substantially
increased its revenue while improving operating profitability and (ii) actively
participated in the consolidation of the health care industry through a series
of strategic acquisitions. Through such acquisitions the Company has diversified
into new markets and expanded its service capabilities in order to position the
Company as a leading provider of low cost, high quality health care services.
The Company has grown in size from 11 hospitals at August 31, 1991 to 46
hospitals at August 10, 1994 and its revenue has grown from approximately $460
million for the 1991 fiscal year (prior to giving pro forma effect to the
Mergers and the acquisition of Fountain Valley) to approximately $1.6 billion
for the 1993 fiscal year (after giving pro forma effect to the Mergers and the
acquisition of Fountain Valley). The operating margin of its hospitals has grown
from 12.2% for the 1991 fiscal year (prior to giving pro forma effect to the
Mergers and the acquisition of Fountain Valley) to 14.4% for the nine months
ended May 31, 1994 (after giving pro forma effect to the Mergers and the
acquisition of Fountain Valley).
RECENT ACQUISITIONS
On April 19, 1994, the Company completed a merger with AHM, which operated
16 acute care hospitals providing basic primary care services, and acquired
Summit, which operated 12 hospitals and a variety of outpatient specialty health
care clinics and programs. The Company believes that the Mergers have created a
company positioned to compete more effectively in the changing health care
environment.
The Mergers increased the number of hospitals operated by the Company from
17 to 45 and enhanced the Company's position in several of its existing markets,
primarily Southern California. The services provided by the additional
facilities are being coordinated with the hospitals previously operated by the
Company and will allow the Company to eliminate redundant services and benefit
from other operating efficiencies and economies of scale. In addition, the
Mergers provided the Company with access to new markets, including Arizona and
Nevada, and new health care delivery capabilities, such as the Medicaid HMO and
outpatient specialty service clinics. The Mergers also strengthened the
Company's management team through the addition of management personnel from
Summit and AHM with experience in improving operating performance. Prior to the
Mergers, the EBITDA margin of Summit improved from 8.8% to 11.8% and the EBITDA
margin of AHM improved from 11.4% to 13.4% during each company's most recently
completed three fiscal years.
Summit and AHM have also contributed to the Company's expertise in certain
important sectors of the health care industry. Summit provided the Company with
additional experience operating in a managed care environment and expertise in
the development of specialty service programs. The Company believes that the
delivery of health care will be increasingly influenced by managed care payment
systems and that it will
22
<PAGE> 24
benefit from Summit's experience in this area. AHM provided the Company with
strong financial and information system controls designed to effectively monitor
and reduce resource consumption, as well as additional expertise in providing
high quality basic primary care services.
On August 9, 1994 the Company acquired Fountain Valley, a provider of
tertiary care services, from FVMDC. Fountain Valley, located on a 38-acre campus
in Fountain Valley, California, contains a 413-bed acute care hospital, a
surgery center, an imaging center and four medical office buildings aggregating
approximately 250,000 square feet of office space. For the fiscal year ended
October 31, 1993, Fountain Valley's total revenues, EBITDA and net income from
continuing operations were approximately $120.8 million, $21.6 million and $8.0
million, respectively. See the Consolidated Financial Statements of Fountain
Valley included elsewhere in this Prospectus.
Pursuant to the Stock Purchase Agreement, FVMDC sold to Summit all of the
outstanding shares and partnership interests of certain corporations and
partnerships relating to Fountain Valley. Pursuant to the Real Estate Purchase
Agreement, the REIT purchased and is leasing to the Company certain of Fountain
Valley's real estate, including the four medical office buildings. The aggregate
consideration paid for Fountain Valley was approximately $145 million (the
"Purchase Price"), subject to certain post-closing adjustments. Approximately
$104 million of the Purchase Price was paid in cash by Summit under the Stock
Purchase Agreement and the balance of the Purchase Price, approximately $41
million, was paid by the REIT pursuant to the Real Estate Purchase Agreement.
BUSINESS STRATEGY
The Company intends to increase revenues and continue market share growth
through implementation of the following business strategies:
DEVELOPMENT OF INTEGRATED HEALTH CARE DELIVERY NETWORKS. The health care
industry has become increasingly dominated by governmental fixed reimbursement
programs and managed health care plans, causing cost containment pressure to
rise. In order to succeed in this environment, the Company is developing
relationships with managed care organizations, other health care providers and
physicians in each of its markets to offer a full range of integrated patient
services on a cost effective basis. The Company believes that the establishment
of integrated networks will allow it to (i) improve the quality of care provided
by concentrating expertise in the provision of specialized services within each
market; (ii) consolidate expensive equipment and procedures into fewer
facilities and reduce costs through increased purchasing power and other
economies of scale; and (iii) manage entire episodes of illness on a
coordinated, cost effective basis, rather than through the provision of costly,
isolated treatments. Through the development of health care networks, the
Company believes it will augment revenues and market share by attracting an
increasing share of large, sophisticated governmental and private sector managed
care contracts. The Company intends to continue to utilize the following
approaches in connection with its development of integrated health care
networks:
- Hospitals as "Hubs" for Delivery Systems. The Company intends to
establish relationships with other health care providers in the markets it
serves by building upon the primary and tertiary care provided by the
Company's hospitals in such markets, and integrating these services with
the outpatient and specialty services of other providers. The Company
believes that hospitals are the logical hubs for the development of
integrated health care delivery systems due to their highly developed
infrastructure, extensive base of services, sophisticated equipment and
skilled personnel.
- Flexibility to Participate in Varying Capacities in Different
Networks. The Company's broad range of delivery capabilities provides it
with the flexibility to participate in different capacities in the
networks. For example, in markets in which the Company operates a large
number of hospitals, it intends to take a leadership role in establishing
relationships with other providers to develop fully integrated networks. In
markets in which the Company is not one of the dominant providers of acute
care services, the Company intends to participate in networks by
integrating its service capabilities with the local providers of
complementary health care services. In addition, through the Medicaid HMO,
the Company has demonstrated its ability to successfully provide health
care services on a fixed rate contract basis in conjunction with a
governmental payor. The Company intends to pursue opportunities for similar
23
<PAGE> 25
arrangements in connection with the development of networks in its other
markets. In addition, the Company continually analyzes whether each of its
hospitals fits within its strategic plans and may divest itself of
hospitals that do not so fit.
- Strategic Acquisitions. The Company intends to continue to pursue
strategic acquisitions of health care providers in geographic areas and
with service capabilities that will facilitate the development of
integrated networks. For example, the Company recently acquired Fountain
Valley, a provider of tertiary care services in Southern California. See
"-- Recent Acquisitions." The Company has a significant primary care
presence in that area and intends to integrate the tertiary care services
provided by Fountain Valley with those provided by its primary care
hospitals in nearby communities, thereby furthering the development of an
integrated network of providers in the area.
- Physician Alliances. The Company intends to further its development
of integrated networks by expanding its alliances with physicians to create
long term hospital/physician linkages. These arrangements will allow
physicians to participate in the delivery of health care at the network
level. For example, in the Los Angeles market, the Company has formed a
relationship with a group of physicians to participate in capitated health
care contracts. The Company is pursuing similar arrangements with other
physician groups and in other markets.
- California Operations. The Company believes that California
represents a unique opportunity for the early development of an integrated
network due to the high concentration of managed care operators in the
state. The Company presently operates 18 hospitals in California.
Consequently, the Company believes that it is in a position to offer
managed care payors in the state a broad selection of locations and
services on a cost effective basis. The Company believes that the recently
completed acquisition of Fountain Valley will further the development of a
health care network in the greater Los Angeles, California area by allowing
the Company to integrate the tertiary care services provided by Fountain
Valley with the primary care services provided by the Company's 13 other
hospitals in the area.
OUTPATIENT SERVICES. Pressures to contain health care costs and
technological developments allowing more procedures to be performed on an
outpatient basis have led payors to demand a shift to ambulatory or outpatient
care wherever possible. The Company has responded to this trend by enhancing its
hospitals' outpatient capabilities through (i) selective conversion of excess
acute care bed capacity for use in outpatient treatment; (ii) improvement of
outpatient diagnostic services; (iii) a more efficient outpatient admissions
process; and (iv) a restructuring of existing surgical capacity to allow greater
concentration in the outpatient area. The Company's facilities will emphasize
those outpatient services that the Company believes will grow in demand and
which can be provided on a cost effective, high revenue growth basis. The
Company believes that it is well positioned to compete effectively with
alternate site providers of outpatient services because its acute care hospitals
are able to offer a broader range of services at competitive prices.
COST REDUCTION. An important component of the Company's strategy is to
position itself as a low cost provider of health care services in each of its
markets. As cost containment pressures increase, the Company will continue to
implement programs designed to improve financial performance and efficiency.
These programs include: (i) monitoring and adjusting staffing levels and
equipment usage in response to resource consumption; (ii) more efficient use of
professional and paraprofessional staff such as nurses and nurses' aides; (iii)
renegotiation of purchasing contracts and revision of purchasing practices to
take advantage of volume purchasing and low cost, quality products; (iv)
improving patient management and reporting procedures; (v) improving the
collection and sharing of utilization and patient mix data with providers,
employers and payors; and (vi) more efficient billing and collection procedures.
In addition, the Company intends to take advantage of reductions in corporate
overhead and other economies of scale from the Mergers and any future
acquisitions. The Company estimates realizing annualized operating cost savings
of approximately $15 million from improved operating efficiencies resulting from
the Mergers.
COMMUNITY BASED SERVICES. The Company intends to continue to implement
specialty programs on a selective basis to maintain and enhance the range and
quality of its health care services. The Company focuses on the particular needs
of each community it serves and tailors its services based upon local conditions
and the Company's ability to provide such services on a competitive basis.
Examples of specialty services provided by
24
<PAGE> 26
the Company in response to local demand include rehabilitation services, home
health services, AIDS treatment, cardiac surgery, weight loss services, pain
treatment programs and women's health clinics. In designing and implementing
such programs, the Company analyzes general demographic information and specific
demand data generated by its hospitals, and seeks to work with physicians,
employers and other members of the local community.
MODERNIZATION OF FACILITIES. The Company believes that maintaining and
modernizing its facilities is an important means of continuing revenue and
market share growth. After giving pro forma effect to the Mergers, the Company's
capital expenditures have totalled approximately $200 million over the past
three fiscal years. Such spending resulted in hospital renovations and equipment
purchases to expand and enhance the Company's range of services, as well as
customary equipment replacement. In addition, such expenditures have expanded
high growth outpatient facilities and other specialty services, including
outpatient surgery and home health services. The Company believes that capital
expenditures (exclusive of hospital acquisitions) during the 12 months following
the Mergers will not exceed $75 million, and will be used for expansion of
services at existing facilities and the replacement of outdated equipment.
MANAGEMENT INFORMATION SYSTEMS. The Company believes that the ability to
collect and analyze information on the quality of care and to develop
appropriate responses thereto is critical to achieving growth in the managed
care environment. Prior to the Mergers, the Company, Summit and AHM each
designed or successfully implemented systems which measure selected outcome
quality indicators and identify needed improvements to patient care. For
example, these systems help identify and track quality indicators such as
unplanned transfers to intensive care units and returns to the operating room.
The Company utilizes this information, which is shared with physicians and other
health care professionals, to develop improved protocols of care and to direct
treatment to the most appropriate level of care. The Company is consolidating
its quality and utilization system with that of each of AHM and Summit to
enhance its operational efficiency and reduce costs.
OPERATIONS
Health Care Facilities
The Company operates 45 general acute care hospitals, one psychiatric
hospital and four surgery centers in 15 states, primarily in the southern and
western United States, and has a significant presence in several large markets.
The Company operates 14 hospitals in the greater Los Angeles, California area,
and, therefore, believes that it is able to offer high quality, cost-effective
health care services by integrating its primary and tertiary care facilities in
the area. The recently completed acquisition of Fountain Valley has added to the
Company's presence in the greater Los Angeles, California area. In Phoenix,
Arizona, the Company operates two hospitals, two surgery centers and the
Medicaid HMO which provides services under a fixed price contract expiring on
September 30, 1994. The Company operates five hospitals in Florida and seven
hospitals in Texas. The Company also operates hospitals in the following states:
Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, Oregon, Tennessee,
Washington, West Virginia and Wyoming. In addition, the Company owns or leases
all or a substantial part of over 50 medical office buildings located in
proximity to its hospitals. All of the Company's hospitals are accredited by the
Joint Commission on Accreditation of Health Care Organizations (except for one
hospital which is accredited by the American Osteopathic Association) and are
certified for participation in the Medicare and Medicaid program.
The Company owns all outstanding shares of two series of redeemable
preferred stock of Houston Northwest Medical Center ("Houston Northwest"), a
tertiary medical complex and trauma center located in Houston with 494 licensed
beds. The preferred stock has a redemption value of $62.5 million plus accrued
and unpaid dividends. In addition, the Company has a mortgage note receivable
from an affiliate of Houston Northwest with a balance of $8.2 million as of May
31, 1994. The Company also owns 43% of Horizon Mental Health Services, Inc.,
which at May 31, 1994 operated 60 specialty psychiatric units at various
hospitals in the United States.
25
<PAGE> 27
Sources of Revenue
The Company receives payment for health care services from (i) the federal
government under the Medicare program, (ii) state governments under their
respective Medicaid programs, (iii) managed care operators, including health
maintenance organizations and preferred provider organizations, (iv) other
private insurance payors and (v) patients directly. The following table sets
forth the approximate percentages of combined total gross operating revenue of
the Company, Summit and AHM from the sources indicated for each of their three
most recently completed fiscal years:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Medicare................................................ 42.6% 44.0% 45.2%
Medicaid/Medi-Cal....................................... 17.5% 14.6% 11.7%
Managed Care............................................ 19.4% 18.9% 17.1%
All Other Payors........................................ 20.5% 22.5% 26.0%
------ ------ ------
Total......................................... 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
Amounts received under Medicare, Medicaid and from managed care
organizations and certain other private insurers generally are less than the
hospital's customary charges for the services provided. Patients are not
generally responsible for any differences between customary charges and amounts
reimbursed under these programs for such services, but are responsible to the
extent of any exclusions, deductibles or co-insurance features of their
coverage. In recent years, the Company's facilities have experienced an increase
in the amount of such exclusions, deductibles and co-insurance. In addition, the
major governmental and private purchasers of health care are increasingly
negotiating the amounts they will pay for services performed, and managed care
operators, which offer prepaid and discounted medical service packages,
represent a growing segment of health care payors. The Company believes that its
recent acquisition activity, together with the business strategies described
above, will position the Company to compete more effectively in this changing
environment.
Medical Staffs and Employees
As of May 31, 1994, the Company had approximately 20,000 employees. In
addition, as of such date, approximately 15,000 active licensed physicians were
members of the medical staffs of the Company's facilities. Medical staff members
are generally independent contractors and not employees of the hospital.
However, a patient is usually admitted to a hospital only at the request of a
member of the medical staff. Medical staff members may also serve on the staffs
of other nearby hospitals.
Each of the Company's hospitals is managed on a day-to-day basis by a
hospital chief executive officer and chief financial officer. The Company has
implemented incentive compensation programs designed to reward hospital
management personnel for accomplishing established performance goals.
The Company provides a variety of management services to its hospitals,
including information systems, human resource management, reimbursement, finance
and technical accounting support, purchasing support, legal and tax services and
construction management. The Company establishes fiscal and accounting policies
at the corporate level for use at each of its facilities.
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<PAGE> 28
PROPERTIES
The following table sets forth the name, location and the number of
licensed beds in the Company's hospitals as of August 10, 1994. All of the
hospitals are acute care hospitals, except for the one hospital indicated in
footnote (6) below which is a psychiatric hospital.
<TABLE>
<CAPTION>
STATE NAME LOCATION BEDS(1)
- -------------------------- ----------------------------------------- ---------------- -------
<S> <C> <C> <C>
Arizona................... Community Hospital Medical Center Phoenix 75
Mesa General Hospital Medical Center(2) Mesa 138
Tucson General Hospital Tucson 213
California................ Brotman Medical Center Culver City 495
Chapman General Hospital(3) Orange 99
Coastal Communities Hospital(4) Santa Ana 165
Community Hospital of Huntington Park(5) Huntington Park 99
Doctors Hospital of Santa Ana Santa Ana 54
Fountain Valley Regional Hospital and
Medical Center Fountain Valley 413
French Hospital Medical Center San Luis Obispo 138
Greater El Monte Community Hospital South El Monte 115
Harbor View Medical Center San Diego 176
Midway Hospital Medical Center Los Angeles 230
Mission Hospital of Huntington Park Huntington Park 127
Monterey Park Hospital Monterey Park 102
Ross Hospital(6) Kentfield 93
Santa Ana Hospital Medical Center(7) Santa Ana 93
St. Luke Medical Center Pasadena 179
Valley Community Hospital(8) Santa Maria 70
Whittier Hospital Medical Center Whittier 179
Woodruff Community Hospital Long Beach 96
Florida................... Coral Gables Hospital Coral Gables 285
Florida Medical Center Fort Lauderdale 459
Golden Glades Regional Medical Center Miami 352
North Bay Medical Center New Port Richey 122
Parkway Regional Medical Center(9) North Miami 412
Indiana................... Midwest Medical Center Indianapolis 405
Iowa...................... Davenport Medical Center Davenport 150
Louisiana................. Minden Medical Center Minden 108
Mississippi............... Gulf Coast Medical Center Biloxi 189
Missouri.................. Twin Rivers Regional Medical Center Kennett 116
Nevada.................... Lake Mead Hospital Medical Center(10) North Las Vegas 163
Oregon.................... Eastmoreland Hospital Portland 100
Woodland Park Hospital(11) Portland 209
Tennessee................. Gibson General Hospital Trenton 101
Lewisburg Community Hospital Lewisburg 119
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
STATE NAME LOCATION BEDS(1)
- -------------------------- ----------------------------------------- ---------------- -------
<S> <C> <C> <C>
Texas..................... Garland Community Hospital Garland 118
Lake Pointe Medical Center(12) Rowlett 92
Pasadena General Hospital Pasadena 146
Sharpstown General Hospital Houston 190
South Park Hospital & Medical Center Lubbock 99
Southwest General Hospital San Antonio 274
Trinity Valley Medical Center Palestine 114
Washington................ Puget Sound Hospital Tacoma 160
West Virginia............. Plateau Medical Center Oak Hill 91
Wyoming................... Lander Valley Medical Center(13) Lander 102
</TABLE>
- ---------------
(1) The number of licensed beds represents the maximum number of beds permitted
in the facility under its state license. The total number of beds for all
facilities is 8,025.
(2) Leased facility. The lease expires July 31, 2003, subject to renewal by the
Company until July 31, 2023.
(3) Leased facility. The lease expires December 31, 2003, subject to renewal by
the Company until December 31, 2013.
(4) Joint venture with minority interests aggregating approximately 50%.
(5) Leased facility. The lease expires November 25, 2023.
(6) Psychiatric facility.
(7) Leased facility. The lease expires August 31, 2003, subject to renewal by
the Company until August 31, 2013.
(8) Leased facility. The lease expires July 31, 2003, subject to renewal by the
Company until July 31, 2023.
(9) Joint venture with minority interests aggregating approximately 45%.
(10) A portion of the land on which the facility is located is leased, and such
ground lease expires on December 31, 2009, subject to renewal by the
Company until December 31, 2024.
(11) The land on which the facility is located is leased, and such ground lease
expires December 31, 2019.
(12) Joint venture with minority interests aggregating approximately 50%.
(13) Joint venture with minority interests aggregating approximately 7%.
28
<PAGE> 30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
SERVED AS OFFICER
OR DIRECTOR OF
NAME AGE POSITION THE COMPANY SINCE
- ---------------------------- --- ------------------------------------------- -----------------
<S> <C> <C> <C>
Charles N. Martin, Jr....... 51 Chairman of the Board and Chief Executive January 1992
Officer
Donald J. Amaral............ 41 President, Chief Operating Officer and April 1994
Director
Keith B. Pitts.............. 36 Executive Vice President & Chief Financial August 1992
Officer
Beverly S. Anderson......... 41 Senior Vice President -- Operations April 1992
Bryan D. Burklow............ 37 Senior Vice President -- Operations April 1994
Raymond Denson.............. 52 Senior Vice President -- Operations September 1986
Paula Y. Eleazar............ 41 Senior Vice President -- Chief Information April 1992
Officer
Gale E. Gascho.............. 48 Senior Vice President -- Operations April 1994
Anthony C. Krayer........... 50 Senior Vice President -- Acquisitions and June 1994
Development
Carol A. Murdock............ 33 Senior Vice President -- Business April 1994
Development
Ronald P. Soltman........... 48 Senior Vice President and General Counsel April 1994
Mark Werber................. 39 Senior Vice President -- Operations April 1994
Yvonne V. Cliff............. 33 Director October 1991
Richard A. Gilleland........ 49 Director October 1991
Leonard Green............... 67 Director April 1992
Peter A. Joseph............. 41 Director October 1991
Paul S. Levy................ 46 Director October 1991
Angus C. Littlejohn, Jr..... 42 Director October 1991
John F. Nickoll............. 60 Director April 1994
John J. O'Shaughnessy....... 49 Director April 1994
M. Lee Pearce, M.D.......... 62 Director March 1993
</TABLE>
Charles N. Martin, Jr. has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since January 1992. He was also President
of the Company from January 1992 until April 1994. Mr. Martin was President and
Chief Operating Officer of Healthtrust, Inc. -- The Hospital Company, a hospital
management company, from September 1987 until October 1991. From September 1980
to September 1987, Mr. Martin held a number of executive positions at Hospital
Corporation of America ("HCA"), and from April 1987 to August 1987 served as a
director of HCA.
Donald J. Amaral has been President and Chief Operating Officer and a
Director of the Company since April 1994. Previously he was President and Chief
Executive Officer of Summit from October 1991 to April 1994 and President and
Chief Operating Officer from October 1989 to October 1991. Prior to joining
Summit, Mr. Amaral was President and Chief Operating Officer of Mediplex Group,
Inc. ("Mediplex"), a health care subsidiary of Avon Products, Inc., from 1986
until October 1989. For a period of ten years prior to joining Mediplex, Mr.
Amaral worked for the Hospital Group of National Medical Enterprises, Inc.
("NME") in
29
<PAGE> 31
various senior financial management positions. Mr. Amaral was appointed to the
Board of Directors pursuant to the Agreement and Plan of Merger, dated as of
December 2, 1993 and amended as of January 14, 1994, among the Company, Summit
and SHL Acquisition Co. Mr. Amaral is also Chairman of the Board of Summit Care.
Keith B. Pitts has served as Executive Vice President and Chief Financial
Officer of the Company since August 1992. From July 1991 to August 1992, Mr.
Pitts was a partner in Ernst & Young's Southeast Region Health Care Consulting
Group, and from January 1988 to July 1991 he was a partner and Regional Director
in Ernst & Young's Western Region Health Care Consulting Group. Mr. Pitts was a
Regional Vice President and Treasurer of Amherst Associates, a health care
consulting firm, from July 1986 until it merged into Ernst & Young in January
1988. Mr. Pitts is also a director of Summit Care.
Beverly S. Anderson has served as Senior Vice President -- Operations of
the Company since April 1994. From April 1992, when she joined the Company,
until April 1994, she was Senior Vice President -- Operations Improvement of the
Company. For more than five years prior to joining the Company, Ms. Anderson was
a partner and senior manager in Ernst & Young's Southern Region Health Care
Consulting Group.
Bryan D. Burklow has been Senior Vice President -- Operations of the
Company since April 1994. Prior thereto he was Chief Executive Officer
responsible for Summit's Midway Hospital Medical Group. In June 1993, Mr.
Burklow became Summit's Senior Vice President responsible for California
hospital operations. Mr. Burklow joined Summit in August 1984 as Assistant
Administrator at Mesa General Hospital Medical Center in Mesa, Arizona, and he
held various positions with Summit between August 1984 and June 1993.
Raymond Denson has served as Senior Vice President -- Operations of the
Company since April 1990. Mr. Denson served as a Vice President-Operations of
the Company from September 1986 until April 1990.
Paula Y. Eleazar has been Senior Vice President and Chief Information
Officer of the Company since April 1994. Prior thereto she served as Vice
President and Chief Information Office of the Company from April 1992 until
April 1994. For more than five years prior to joining the Company, Ms. Eleazar
was employed by HCA, principally in its information systems division and as the
Assistant Administrator of Henrico Doctors Hospital, Richmond, Virginia.
Gale E. Gascho has been Senior Vice President -- Operations of the Company
since June 1994. From 1991 until May 1994, Mr. Gascho was the Chief Executive
Officer of Alhambra Hospital, a 157-bed acute care hospital located in Alhambra,
California. From 1975 through 1991, Mr. Gascho served in various capacities with
the corporate staff and with the hospital operations of NME, including serving
from 1987 to 1991 as Chief Executive Officer of NME's Garfield Medical Center, a
229-bed acute care hospital located in Monterey Park, California.
Anthony C. Krayer has been Senior Vice President -- Acquisitions and
Development of the Company since June 1994. Prior thereto he served as Senior
Vice President of OrNda of South Florida, Inc., a subsidiary of the Company,
from July 1993 to June 1994. From January 1992 until June 1993, Mr. Krayer was
Chief Operating Officer of Florida Medical Center ("FMC"), a 459-bed acute care
hospital located in Fort Lauderdale, Florida which was purchased by a subsidiary
of the Company in June 1993. From October 1989 until December 1991, Mr. Krayer
was Chief Financial Officer of FMC. From 1980 until October 1989 Mr. Krayer was
a partner of Ernst & Whinney (predecessor to Ernst & Young), independent
auditors.
Carol A. Murdock has been Senior Vice President -- Business Development of
the Company since April 1994. Prior thereto she was Vice President, Marketing of
Summit from June 1993 until April 1994. From November 1992 until May 1993, Ms.
Murdock was Assistant Vice President/Marketing of NME and from December 1990
until November 1992 she was Director, Product Line Development, of NME. From
1988 until 1990, Ms. Murdock was employed in various marketing positions with
subsidiaries of LINC Financial Services.
Ronald P. Soltman has been Senior Vice President and General Counsel of the
Company since April 1994. From 1984 until February 1994, he was Vice President
and Assistant General Counsel of HCA. From
30
<PAGE> 32
February 1994 until March 1994 he was Vice President and Assistant General
Counsel of Columbia/HCA Healthcare Corporation.
Mark Werber has been Senior Vice President of the Company since April 1994.
Prior thereto he was Summit's Senior Vice President in charge of its Arizona,
Texas and Iowa hospital operations from October 1990 until April 1994. Prior to
October 1990 he was Chief Executive Officer of Summit's Tucson General Hospital,
Tucson, Arizona.
Yvonne V. Cliff has served as a Director of the Company since October 1991.
Ms. Cliff has been a general partner of JLL Associates, L.P. ("JLL Associates")
since January 1992 and a principal of Joseph Littlejohn & Levy ("JLL"), a
merchant banking firm and the sponsor of the JLL Fund, since June 1988. Ms.
Cliff has served as Vice President -- Corporate Development of Lancer
Industries, Inc., ("Lancer Industries"), an industrial holding company and the
limited partner of JLL Associates, since July 1989. Lancer Industries also owns
100% of the capital stock of JLL Inc., which pursuant to contract manages the
JLL Fund. Ms. Cliff is also a director of Doskocil Companies Incorporated
("Doskocil").
Richard A. Gilleland has served as a Director of the Company since October
1991. Mr. Gilleland has been the Chairman, President, and Chief Executive
Officer of Kendall International, Inc. ("Kendall International") since July
1990. Mr. Gilleland served as Chairman, President, and Chief Executive Officer
of American Medical International, Inc. from January 1989 to November 1989 and
of Intermedics, Inc. from August 1986 to January 1989.
Leonard Green has served as a Director of the Company since April 1992. Mr.
Green has been President and Chief Executive Officer of Green Management and
Investment Co., a private investment management company, since 1985. From 1980
to 1985, Mr. Green served as President and Chief Executive Officer of Yuma
Management Corp., the general partner of Universal Home Health Care Associates,
which was subsequently merged into Quality Care, Inc., a home health care
company.
Peter A. Joseph has served as a Director of the Company since October 1991.
Mr. Joseph has been a general partner of JLL Associates, which is the general
partner of the JLL Fund, since November 1990 and a partner of JLL (and its
predecessors), since July 1987. Mr. Joseph has served as President of Lancer
Industries since April 1992 and as Secretary and director of Lancer Industries
since July 1989. Mr. Joseph is also a director of Doskocil and Fairfield
Manufacturing Company, Inc. ("Fairfield").
Paul S. Levy has served as a Director of the Company since October 1991.
Mr. Levy has been a general partner of JLL Associates since November 1990 and a
partner of JLL (and its predecessors) since May 1988. Mr. Levy has served as
Chairman of the Board of Directors and Chief Executive Officer of Lancer
Industries since July 1989. Mr. Levy is also a director of Doskocil, Fairfield
and Kendall International.
Angus C. Littlejohn, Jr. has served as a Director of the Company since
October 1991. Mr. Littlejohn has been a general partner of JLL Associates since
November 1990 and a partner of JLL (and its predecessors) since July 1987. Mr.
Littlejohn has served as Vice Chairman of Lancer Industries since April 1992 and
as Chief Financial Officer and director of Lancer Industries since July 1989.
From July 1989 until April 1992, Mr. Littlejohn served as President of Lancer
Industries. Mr. Littlejohn is also a director of Doskocil and Fairfield.
John F. Nickoll has served as a Director of the Company since April 1994.
He has been President and Co-Chief Executive Officer of The Foothill Group,
Inc., since 1970. Mr. Nickoll also is a director of American Shared Hospital
Services, Inc., an owner/lessor of mobile CAT-scan equipment, CIM-High Yield
Securities, Inc., a closed-end investment company, and Care Enterprises, Inc., a
nursing home chain. Mr. Nickoll was appointed to the Board of Directors pursuant
to the Amended and Restated Agreement and Plan of Merger dated as of January 14,
1994 between the Company and AHM (the "AHM Merger Agreement").
John J. O'Shaughnessy has served as a Director of the Company since April
1994. He has been President of Strategic Management Associates, Inc.,
Washington, D.C. since 1988. From 1986 to 1988, he was Senior Vice President of
the Greater New York Hospital Association, and from 1983 to 1986 he was
Assistant
31
<PAGE> 33
Secretary for Management and Budget of the Department of Health and Human
Services, Washington, D.C. Mr. O'Shaughnessy was appointed to the Board of
Directors pursuant to the AHM Merger Agreement.
M. Lee Pearce, M.D. has served as a Director of the Company since March
1993. Dr. Pearce is a private investor. Dr. Pearce also serves as a director of
IVAX Corporation.
32
<PAGE> 34
DESCRIPTION OF THE NOTES
The Notes are to be issued under an indenture dated as of , 1994
(the "Indenture") among the Company, Summit and NationsBank of Tennessee, N.A.,
as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following summary
of certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture. Wherever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are incorporated herein by reference. Capitalized terms not
otherwise defined below or elsewhere in this Prospectus have the meanings given
to them in the Indenture.
GENERAL
The Notes represent unsecured general joint and several obligations of the
Co-Obligors subordinate in right of payment to certain other debt obligations of
the Co-Obligors, as described below under "Subordination," and are limited to
$125 million in aggregate principal amount. The Notes are issuable only in
registered form, without coupons, in denominations of $1,000 or any integral
multiple thereof.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on , 2004. Interest on the Notes will be
payable in cash semi-annually, in arrears, on each , and (each an
"Interest Payment Date"), commencing , 1995, to the Persons in whose
names the Notes are registered at the close of business on the preceding
and (each an "Interest Record Date"). Interest will accrue from the most
recent Interest Payment Date to which interest has been paid or duly provided
for or, if no interest has been paid or duly provided for, from the original
date of issuance. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. The Notes will bear interest until maturity at the rate of
% per annum.
Principal and premium, if any, and interest on each Note will be payable,
and the Notes may be presented for transfer or exchange, at the office or agency
of the Co-Obligors maintained for such purpose. At the option of the
Co-Obligors, payment of interest may be made by check mailed to registered
holders of the Notes at the addresses set forth on the registry books maintained
by the Trustee, which will initially act as registrar for the Notes. No service
charge will be made for any exchange or registration of transfer of Notes, but
the Co-Obligors may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith. Unless otherwise
designated by the Co-Obligors, the Co-Obligors' office or agency will be the
corporate trust office of the Trustee.
REDEMPTION
The Notes may not be redeemed prior to , 1999. The Company, at its
option, may redeem the Notes as a whole, or from time to time in part, on or
after at a redemption price equal to % of principal amount, declining
ratably to par on (in each case together with accrued and unpaid interest
to the redemption date).
If less than all of the Notes are to be redeemed, the Trustee shall select,
by lot or pro rata or as otherwise directed by the Company in a manner which is
appropriate and fair, the Notes or portions thereof to be redeemed. Notes may be
redeemed in part in multiples of $1,000 principal amount only. The Notes will
not have the benefit of any sinking fund.
Notice of redemption will be sent, by first-class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to each holder
of Notes to be redeemed at the last address for such holder then shown on the
registry books. Any notice that relates to a Note to be redeemed only in part
shall state the portion of the principal amount to be redeemed and that on and
after the redemption date, upon surrender of the Note, a new Note or Notes will
be issued in a principal amount equal to the unredeemed portion thereof. On and
after the redemption date (unless the Company shall default in the payment of
such Notes at the redemption price, together with accrued interest to the
redemption date), interest will cease to accrue on the Notes or part thereof
called for redemption.
33
<PAGE> 35
SUBORDINATION
Payment of the principal of and interest on the Notes is expressly
subordinate and subject in right of payment to the prior payment in full in cash
of all Senior Debt (as defined), whether outstanding upon the issuance of the
Notes or thereafter incurred. In addition, as a result of the holding company
structures of the Company and Summit, the creditors of the Co-Obligors,
including the holders of the Notes, effectively rank junior to all creditors of
the Company's Subsidiaries (other than Summit, but including Summit's
subsidiaries). As of May 31, 1994, the amount of Senior Debt and obligations of
the Company's subsidiaries (excluding intercompany indebtedness) that
effectively ranked senior to the Notes was $622.4 million. As of May 31, 1994,
after giving pro forma effect to the acquisition of Fountain Valley, the
Offering and the use of proceeds therefrom as described in "Use of Proceeds,"
and assuming the repurchase of 100% of the aggregate outstanding principal
amount of the 10 1/4% Notes pursuant to the Change of Control Offer, the amount
of Senior Debt and obligations of the Company's Subsidiaries (excluding
intercompany indebtedness) that effectively ranked senior to the Notes would
have been approximately $603.0 million. The Notes will rank pari passu in right
of payment to the Company's 12 1/4% Notes and the 10 1/4% Notes. As of May 31,
1994, there was $500 million aggregate principal amount of indebtedness
outstanding which would rank pari passu in right of payment to the Notes. As of
May 31, 1994, after giving pro forma effect to the Offering and the use of the
proceeds therefrom and the acquisition of Fountain Valley and assuming the
Company's repurchase of 100% of the aggregate outstanding principal amount of
the 10 1/4% Notes pursuant to the Change of Control Offer, there would have been
$400 million aggregate principal amount of indebtedness outstanding which would
rank pari passu in right of payment to the Notes. The 10 1/4% Notes are the
joint and several obligations of the Company and AHM Acquisition Co., a wholly
owned subsidiary of the Company, and, therefore, holders of any of the 10 1/4%
Notes outstanding following the Change of Control Offer will be entitled to
satisfy their claims out of the assets of AHM Acquisition Co. prior to holders
of the Notes. AHM Acquisition Co. owns substantially all of the operations
acquired by the Company from AHM in the AHM Merger. Subject to certain
restrictions contained in the Bank Credit Facility, the Indenture and certain
other indebtedness, the Co-Obligors and their respective Subsidiaries are
permitted to incur additional indebtedness, including Senior Debt. Additionally,
the indenture governing the Notes does not prohibit the Company from
transferring or disposing of the assets of Summit, and thereby diminishing the
assets available to satisfy the claims of holders of the Notes against Summit.
The Indenture provides that no payment or distribution of cash, property or
securities of the Co-Obligors will be made on account of principal of, or
interest on the Notes, or to defease or acquire any of the Notes or on account
of the redemption provisions of the Notes, (a) upon the maturity of any Senior
Debt by lapse of time, acceleration or otherwise, until all Senior Debt shall
first be paid in full in cash, or such payments have been duly made in a manner
satisfactory to the holders of such Senior Debt or (b) if the Co-Obligors
default in the payment of any principal of, premium if any, or interest on or
other amounts payable on or in connection with any Senior Debt when it becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise, unless and until such default has been cured or waived
in writing or has ceased to exist; provided, however, that the Co-Obligors may
make such payment or distribution in respect of the Notes without regard to the
foregoing if the Co-Obligors and the Trustee receive written notice from the
Senior Agent and any other Senior Representatives approving such payment.
Upon the happening of an event of default (or if an event of default would
result upon any payment with respect to the Notes) with respect to any
Designated Senior Debt, as such event of default is defined in the Bank Credit
Facility and in any other instrument evidencing the Designated Senior Debt or
under which it is outstanding, permitting holders thereof to accelerate its
maturity (if the default is other than a default in payment of the principal of,
premium, if any, or interest on or other amount due in connection with such
Designated Senior Debt), upon written notice of such event of default to the
Trustee and the Co-Obligors by the Senior Agent on behalf of the Lenders or by
any Senior Representative for the holders of such other Designated Senior Debt,
then outstanding, then, unless and until such event of default has been cured,
waived in writing, or has ceased to exist, and no event of default exists under
any other Designated Senior Debt or any other event of default has also been
waived in writing or has ceased to exist, no payment or distribution of cash,
property or securities of the Co-Obligors will be made by the Co-Obligors with
respect to the principal of, or interest on the Notes or to defease or acquire
any of the Notes or on account of the redemption
34
<PAGE> 36
provisions of the Notes; provided that nothing in the above-described provision
will prevent the making of any payment for a period of more than 180 days after
the date written notice of the event of default is given unless the payment
thereof would be prohibited by the provisions of the immediately preceding
paragraph. If, upon the expiration of such 180-day period, the payment thereof
would not be prohibited by the provisions of the immediately preceding
paragraph, promptly after the end of such 180-day period, the Co-Obligors will
pay to the Trustee all sums not paid in respect of the Notes during such 180-day
period. During any consecutive 360-day period, only one 180-day period may
commence during which payment of principal of or interest on the Notes may not
be made and the duration of such period may not exceed 180 days.
Upon any distribution of assets of the Co-Obligors upon any dissolution,
winding up, liquidation or reorganization of the Co-Obligors (whether voluntary
or involuntary, in bankruptcy, insolvency, receivership or similar proceeding
related to the Co-Obligors or their respective property or upon an assignment
for the benefit of creditors or otherwise): (a) the holders of all Senior Debt
will first be entitled to receive payment in full in cash of the Senior Debt and
other amounts due in connection with Senior Debt before the holders of Notes are
entitled to receive any payment or distribution of any kind or character on
account of principal of or interest on the Notes; (b) any payment or
distribution of assets of the Co-Obligors, whether in cash, Property or
securities, to which the holders of the Notes or the Trustee on behalf of the
holders would be entitled except for the subordination provisions of the
Indenture, will be paid by the liquidating trustee or agent or other Person
making such a payment or distribution directly to the holders of Senior Debt or
their respective Senior Agent or Senior Representatives to the extent necessary
to make payment in full of all Senior Debt remaining unpaid, after giving effect
to any concurrent payment or distribution to the holder of such Senior Debt; and
(c) if, notwithstanding the foregoing provisions, any payment or distribution of
assets of the Co-Obligors of any kind or character, whether in cash, Property or
securities is received by the Trustee or the holders of the Notes or any paying
agent on account of principal, premium, if any, or interest on the Notes before
all Senior Debt is paid in full in cash, or effective provision made for its
payment in cash, such payment or distribution will be received and held in trust
for and will be promptly paid over to the holders of the Senior Debt which
remains unpaid or to their respective Senior Agent or Senior Representative for
application to the payment of such Senior Debt (pro rata as to each of such
holders on the basis of the respective amounts of Senior Debt which is held by
them) until all such Senior Debt is paid in full in cash. Nothing in the
Indenture or in the Notes, however, affects the joint and several obligations of
the Co-Obligors, which are unconditional and absolute, to pay the principal of
and interest on the Notes as and when they became due and payable in accordance
with their terms.
By reason of the subordination provisions described above, in certain
events funds that would otherwise by payable to holders of Notes will be paid to
holders of Senior Debt to the extent necessary to pay the Senior Debt in full.
As result, the Co-Obligors may not be able to fully meet their obligations with
respect to the Notes.
RESTRICTIVE COVENANTS
The Indenture contains, among other things, the following covenants:
Change of Control
Upon the occurrence of a Change of Control (as defined under "-- Certain
Definitions") (the "Change of Control Date"), each holder of a Note shall have
the right to require the repurchase of such Noteholder's Notes pursuant to the
offer described in the next paragraph (the "Change of Control Offer") at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. Prior to the mailing of the
notice to Noteholders provided for below but in any event within 30 days
following any Change of Control, the Company covenants to (i) repay in full in
cash any Designated Senior Debt which by its terms would require such repayment
or to offer to repay in full in cash all such Debt and to repay the Debt of each
Person who has accepted such offer or (ii) obtain the requisite consents under
such Designated Senior Debt to permit the repurchase of the Notes as provided
for in the immediately following paragraph. The Company shall first comply with
the covenant in the preceding sentence before it shall be required to repurchase
Notes pursuant to this covenant.
Within 30 days following any Change of Control, the Company shall mail or
at the Company's request the Trustee shall mail a notice to each Noteholder
stating: (i) that the Change of Control Offer is being made
35
<PAGE> 37
pursuant to this covenant and that all Notes tendered will be accepted for
payment; (ii) the purchase price and the purchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Change of Control Payment Date"); (iii) that any Note not tendered will
continue to accrue interest; (iv) that any Note accepted for payment pursuant to
the Change of Control Offer will cease to accrue interest after the Change of
Control Payment Date; (v) that Noteholders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Trustee at the address specified in the notice prior
to the close of business on the Change of Control Payment Date; (vi) that
Noteholders will be entitled to withdraw their election if the Trustee receives,
not later than the close of business on the third Business Day (or such shorter
period as may be required by applicable law) preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Noteholder, the principal amount of Notes the Noteholder
delivered for purchase and a statement that such Noteholder is withdrawing his
election to have such Notes purchased; and (vii) that Noteholders whose Notes
are purchased only in part will be issued new Notes in a principal amount equal
to the unpurchased portion of the Notes surrendered. In the event a Change of
Control occurs and the holders of Notes exercise their right to require the
Company to repurchase Notes, and assuming that such a repurchase constitutes a
"tender offer" for purposes of Rule 14e-1 under the Securities Exchange Act of
1934, as amended (the "1934 Act"), at the time it is required, the Company will
comply with the requirements of Rule 14e-1 as then in effect and any other
applicable securities law or regulations with respect to such repurchase.
On the Change of Control Payment Date, subject to the "Subordination"
Article of the Indenture, the Company will (i) accept for payment the Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit
with the Trustee money sufficient to pay the purchase price of all the Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee, Notes so accepted together with an officers' certificate describing the
Notes or portions thereof tendered to the Company. The Trustee shall promptly
mail to each holder of the Notes so accepted payment in an amount equal to the
purchase price of such Notes, and the Trustee shall promptly authenticate and
mail to such holder a new Note in the principal amount equal to any unpurchased
portion of the Notes surrendered by such Noteholder. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Limitation on Debt
The Indenture provides that the Company will not and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or guarantee
or otherwise become liable for, any Debt, except (i) Debt evidenced by the
Notes; (ii) Debt under the Credit Agreement in an aggregate principal amount at
any time outstanding not to exceed $700 million; (iii) Debt incurred for working
capital purposes at any time outstanding not to exceed $300 million; provided
that the amount of such Debt outstanding at any time pursuant to this clause
(iii) may not, together with any amounts outstanding or subject to a commitment
of the Lenders under the Credit Agreement, exceed the amount that is permitted
to be outstanding under the Credit Agreement pursuant to clause (ii); (iv) Debt
of the Company to any Consolidated Subsidiary or of any Consolidated Subsidiary
to the Company or to any other Consolidated Subsidiary; (v) Debt of the Company
and its Subsidiaries outstanding on the Closing Date; (vi) Debt evidenced by
letters of credit which are issued in the ordinary course of business of the
Company and its Subsidiaries; (vii) Debt in respect of performance bonds
provided by the Company in the ordinary course of business; (viii) Purchase
Money Obligations incurred in the ordinary course of business; (ix) Debt
representing additional shares of PIK Preferred payable as dividends on such PIK
Preferred; (x) Physician Support Obligations; (xi) Capitalized Lease Obligations
and Attributable Debt (without duplication) in an aggregate amount outstanding
at any time not to exceed 10% of the Company's Consolidated Net Tangible Assets,
(xii) Debt incurred to purchase or to finance the purchase of any Person's
ownership interest in a Permitted Joint Venture in accordance with the terms of
the agreement creating such interest or on terms no more favorable to such
Person than that provided for by such agreement on the Closing Date, (xiii) Debt
assumed in connection with the acquisition of Fountain Valley in an aggregate
principal amount not exceeding $20 million; (xiv) any extension, renewal or
replacement of any of clauses (i), (iii), (v) or (xii) above without (a)
increasing the principal amount of any Debt then outstanding (unless such Debt
is issued at a discount in which case the issuance price of such discount Debt
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shall not exceed the principal amount of Debt being so refinanced) plus the
amount of any premium required to be paid under the terms of the instrument
governing such Debt being refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing through
means of a tender offer or privately negotiated transactions and, in each case,
actually paid, (b) altering the issuer or obligor (except that the Company may
incur Debt to replace Debt of a Subsidiary), or (c) shortening the maturity of
subordinated debt and (xv) Debt, other than Debt permitted under clauses (i)
through (xiii), provided that the aggregate principal amount (or liquidation
preference) of such Debt may not exceed $125 million at any time outstanding,
which Debt may be incurred under the Credit Agreement.
Notwithstanding the foregoing, the Company and its Consolidated
Subsidiaries may create, incur or assume Debt (including Acquisition Debt) if,
at the time such Debt is so created, incurred or assumed and after giving effect
thereto and the application of the proceeds thereof, and after giving pro forma
effect to any acquisition or disposition by the Company or any Subsidiary of (i)
a hospital or (ii) any assets with a value in excess of $10 million, whether by
merger, stock purchase or sale, or asset purchase or sale, as if such
acquisition or disposition occurred on the first day of the Reference Period,
the Company's Pro Forma Coverage Ratio shall not be less than 2.0 to 1.0 for the
period beginning on the date of the Indenture through August 31, 1995 and 2.25
to 1.0 thereafter; provided that, if the Company and its Consolidated
Subsidiaries are unable to incur or assume Acquisition Debt pursuant to the
foregoing clause the Company and its Consolidated Subsidiaries may nonetheless
create, incur, or assume Acquisition Debt so long as, after giving effect
thereto and the application of the proceeds thereof, and after giving pro forma
effect to any acquisition or disposition by the Company or any Subsidiary of (i)
a hospital or (ii) any assets with a value in excess of $10 million, whether by
merger, stock purchase or sale, or asset purchase or sale, as if such
acquisition or disposition occurred on the first day of the Reference Period,
the Company's Pro Forma Coverage Ratio (i) is not less than 2.0 to 1.0 and (ii)
is not less than the ratio of the Company's Consolidated Cash Flow to Fixed
Charges (applying the provisions of clauses (2) and (3) of the definition of Pro
Forma Coverage Ratio) for the period with respect to which the Pro Forma
Coverage Ratio was calculated.
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly make any Restricted Payment, if,
after giving effect thereto: (i) an Event of Default, or an event that through
the passage of time or the giving of notice, or both, would become an Event of
Default, shall have occurred and be continuing, (ii) the Company could not incur
an additional $1.00 of Debt (other than permitted Debt) in accordance with the
"Limitation on Debt" covenant or (iii) the aggregate amount of all Restricted
Payments made by the Company and its Subsidiaries (the amount expended or
distributed for such purposes, if other than in cash, to be determined in good
faith by the Board of Directors) from and after the Closing Date shall exceed
the sum of: (a) the aggregate of 50% of the Consolidated Net Income of the
Company (determined by excluding any amounts included in such Consolidated Net
Income which were received by the Company or a Subsidiary from an Unrestricted
Subsidiary) accrued for the period (taken as one accounting period) commencing
with the first full month after the Closing Date to and including the first full
month ending immediately prior to the date of such calculation (or, in the event
Consolidated Net Income is a deficit, then minus 100% of such deficit), (b) the
aggregate net proceeds to the Company, including the fair market value of
property other than cash (as determined in good faith by the Board of
Directors), received by the Company from the issuance or sale (other than to a
Subsidiary of the Company) of its capital stock (other than Redeemable Stock)
from and after the date of the Indenture, and options, warrants and rights to
purchase its capital stock other than Redeemable Stock and (c) the aggregate
amount received by the Company or a Subsidiary of the Company from its
Unrestricted Subsidiaries (excluding all amounts received by the Company or any
Subsidiary from all such Unrestricted Subsidiaries which represent a repayment
of the principal portion of any loan or advance or any return of contributed
capital in respect of any previous advance).
The foregoing clauses (i), (ii) and (iii) will not prevent Permitted
Payments and the foregoing clauses (ii) and (iii) will not prevent (a) the
payment of any dividend within 60 days after the date of its declaration if such
dividend could have been made on the date of its declaration in compliance with
the foregoing provisions, (b) amounts payable by the Company to its employees
pursuant to the Stock Appreciation Rights
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and (c) the repurchase or redemption of shares of capital stock from any
officer, director or employee of the Company or its Subsidiaries whose
employment has been terminated or who has died or become disabled in an
aggregate amount not to exceed $7.5 million per annum.
Limitation on Liens Securing Debt
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries, directly or indirectly, to create, incur, assume or permit
to exist any Lien upon or with respect to any of the Property of the Company or
any such Subsidiary, whether owned at the date of the Indenture or thereafter
acquired, or on any income or profits therefrom, to secure any Debt which is
pari passu with or subordinate in right of payment to the Notes unless the Notes
are secured equally and ratably simultaneously with or prior to the creation,
incurrence or assumption of such Lien.
This restriction does not apply to, and does not give the Noteholder any
rights in respect of the creation, incurrence, assumption or existence of any,
(i) Liens existing on the date of the Indenture and renewals and extensions
thereof; (ii) Liens granted to secure obligations under or in respect of the
Credit Agreement; (iii) rights of banks to set off deposits against debts owed
to said banks; (iv) Purchase Money Obligations incurred in the normal and
ordinary course of the Company's business; (v) Liens in respect of Debt incurred
in connection with the sale of receivables; and (vi) Liens on the Property of
any entity existing at the time such Property is acquired by the Company or any
of its Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise; provided in the case of this clause (vi) that such Liens (x) are not
created, incurred or assumed in contemplation of such assets being acquired by
the Company and (y) do not extend to any other assets of the Company or any of
its Subsidiaries.
Limitation on Restricting Subsidiary Dividends
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, create, assume or suffer to exist any consensual
encumbrance or restriction on the ability of any Subsidiary to pay dividends or
otherwise transfer assets or make loans to the Company or any other Subsidiary,
except (i) those contained in the Credit Agreement; (ii) consensual encumbrances
or restrictions binding upon any Person at the time that such Person becomes a
Subsidiary of the Company so long as such encumbrances or restrictions are not
created, incurred or assumed in contemplation of such Person becoming a
Subsidiary of the Company; (iii) restrictions contained in security agreements
permitted by the Indenture securing Debt permitted by the Indenture to the
extent such restrictions restrict the transfer of Property subject to such
security agreements; (iv) any encumbrance or restriction consisting of customary
non-assignment provisions in leases to the extent such provisions restrict the
transfer of the leases; (v) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the date of this Indenture; or (vi)
any encumbrance or restriction relating to a Permitted Joint Venture or (vii)
any restrictions with respect to a Subsidiary imposed pursuant to an agreement
which has been entered into for the sale or disposition of all or substantially
all the capital stock or assets of such Subsidiary.
Limitation on Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any transactions with Affiliates of the
Company unless (i) such transactions are between or among the Company and its
Subsidiaries or Unrestricted Subsidiaries, (ii) such transactions are in the
ordinary course of business and consistent with past practice or (iii) the terms
of such transactions are fair and reasonable to the Company or such Subsidiary
or Unrestricted Subsidiary, as the case may be, and are at least as favorable as
the terms which could be obtained by the Company or such Subsidiary or
Unrestricted Subsidiary, as the case may be, in a comparable transaction made on
an arm's-length basis between unaffiliated parties. In the event of any
transaction or series of transactions occurring subsequent to the date of the
Indenture with an Affiliate of the Company which involves in excess of $5
million and is not permitted under clause (i) or (ii) of the preceding sentence,
the majority of the disinterested members of the Board of Directors shall by
resolution determine that such transaction or series of transactions meets the
criteria set forth in clause (iii) of the preceding sentence; provided, further,
that if such transaction or series of transactions involves in excess of $10
million and is not permitted under clause (i) or (ii) of the preceding sentence,
the Company shall also deliver to the Trustee a written opinion of a nationally
recognized investment firm to the effect that such
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business or transaction is fair to the Company from a financial point of view.
Notwithstanding the foregoing, such provisions do not prohibit (i) the making of
Physician Support Obligations, (ii) transactions with Permitted Joint Ventures
or (iii) the payment of regular fees to directors of the Company who are not
employees of the Company.
Limitation on Other Subordinated Debt
The Indenture provides that the Company is prohibited from incurring any
Debt which is by its terms subordinate in right of payment to any Senior Debt
and senior in right of payment to the Notes.
LIMITATION ON CONSOLIDATION AND MERGER
The Indenture provides that the Company may not consolidate with or merge
with or into another Person or sell, lease or convey all or substantially all of
its assets to another Person unless: (i)(a) the Company is the continuing
corporation in the case of a merger or (b) the resulting, surviving or
transferee person (the "Surviving Entity") is a corporation or partnership
organized under the laws of the United States, one of the states thereof or the
District of Columbia and shall expressly assume by supplemental indenture
(satisfactory in form to the Trustee) all of the obligations of the Company
under the Indenture and the Notes; (ii) no Event of Default (or event or
condition which after notice or lapse of time or both would become an Event of
Default) shall have occurred and be continuing immediately after giving effect
to such transaction; (iii) the Net Worth of the Company or the Surviving Entity,
as the case may be, on a pro forma basis after giving effect to such
consolidation, merger or sale, lease or conveyance of assets is at least as
great as the Net Worth of the Company immediately prior to the date of the
transaction, and (iv) immediately after giving effect to such transaction, the
Company or the Surviving Entity, as the case may be, would be able to incur $1
of additional Debt (other than permitted debt) under the "Limitation on Debt"
covenant.
Notwithstanding the foregoing, clauses (iii) and (iv) shall not prohibit a
transaction, the principal purpose of which is (as determined in good faith by
the Board of Directors of the Company and evidenced by a resolution thereof) to
change the state of incorporation of the Company, and such transaction does not
have as one of its purposes the evasion of the restrictions of this section.
SUPPLEMENTAL INDENTURES
The Indenture permits the Company and the Trustee to amend or supplement
the Indenture or any supplemental indenture or modify the rights of the holders
of the Notes, in certain cases without the consent of holders of the Notes and
in general with consent of the holders of not less than a majority in principal
amount of the Notes at the time outstanding, provided that no such modification,
amendment or supplemental indenture shall, without the consent of holders of all
Notes then outstanding, (a) extend the final maturity of any Note, or reduce the
principal amount thereof (including the amount payable upon redemption), reduce
the rate or extend the time of payment of interest thereon, or impair or affect
the right of any holder of Notes to institute suit for the payment of any of the
Notes, or (b) reduce the aforesaid percentage of Notes, the consent of holders
of which is required for any such supplemental indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as being: (a) any failure to pay
an installment of interest on the Notes as and when the same becomes due and
payable, and the continuance of such failure for 30 days; (b) failure to pay all
or any part of the principal on the Notes when and as the same shall become due
and payable at maturity, redemption, by declaration or otherwise; (c) failure by
the Company duly to observe or perform any covenant or agreement contained in
the Notes or the Indenture and the continuance of such failure for a period of
60 days after written notice specifying such failure and demanding that the
Company remedy the same shall have been given to the Company by the Trustee or
to the Company and the Trustee by holders of at least 40% in aggregate principal
amount of Notes then outstanding; (d) certain events of bankruptcy, insolvency
or reorganization in respect of the Company or any of the Company's Material
Subsidiaries; (e) any acceleration of the maturity of Debt of the Company or any
of its Material Subsidiaries or a failure to pay any such Debt at its stated
maturity, or (upon demand for payment) under any guarantee of payment by the
Company or any of its Subsidiaries of any Debt, whether such Debt or guarantee
existed at the
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Closing Date or was thereafter created, aggregating at least $25 million,
provided that such acceleration or failure to pay is not cured or waived within
10 days after such acceleration or failure to pay; and (f) final judgments not
covered by insurance aggregating in excess of $10 million rendered against the
Company or any of its Subsidiaries and not stayed or discharged within 60 days
after such judgments become final and nonappealable. The Indenture provides that
if a default (the term "default" for purposes of this provision being defined as
any event or condition which is, or with notice or lapse of time or both would
be, an Event of Default) occurs and is continuing and if it is known to the
Trustee, the Trustee must, within 90 days after the occurrence of such default,
give to the holders of Notes notice of such default, provided that, except in
the case of a default in payment of principal or interest in respect of such
Notes, the Trustee will be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interests of the
holders of Notes.
If an Event of Default shall occur and be continuing (other than an Event
of Default described in clause (d) of the preceding paragraph relating to the
Company), unless the principal of all the Notes shall have already become due
and payable, either the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding, by notice in writing to the
Company (and to the Trustee if given by holders of Notes) (the "Acceleration
Notice"), may declare the principal of all Notes and the interest accrued
thereon to be due and payable (i) immediately if no Designated Senior Debt is
outstanding or (ii) if any Designated Senior Debt is outstanding, upon the
earlier of (x) 10 days after such Acceleration Notice is received by the Senior
Agent and each Senior Representative with respect to Designated Senior Debt at
their last address specified by the Company pursuant to the "Notice" Section of
the Indenture or (y) the acceleration of such Designated Senior Debt, and upon
any such declaration the same shall become due and payable on the date specified
in the foregoing clause (i) or (ii), as applicable; provided, that (a) prior to
the expiration of such period, such acceleration shall be automatically
rescinded and annulled without further action required on the part of the
holders in the event that any default specified in the Acceleration Notice under
the Notes shall have been cured, waived or otherwise remedied and (b) at any
time before the entry of a judgment or decree or the payment of moneys due under
the Indenture, the holders of a majority in aggregate principal amount of the
Notes may waive all defaults except (i) a default in the payment of principal or
interest on the Notes or (ii) in respect of a covenant or provisions hereof
which cannot be modified or amended without the consent of each holder of the
Note affected. If an Event of Default specified in clause (d) above relating to
the Company occurs, the principal of and accrued interest on all outstanding
Notes shall become immediately due and payable without any declaration or other
act on the part of the Trustee or any holder of Notes.
The provisions described in the preceding paragraph, however, are subject
to the condition that if, at any time after the principal of the Notes shall
have been so declared due and payable, and before any judgment or decree for the
payment of the moneys due shall have been obtained or entered, the Company or
Summit shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all the Notes and the principal of any and
all Notes which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such interest is
enforceable under applicable law, on overdue installments of interest, at the
rate borne by the Notes, to the date of such payment or deposit) and such amount
as shall be sufficient to cover reasonable compensation to the Trustee and each
predecessor Trustee, their respective agents, attorneys and counsel, and all
other expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee except as a result of negligence of bad faith, and
if any and all Events of Default under this Indenture, other than the
non-payment of the principal of Notes which shall have become due be
acceleration, shall have been cured, waived or otherwise remedied as provided in
the Indenture then and in every such case, holders of a majority in aggregate
principal amount of the Notes then outstanding, by written notice to the Company
and the Trustee, may waive all defaults and rescind and annul such declaration
and its consequences, but no such waiver or rescission and annulment shall
extend to or shall affect any subsequent default or impair any right consequent
thereon.
Prior to the declaration of acceleration of the maturity of the Notes, the
holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the holders of Notes any past default, or
Event of Default, except a default in the payment of principal of or interest on
any Notes or a default with respect to any covenant or provision which cannot be
modified or amended without the consent of
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the holder of each outstanding Note affected. The Trustee is under no obligation
to exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders of Notes, unless such holders of Notes have
offered to the Trustee reasonable security or indemnity. Subject to all the
provisions of the Indenture and applicable law, the holders of a majority in
aggregate principal amount of the Notes at the time outstanding have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee.
The Company is required to furnish the Trustee, within 120 days after the
end of each fiscal year, an officers' certificate to the effect that such
officers have conducted, or supervised, a review of the activities of the
Company and its Subsidiaries and of performance under the Indenture and that, to
the best of such officers' knowledge, based on their review, the Co-Obligors
have fulfilled all their obligations under the Indenture, or, if there has been
a default, specifying each default known to them, its nature and its status.
DEFEASANCE
Under the terms of the Indenture and the Notes, the Company, at its option,
(a) will be Discharged (as defined in the Indenture) from any and all
obligations in respect of the Notes (except in each case for certain obligations
to register the transfer or exchange of Notes, replace stolen, lost or mutilated
Notes, maintain paying agencies and hold moneys for payment in trust) or (b)
need not comply with certain specified covenants of the Indenture nor be subject
to the operation of the cross acceleration provision described under "Events of
Default and Remedies," in each case, if the Company irrevocably deposits with
the Trustee, in trust, money or U.S. Government Obligations (as defined in the
Indenture) which through the payment of interest thereon and principal thereof
in accordance with their terms will provide money in an amount sufficient to pay
the principal of and interest on the Notes on the dates such payments are due in
accordance with the terms of the Notes.
To exercise the option under clause (a) above, the Company is required to
deliver to the Trustee an opinion of counsel, based upon a ruling of the
Internal Revenue Service or a change in applicable Federal income tax law
occurring after the date of this Prospectus, that the holders of the Notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred. No opinion of counsel is required to effect a
defeasance under clause (b) above and, under current Federal income tax law, a
defeasance under clause (b) may be treated as a taxable exchange of the Notes
for an interest in the trust. If a taxable exchange is deemed to have occurred,
each Noteholder would recognize gain or loss equal to the difference between the
Noteholder's cost or other tax basis for the Notes and the value of the
Noteholder's interest in the trust, and thereafter would be required to include
in income his share of the income, gain and loss of the trust. Other
characterizations of a defeasance under clause (b) are also possible.
Prospective investors are urged to consult their own tax advisors as to the
specific consequences of such a defeasance.
In the event the Company exercises its option under clause (b) of the
second preceding paragraph and the Notes are declared due and payable because of
the occurrence of any Event of Default (other than the cross acceleration
provisions described under "Events of Default and Remedies" which will be
inapplicable), the amount of money and U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on the Notes at the time
of their stated maturity but may not be sufficient to pay amounts due on the
Notes at the time of the acceleration resulting from such Event of Default.
However, the Company shall remain liable for such payments.
If the Credit Agreement is in effect, the Company shall have delivered to
the Trustee any required consent of the Senior Agent or the Lenders to the
transactions contemplated by the provision on "Defeasance."
REPORTS
So long as the Notes are outstanding, the Company will furnish to the
holders thereof such quarterly and annual financial reports that the Company is
required to file with the SEC under the 1934 Act or similar reports in the event
the Company is not at the time required to file such reports with the SEC.
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CERTAIN DEFINITIONS
In addition to the terms defined above, the Indenture contains, among other
things, the following definitions:
"Acquisition Debt" means (i) Debt or Preferred Stock of any Person
existing at the time such Person becomes a Subsidiary of the Company,
including but not limited to Debt or Preferred Stock incurred or created in
connection with, or in contemplation of, such Person becoming a Subsidiary
of the Company (but excluding Debt of such Person which is extinguished,
retired or repaid in connection with such Person becoming a Subsidiary of
the Company), (ii) Debt incurred or created by the Company or any of its
Subsidiaries in connection with the transaction or series of transactions
pursuant to which such Person became a Subsidiary of the Company or (iii)
Debt incurred or created by the Company or any of its Subsidiaries in
connection with the acquisition of substantially all of the assets of an
operating unit or business of another Person.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control"
when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" in respect of a sale-leaseback transaction means,
at the time of determination, the present value (discounted at the interest
rate implicit in the lease, compounded semiannually) of the obligation of
the lessee of the property or asset subject to such sale-leaseback
transaction for rental payments during the remaining term of the lease
included in such transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended or until the
earliest date on which the lessee may terminate such lease without penalty
or upon payment of penalty (in which case the rental payments shall include
such penalty), after excluding all amounts required to be paid on account
of maintenance and repairs, insurance, taxes, assessments, water, utilities
and similar charges. For purposes of the foregoing, a "sale-leaseback
transaction" means an arrangement with any lender or investor or to which
such lender or investor is a party providing for the leasing by a Person of
any property or asset which has been or is being sold or transferred by
such Person more than 270 days after the acquisition thereof or the
completion of construction or commencement of operation thereof to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or
asset.
"Board of Directors" means the Board of Directors of the Company or
any committee of such Board duly authorized to act hereunder.
"Business Day" means a day which in the City of New York or in the
city in which the corporate trust office of the Trustee is located, is
neither a legal holiday nor a day on which banking institutions are
required or authorized by law or regulation to close.
"Capitalized Lease Obligation" means the discounted present value of
the rental obligations of any Person under any lease of Property, which in
accordance with GAAP, is required to be capitalized on the balance sheet of
such Person.
"Change of Control" means (i) the direct or indirect, sale, lease or
other transfer of all or substantially all of the assets of the Company to
any Person or entity or group of Persons or entities acting in concert as a
partnership or other group (a "Group of Persons") other than (a) Joseph
Littlejohn & Levy Fund, L.P., a Delaware limited partnership, and its
Affiliates or (b) Charles N. Martin, Jr. and his Affiliates, (ii) during
any period of two consecutive calendar years, individuals who at the
beginning of such period constituted the Company's Board of Directors
(together with any new directors whose election by the Company's Board of
Directors or whose nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office,
(iii) a Person or
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Group of Persons (other than (a) Joseph Littlejohn & Levy Fund, L.P., a
Delaware limited partnership, and its Affiliates or (b) Charles N. Martin,
Jr. and his Affiliates) shall, as a result of a merger or consolidation, a
tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the Company
or the entity surviving the merger or consolidation representing 50% or
more of the combined voting power of the then outstanding securities of the
Company ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors.
"Closing Date" means the date on which the Notes are originally
issued.
"Consolidated Cash Flow" for any Person, for any period, means,
without duplication, the Consolidated Net Income of such Person plus the
sum of (a) Consolidated Tax Expense, (b) Consolidated Interest Expense, (c)
Consolidated Non-cash Charges, (d) one-third of the rental expense on
Attributable Debt and (e) Consolidated Pooling Expenses.
"Consolidated Interest Expense" of any Person means for any period,
without duplication, the sum of (a) the aggregate of the interest expense
of such Person and its Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, plus (b) net
payments in respect of Interest Swap Obligations (if any such payment
applies to a period in excess of one year it shall be amortized
accordingly) for such Person and its Consolidated Subsidiaries.
"Consolidated Net Income" of any Person, for any period, means the net
income (loss) of such Person and its Consolidated Subsidiaries for such
period, determined in accordance with GAAP, adjusted by excluding (a) net
extraordinary gains or net extraordinary losses as the case may be
(including any gain or loss from the purchase, redemption acquisition or
other retirement of Debt) and (b) net gains or losses in respect of
dispositions of assets, provided that, without duplication, (i) the net
income of any Person, other than a Consolidated Subsidiary, in which the
Company or any of its Consolidated Subsidiaries has a joint interest with a
third party shall be included only to the extent of the amount of dividends
or distributions actually paid to the Company or a Consolidated Subsidiary
during such period, (ii) the net income of any Unrestricted Subsidiary
shall be included for the purpose of determining net income to the extent
of the amount of cash, Property, dividends or distributions actually paid
by such Unrestricted Subsidiary to the Company or a Subsidiary of the
Company, (iii) the tax benefits of any net operating loss carryforwards
added directly to retained earnings and not otherwise included for the
purpose of determining net income in accordance with GAAP for such period
shall be included, (iv) the net income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such
acquisition shall be excluded and (v) the net income of any Subsidiary of
such Person shall be excluded to the extent such Subsidiary is prohibited,
directly or indirectly, from distributing such net income or any portion
thereof to such Person.
"Consolidated Net Tangible Assets" of any Person, for any period
means, the assets of such Person and its Subsidiaries, less intangible
assets of such Person and its Subsidiaries (including, without limitation,
trademarks and tradenames, goodwill, excess reorganization value, research
and development expenses, and write-ups in the book value of any intangible
assets), on a consolidated basis, determined in accordance with GAAP.
"Consolidated Non-cash Charges" of any Person means, for any period,
the aggregate depreciation, amortization and other non-cash charges (other
than reserves or expenses established in anticipation of future cash
requirements such as reserves for taxes and uncollectible accounts) of such
Person and its Consolidated Subsidiaries, on a consolidated basis, for such
period, as determined in accordance with GAAP, provided, that (i) any
charges which are not included for the purpose of determining Consolidated
Net Income shall be excluded from Consolidated Non-cash Charges and (ii)
any charges which are included for the purpose of determining Consolidated
Interest Expense or Consolidated Tax Expense shall be excluded from
Consolidated Non-cash Charges.
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<PAGE> 45
"Consolidated Pooling Expenses" of any Person for any period means,
with respect to such Person and its Consolidated Subsidiaries on a
consolidated basis, the expenses for such period in connection with a
pooling of interests transaction, determined in accordance with GAAP, but
only to the extent that such expenses would have been capitalized, in
accordance with GAAP, if such transaction had been a purchase transaction.
"Consolidated Subsidiary" of any Person means a Person which for
financial reporting purposes is or, in accordance with GAAP, should be
accounted for by such Person as a consolidated subsidiary.
"Consolidated Tax Expense" of any Person means for any period the
aggregate of the tax expense of such Person and its Consolidated
Subsidiaries for such period, determined in accordance with GAAP.
"Credit Agreement" means (a) the Credit, Security, Guaranty and Pledge
Agreement, dated as of April 19, 1994, among the Company, Summit Health,
Ltd. and AHM Acquisition Co., Inc., the Guarantors named therein, the
Lenders named therein, The Bank of Nova Scotia, as Administrative Agent and
Managing Agent, Citicorp USA Inc., as Managing Agent, and the other
financial institution described therein (the "Scotiabank Credit
Agreement"), together with all agreements, documents and instruments from
time to time delivered in connection with the Scotiabank Credit Agreement,
as in effect on the date hereof, and as the Scotiabank Credit Agreement and
such other agreements, documents and instruments may be amended, amended
and restated, renewed, extended, restructured, supplemented or otherwise
modified from time to time, and (b) any credit agreement, loan agreement,
note purchase agreement, indenture or other agreement, document or
instrument refinancing, refunding or otherwise replacing the Scotiabank
Credit Agreement or any other agreement deemed a Credit Agreement under
clause (a) or (b) hereof, whether or not with the same agents, trustee,
representative lenders or holders, and irrespective of any changes in the
terms and conditions thereof. Without limiting the generality of the
foregoing, the term "Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Credit Agreement and all refundings, refinancings and
replacements of any Credit Agreement, including any agreement (i) extending
the maturity of any Debt incurred thereunder or contemplated thereby, (ii)
adding or deleting borrowers or guarantors thereunder, so long as such
borrowers and issuers include one or more of the Company and its
Subsidiaries and their respective successors and assigns, (iii) increasing
the amount of Debt incurred thereunder or available to be borrowed
thereunder, or (iv) otherwise altering the terms and conditions thereof in
a manner not prohibited by the terms thereof.
"Currency Agreements" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in
currency values.
"Debt" means, as to any Person without duplication (a) any
indebtedness of such Person, including accrued and unpaid interest, for
borrowed money (including net overdrafts in any bank to the extent such
overdrafts are not extinguished within three Business Days of their
incurrence), (b) all indebtedness of such Person evidenced by bonds,
debentures, notes, letters of credit or similar instruments, (c) all
indebtedness of such Person to pay the deferred purchase price of property
or services, except accounts payable arising in the ordinary course of
business that are not overdue by more than 180 days or that are being
contested in good faith, if and to the extent any of the foregoing
indebtedness described in clauses (a)-(c) inclusive would appear as a
liability upon a balance sheet of such Person, prepared on a consolidated
basis in accordance with GAAP, and shall also include to the extent not
otherwise included, (d) all Capitalized Lease Obligations of such Person,
(e) all Debt of others secured by a Lien on any asset of such Person,
whether or not such Debt is assumed by such Person or guaranteed by such
Person, (f) Attributable Debt of such Person, (g) Preferred Stock issued by
a Subsidiary of such Person, (h) Redeemable Stock, (i) all Debt of others
guaranteed by such Person, and (j) all indebtedness due to the Senior Agent
or any Lender under or in respect of the Credit Agreement or otherwise due
to any Lender.
"Designated Senior Debt" means all obligations under or in respect of
the Credit Agreement and any other single issue of Debt constituting Senior
Debt which at the time of determination has an
44
<PAGE> 46
aggregate principal amount of at least $40,000,000 and is specifically
designated in the instrument evidencing such Senior Debt as "Designated
Senior Debt" of the Company.
"Fixed Charges" for any period are, without duplication, the
Consolidated Interest Expense, the interest component of capital leases and
one-third of the rental expense on Attributable Debt (without duplication)
plus, the product of (x) the sum of (i) cash dividends paid on any
Preferred Stock of such Person plus (ii) cash dividends paid on any
Preferred Stock of any Subsidiary of such Person, times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the
then current effective aggregate federal, state and local tax rate of such
Person, expressed as a decimal, but excluding (a) the amortization of debt
issuance costs, (b) amortization of original issue discount (the excess of
stated redemption price at maturity over the issue price) which, with
respect to any Debt, is not greater than 1/4% times the number of full
years from issuance to maturity, and (c) noncash dividends paid on any
Preferred Stock of such Person. For purposes of this definition, interest
on a capital lease shall be deemed to accrue at an interest rate reasonably
determined to be the rate of interest implicit in such capital lease in
accordance with GAAP (including Statement of Financial Accounting Standards
No. 13 of the Financial Accounting Standards Board).
"GAAP" means generally accepted accounting principles.
"Interest Swap Obligations" means the obligations of any Person,
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments made
by such other Person calculated by applying a fixed or a floating rate of
interest on the same notional amount.
"Investment" means any direct or indirect advance, loan (other than
advances to customers in the ordinary course of business, which are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries) or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase
or acquisition of capital stock, bonds, notes, debentures or other
securities issued by any other Person. For the purposes of the "Limitation
on Restricted Payments" covenant, (i) "Investment" shall include the fair
market value of the net assets of any Subsidiary at the time that such
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the
fair market value of the net assets of any Unrestricted Subsidiary that is
designated a Subsidiary and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at fair market value at the time of
such transfer, in each case as determined by the Board of Directors of such
Person in good faith.
"Lender" means any lender or other holder of Senior Debt from time to
time incurred or issued under the Credit Agreement.
"Lien" means, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such Property.
"Material Subsidiary" of any Person means, as of any date, any
Subsidiary of such Person (a) the value of whose assets, as such assets
would appear on a consolidated balance sheet of such Subsidiary and its
Consolidated Subsidiaries prepared on such date in accordance with
generally accepted accounting principles, is at least 10% of the value of
the assets of such Person and its Consolidated Subsidiaries, determined as
aforesaid, or (b) whose Consolidated Cash Flow for the most recently
completed fiscal quarter immediately preceding such date was at least 10%
of the Consolidated Cash Flow of such Person for such fiscal quarter.
"Measurement Date," when used with respect to any calculation, means
the date of the transaction giving rise to the need to make such
calculation.
"Net Worth" means, at any date, the aggregate of capital, surplus and
retained earnings of the Company and its Consolidated Subsidiaries as would
be shown on a consolidated balance sheet of the Company and its
Consolidated Subsidiaries prepared in accordance with GAAP.
45
<PAGE> 47
"Permitted Investments" means Investments in Unrestricted Subsidiaries
(A) in a cumulative aggregate amount not to exceed the sum of (1)
$25,000,000 (less previous Investments in Unrestricted Subsidiaries
pursuant to this clause (A) (1)) plus (2) any amounts received by the
Company or any Subsidiary from any Unrestricted Subsidiary which represents
a repayment of the principal portion of any loan or advance or any return
of contributed capital in respect of any previous Permitted Investment and
(B) through the contribution or other transfer of the Company's or its
Subsidiaries' interest in HNMC, Inc. and Horizon Health Group, Inc. or any
successors thereto.
"Permitted Joint Venture" means all the Company's existing joint
ventures on the Closing Date or a Person which owns, operates or services a
health care business or facility or manufacturers or markets health care
products and (i) is formed by the Company or a Subsidiary of the Company to
offer an equity participation in the assets or businesses owned or to be
acquired by such Person primarily to physicians or employees of the Company
or any of its Subsidiaries or to any other Person involved directly or
indirectly in the health care industry and (ii) of which the Company or any
Subsidiary of the Company is a general partner or controls the general
partner.
"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries, (i) the redemption, repurchase or other acquisition or
retirement of any shares of any class of capital stock in exchange for
(including any exchange pursuant to the exercise of a conversion right or
privilege in connection with which cash is paid in lieu of the issuance of
fractional shares), or out of the proceeds of a substantially concurrent
issue and sale (other than to a Subsidiary) of, shares of capital stock
(other than Redeemable Stock) of the Company; (ii) any dividend or other
distribution payable to the Company or any of its Subsidiaries, (iii) the
repurchase or redemption by a wholly owned Subsidiary of its capital stock,
(iv) the declaration and payment of dividends on the PIK Preferred (A) in
additional shares of PIK Preferred or (B) to the extent required by the
terms of the PIK Preferred as of the Closing Date, in cash or (v) any
dividend on or distribution of the capital stock or Property of an
Unrestricted Subsidiary.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"Physician Support Obligation" means any obligation or guarantee to
any physician or allied health care professional pursuant to a written
agreement for a period not in excess of five years incurred in connection
with recruiting, redirecting or retaining such physician or allied health
care professional to provide service to patients in the service area of any
health care facility owned or operated by any Consolidated Subsidiary of
the Company or any Permitted Joint Venture, but excluding actual
compensation for services provided by such physician or allied health care
professional to any health care facility owned or operated by the Company
or any of its Subsidiaries or any Permitted Joint Venture.
"PIK Preferred" means the $.01 par value Payable In Kind Cumulative
Redeemable Preferred Stock of the Company outstanding on the Closing Date
or issued subsequent to the Closing Date as a Permitted Payment.
"Preferred Stock" means, with respect to any Person, any and all
shares, interest, participations or other equivalents (however designated)
of such Person's preferred or preference stock whether now outstanding or
issued after the date of the Indenture, and including, without limitation,
all classes and series of preferred or preference stock.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included
on the most recent consolidated balance sheet of such Person in accordance
with GAAP.
"Pro Forma Coverage Ratio" of any Person means the pro forma ratio of
such Person's Consolidated Cash Flow to its Fixed Charges for the Reference
Period immediately prior to the Measurement Date. The Pro Forma Coverage
Ratio shall as applicable, be calculated on the following basis:
(1) notwithstanding clause (iv) of the definition of Consolidated
Net Income, if the Debt which is being created, incurred or assumed is
Acquisition Debt, the Pro Forma Coverage Ratio
46
<PAGE> 48
shall be determined after giving effect to both the Fixed Charges
related to the creation, incurrence or assumption of such Acquisition
Debt and the Consolidated Cash Flow (x) of the Person becoming a
Subsidiary of such Person or (y) in the case of an acquisition of
assets which constitute substantially all of an operating unit or
business, relating to the assets being acquired by such Person;
(2) there shall be excluded from Fixed Charges any Fixed Charges
related to Debt repaid during and subsequent to the Reference Period and
which is not outstanding on the Measurement Date; and
(3) the creation, incurrence or assumption of any Debt during the
Reference Period or subsequent to the Reference Period and prior to the
Measurement Date, and the application of the proceeds therefrom, shall
be assumed to have occurred on the first day of the Reference Period.
"Purchase Money Obligations" means Debt of the Company or its
Subsidiaries secured by Liens (i) on Property purchased, acquired, or
constructed after the Closing Date and used in the ordinary course of
business by the Company and its Subsidiaries and (ii) securing the payment
of all or any part of the purchase price or construction cost of such
assets and limited to the Property so acquired and improvements thereof.
"Redeemable Stock" means, with respect to any Person, any class or
series of capital stock of such Person which is redeemable at the option of
the holder (except pursuant to a change in control provision that does not
(i) cause such capital stock to become redeemable in circumstances in which
the Company would not be required to make a Change of Control Offer and
(ii) require the Company to pay the redemption price therefor prior to the
Change of Control Payment Date) or is subject to mandatory redemption prior
to the maturity of the Notes.
"Reference Period" means the four fiscal quarters ending with the most
recent fiscal quarter for which financial information is available and
which ended immediately preceding the Measurement Date.
"Restricted Payments" means with respect to any Person (i) any
dividend or other distribution on any shares of such Person's capital stock
(except dividends or distributions in additional shares of capital stock
other than Redeemable Stock), (ii) any payment on account of the purchase,
redemption or other acquisition of (a) any shares of such Person's capital
stock or (b) any option, warrant or other right to acquire shares of such
Person's capital stock, or (iii) any Investment in an Unrestricted
Subsidiary which is not a Permitted Investment; provided that distributions
to joint venture participants or repurchases of interests in Permitted
Joint Ventures (other than distributions or repurchases of joint venture
interests of Affiliates of the Company and its Subsidiaries) shall not
constitute Restricted Payments; provided, further, an individual shall not
be deemed to be an Affiliate of the Company or any Subsidiary solely
because such individual is employed by the Company or any Subsidiary.
"Senior Agent" means The Bank of Nova Scotia, any successor to The
Bank of Nova Scotia under the Credit Agreement and any other agent, trustee
or representative of the holders of Debt under or in respect of the Credit
Agreement serving in such capacity from time to time and, if there is no
such agent, trustee or representative, "Senior Agent" shall mean,
collectively, the holders from time to time of Debt incurred under or in
respect of the Credit Agreement.
"Senior Debt" means (i) all obligations of the Company and its
Subsidiaries, now or hereafter existing, under or in respect of the Credit
Agreement, whether for principal, interest (including without limitation,
interest accruing after filing of a bankruptcy petition initiating
bankruptcy proceedings of the Company or any of its Subsidiaries at the
rates prescribed in the Credit Agreement, whether or not interest is an
allowed claim enforceable against the debtor), reimbursement of amounts
drawn under letters of credit issued or arranged for pursuant thereto,
guaranties in respect thereof, and all charges, fees, expenses (including
reasonable fees and expenses of counsel) and other amounts incurred by or
owing to the Senior Agent and the Lenders under or in respect of the Credit
Agreement, and all other obligations of the Company and its Subsidiaries
incurred under or in respect of the Credit Agreement including, without
limitation, in respect of premiums, indemnities or otherwise, and all
indebtedness under the Credit Agreement which is disallowed, avoided or
subordinated pursuant to Section 548 of
47
<PAGE> 49
Title 11, United States Code or any applicable state fraudulent conveyance
law; (ii) the principal of, premium if any, and interest on indebtedness
for money borrowed by the Company or Summit, as applicable, (other than the
Notes), whether outstanding on the date of the Indenture or hereafter
created or incurred, unless such indebtedness, by its terms or the terms of
the instrument creating or evidencing it is subordinate in right of payment
to or pari passu with the Notes; (iii) any obligations of the Company or
Summit, as applicable, in respect of capital leases of the Company or
Summit, as applicable, whether outstanding on the date of this Indenture or
hereafter created or incurred; (iv) any obligations of the Company or
Summit, as applicable, in respect of (x) any indebtedness for money
borrowed by another Person or (y) any capital leases of any other Person,
in either case which is guaranteed in whole or in part directly or
indirectly by the Company or Summit, as applicable, (whether such guarantee
is outstanding on the date of the Indenture or hereafter created or
incurred); (v) the principal of, premium if any, and interest on any
indebtedness constituting Purchase Money Obligations for the payment of
which the Company or Summit, as applicable, is directly or contingently
liable (whether such Purchase Money Obligations are outstanding on the date
of this Indenture or hereafter created or incurred); (vi) any obligation of
the Company or Summit, as applicable, to compensate, reimburse or indemnify
an issuer with respect to any letter of credit issued at the request of or
for the account of such the Company or Summit, as applicable; (vii) any
obligation of the Company or Summit, as applicable, under any Interest Swap
Obligations or Currency Agreements; (viii) any obligation of the Company or
Summit, as applicable, to any Person in respect of surety or similar bonds
issued by such Person; (ix) all charges, fees, expenses (including
reasonable fees and expenses of counsel) and other amounts incurred by or
owing to the holders of indebtedness referred to in clauses (ii) - (viii)
above in connection with such indebtedness; and (x) all interest payable
during the pendency of a proceeding under Title 11, United States Code on
indebtedness referred to in clauses (ii) - (viii) above incurred prior to
the commencement of such proceeding; provided that the term "Senior Debt"
shall not include any indebtedness of the Company or Summit, as applicable,
to an Affiliate of the Company or Summit, as applicable, except to the
extent any such indebtedness is pledged to the Senior Agent as security for
Senior Debt incurred under or in respect of the Credit Agreement.
"Senior Representative" means any agent, trustee or other
representative of the holders of any Senior Debt other than Senior Debt
incurred under or in respect of the Credit Agreement and, if there is no
such agent, trustee or other representative with respect to any such Senior
Debt, "Senior Representative" shall mean, collectively, the holders of at
least a majority in dollar amount of any such Senior Debt.
"Stock Appreciation Rights" means a payment of cash in lieu of shares
of the Company's common stock by the Company to an employee of the Company
to an employee of the Company in accordance with a stock option plan
approved by the Board of Directors.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of Board of
Directors or other Persons performing similar functions is at the time
directly or indirectly owned by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof; provided that an
Unrestricted Subsidiary shall not be deemed to be a Subsidiary of the
Company for purposes of the Indenture.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company
which at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate each Subsidiary of the Company (including any newly acquired
or newly formed Subsidiary) to be an Unrestricted Subsidiary not more than
one time during any 24-month period, that a Subsidiary which owns any
capital stock of, or owns, or holds any Lien on, any property of, any other
Subsidiary of the Company which is not a Subsidiary of such Subsidiary may
not be so designated; provided further that immediately after giving effect
to such designation, no default or Event of Default shall have occurred and
be continuing. The Board of Directors may designate each Unrestricted
Subsidiary to be a Subsidiary not more than one time during any 24-month
period; provided that immediately after giving effect to such designation,
no default or Event of Default shall have occurred
48
<PAGE> 50
and be continuing. Any such designation by the Board of Directors giving
effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions; provided that no
Subsidiary of the Company shall be (and, if such Subsidiary is an
Unrestricted Subsidiary, it shall immediately cease to be) an Unrestricted
Subsidiary if, any time, the Company or any other Subsidiary of the Company
shall create, incur, issue, assume, guarantee or in any other manner
whatsoever be or become liable with respect to any claim against or any
contractual obligation or indebtedness of, such Subsidiary.
49
<PAGE> 51
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company, Summit and the Underwriters, each of
the Underwriters has severally agreed to purchase from the Co-Obligors, and the
Co-Obligors have agreed to sell to each of the Underwriters, the principal
amount of the Notes set forth opposite its name below. Pursuant to the Purchase
Agreement, the Underwriters will be obligated to purchase all of the Notes if
any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- ------------------------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................... $
Donaldson, Lufkin & Jenrette Securities Corporation............................
Salomon Brothers Inc...........................................................
Citicorp Securities, Inc.......................................................
------------
Total............................................................. $125,000,000
===========
</TABLE>
The several Underwriters propose to offer the Notes to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of % of the
principal amount of the Notes. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of % of the principal amount of the Notes to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
There is no public market for the Notes and the Co-Obligors do not intend
to list the Notes on any securities exchange or for quotation through NASDAQ.
The Co-Obligors have been advised by the Underwriters that, following the
completion of the offering of the Notes, the Underwriters presently intend to
make a market in the Notes. However, the Underwriters are under no obligation to
do so and may discontinue any market making activities at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Notes or that an active public market for the Notes will develop or, if
developed, will continue. If an active public market does not develop or is not
maintained, the market price and liquidity of the Notes may be adversely
affected.
The Co-Obligors have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Each of the Underwriters, from time to time, performs investment banking
and other financial services for the Company. In addition, Citicorp USA Inc., an
affiliate of Citicorp Securities, Inc., is a managing agent and a lender to the
Company under the Bank Credit Facility.
Under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. (the "NASD"), when more than 10% of the net proceeds of a public
offering of debt securities are to be paid to NASD members participating in the
distribution of the offering or associated or affiliated persons of such
members, the yield at which the debt securities are distributed to the public
must be no lower than that recommended by a "qualified independent underwriter"
meeting certain standards. Citicorp USA Inc., an affiliate of Citicorp
Securities, Inc., will in the aggregate receive more than 10% of the net
proceeds from the Offering as a result of the use of proceeds by the Company to
repay loans made under the revolving facility of the Bank Credit Facility. See
"Use of Proceeds." Accordingly, Merrill Lynch has agreed to act as the qualified
independent underwriter in connection with the Offering. The yield on the Notes,
when sold to the public at the public offering price set forth on the cover of
this Prospectus, will be no lower than that recommended by Merrill Lynch.
LEGAL MATTERS
Certain legal matters as to the validity of the Notes offered hereby will
be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom, New
York, New York and Ronald P. Soltman, Esq., General Counsel for the Company.
Certain legal matters in connection with the Offering will be passed upon for
the
50
<PAGE> 52
Underwriters by Dewey Ballantine, New York, New York. Mr. Soltman currently has
options to purchase 30,000 shares of the Company's common stock.
EXPERTS
The consolidated financial statements and schedules of OrNda HealthCorp at
August 31, 1993 and 1992, and for each of the three years in the period ended
August 31, 1993, appearing in OrNda HealthCorp's Current Report on Form 8-K
dated July 11, 1994, and the consolidated financial statements and schedules of
Summit Health Ltd. at June 30, 1993 and 1992 and for each of the three years in
the period ended June 30, 1993, appearing in Summit Health Ltd.'s Annual Report
(Form 10-K) for the year ended June 30, 1993 (with schedules) and OrNda
HealthCorp's Current Report on Form 8-K dated July 11, 1994 (without schedules),
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon included therein and incorporated by reference herein.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. The consolidated financial statements of Fountain
Valley Medical Development Company for the years ended October 31, 1992 and 1993
included in this Prospectus and the Registration Statement have been audited by
BDO Seidman, independent certified public accountants, as set forth in their
report thereon included therein and are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company and Summit are subject to the informational requirements of the
Exchange Act, and in accordance therewith file reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy statements and other information filed by the
Company and Summit with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Room 3190, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such reports, proxy statements and other information
concerning the Company and Summit also may be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, Washington,
D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act (File No. 0-11290) are incorporated in this Prospectus by
reference and are made a part hereof:
(1) Annual Report on Form 10-K for the fiscal year ended August 31,
1993 as amended by Form 10-K/A No. 1, filed on December 23, 1993, 10-K/A
No. 2, filed on January 19, 1994, 10-K/A No. 3, filed on March 11, 1994,
and 10-K/A No. 4, filed on March 14, 1994.
(2) Current Report on Form 8-K dated December 2, 1993.
(3) Quarterly Report on Form 10-Q for the quarter ended November 30,
1993 as amended by Form 10-Q/A No. 1, filed on March 11, 1994.
(4) Current Report on Form 8-K dated July 1, 1993 as amended by Form
8-K/A No. 1, filed on September 13, 1993, Form 8-K/A No. 2, filed on
February 7, 1994, and Form 8-K/A No. 3, filed on March 11, 1994.
(5) Quarterly Report on Form 10-Q for the quarter ended February 28,
1994.
(6) Current Report on Form 8-K dated March 7, 1994.
51
<PAGE> 53
(7) Current Report on Form 8-K dated April 19, 1994.
(8) Current Report on Form 8-K dated May 5, 1994.
(9) Current Report on Form 8-K dated June 7, 1994.
(10) Current Report on Form 8-K dated July 1, 1994.
(11) Current Report on Form 8-K dated July 11, 1994.
(12) Current Report on Form 8-K dated July 21, 1994.
(13) Current Report on Form 8-K dated August 10, 1994.
(14) Quarterly Report on Form 10-Q for the quarter ended May 31, 1994.
The following documents filed by Summit with the Commission pursuant to the
Exchange Act (File No. 0-11479) are incorporated in this Prospectus by reference
and made a part hereof:
(1) Annual Report on Form 10-K for the fiscal year ended June 30,
1993.
(2) Quarterly Report on Form 10-Q for the quarterly periods ended
September 30, 1993, December 31, 1993 and March 31, 1994.
(3) Current Report on Form 8-K dated December 2, 1993.
(4) Current Report on Form 8-K dated April 19, 1994.
All documents filed by the Company and Summit with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the
securities made hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon oral or written
request, a copy of any or all of the documents incorporated herein by reference
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Written or telephone requests
should be directed to OrNda HealthCorp, 3401 West End Ave., Suite 700,
Nashville, Tennessee 37203, Attention: Secretary (telephone (615) 383-8599).
52
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet................................ P-1
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet....................... P-2
Unaudited Pro Forma Condensed Combined Income Statement for the Nine Months Ended
May 31, 1994..................................................................... P-4
Unaudited Pro Forma Condensed Combined Income Statement for the Year Ended August
31, 1993......................................................................... P-5
Notes to Unaudited Pro Forma Condensed Combined Income Statement.................... P-6
ORNDA HEALTHCORP
Interim (Unaudited)
Condensed Consolidated Statements of Operations for the Three Months and the Nine
Months Ended May 31, 1993 and 1994............................................... F-1
Condensed Consolidated Balance Sheets as of August 31, 1993 and May 31, 1994........ F-2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended May 31,
1993 and 1994.................................................................... F-3
Notes to Condensed Consolidated Financial Statements................................ F-4
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... F-10
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
Interim (Unaudited)
Consolidated Statements of Income for the Six Months Ended April 30, 1993 and
1994............................................................................. F-14
Consolidated Balance Sheets as of October 31, 1993 and April 30, 1994............... F-15
Consolidated Statements of Cash Flows for the Six Months Ended April 30, 1993 and
1994............................................................................. F-16
Notes to Consolidated Interim Financial Statements.................................. F-17
Annual
Independent Auditors' Report........................................................ F-18
Consolidated Balance Sheets as of October 31, 1993 and 1992......................... F-19
Consolidated Statements of Income for the Years Ended October 31, 1993 and 1992..... F-20
Consolidated Statements of Partners' Equity for the Years Ended October 31, 1993 and
1992............................................................................. F-21
Consolidated Statements of Cash Flows for the Years Ended October 31, 1993 and
1992............................................................................. F-22
Summary of Accounting Policies...................................................... F-23
Notes to Consolidated Financial Statements.......................................... F-25
</TABLE>
53
<PAGE> 55
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The pro forma condensed combined balance sheet gives effect to the Mergers,
the acquisition of Fountain Valley, the Offering and the use of proceeds
therefrom and assumes the repurchase of 100% of the aggregate outstanding
principal amount of the 10 1/4% Notes pursuant to the Change of Control Offer by
combining (i) the balance sheet of the Company at May 31, 1994; and (ii) the
balance sheet of Fountain Valley at April 30, 1994. The pro forma condensed
combined balance sheet gives effect to the Summit Merger at April 19, 1994 and
all other transactions as if they had been consummated on May 31, 1994. Because
the Company accounted for the AHM Merger as a pooling-of-interests transaction,
the Company's historical financial data include AHM's balance sheet data and
results of operations for all periods presented. The pro forma condensed
combined balance sheet is presented for comparative purposes only and is not
necessarily indicative of what the combined financial position would have been
had the transactions assumed therein in fact occurred at the times assumed. The
pro forma condensed combined balance sheet should be read in conjunction with
the respective historical financial statements of the Company, Summit and
Fountain Valley incorporated by reference or included herein.
<TABLE>
<CAPTION>
ORNDA FOUNTAIN VALLEY FOUNTAIN VALLEY OFFERING
MAY 31, APRIL 30, PRO FORMA PRO FORMA PRO FORMA
1994 1994 ADJUSTMENTS ADJUSTMENTS COMBINED
---------- --------------- --------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............ $ 16,342 $ 5,978 $ 98,022(1) $ -- $ 16,342
(104,000)(2)
Patients accounts receivable net of
allowance for uncollectibles....... 268,922 21,628 -- -- 290,550
Supplies, at cost.................... 26,620 1,713 -- -- 28,333
Other................................ 50,506 3,776 (1,523)(2) -- 52,759
---------- --------------- --------------- ----------- ----------
Total current assets........ 362,390 33,095 (7,501) -- 387,984
Property plant and equipment, net of
accumulated depreciation and
amortization....................... 1,020,946 46,456 49,609(2) -- 1,117,011
Investments in Houston Northwest
Medical Center..................... 80,947 -- -- -- 80,947
Goodwill, net of accumulated
amortization....................... 266,954 -- -- -- 266,954
Other assets......................... 58,467 2,763 3,000(1) (3,500)(4) 61,482
(2,873)(2) 3,625(3)
---------- --------------- --------------- ----------- ----------
TOTAL ASSETS................ $1,789,704 $82,314 $ 42,235 $ 125 $1,914,378
========== ============== ============== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other
liabilities........................ $ 302,698 $15,185 $ 3,500(2) -- $ 321,383
Current maturities of long-term
debt............................... 7,368 4,886 (4,886)(2) -- 7,368
---------- --------------- --------------- ----------- ----------
Total current liabilities... 310,066 20,071 (1,386) -- 328,751
Long-term debt....................... 1,015,000 51,134 101,022(1) 125,000(3) 1,120,647
(51,134)(2) (100,000)(3)
(20,375)(3)
Other liabilities.................... 99,126 4,842 -- -- 103,968
Shareholders' equity(5).............. 365,512 6,267 (6,267)(2) (1,000)(3) 361,012
(3,500)(4)
---------- --------------- --------------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY...... $1,789,704 $82,314 $ 42,235 $ 125 $1,914,378
========== ============== ============== =========== ==========
</TABLE>
See notes to unaudited pro forma condensed combined balance sheet.
P-1
<PAGE> 56
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
NOTE 1
To record the incremental borrowing related to the Fountain Valley
acquisition as follows (in thousands):
<TABLE>
<S> <C>
Cash for acquisition of assets............................................ $104,000
Cash for transaction costs................................................ 3,000
Less Fountain Valley's cash............................................... (5,978)
--------
Additional debt adjustment.............................................. 101,022
Less cash paid for transaction costs...................................... (3,000)
--------
Net cash adjustment..................................................... $ 98,022
========
</TABLE>
NOTE 2
To record the purchase of Fountain Valley common stock including the
adjustment of Fountain Valley's balance sheet to reflect assets acquired by the
Company (in thousands).
<TABLE>
<S> <C> <C>
Cash used to acquire Fountain Valley............................. $ 104,000
Less adjustments of Fountain Valley's historical balances of
assets and liabilities to fair value:
Prepaids....................................................... 1,523
Property, plant and equipment, net............................. (49,609)
Other assets................................................... 2,873
Accrued expenses and other liabilities......................... 3,500
Current maturities of long-term debt........................... (4,886)
Long-term debt................................................. (51,134)
Partners' capital.............................................. (6,267) (104,000)
------- ---------
To record excess cost of the net assets acquired from Fountain
Valley over fair market value.................................. $ --
=========
</TABLE>
NOTE 3
To record the issuance of the Notes and repayment of existing indebtedness
(in thousands):
<TABLE>
<S> <C>
Issuance of the Notes.................................................... $ 125,000
Repurchase of the 10 1/4% Notes.......................................... (100,000)
Payment on Bank Credit Facility.......................................... (20,375)
---------
Net increase in debt........................................... 4,625
Payment of debt issue costs relating to the Notes........................ (3,625)
Payment of premium upon repurchase of the 10 1/4% Notes.................. (1,000)
---------
Net change in cash............................................. $ --
=========
</TABLE>
The pro forma condensed combined balance sheet assumes the Company's
repurchase of 100% of the aggregate outstanding principal amount of the 10 1/4%
Notes pursuant to the Change of Control Offer. As of July 18, 1994, the
expiration date of the Change of Control Offer, 99.3% of the 10 1/4% Notes have
been tendered and were purchased by the Company on July 19, 1994 pursuant to the
Change of Control Offer. The difference between the amount tendered and the
amount assumed in the pro forma adjustment has an immaterial impact on the pro
forma condensed combined balance sheet.
NOTE 4
To write-off $3.5 million of debt issuance costs related to the 10 1/4%
Notes.
P-2
<PAGE> 57
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET -- (CONTINUED)
NOTE 5
As of May 31, 1994, the Company had 1.3 million shares of $.01 par value
Payable In Kind Cumulative Redeemable Convertible Preferred Stock (the "PIK
Preferred Stock") outstanding with an aggregate liquidation value of $19.3
million. Although the Company has received a financing commitment to enable the
Company to redeem the PIK Preferred Stock, the Company has not decided whether
to redeem the PIK Preferred Stock. Moreover, the PIK Preferred Stock is
convertible into the Company's Common Stock on a share for share basis.
Accordingly, because the PIK Preferred Stock redemption price is $15 per share,
the Company believes that if the Company's Common Stock price exceeds $15 per
share on the redemption date the holders of PIK Preferred Stock will convert
into the Company's Common Stock rather than accept the redemption price.
If the financing commitment were utilized, pro forma long-term debt would
increase approximately $19.3 million and shareholders' equity would be reduced
$19.3 million. If the holders of PIK Preferred Stock convert to the Company's
Common Stock, the components of shareholders' equity change but total pro forma
shareholders' equity would not change. The redemption of the PIK Preferred Stock
or the conversion of the PIK Preferred Stock into the Company's Common Stock
would not have a material impact on pro forma income.
P-3
<PAGE> 58
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED MAY 31, 1994
The pro forma condensed combined income statement for the nine months ended
May 31, 1994 gives effect to the acquisition of Fountain Valley, the Mergers,
the Offering and the use of proceeds therefrom and assumes the repurchase of
100% of the aggregate outstanding principal amount of the 10 1/4% Notes pursuant
to the Change of Control Offer as if such transactions had occurred on September
1, 1992 by combining (i) the results of operations of the Company for the nine
months ended May 31, 1994 (which, because the Company accounted for the AHM
Merger as a pooling-of-interests transaction, includes the results of operations
of AHM); (ii) the results of operations of Summit for the nine months ended
March 31, 1994 (as adjusted to exclude the 43 days included in the results of
operations for OrNda), applying the purchase method of accounting; and (iii) the
results of operations of the Company for the nine months ended May 31, 1994 and
the results of operations of Fountain Valley for the nine months ended April 30,
1994, applying the purchase method of accounting. This pro forma condensed
combined income statement is presented for comparative purposes only and is not
necessarily indicative of the combined results of operations in the future or of
what the combined results of operations would have been had the transactions
assumed therein been consummated during the period for which this statement is
presented. Pro forma earnings per common and common equivalent share and pro
forma weighted average shares outstanding give effect to the exchange of AHM and
Summit shares of common stock and common stock equivalents for the Company's
Common Stock and Common Stock equivalents as described by the respective merger
agreements. In addition, the pro forma condensed combined income statement does
not give effect to the cost savings, if any, which may be realized by the
Company after consummation of the Mergers or the acquisition of Fountain Valley.
This pro forma condensed combined income statement should be read in conjunction
with the historical financial statements and notes thereto of the Company and
Summit incorporated by reference herein, and those of Fountain Valley included
herein.
<TABLE>
<CAPTION>
SUMMIT
NINE MONTHS FOUNTAIN
ENDED VALLEY
MARCH 31, ORNDA NINE MONTHS FOUNTAIN
1994 SUMMIT SUMMIT ENDED VALLEY OFFERING PRO
(AS PRO FORMA PRO FORMA APRIL 30, PRO FORMA PRO FORMA FORMA
ORNDA ADJUSTED) ADJUSTMENTS COMBINED 1994 ADJUSTMENTS ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue..... $882,917 $ 353,086 $ (71,725)(6) $1,164,278 $92,062 -- -- $1,256,340
Costs and expenses
Operating
expenses...... 697,537 291,681 (6,739)(5) 922,482 75,975 3,150(7) -- 1,001,607
(59,997)(6)
Provision for
doubtful
accounts...... 57,443 15,041 (640)(6) 71,844 1,718 -- -- 73,562
Depreciation and
amortization... 45,918 13,264 6,721(2) 63,756 6,234 (3,284)(2) 17(2) 66,723
(2,147)(6)
Interest
expense....... 59,331 6,088 13,520(3) 74,748 3,723 2,033(3) 1,437(3) 81,941
(4,191)(6)
Interest
income........ (2,032) (1,228) (428)(6) (3,382) (185) 112(3) -- (3,455)
306(3)
Minority
interest...... 4,230 2,138 (2,138)(6) 4,230 -- -- -- 4,230
Special
executive
compensation... 2,530 -- -- 2,530 -- -- -- 2,530
Loss on sale of
asset......... 9,761 -- -- 9,761 -- -- -- 9,761
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
8,199 26,102 (15,992) 18,309 4,597 (2,011) (1,454) 19,441
Loss from
investment in
Houston
Northwest
Medical
Center.......... (136) -- -- (136) -- -- -- (136)
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Income (loss) from
continuing
operations
before income
tax expense..... 8,063 26,102 (15,992) 18,173 4,597 (2,011) (1,454) 19,305
Income tax
expense......... 1,048 14,759 (7,779)(4) 5,180 -- 517(4) (291)(4) 5,406
(2,848)(6)
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Income from
continuing
operations...... 7,015 11,343 (5,365) 12,993 4,597 (2,528) (1,163) 13,899
Preferred stock
dividend
requirements.... (1,462) -- -- (1,462) -- -- -- (1,462)
-------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Income from
continuing
operations
applicable to
common and
common
equivalent
shares.......... $ 5,553 $ 11,343 $ (5,365) $ 11,531 $ 4,597 $(2,528) $(1,163) $ 12,437
======== ========= ======== ========= ========= ======== ======== =========
Earnings per
common and
common
equivalent
shares from
continuing
operations...... $ (0.15) $ 0.33 $ 0.26 $ 0.28
======== ========= ========= =========
Shares used in
earnings per
common share and
common
equivalent share
computations (in
thousands)...... 36,047 33,870 44,398 44,398
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
P-4
<PAGE> 59
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
The pro forma condensed combined income statement for the fiscal year ended
August 31, 1993 gives effect to the acquisition of Fountain Valley, the Mergers,
the Offering and the use of proceeds therefrom and assumes the repurchase of
100% of the aggregate outstanding principal amount of the 10 1/4% Notes pursuant
to the Change of Control Offer as if such transactions had occurred on September
1, 1992 by combining (i) the results of operations of the Company for the fiscal
year ended August 31, 1993 (adjusted on the pro forma basis to include the
acquisition of Florida Medical Center as described below)) (ii) the results of
operations of the Company for the fiscal year ended August 31, 1993 (adjusted as
described below) and the results of operations of Summit for the fiscal year
ended June 30, 1993, applying the purchase method of accounting; and, (iii) the
results of operations of the Company for the fiscal year ended August 31, 1993
(adjusted as described below) and the results of operations of Fountain Valley
for the fiscal year ended October 31, 1993, applying the purchase method of
accounting. Because the Company accounted for the AHM Merger as a pooling-of-
interests transaction, the historical financial data of the Company includes the
results of operations of AHM for all periods presented. This pro forma condensed
combined income statement is presented for comparative purposes only and is not
necessarily indicative of the combined results of operations in the future or of
what the combined results of operations would have been had the transaction
assumed therein been consummated during the period for which this statement is
presented. Pro forma earnings per common and common equivalent share and pro
forma weighted average shares outstanding give effect to the exchange of AHM and
Summit shares of common stock and common stock equivalents for the Company's
Common Stock and Common Stock equivalents as described by the respective merger
agreements. In addition, the pro forma condensed combined income statement does
not give effect to the cost savings, if any, which may be realized by the
Company after consummation of the Mergers or the acqusition of Fountain Valley.
The Company acquired Florida Medical Center on June 30, 1993 in a
transaction accounted for as a purchase. The Company's pro forma condensed
combined income statement for the year ended August 31, 1993 reflects the
operating results of the Company for the fiscal year ended August 31, 1993 as if
the acquisition of Florida Medical Center had occurred on September 1, 1992.
This pro forma condensed combined income statement should be read in
conjunction with the historical financial statements and notes thereto of the
Company and Summit incorporated by reference herein, and those of Fountain
Valley included herein.
<TABLE>
<CAPTION>
FOUNTAIN
SUMMIT ORNDA VALLEY
YEAR ENDED SUMMIT PRO SUMMIT YEAR ENDED FOUNTAIN VALLEY OFFERING
ORNDA JUNE 30, FORMA PRO FORMA OCTOBER 31, PRO FORMA PRO FORMA PRO FORMA
PRO FORMA 1993 ADJUSTMENTS COMBINED 1993 ADJUSTMENTS ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------- ----------- --------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total
revenue..... $1,060,662 $508,504 $ (83,992)(6) $1,485,174 $ 120,777 -- $1,605,951
Costs and
expenses
Operating
expenses... 842,065 425,242 (8,985)(5) 1,186,499 96,477 4,200(7) 1,287,176
(71,823)(6)
Provision
for
doubtful
accounts... 69,729 23,113 (534)(6) 92,308 2,738 -- 95,046
Depreciation
and
amortization...52,093 19,185 8,962(2) 77,932 8,131 (4,379)(2) 23(2) 81,707
(2,308)(6)
Interest
expense... 75,511 7,377 18,027(3) 98,663 4,980 2,710(3) 1,916(3) 108,269
(2,252)(6)
Interest
income.... (3,380) (1,605) (408)(6) (4,984) (280) 149(3) (5,115)
409(3)
Minority
interest... 4,601 2,421 (2,421)(6) 4,601 -- -- 4,601
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
20,043 32,771 (22,659) 30,155 8,731 (2,680) (1,939) 34,267
Income from
investments
in Houston
Northwest
Medical
Center...... 173 -- -- 173 -- -- -- 173
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
Income from
continuing
operations
before
income tax
expense..... 20,216 32,771 (22,659) 30,328 8,731 (2,680) (1,939) 34,440
Income tax
expense..... 1,129 14,201 (7,875)(4) 4,338 754 456(4) (388)(4) 5,160
(3,117)(6)
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
Income from
continuing
operations... 19,087 18,570 (11,667) 25,990 7,977 (3,136) (1,551) 29,280
Preferred
stock
dividend
requirements... (1,699) -- -- (1,699) -- -- -- (1,699)
---------- ---------- ----------- ---------- ----------- ------- ----------- ----------
Income from
continuing
operations
applicable
to common
and common
equivalent
shares...... $ 17,388 $ 18,570 $ (11,667) $ 24,291 $ 7,977 $(3,136) $(1,551) $ 27,581
========= ======== ======== ========= ======== =========== ======== =========
Earnings per
common and
common
equivalent
share from
continuing
operations... $ 0.50 $ 0.56 $ 0.57 $ 0.65
========= ======== ========= =========
Shares used in
earnings per
common and
common
equivalent
share
computations
(in
thousands)... 34,960 33,201 42,560 42,560
</TABLE>
See notes to unaudited pro forma condensed combined income statement.
P-5
<PAGE> 60
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT
NOTE 1
The Company will continue to report its financial information on a fiscal
year basis ending on August 31. The Summit and Fountain Valley results of
operations, which are included in the accompanying unaudited pro forma condensed
combined income statement, have been presented on a fiscal year basis ending on
June 30 and October 31, respectively.
The pro forma condensed combined income statement assumes the Company's
repurchase of 100% of the aggregate outstanding principal amount of the 10 1/4%
Notes pursuant to the Change of Control Offer. As of July 18, 1994, the
expiration date of the Change of Control Offer, 99.3% of the 10 1/4% Notes have
been tendered and were purchased by the Company on July 19, 1994 pursuant to the
Change of Control Offer. The difference between the amount tendered and the
amount assumed in the pro forma adjustment has an immaterial impact on the pro
forma condensed combined income statement.
The Company acquired Florida Medical Center on June 30, 1993, for an
aggregate purchase price of $113.1 million. The unaudited pro forma condensed
combined income statement for the year ended August 31, 1993, reflects the pro
forma operations of the Company as if its acquisition of Florida Medical Center
had occurred on September 1, 1992. The historical results of Florida Medical
Center have been adjusted using purchase accounting to give effect to the
acquisition by the Company and to eliminate the effect of significant
nonrecurring transactions.
The following combined unaudited pro forma condensed income statement for
the year ended August 31, 1993 presents the historical operations of the
Company, and the incremental pro forma operations of Florida Medical Center as
if the acquisition of Florida Medical Center by the Company had occurred on
September 1, 1992.
ORNDA HEALTHCORP AND FLORIDA MEDICAL CENTER
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
FLORIDA
ORNDA MEDICAL CENTER ORNDA
HISTORICAL PRO FORMA PRO FORMA
---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenue.............................................. $ 961,795 $ 98,867 $1,060,662
Cost and Expenses
Operating expenses....................................... 765,743 76,322 842,065
Provision for doubtful accounts.......................... 63,907 5,822 69,729
Depreciation and amortization............................ 47,669 4,424 52,093
Interest expense......................................... 68,660 6,851 75,511
Interest income.......................................... (3,380) -- (3,380)
Minority interest........................................ 4,601 -- 4,601
---------- -------------- ----------
14,595 5,448 20,043
Income from investments in Houston Northwest Medical
Center................................................... 173 -- 173
---------- -------------- ----------
Income from continuing operations before income tax
expense.................................................. 14,768 5,448 20,216
Income tax expense......................................... 1,129 -- 1,129
---------- -------------- ----------
Income from continuing operations.......................... 13,639 5,448 19,087
Preferred stock dividend requirement....................... (1,699) -- (1,699)
---------- -------------- ----------
Income (loss) from continuing operations applicable to
common and common equivalent shares...................... $ 11,940 $ 5,448 17,388
======== =========== =========
Earnings (loss) per common and common equivalent share from
continuing operations.................................... $ (0.34) $ 0.50
======== =========
Shares used in earnings (loss) per common and common
equivalent share computation (in thousands).............. 34,960 34,960
</TABLE>
P-6
<PAGE> 61
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 2
To adjust amortization for the Summit Merger as follows:
<TABLE>
<CAPTION> FOR THE YEAR
FOR THE NINE ENDED
MONTHS ENDED AUGUST 31,
MAY 31, 1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record amortization related to the $190.1 million increase
in excess of costs of net assets acquired over fair value
for Summit assuming a 30 year life......................... $4,752 $6,337
To record amortization on the $6.0 million increase in
deferred financing costs assuming a 6 year life............ 750 1,000
To record depreciation on the $65.0 million of properties
acquired, net of land costs, assuming a 30 year life....... 1,219 1,625
--------- ---------
$6,721 $8,962
========= =========
</TABLE>
The pro forma condensed combined income statement assumes that the net
assets acquired from Summit over fair market value will be amortized over 30
years. The amortization period was determined based upon the estimated economic
life of the property, plant, and equipment acquired. The Company evaluates the
amortization period of intangible assets on an annual basis.
To adjust amortization for the acquisition of Fountain Valley as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE NINE ENDED
MONTHS ENDED AUGUST 31,
MAY 31, 1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record amortization on the $2.0 million increase in
deferred financing costs assuming a 6 year life........... $ 250 $ 333
To adjust depreciation on the $45.8 million of properties to
be acquired assuming lives between 7 and 30 years......... (3,534) (4,712)
------------ ------------
$ (3,284) $ (4,379)
========= =========
</TABLE>
To adjust amortization for the issuance of the Notes:
<TABLE>
<S> <C> <C>
To record amortization on the $3.6 million increase in
deferred financing costs assuming a 10 year life.......... $ 272 $ 363
To eliminate amortization on the 10 1/4% Notes.............. (255) (340)
------------ -----------
$ 17 $ 23
========= =========
</TABLE>
P-7
<PAGE> 62
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 3
To adjust interest expense for the Summit Merger as follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, AUGUST 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record interest on borrowings of $269.1 million related to
the Bank Credit Facility (assumes a 6.7% interest rate) for
the Summit merger.......................................... $ 13,520 $ 18,027
========= =========
To eliminate interest income on excess Summit cash........... $ 306 $ 409
========= =========
</TABLE>
To adjust interest expense for the acquisition of Fountain Valley as
follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, AUGUST 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To record interest on borrowings of $101.0 million related to
the Bank Credit Facility (assumes a 6.7% interest rate).... $ 5,076 $ 6,768
To eliminate historical interest expense related to Fountain
Valley debt to be retired in connection with the
acquisition................................................ (3,043) (4,058)
------------ ------------
$ 2,033 $ 2,710
========= =========
To eliminate interest income on excess Fountain Valley
cash....................................................... $ 112 $ 149
========= =========
</TABLE>
To adjust interest expense for the issuance of the Notes:
<TABLE>
<S> <C> <C>
To record interest on the Notes (assumes a 10 5/8% interest
rate)...................................................... $ 9,961 $ 13,281
To eliminate historical interest expense related to the
10 1/4%
Notes...................................................... (7,500) (10,000)
To eliminate interest expense related to payment of $20.4
million on Bank Credit Facility (assumes a 6.7% interest
rate)...................................................... (1,024) (1,365)
------------ ------------
$ 1,437 $ 1,916
========= =========
</TABLE>
NOTE 4
To record pro forma provision for income taxes on the pro forma adjustments
at a rate of 20% except for amortization adjustments related to excess costs of
net assets acquired over fair value which will not be deductible for tax
purposes and to adjust Summit tax rate for net operating loss utilization.
P-8
<PAGE> 63
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 5
The pro forma financial statements give effect to the Company's acquisition
of approximately $65 million (of a total of $85.4 million) of the Summit
properties currently under lease. The Company entered into an agreement with a
third party purchaser for approximately $20.4 million of the remaining real
estate. The Company will lease such real estate from the third party under an
operating lease agreement.
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, AUGUST 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
To eliminate operating lease expense under previous lease
commitments........................................................ $ (8,307) $(11,076)
To record new lease commitments (assumes a 10 1/4% interest rate).... 1,568 2,091
------------ ------------
$ (6,739) $ (8,985)
========= =========
</TABLE>
NOTE 6
To record the effect of accounting for the investment in Summit Care
Corporation as if the 7 1/2% Notes are exchanged for Summit Care common stock as
described below:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1994 JUNE 30,1993
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Total revenues............................................. $(71,725) $ (83,992)
Operating expenses......................................... (59,997) (71,823)
Provision for doubtful accounts............................ (640) (534)
Depreciation and amortization.............................. (2,147) (2,308)
Interest expense........................................... (4,191) (2,252)
Interest income............................................ (428) (408)
Minority interest.......................................... (2,138) (2,421)
Income tax................................................. (2,848) (3,117)
</TABLE>
$37.4 million aggregate principal amount of the 7 1/2% Notes which are
exchangeable into Summit's 38.6% interest in the Summit Care common stock, were
outstanding at May 31, 1994. The pro forma condensed combined income statements
for the fiscal year ended August 31, 1993 and for the nine months ended May 31,
1994 give effect to the investment in Summit Care as if the holders of the
7 1/2% Notes exchanged for the Summit Care common stock on September 1, 1992.
NOTE 7
Pursuant to the Real Estate Purchase Agreement, the REIT acquired certain
real estate from Fountain Valley for approximately $41 million. The Company
leases such real estate from the REIT pursuant to an operating lease agreement.
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE YEAR ENDED
MONTHS ENDED AUGUST 31,
MAY 31, 1994 1993
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
To record $41 million of new lease commitments (assumes a
10.25% interest rate)........................................ $3,150 $4,200
========= ========
</TABLE>
P-9
<PAGE> 64
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED INCOME STATEMENT -- (CONTINUED)
NOTE 8
No provision has been reflected in the unaudited pro forma condensed
combined financial statements for expenses incurred by the Company and AHM in
connection with the AHM Merger. These expenses, consisting primarily of amounts
related to investment advisory and professional fees, expenses for printing and
distributing proxy materials and certain severance and relocation costs have
been estimated at $30 million (of which approximately $16 million is a cash
expense) and were expensed upon completion of the AHM Merger.
P-10
<PAGE> 65
ORNDA HEALTHCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
------------------- -------------------
1993 1994 1993 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
TOTAL REVENUE......................................... $245,820 $330,469 $702,551 $882,917
COSTS AND EXPENSES
Operating expenses.................................. 193,571 264,901 562,098 697,537
Provision for doubtful accounts..................... 16,634 17,488 43,968 57,443
Depreciation and amortization....................... 11,671 16,759 34,246 45,918
Interest expense.................................... 16,802 20,976 49,948 59,331
Interest income..................................... (887) (815) (3,167) (2,032)
Special executive compensation...................... -- 1,043 -- 2,530
Merger transaction expenses......................... -- 29,992 -- 29,992
Loss on asset sale.................................. -- 9,761 -- 9,761
Minority interest................................... 2,247 1,127 2,988 4,230
-------- -------- -------- --------
5,782 (30,763) 12,470 (21,793)
Income (loss) from investments in Houston Northwest
Medical Center...................................... (691) 3,218 (775) (136)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND
EXTRAORDINARY ITEM.................................. 5,091 (27,545) 11,695 (21,929)
Income tax expense.................................... 404 515 930 1,048
-------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM................................................ 4,687 (28,060) 10,765 (22,977)
Extraordinary item.................................... -- 8,316 -- 8,191
-------- -------- -------- --------
NET INCOME (LOSS)..................................... 4,687 (36,376) 10,765 (31,168)
Preferred stock dividends............................. 430 550 1,259 1,462
-------- -------- -------- --------
Net income (loss) applicable to common shares......... $ 4,257 $(36,926) $ 9,506 $(32,630)
======== ======== ======== ========
Net income (loss) per common and common equivalent
share before extraordinary item..................... $ 0.12 $ (0.74) $ 0.27 $ (0.68)
======== ======== ======== ========
Net income (loss) per common and common equivalent
share............................................... $ 0.12 $ (0.95) $ 0.27 $ (0.91)
======== ======== ======== ========
</TABLE>
See the accompanying notes.
F-1
<PAGE> 66
ORNDA HEALTHCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1993 1994
---------- ----------
(NOTE 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................... $ 25,914 $ 16,342
Patient accounts receivable net of allowance for uncollectibles of
$47,289 at August 31, 1993 and $57,153 at May 31, 1994........... 180,604 268,922
Supplies, at cost................................................... 18,533 26,620
Other............................................................... 22,716 50,506
---------- ----------
TOTAL CURRENT ASSETS............................................. 247,767 362,390
PROPERTY, PLANT AND EQUIPMENT, net.................................... 803,994 1,020,946
INVESTMENTS IN HOUSTON NORTHWEST MEDICAL CENTER....................... 10,912 80,947
OTHER ASSETS.......................................................... 64,058 58,467
GOODWILL, NET......................................................... 78,406 266,954
---------- ----------
$1,205,137 $1,789,704
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other liabilities.............................. $ 212,247 $ 302,698
Current maturities of long-term debt................................ 9,347 7,368
---------- ----------
TOTAL CURRENT LIABILITIES........................................ 221,594 310,066
LONG-TERM DEBT........................................................ 705,425 1,015,000
OTHER LIABILITIES..................................................... 66,010 99,126
SHAREHOLDERS EQUITY
Convertible preferred stock; 10,000,000 authorized shares; 1,193,896
and 1,278,452 shares issued and outstanding at August 31, 1993
and May 31, 1994, respectively................................... 18,062 19,341
Common stock, $.01 par value; 100,000,000 authorized shares;
34,483,433 and 43,161,743 issued and outstanding at August 31,
1993 and May 31, 1994, respectively.............................. 345 432
Additional paid-in capital.......................................... 299,137 403,751
Retained deficit.................................................... (105,436) (136,322)
Unrealized gains on available-for-sale securities, net of tax....... -- 78,310
---------- ----------
212,108 365,512
---------- ----------
$1,205,137 $1,789,704
========= =========
</TABLE>
See the accompanying notes.
F-2
<PAGE> 67
ORNDA HEALTHCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................................ $ 10,765 $(31,168)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Non-cash portion of loss on investments in Houston Northwest Medical
Center................................................................. 1,525 2,328
Non-cash special executive compensation................................. -- 2,530
Loss on sale of assets.................................................. -- 9,761
Extraordinary item...................................................... -- 8,191
Increase (decrease) to disposition reserve.............................. (99) --
Depreciation and amortization........................................... 34,246 45,918
Provision for doubtful accounts......................................... 43,968 57,443
Amortization of debt discount........................................... 977 82
Changes in assets and liabilities net of effects from
acquisitions/dispositions:
Increase in net patient accounts receivable........................... (68,771) (81,660)
Decrease (increase) in other current assets........................... (2,269) (5,933)
Decrease (increase) in other assets................................... (1,639) (1,316)
Increase (decrease) in accrued expenses and other liabilities......... (9,235) (8,424)
(Decrease) increase in other liabilities.............................. (1,566) (6,663)
-------- --------
Net cash provided by (used in) operating activities........................ 7,902 (8,911)
========= =========
INVESTING ACTIVITIES:
Purchase of Summit Health, Ltd. common stock and real estate................... -- (256,671)
Purchase of Golden Glades common stock, net of cash acquired of $1,011......... (24,623) --
Capital expenditures........................................................... (27,300) (31,556)
Decrease (increase) in restricted funds........................................ 258 --
Increase in notes receivable................................................... (4,105) --
Payments received on long-term notes and other receivables..................... 5,014 4,865
Other investing activities..................................................... (3,852) (17,038)
-------- --------
Net cash used in investing activities.......................................... (54,608) (300,400)
-------- --------
FINANCING ACTIVITIES:
Issuance of stock.............................................................. 44 3,489
Refinancing of borrowings under term loan...................................... (372) --
Principal payments on long-term debt and term loan............................. (11,505) (13,243)
Borrowings on notes payable.................................................... -- 325,192
Borrowings under revolving credit agreements................................... 56,337 200,097
Payments on revolving credit agreements........................................ (54,447) (215,796)
Payment received on stockholder note receivable................................ 7,740 --
-------- --------
Net cash used in financing activities................................... (2,203) 299,739
-------- --------
NET DECREASE IN CASH............................................................. (48,909) (9,572)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................... 60,908 25,914
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................................... $ 11,999 $ 16,342
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)......................................... $ 58,569 $ 71,249
Income taxes................................................................. 1,359 160
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Preferred stock dividends...................................................... 1,259 1,462
Capital lease obligations incurred............................................. 1,916 397
Issuance of stock options...................................................... -- 2,530
Stock issued for acquisition of Golden Glades.................................. 8,250 --
Stock issued for acquisition of Summit Health, Ltd............................. -- 99,167
</TABLE>
See the accompanying notes.
F-3
<PAGE> 68
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 31, 1994
NOTE 1 -- REPORTING ENTITY
OrNda HealthCorp (the "Company" or "OrNda") is incorporated in the State of
Delaware. On April 19, 1994, the Company exchanged shares of its common stock
for all of the outstanding common stock of American Healthcare Management, Inc.
("AHM"), and merged AHM with and into OrNda. The transaction was accounted for
as a pooling-of-interests and, accordingly, the accompanying condensed
consolidated financial statements give retroactive effect to the merger and
therefore include the combined operations of OrNda and AHM. (see Note 3). Also
on April 19, 1994, the Company purchased all of the outstanding common stock of
Summit Health Ltd. ("Summit") pursuant to a merger of SHL Acquisition Co., a
wholly owned subsidiary of the Company, with and into Summit. The transaction
was accounted for as a purchase (see Note 3).
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Operating results for the
three-and nine-month periods ended May 31, 1994 are not necessarily indicative
of the results that may be expected for the year ended August 31, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in OrNda's annual report on Form 10-K/A No. 4 for the
year ended August 31, 1993 and AHM's annual reports on Forms 10-K, as amended,
for the years ended December 31, 1993 and 1992.
Earnings Per Share. The computation of earnings per share is based on the
weighted average number of outstanding shares and dilutive equivalents
outstanding during the period. Dilutive stock equivalents consist of stock
options and warrants representing 1.0 million and 1.1 million equivalent shares
for the three-and nine-month periods ended May 31, 1993, respectively. Prior
year weighted average shares have been restated for the proportionate amount of
AHM's weighted average shares outstanding (see Note 3).
NOTE 3 -- MERGER, ACQUISITION AND DISPOSITION TRANSACTIONS
On April 19, 1994, the Company completed a merger with AHM, a health care
services company engaged in the operation of general acute care hospitals. AHM
owned or leased 16 hospitals in 9 states, with a total of 2,028 licensed beds.
These hospitals provide a range of medical and surgical inpatient and outpatient
services, with particular focus on primary care services such as obstetrics,
pediatrics and minimally invasive and routine surgeries.
The merger has been accounted for as a pooling of interests. Shareholders
of AHM received 0.6 of a share of OrNda common stock, representing 16.6 million
additional OrNda shares issued, in exchange for each share of AHM common stock
held. The accompanying condensed consolidated financial statements give
retroactive effect to the merger, combining operations of OrNda and AHM for all
periods presented. Because each company had different fiscal year ends, AHM's
net income for September 1993, representing $558,000, is included in reported
net income both for the year ended August 31, 1993 and the nine months ended May
31, 1994. However, retained earnings appropriately reflects September 1993 net
income for only one period. Further, only operating results of OrNda for the
nine months ended May 31, 1993 were combined with operations of AHM for the nine
months ended June 30, 1993. Consequently, the operating results of AHM for the
month of September 1992 are excluded from reported results of the combined
company for the nine
F-4
<PAGE> 69
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
months ended May 31, 1993 and the operating results of AHM for the month of June
1993 are included. Following is a summary of AHM s operating results for those
periods (in thousands).
<TABLE>
<CAPTION>
SEPTEMBER JUNE
1992 1993
--------- -------
<S> <C> <C>
Total revenue................................................... $25,566 $28,135
Net income...................................................... 559 1,038
</TABLE>
Following is a summary of the results of the separate operations of OrNda
and AHM included in the combined results of operations for periods presented
prior to the merger (in thousands):
<TABLE>
<CAPTION>
ORNDA AHM CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
One month ended March 31, 1994:
Total revenue....................................... $ 76,204 $ 30,923 $107,127
Net income.......................................... 2,619 1,415 4,034
Seven months ended March 31, 1994:
Total revenues...................................... $454,531 $205,044 $659,575
Net income.......................................... 1,696 7,546 9,242
Three months ended May 31, 1993:
Total revenues...................................... $161,319 $ 84,501 $245,820
Net income.......................................... 785 3,902 4,687
Nine months ended May 31, 1993:
Total revenues...................................... $450,529 $252,022 $702,551
Net income (loss)................................... (807) 11,572 10,765
</TABLE>
In the third quarter of 1994, the Company recorded the following
nonrecurring charges in connection with the AHM merger (in thousands):
<TABLE>
<CAPTION>
CASH NONCASH
EXPENSE EXPENSE TOTAL
------- ------- -------
<S> <C> <C> <C>
Employee benefit and certain severance actions............ $ 8,456 $ 999 $ 9,455
Investment advisory and professional fees................. 6,077 -- 6,077
Costs of information systems consolidations primarily
related to the write-down of assets..................... 1,000 10,260 11,260
Other..................................................... 1,293 1,907 3,200
------- ------- -------
$16,826 $13,166 $29,992
======= ======= =======
</TABLE>
On April 19, 1994, the Company completed a merger with Summit, a health
care services company engaged in the operation of (i) general acute care
hospitals, (ii) a managed care entity contracting to provide services to the
Arizona Health Care Cost Containment System, and (iii) outpatient surgery
centers. Summit owned or leased 12 acute care hospitals in 4 states with a total
of 1,611 licensed beds. These hospitals provide general health care services,
including operating and recovery rooms, diagnostic radiology, intensive care and
coronary care, outpatient services and emergency departments, pharmacies,
clinical laboratories and rehabilitative therapy.
The merger has been accounted for as a purchase and, accordingly, the
condensed consolidated financial statements give effect to and include the
combined operations of the Company and Summit as of the date of the acquisition.
Summit shareholders received $5.50 in cash and 0.2157 shares of OrNda common
stock for each share of Summit common stock held, representing $192.1 million of
cash paid and 7.5 million additional OrNda shares issued. Furthermore, OrNda
assumed or paid $21.9 million of Summit s debt resulting in a total
F-5
<PAGE> 70
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition cost of approximately $313.2 million. In connection with the merger
with Summit, $190.1 million of goodwill was recorded by OrNda. This amount is
being amortized over a period of 30 years.
In connection with the mergers, the Company changed the methodologies used
by the previously separate companies to calculate the allowance for doubtful
accounts to conform OrNda and AHM to a single method. The Company also changed
the methodology for recognition of charity care expense. As a result of these
changes, the operations of the Company for the three months ended May 31, 1994
were favorably impacted by $3.3 million.
On June 30, 1993, the Company acquired Florida Medical Center, a 459
licensed-bed hospital in Fort Lauderdale Florida, for $113.1 million in cash in
a transaction accounted for as a purchase.
Pro forma results of operations for the year ended August 31, 1993 and the
nine months ended May 31, 1994 assuming the Summit merger and FMC acquisition
were completed September 1, 1992, and excluding $30.0 million of expenses
directly attributable to the merger transaction, are presented below (in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
AUGUST 31, MAY 31,
1993 1994
---------- -----------------
<S> <C> <C>
Total revenue............................................ $1,485,175 $ 1,164,278
Income from continuing operations........................ 22,946 13,339
Income from continuing operations applicable to common
shares................................................. 21,247 11,877
Income from continuing operations applicable to common
equivalent shares...................................... $ 0.50 $ 0.27
</TABLE>
Effective in the third quarter of 1994, the Company's management decided
upon a plan of disposition to sell Decatur Hospital, a 120-bed acute care
hospital located in Decatur, Georgia. Losses relating to the future operations
of the hospital and the loss on sale totalling $9.8 million were recorded in the
third quarter of 1994. On June 10, 1994, the Company completed the sale of the
property, equipment and inventory of the hospital for $6.0 million in cash.
NOTE 4 -- LONG-TERM DEBT
A summary of long-term debt follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1993 1994
---------- ----------
<S> <C> <C>
Parent Company:
Senior Credit Facilities:
Revolving Credit Facilities............................... $ 103,200 $ 58,200
Term Loans................................................ 42,500 393,500
12.25% Senior Subordinated Notes due 2002.................... 400,000 400,000
10.25% Senior Subordinated Notes due 2003.................... 100,000 100,000
Subsidiaries:
Secured Debt -- other (including capitalized leases); rates,
generally fixed, average 11.9%; payable in periodic
installments through 2004................................. 69,072 70,668
---------- ----------
714,772 1,022,368
Less current portions.......................................... 9,347 7,368
---------- ----------
$ 705,425 $1,015,000
======== =========
</TABLE>
On April 19, 1994 the Company entered into a Credit, Security, Guarantee
and Pledge Agreement (the "Credit Agreement") with a syndicate of lenders to
borrow up to $700 million, of which $451.7 million was
F-6
<PAGE> 71
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding on May 31, 1994 and of which commitment availability had been
reduced by $13.5 million as a result of issued letters of credit. The proceeds
were used to (i) repay $159.6 million of previously outstanding senior secured
debt; (ii) pay for $192.1 million representing the cash portion of the purchase
price for all of the outstanding shares of Summit Health Ltd.; (iii) acquire
real estate previously leased by Summit Health Ltd., for $65.0 million; (iv)
repay $9.1 million of subsidiary indebtedness; and, (v) pay transaction fees and
expenses. In connection with the extinguishment of the previously outstanding
senior secured debt, the Company recorded an extraordinary loss of $8.3 million,
net of income tax benefit of $251,000, primarily as a result of the elimination
of related debt issuance costs.
The Credit Agreement consists of the following facilities (the "Senior
Credit Facilities"): (i) a revolving commitment of $200 million maturing April
19, 2000, to refinance certain previously existing senior secured debt, for
general corporate purposes, and to issue up to $30 million of letters of credit,
(ii) a revolving commitment of $100 million maturing April 19, 2000 for
acquisitions and other specified transactions, (iii) a $325 million term loan to
refinance certain previously existing senior secured debt and the cash portion
of the purchase price paid to acquire Summit Health Ltd., payable in
incremental, quarterly installments beginning July 31, 1994 and maturing April
19, 2000, and (iv) a $75 million term loan for specified transactions payable in
incremental quarterly installments beginning January 31, 1995 and maturing April
19, 2000.
Funds advanced under the Credit Agreement bear interest on the outstanding
principal at a fluctuating rate based on either (i) the base rate of the Bank of
Nova Scotia for U.S. Dollar loans in the United States (the "Prime Rate") or
(ii) London Interbank Borrowing Rate ("LIBOR"), as elected from time to time by
the Company. Interest is payable quarterly if a rate based on the Prime Rate is
elected or at the end of the LIBOR period (but in any event not to exceed 90
days) if a rate based on LIBOR is elected. The Company has elected various rates
on the initial borrowings of the Senior Credit Facilities representing a
weighted average annual interest rate at May 31, 1994 of 6.7%.
In certain circumstances, the Company is required to make principal
prepayments on the Senior Credit Facilities, including the receipt of proceeds
from the issuance of additional subordinated indebtedness, certain asset sale
proceeds not used to acquire additional assets within a specified period, and
50% of the proceeds in excess of $50 million from the issuance of additional
equity not used to acquire additional assets within a specific period. The
Company may prepay all or part of the outstanding Senior Credit Facilities
without penalty.
The Credit Agreement limits, under certain circumstances, the Company's
ability to incur additional indebtedness, sell material assets, acquire the
capital stock or assets of another business, or pay dividends. The Credit
Agreement also requires the Company to maintain a specified net worth and meet
or exceed certain coverage, leverage, and indebtedness ratios. Indebtedness
under the Credit Agreement is secured by a perfected, first priority security
interest in the stock of all existing and future subsidiaries of the Company,
intercompany notes of indebtedness, and majority-owned partnerships.
Pursuant to a Waiver and Consent Agreement dated February 3, 1994 by and
among the Company and the holders of a majority in principal amount of the
10.25% Notes, as consideration for their agreement to make certain changes to
the Notes Indenture to effect the merger with AHM (see Note 3) and other
matters, the Company (i) paid to the holders on the closing date of the merger
$15.00 for each $1,000 principal amount of the outstanding Notes and (ii)
increased the rate of interest on the Notes from 10% per annum to 10.25% per
annum. The merger caused a "change of control," as defined in the Notes
Indenture, which required the Company to make a prompt offer to repurchase all
or any portion of the Notes owned by the holders thereof at 101% of the
principal amount, together with accrued interest thereon, to the date of
repurchase. The Company made the required offer to repurchase the Notes on May
19, 1994. Such offer expires on July 18, 1994.
F-7
<PAGE> 72
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). Under SFAS No. 109, an asset and liability approach for financial
accounting and reporting for income taxes is required.
The AHM merger (see Note 3) caused an "ownership change" within the meaning
of Section 382(g) of the Internal Revenue Code (the "IRC") for both OrNda and
AHM. Consequently, allowable federal deductions relating to tax attribute
carryforwards of OrNda and AHM arising in periods prior to the merger are
thereafter subject to annual limitations (OrNda $19 million; AHM $16 million).
For AHM, such tax attribute carryforwards can only be applied against the
prospective taxable income of the entities that previously comprised AHM. These
limitations may be increased for "built-in gains," as defined under the IRC,
recognized during a five-year period following the date of the merger. These
annual limitations currently are not expected to affect the ability of either
OrNda or AHM to ultimately utilize tax attribute carryforwards available at the
date of the merger and which, therefore, continue to be available to offset book
deferred tax liabilities.
As a result of examinations by the Internal Revenue Service (the "Service")
of Summit's federal income tax returns, Summit received a revenue agent's report
with proposed adjustments for the years 1984 through 1986. A protest has been
filed with the district director opposing the proposed adjustments. The
principal issue involves accounting methods used by Summit to report taxable
income.
For the taxable years prior to 1988, most of Summit's subsidiaries (the
"Subsidiaries") primarily reported taxable income using the cash method of
accounting. The cash method was prevalent within the hospital industry and the
Subsidiaries applied the method in accordance with prior agreements reached with
the Service. The Service now asserts that an accrual method of accounting should
have been used. The Tax Reform Act of 1986 (the "1986 Act") requires most large
corporate taxpayers (including Summit) to use an accrual method of accounting
beginning in 1987. Consequently, the Subsidiaries changed to the accrual method
beginning July 1, 1987. In accordance with the provisions of the 1986 Act,
income that was deferred by use of the cash method at the end of 1986 is being
recognized as taxable income by the Subsidiaries in equal annual installments
over ten years beginning on July 1, 1987.
The Company is of the opinion that Summit has properly reported its income
and paid its taxes in accordance with applicable laws (and in accordance with
previous agreements established with the Service). In management's opinion, the
final outcome resulting from the Service's examinations of prior years income
taxes will not have a material adverse effect on the results of operations or
financial position of the Company.
NOTE 6 -- HOUSTON NORTHWEST MEDICAL CENTER
Houston Northwest Medical Center ("HNW"), which is not operated by the
Company, is a 494-bed acute care facility located in Houston, Texas. Prior to
February 28, 1994, the Company's investments in HNW consisted of (i) 100% of
HNW's common stock; (ii) two classes of mandatorily redeemable preferred stock
with a redemption value of $62.5 million; and, (iii) a mortgage note receivable
with a balance of $8.4 million. In applying the equity method of accounting for
the investment prior to February 28, 1994, the Company's investment in
mandatorily redeemable preferred stock of HNW was considered an "advance" to HNW
and was combined with the common stock. As a result, 100% of HNW's losses
attributable to its common stock were recognized as losses to the Company and
reduced the Company's combined investments in HNW.
On February 28, 1994, the Company irrevocably transferred its investment in
common stock of HNW to the HNW ESOP and HNW for nominal consideration. The
effect of this transfer was to eliminate the requirement for the Company to
apply the equity method of accounting subsequent to the quarter ended February
28, 1994. Accordingly, beginning March 1, 1994, the Company no longer recognizes
HNW income or losses on the equity method. The Company will continue to apply
the income recognition method described
F-8
<PAGE> 73
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in Note 1 to the financial statements included in the Company's Form 10-K/A No.
4, for the year ended August 31, 1993, for the Company's investment in HNW's
mandatorily redeemable preferred stock.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting of Certain Investments in
Debt and Equity Securities" (SFAS No. 115). The Company adopted SFAS No. 115 on
September 1, 1993, which resulted in an $81.7 million increase in shareholders
equity (of which $79.7 million related to the HNW mandatorily redeemable
preferred stock classified as "available-for-sale") with no impact on net
income. There was no income tax effect because of the availability of book tax
attribute carryforwards to offset the excess book basis over the tax basis of
the investments. At May 31, 1994, the increase to equity was reduced to $78.3
million (of which $76.3 related to HNW) due to changes in long-term interest
rates used to discount future cash flows.
NOTE 7 -- CONTINGENCIES
The Company continually evaluates contingencies based upon the best
available information. In addition, allowances for losses are provided for
unresolved items which have continuing significance such as certain third-party
reimbursements.
The Company presently has unresolved various legal proceedings in which it
is a defendant and various unresolved claims. In the opinion of management, the
ultimate liability, if any, with respect to any such litigation or claim will
not materially affect the financial position or results of operations of the
Company.
NOTE 8 -- OTHER
On May 5, 1994, the Company announced it had entered into a letter of
intent to acquire Fountain Valley Regional Hospital and Medical Center, a
413-licensed bed acute care hospital in Fountain Valley, California. The
transaction will be accounted as a purchase and is expected to have a total
purchase price of approximately $145 million, of which approximately $95 million
will be paid in cash. The transaction, which is expected to be completed during
the fourth quarter of fiscal 1994, is subject to execution of a definitive
agreement, consent of the lenders under the Credit Agreement and other customary
closing conditions.
F-9
<PAGE> 74
ORNDA HEALTHCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Mergers and Acquisition. As discussed in Note 3 to the accompanying
condensed consolidated financial statements, OrNda completed the AHM and Summit
mergers on April 19, 1994. The AHM merger was accounted for as a
pooling-of-interests and, accordingly, the operations of AHM and OrNda have been
combined in the accompanying condensed consolidated financial statements. The
Summit merger was accounted for as a purchase and, accordingly, their operations
have been included effective upon the date of the merger. The discussion herein
is based upon the combined operations of OrNda and AHM for all periods presented
in the accompanying condensed consolidated financial statements and including
Summit effective April 19, 1994. To enhance understandability, discussion and
analysis of financial condition and results of operations of the separate
companies is included, where necessary. Hereafter, the combined entity of OrNda
and AHM is referred to as the "Company," while the separate operation of OrNda,
prior to the mergers, is referred to as "OrNda." Nonrecurring charges related to
the AHM merger of $30.0 million primarily consisting of severance and benefit
payments, investment advisory and professional fees, and costs of consolidating
management information systems, were recorded in the third quarter of 1994.
Also, in connection with the mergers, the Company extinguished certain senior
secured debt and replaced it with new senior credit facilities. Consequently,
the Company recorded an extraordinary loss of $8.3 million primarily as a result
of the elimination of related debt issuance costs. The Company estimates
approximately $15 million of annualized reduction in expenses due to the
elimination of duplicate overhead and to reductions in malpractice and other
insurance premiums resulting from the mergers. By the end of the fourth quarter
of fiscal 1994, the Company will have begun implementation of the plans
necessary to realize these savings.
In addition to the mergers, the Company's results of operations also have
been impacted by the acquisition of Florida Medical Center ("FMC") , a 459
licensed-bed acute care hospital in Fort Lauderdale, Florida, in June 1993.
Divestiture. Effective in the third quarter of 1994, the Company's
management decided upon a plan of disposition to sell Decatur Hospital, a
120-bed acute care hospital located in Decatur, Georgia. Losses relating to the
future operations of the hospital and the loss on sale totalling $9.8 million
were recorded in the third quarter of 1994. On June 10, 1994, the Company
completed the sale of the property, equipment, and inventory of the hospital for
$6.0 million. The operations of the hospital were not material to the three-and
nine-month periods ended May 31, 1994 and 1993.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1994 COMPARED WITH THE THREE MONTHS ENDED MAY 31,
1993.
Total revenue for the three months ended May 31, 1994 increased $84.6
million or 34.4% to $330.5 million and earnings before interest, taxes,
depreciation, amortization, minority interest, income (loss) from investments in
Houston Northwest Medical Center and nonrecurring charges ("EBITDA") increased
35.0% to $48.1 million. Because of nonrecurring charges of $40.8 million and an
extraordinary charge of $8.3 million, net of income tax expense, the Company
reported a net loss for the three months ended May 31, 1994 of $36.4 million
compared with net income of $4.7 million for the three months ended May 31,
1993.
The principal reasons for the total revenue growth during this period
compared with the year-earlier period are (i) the inclusion of the total revenue
of FMC amounting to $28.2 million for the three months ended May 31, 1994 not
included in the prior-year period, (ii) the inclusion of the total revenue of
Summit from the date of the merger amounting to $51.6 million not included in
the prior-year period, and (iii) an increase in the Company's admissions,
exclusive of FMC and Summit, of 2.3%. Total surgeries and outpatient volume of
the Company remained relatively flat during the period. The effect of price
increases implemented
F-10
<PAGE> 75
ORNDA HEALTHCORP AND SUBSIDIARIES
by the Company's hospitals was nominal as gross revenue (total revenue before
contractual allowances and other deductions) currently paid by fixed
reimbursement third party payors represented approximately 86.0% of the
Company's total gross revenue. These payors, who generally reimburse providers
of health care services at discounts (often substantial) to providers' listed
charges for services, negotiate (or dictate as in the case of the Medicare
program) price increases exclusive of any price increases implemented by
providers.
The increase in EBITDA for the three months ended May 31, 1994 principally
resulted from the increase in total revenue, discussed above. In connection with
mergers, the Company changed the methodologies used by the previously separate
companies to calculate the allowance for doubtful accounts to conform to a
single method for OrNda and AHM. The Company also changed the methodology for
recognition of charity care expense. As a result of these changes, the
operations of the Company for the three months ended May 31, 1994 were favorably
impacted by $3.3 million. Otherwise, the provision for doubtful accounts as a
percentage of total revenue increased to 7.1% from 6.8% in the prior-year
period. Exclusive of the adjustment to the Company's allowance for doubtful
accounts, the rate of increase in EBITDA was less than the rate of increase in
total revenue, despite cost containment initiatives implemented by the Company,
because (i) rate increases from various fixed reimbursement third party payors
were below the rate of medical-related inflation increases applicable to
salaries, benefits and supplies, and (ii) the percentage of the Company's gross
revenue derived from fixed reimbursement third party payors, increased to 86.0%
from 81.0% in the prior year period, partially offsetting the effect of the
increase in admissions.
Depreciation and amortization for the three months ended May 31, 1994
increased by $5.1 million, as compared to the same period in the prior year,
primarily due to $1.4 million of depreciation and amortization attributable to
the operations of FMC and $2.6 million of depreciation and amortization
attributable to the operations of Summit not included in the prior year.
Interest expense for the same period increased by $4.2 million as a result of
the financing of these transactions.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). The majority of the Company's deferred tax assets related to approximately
$285.6 million of tax attribute carryforwards at May 31, 1994 which the Company
has available to offset future taxable income. The AHM merger (see Note 3)
caused an "ownership change" within the meaning of Section 382 (g) of the
Internal Revenue Code (the "IRC") for both OrNda and AHM. Consequently,
allowable federal deductions relating to tax attribute carryforwards of OrNda
and AHM arising in periods prior to the merger are thereafter subject to annual
limitations (OrNda -- $19 million; AHM -- $16 million). For AHM, such tax
attribute carryforwards can only be applied against the prospective taxable
income of the entities that previously comprised AHM. These limitations may be
increased for "built-in-gains," as defined under the IRC, recognized during a
five-year period following the date of the merger. Management assesses the
realizability of the deferred tax assets on at least a quarterly basis and
currently is satisfied, despite the annual limitations, that it is more likely
than not that the deferred tax assets recorded at May 31, 1994 will be realized
through reversal of deferred tax liabilities.
For the three months ended May 31, 1994, the Company recorded income tax
expense of $515,000 on a pretax loss of $27.5 million primarily due to state
income taxes and federal alternative minimum tax.
NINE MONTHS ENDED MAY 31, 1994 COMPARED WITH THE NINE MONTHS ENDED MAY 31, 1993.
Total revenue for the nine months ended May 31, 1994 increased $180.4
million or 25.7% to $882.9 million and EBITDA increased 32.6% to $127.9 million.
Because of the nonrecurring charges and extraordinary item recorded in the third
quarter of fiscal 1994, the Company reported a net loss for the nine months
ended May 31, 1994 of $31.2 million compared with net income of $10.8 million
for the nine months ended May 31, 1993. Historical and pro forma income and
earnings per share before extraordinary item, exclusive of expenses directly
attributed to the merger, nonrecurring special executive compensation and loss
on asset sales
F-11
<PAGE> 76
ORNDA HEALTHCORP AND SUBSIDIARIES
for the nine months ended May 31, 1994 assuming the Summit merger occurred
September 1, 1993 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
1994 1994
---------- ---------
<S> <C> <C>
Income before extraordinary item, as adjusted for preferred stock
dividends...................................................... $ 17,774 $24,168
Income per share before extraordinary item....................... $ 0.47 $ 0.54
</TABLE>
The principal reasons for the total revenue growth during this period
compared with the prior-year period are (i) the inclusion of the total revenue
of FMC amounting to $82.3 million for the nine months ended May 31, 1994 not
included in the prior year period; (ii) the inclusion of the total revenue of
Summit from the date of the merger amounting to $51.6 million not included in
the prior year period; (iii) an increase in the Company's admissions, exclusive
of FMC and Summit, of 6.2%; and, (iv) an increase in outpatient revenue of
10.6%, exclusive of FMC and Summit, representing a volume increase of
approximately 4.6%. Total surgeries remained relatively flat during the period.
The increase in EBITDA of 32.6% for the nine months ended May 31, 1994
principally resulted from the increase in total revenue discussed above and cost
containment initiatives implemented by the Company during the year.
Depreciation and amortization for the nine months ended May 31, 1994
increased by $11.7 million, as compared to the same period in the prior year,
primarily due to $4.0 million of depreciation and amortization attributable to
the operations of FMC and $2.6 million of depreciation and amortization
attributable to the operations of Summit. Interest expense for the same periods
increased by $9.4 million as a result of the financing of these transactions.
For the nine months ended May 31, 1994, the Company recorded income tax
expense of $1.0 million on a pretax loss of $21.9 million primarily due to
issues previously discussed.
OTHER
In December 1993, the Company granted options to purchase 500,000 shares of
common stock to certain officers under the provisions of the Company's 1991
stock option plan. The option exercise prices range from $7.75 to $10.75. During
the three and nine months ended May 31, 1994, the Company recorded $1.0 million,
and $2.5 million, respectively, of noncash expense related to the issuance of
such options. The expense related to the issuance of such options is reflected
in the Company's Statement of Operations as special executive compensation.
Minority interest expense represents the amount paid to physicians pursuant
to the Company's joint venture arrangements. Currently, four of the Company's
hospitals are joint ventured with physicians. Minority interest expense
decreased by $1.1 million for the three months ended May 31, 1994 compared to
the prior year period primarily due to the buyout of a joint venture arrangement
at a hospital for $9.7 million in March 1994. Minority interest expense
increased $1.2 million for the nine months ended May 31, 1994 compared to the
prior year period primarily due to increased EBITDA at the joint-ventured
hospitals. The increase would have been greater but for the buyout of a joint
venture as previously discussed.
The Company's investment in the common stock of Houston Northwest Medical
Center ("HNW") was divested on February 28, 1994. Subsequent to February 28,
1994, the Company is not required to account for the investment on the equity
method. Consequently, HNW losses, recorded in previous periods, related to the
Company's investment in HNW common stock have not been recorded. The third
quarter of fiscal 1994 reflected $3.2 million of income from the Company's
investments in HNW. Such income primarily
F-12
<PAGE> 77
ORNDA HEALTHCORP AND SUBSIDIARIES
represented $3.1 million of income (of which $2.6 million is noncash) related to
the Company's investment in HNW redeemable preferred stock. The third quarter of
1993 included $691,000 of losses related to the HNW investments which was
comprised of $3.6 million of losses related to the investment in common stock
offset by $2.8 million of income related to redeemable preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1994, the Company's primary source of liquidity was $16.3
million in cash, and availability under the Credit Agreement of $138.0 million
for general corporate purposes and $90.3 million for acquisitions. At May 31,
1994, the working capital of the Company increased to $52.3 million from $26.2
million at August 31, 1993. Total assets during that period increased to $1,790
million from $1,205 million. The changes in working capital and total assets
primarily are attributable to the Company's purchase of Summit on April 19,
1994. In connection with this purchase, the Company used $256.7 million of funds
available under the Credit Agreement in addition to issuing 7.5 million shares
of the Company's common stock.
On May 5, 1994, the Company announced it had entered into a letter of
intent to acquire Fountain Valley Regional Hospital and Medical Center, a
413-licensed bed acute care hospital in Fountain Valley, California. The total
purchase price is expected to be approximately $145 million, of which
approximately $95 million will be paid in cash. The transaction, which is
expected to be completed during the fourth quarter of fiscal 1994, is subject to
execution of a definitive agreement, consent of the lenders under the Credit
Agreement and other customary closing conditions.
Management believes that the Company's cash and capital resources, and cash
flow from operations, will be sufficient to finance current and forecasted
operations. The Company is, however, actively seeking potential acquisitions in
addition to Fountain Valley and, depending upon the size and terms of any such
acquisitions, additional financing or equity capital may be required.
F-13
<PAGE> 78
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-------------------
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net patient revenue...................................................... $53,031 $58,356
Medical building rent and other revenue.................................. 4,321 2,824
------- -------
Total operating revenue........................................ 57,352 61,180
------- -------
Operating expenses
Payroll and benefits................................................... 28,413 31,103
Supplies............................................................... 8,866 9,609
Purchased services..................................................... 5,607 6,901
Other.................................................................. 3,681 3,347
Depreciation and amortization.......................................... 4,058 4,017
Interest............................................................... 2,463 2,424
Provision for bad debts................................................ 987 891
------- -------
Total operating expenses....................................... 54,075 58,292
------- -------
Net income............................................................... $ 3,277 $ 2,888
======= =======
</TABLE>
See the accompanying notes
F-14
<PAGE> 79
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1993 1994
----------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................ $ 8,917 $ 5,978
Patient accounts receivable, less estimated allowances and
uncollectibles of $20,314 and $24,128......................... 21,145 21,628
Inventory........................................................ 1,763 1,713
Prepaid expenses................................................. 1,084 1,743
Other current assets............................................. 2,187 2,033
----------- -------------
TOTAL CURRENT ASSETS..................................... 35,096 33,095
Property and equipment:
Land and improvements............................................ 3,298 3,298
Buildings and improvements....................................... 62,537 64,171
Equipment........................................................ 24,125 23,877
Equipment under capital leases................................... 11,840 12,718
Construction in progress......................................... 614 --
----------- -------------
102,414 104,064
Less accumulated depreciation and amortization................... 53,898 57,608
----------- -------------
Net property and equipment....................................... 48,516 46,456
Other assets
Other assets..................................................... 696 981
Deferred charges, net of accumulated amortization of $1,240 and
$1,372........................................................ 1,270 1,052
Excess purchase price and intangibles, net of accumulated
amortization of $512 and $674................................. 892 730
----------- -------------
TOTAL OTHER ASSETS....................................... 2,858 2,763
----------- -------------
TOTAL ASSETS............................................. $ 86,470 $ 82,314
========= ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Current portion of obligations under capital leases.............. $ 1,673 $ 1,696
Current portion of long-term debt................................ 5,121 3,190
Accounts payable................................................. 4,914 7,491
Reimbursement settlements due to third-party payors.............. 2,140 770
Accrued expenses................................................. 6,807 5,936
Income taxes payable............................................. 589 (4)
Accrued distributions to partners................................ 877 367
Deferred income taxes............................................ 736 625
----------- -------------
TOTAL CURRENT LIABILITIES................................ 22,857 20,071
Reimbursement settlements due to third-party payors.............. 1,623 1,623
Deferred income taxes............................................ 3,148 2,901
Obligations under capital leases, less current portion........... 3,522 3,536
Long-term debt, less current portion............................. 49,290 47,598
Other liabilities................................................ 485 318
----------- -------------
TOTAL LIABILITIES........................................ 80,925 76,047
----------- -------------
Partners' equity................................................. 5,545 6,267
----------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY................... $ 86,470 $ 82,314
========= ==========
</TABLE>
See the accompanying notes
F-15
<PAGE> 80
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------
1993 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................ $ 3,277 $2,888
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 4,058 4,017
Provision for bad debts................................................. 987 891
Gain on termination of lease............................................ (534) --
Changes in operating assets and liabilities:
Increase in patient accounts receivable.............................. (1,460) (1,374)
(Increase) decrease in supplies...................................... (41) 50
Increase in other current assets..................................... (835) (505)
Increase (decrease) in noncurrent other assets....................... (293) (212)
Increase in accounts payable......................................... 1,011 2,577
Decrease in accrued expenses......................................... (540) (871)
Decrease in health care insurance programs settlements............... 1,605 (1,370)
Decrease in deferred revenues........................................ (1,203) --
Decrease in income taxes payable..................................... (4) (593)
Decrease in deferred intangibles..................................... -- (358)
(Decrease) increase in other liabilities............................. (322) 5
------- ------
Net cash provided by operating expenses................................. 5,706 5,145
------- ------
INVESTING ACTIVITY:
Capital expenditures (net of disposals)................................... (598) (91)
------- ------
Net cash used in investing activity..................................... (598) (91)
------- ------
FINANCING ACTIVITIES:
Repayment of long-term debt and capital leases............................ (5,926) (5,317)
Distributions to partners................................................. (3,726) (2,676)
Withdrawals from partnership.............................................. (53) --
------- ------
Net cash used in financing activities................................... (9,705) (7,993)
------- ------
NET DECREASE IN CASH...................................................... (4,597) (2,939)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................ 14,122 8,917
------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................. $ 9,525 $5,978
======= ======
Supplemental disclosure of cash flow information
Cash paid during the period for interest.................................. $ 2,359 $2,522
</TABLE>
See the accompanying notes
F-16
<PAGE> 81
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1994
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Fountain Valley
Medical Development Company (the "Partnership") have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the fiscal year 1994
interim period presented are not necessarily indicative of the results that may
be expected for the twelve months ended October 31, 1994. The balance sheet at
October 31, 1993, was derived from the audited financial statements of the
Partnership.
2. INCOME TAXES
The Partnership is not subject to federal or state income taxes. The
results of the Partnership's operations are allocated to and included in the tax
returns of the partners. Accordingly, no income tax provision is reflected in
the accompanying financial statements. Net income for financial reporting
purposes differs from taxable income to be reported by the partners due to
differences between tax accounting methods and generally accepted accounting
principles which are used for financial reporting.
3. SUBSEQUENT EVENT
On May 5, 1994, the Partnership entered into a letter of intent to be
acquired by OrNda HealthCorp for $145 million. The transaction is subject to
execution of a definitive agreement, consent of certain of OrNda HealthCorp's
lenders and other customary closing conditions.
F-17
<PAGE> 82
[This page intentionally left blank]
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
Executive Committee and Partners
Fountain Valley Medical Development Company
and Subsidiaries
Fountain Valley, California
We have audited the accompanying consolidated balance sheets of Fountain Valley
Medical Development Company and Subsidiaries as of October 31, 1993 and 1992,
and the related consolidated statements of income, partners' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated 1993 and 1992 financial statements referred to
above present fairly, in all material respects, the financial position of
Fountain Valley Medical Development Company and Subsidiaries at October 31, 1993
and 1992, and the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
BDO SEIDMAN
January 21, 1994
F-18
<PAGE> 84
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
1993 1992
-------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................................... $ 8,917 $14,122
Restricted cash (Note 7)...................................................... -- 583
Patient accounts receivable, less estimated allowances and uncollectibles of
$20,314 and $19,828 (Note 2)................................................ 21,145 19,822
Inventory (Note 2)............................................................ 1,763 1,877
Prepaid expenses.............................................................. 1,084 1,093
Other current assets.......................................................... 2,187 1,059
-------- -------
Total current assets................................................... 35,096 38,556
-------- -------
Property and equipment (Note 3)
Land and improvements......................................................... 3,298 3,298
Buildings and improvements.................................................... 62,537 59,733
Equipment..................................................................... 24,125 26,785
Equipment under capital leases................................................ 11,840 9,200
Construction in progress...................................................... 614 528
-------- -------
102,414 99,544
Less accumulated depreciation and amortization................................ 53,898 49,849
-------- -------
Net property and equipment............................................. 48,516 49,695
-------- -------
Other assets
Other assets.................................................................. 696 1,101
Deferred charges, (net of accumulated amortization of $1,240 and $835)........ 1,270 1,221
Excess purchase price and intangibles, (net of accumulated amortization of
$512 and $189).............................................................. 892 1,215
-------- -------
Total other assets..................................................... 2,858 3,537
-------- -------
$ 86,470 $91,788
========= ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Current portion of obligations under capital leases (Note 3).................. $ 1,673 $ 1,734
Current portion of long-term debt (Note 2).................................... 5,121 6,306
Accounts payable.............................................................. 4,914 4,441
Reimbursement settlements due to third-party payors........................... 2,140 3,505
Accrued expenses.............................................................. 6,807 6,048
Income taxes payable (Note 4)................................................. 589 --
Accrued distributions to partners............................................. 877 1,844
Deferred revenue (Note 7)..................................................... -- 1,661
Deferred income taxes (Note 4)................................................ 736 --
-------- -------
Total current liabilities.............................................. 22,857 25,539
Reimbursement settlements due to third-party payors............................. 1,623 1,077
Deferred income taxes (Note 4).................................................. 3,148 3,160
Obligations under capital leases, less current portion (Note 3)................. 3,522 2,112
Long-term debt, less current portion (Note 2)................................... 49,290 54,277
Deferred revenue (Note 7)....................................................... -- 698
Other liabilities............................................................... 485 976
-------- -------
Total liabilities...................................................... 80,925 87,839
-------- -------
Contingencies (Note 6)
Partners' equity (Note 5)....................................................... 5,545 3,949
-------- -------
$ 86,470 $91,788
========= ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-19
<PAGE> 85
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net patient service revenue............................................ $112,444 $103,641
Medical building rent and other revenue (Note 7)....................... 7,915 8,734
-------- --------
Total operating revenue...................................... 120,359 112,375
-------- --------
Operating expenses
Payroll and benefits................................................. 58,270 53,807
Supplies............................................................. 18,116 16,733
Purchased services................................................... 11,740 11,062
Other................................................................ 8,351 7,560
Depreciation and amortization........................................ 8,131 7,770
Interest............................................................. 4,980 5,510
Provision for bad debts.............................................. 2,738 2,390
-------- --------
Total operating expenses..................................... 112,326 104,832
-------- --------
Income from operations................................................. 8,033 7,543
Nonoperating income (Note 7)........................................... 698 643
-------- --------
Income before provision for income taxes and cumulative effect of
change in accounting principle....................................... 8,731 8,186
Provision for income taxes (Note 4).................................... 754 113
-------- --------
Income before cumulative effect of change in accounting principle...... 7,977 8,073
Cumulative effect on prior years of change in accounting principle
(Note 4)............................................................. 1,368 --
-------- --------
Net income................................................... $ 6,609 $ 8,073
======== ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-20
<PAGE> 86
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 31,
1993 AND 1992
(NOTE 2)
--------------
(IN THOUSANDS)
<S> <C>
Partners' equity, at November 1, 1991.......................................... $1,932
Add:
Net income................................................................... 8,073
Less:
Distributions to partners.................................................... 6,056
-------
Partners' equity, at October 31, 1992.......................................... 3,949
Add:
Net income................................................................... 6,609
Less:
Distributions to partners.................................................... 4,957
Withdrawals from partnership................................................. 56
-------
Partners' equity, at October 31, 1993.......................................... $5,545
========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-21
<PAGE> 87
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (NOTE 8)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 6,609 $ 8,073
------- -------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 8,131 7,770
Provision for bad debt......................................................... 2,738 2,390
Income from investment in partnership.......................................... -- (75)
Gain on sale of equipment...................................................... (23) (2)
Gain on termination of lease................................................... (698) (643)
(Increase) decrease in assets:
Patient accounts receivable.................................................... (4,061) (498)
Inventory...................................................................... 114 (73)
Prepaid expenses............................................................... 9 (134)
Other assets................................................................... (1,176) (572)
Increase (decrease) in liabilities:
Accounts payable............................................................... 473 (2,616)
Reimbursement settlements due to third-party payors............................ (819) 3,618
Accrued expenses............................................................... 759 289
Income taxes payable........................................................... 589 (161)
Deferred income taxes.......................................................... 724 (330)
Deferred revenue............................................................... (1,661) 1,661
Other liabilities.............................................................. (491) 443
------- -------
Total adjustments.................................................................. 4,608 11,067
------- -------
Net cash provided by operating activities.......................................... 11,217 19,140
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid on purchase of investment in partnership............................... -- (166)
Proceeds from sale of equipment.................................................. 27 6
Distribution from investment in partnership...................................... -- 500
Capital expenditures............................................................. (3,112) (3,288)
Due from affiliate............................................................... -- 371
Restricted cash.................................................................. 583 (583)
------- -------
Net cash used in investing activities.............................................. (2,502) (3,160)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations............................... (1,767) (1,526)
Principal payments on long-term debt............................................. (6,450) (6,095)
Proceeds from long-term debt..................................................... 278 389
Distributions paid to partners................................................... (5,925) (5,355)
Withdrawals from partnership..................................................... (56) --
------- -------
Net cash used in financing activities.............................................. (13,920) (12,587)
------- -------
Net (decrease) increase in cash and cash equivalents............................... (5,205) 3,393
CASH AND CASH EQUIVALENTS, beginning of year....................................... 14,122 10,729
------- -------
CASH AND CASH EQUIVALENTS, end of year............................................. $ 8,917 $14,122
======== ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-22
<PAGE> 88
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include the
accounts of the parent, Fountain Valley Medical Development Company (the
"Company"), a California limited partnership and its wholly owned California
corporate subsidiaries, Fountain Valley Regional Hospital and Medical Center
(the "Hospital"), MCS Administrative Services, Inc. ("MCS"), Fountain Valley
Health Care ("FVHC"), and Fountain Valley Imaging Corporation ("FVI Corp."),
Fountain Valley Outpatient Surgery Center ("FVOSC"), a California limited
partnership, and Fountain Valley Imaging Center ("FVIC"), a California limited
partnership. FVHC was formed in January 1992 and FVI Corp. was formed in June
1993. FVOSC was an operating division of the Company and on January 1, 1992
became a separate legal entity and is now included as a subsidiary. The Company
owns a 99% limited partnership interest in FVOSC and FVHC owns the sole 1%
general partnership interest in FVOSC. The Company was a 50% partner in FVIC and
accounted for this joint venture under the equity method of accounting through
March 31, 1992. Effective April 1, 1992, the Company purchased the remaining 50%
ownership in FVIC and includes FVIC in consolidation. The Company owns a 99%
limited partnership interest in FVIC and FVI Corp. owns the sole 1% general
partnership interest in FVIC. All significant intercompany transactions and
stockholdings have been eliminated.
Third-Party Reimbursement Programs. Approximately 47% and 44% of the gross
revenue of the Hospital is derived from patient charges under the Medicare and
Medi-Cal programs for 1993 and 1992. The provisions of these agreements
stipulate that services are to be reimbursed at prospective rates, daily rates
or costs rather than regular rates. The estimated rates or costs are paid to the
Hospital at a tentative rate, and final reimbursement for these services is
determined after submission of annual cost reports by the Hospital and audits by
the program intermediaries. Provision for estimated final reimbursement has been
provided for in the financial statements. The Hospital also provides, as an
adjustment to its provision for contractual allowances, for the results of prior
year audits by agencies administering the programs and agreed upon by the
Hospital in the year of the audit. Cost reports have been filed through the 1992
fiscal year and audited through the 1991 fiscal year.
Allowances and Uncollectibles. The Hospital records its accounts
receivable at their gross amount with an appropriate allowance until collection.
Inventory. Inventory is valued at the lower of cost (first-in, first-out
basis) or market.
Property and Equipment. Property and equipment are stated at cost and are
depreciated using accelerated and straight-line methods over the estimated
useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
CLASSIFICATION USEFUL LIVES
----------------------------------------------------------------------- -------------
<S> <C>
Land improvements...................................................... 5 to 15 years
Buildings and improvements............................................. 3 to 30 years
Equipment.............................................................. 3 to 15 years
Equipment under capital leases......................................... 5 to 10 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Expenditures which
materially increase the value of properties or extend useful lives are
capitalized.
Deferred Charges. Deferred charges consist primarily of deferred loan fees
which are amortized over the life of the related loans. Also included are
capitalized costs incurred for the start-up of additional operating units. These
costs are amortized over five years.
Excess Purchase Price and Intangibles. The excess purchase price of FVIC
which is amortized over two years for medical records portion and forty years
for excess purchase price over book value relates to the purchase of the
remaining 50% ownership purchased in 1992.
F-23
<PAGE> 89
Net Patient Service Revenue. Net patient service revenue is reported at
the estimated net realizable amounts from patients, third-party payors, and
others for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Retroactive adjustments are
accrued on an estimated basis in the period the related services are rendered
and adjusted in future periods as final settlements are determined.
Income Taxes. The Company and its subsidiaries file separate federal and
California income tax returns. Investment and job tax credits are recorded by
the subsidiaries under the flow-through method of accounting as a reduction of
the provision for income taxes when the credits are realized.
Related party receivables/payables relating to rent, which eliminate on a
consolidated basis, are accounted for on a cash basis for income tax purposes.
Employee Savings Plan. Under the Employee Savings Plan (the "Plan"),
eligible participating employees of the Company may elect to contribute up to
10% of their prior calendar year compensation to a trust for investment in
marketable securities. The Company contributes amounts equal to 50% of up to 6%
of their respective participants' contributions, which are also invested in the
trust fund.
The contributions are fully vested to the participants after seven years of
credited service. The Company's contribution to the Plan was $576,000 and
$445,000 for the years ended October 31, 1993 and 1992.
Self-Insurance. The Company provides certain benefits to its employees and
others under health and other insurance programs and is self-insured for certain
benefits under such programs. In the opinion of management, adequate provision
has been made in the financial statements for losses relating to all known and
estimated claims as of October 31, 1993 and 1992. MCS Administrative Services,
Inc. is the administrator of the program.
Reclassifications. Certain amounts in 1992 have been reclassified to
conform to current year presentation. The reclassifications have no effect upon
net income as previously reported in 1992.
Cash and Cash Equivalents. The Company invests excess cash in treasury
bills, short term commercial paper and a money market account, all of which
mature within 90 days. These are stated at cost, which approximates market.
F-24
<PAGE> 90
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
The Company owns and operates a 289 bed for profit acute care hospital,
medical office buildings, an outpatient surgery center, a transitional care unit
and a geopsychiatric unit in the Southern California area. Revenues of the
Company are derived from hospital operations and suite rentals within the
medical office buildings.
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
First trust deed collateralized by original hospital building, land,
equipment, inventory and accounts receivable and assignment of hospital
stock; interest payable quarterly based on the "alternate base rate III,"
as defined within the Credit Agreement; the rate at October 31, 1993 was
6%.
A) Term Loan: Principal balance due in monthly installments of $291,667 for
year ending October 31, 1994; $416,667 for year ending October 31, 1995;
$633,333 for years ending October 31, 1996 and 1997; $650,000 for nine
months ending July 31, 1998 and last installment due July 31, 1998.
Interest at Alternate Base Rate III plus 1% per annum.................... $33,000 $36,500
B) Revolving Facility: Principal of up to $15,000,000 due November 1, 1995.
Interest at Alternate Base Rate III plus .75% per annum.................. 10,000 10,000
Note payable, payable in quarterly installments of $166,667 plus interest
at 6% due January 1, 1995................................................ 833 1,500
Notes payable, collateralized by equipment, payable $87,000 monthly,
including interest of approximately 10% due at various dates through
1997..................................................................... 2,302 2,955
First trust deeds collateralized by medical office buildings, payable
$91,000 monthly, including interest at 12.125%, due November 1, 1994..... 8,276 9,531
Note payable, collateralized by equipment, payable $16,000 monthly,
principal only, due in 1993.............................................. -- 97
------- -------
54,411 60,583
Less current portion....................................................... 5,121 6,306
------- -------
$49,290 $54,277
======= =======
</TABLE>
On August 20, 1990, the Company obtained a $50,000,000 senior secured
revolving credit facility (the "Revolving Facility"), of which $40,000,000
converted to a term loan (the "Term Loan") upon the execution of a Second
Amendment to the Credit Agreement dated October 31, 1991, with monthly principal
payments commencing November 1, 1991 through July 31, 1998. The Revolving
Commitment increased from $10,000,000 to $15,000,000 and is due November 1,
1995. The Company must pay a commitment fee on any unused portion of the
revolving commitment at a rate of 1/2 of 1% per annum.
As part of the Credit Agreement, the Company is required to maintain
certain financial and other covenants including a restriction on the amount of
distributions made to the partners. As of October 31, 1993 and for the year then
ended, the Company was not in compliance with two of these covenants.
The Company received a bank waiver for the two covenants they were not in
compliance with at October 31, 1993 and for the year then ended.
F-25
<PAGE> 91
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending October 31, (IN THOUSANDS)
<S> <C>
1994........................................................ $ 5,121
1995........................................................ 14,094
1996........................................................ 18,083
1997........................................................ 7,802
1998........................................................ 9,311
-----------
Total........................................ $ 54,411
===========
</TABLE>
3. CAPITAL LEASES
The Company is currently leasing various pieces of equipment under capital
leases due on various dates through 1998. Approximately $11,840,000 and
$9,200,000 of equipment has been capitalized, and $6,980,000 and $5,690,000 of
amortization has been taken as of October 31, 1993 and 1992.
The following is a schedule by years of future minimum lease payments under
the capital leases, together with the present value of the net minimum lease
payments as of October 31, 1993:
<TABLE>
<CAPTION>
Year ending October 31, (IN THOUSANDS)
<S> <C>
1994........................................................ $2,043
1995........................................................ 1,468
1996........................................................ 954
1997........................................................ 765
1998........................................................ 693
Thereafter.................................................. 30
-------
Total net minimum lease payments............................ 5,953
Less amount representing interest........................... 758
-------
Present value of net minimum lease payments................. 5,195
Less current portion of obligations under capital leases.... 1,673
-------
Obligations under capital leases............................ $3,522
===========
</TABLE>
4. PROVISION FOR INCOME TAXES
Effective November 1, 1992, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." As permitted under the new rule, prior years' financial statements have
not been restated. The adoption of the new standard had no effect on the tax
provision for 1993. (The cumulative effect of this adoption was a $1,368,000
decrease in net income.)
F-26
<PAGE> 92
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1992
------ -----
(IN THOUSANDS)
<S> <C> <C>
Current
Federal............................................. $1,059 $ 263
State............................................... 339 180
------ -----
1,398 443
------ -----
Deferred
Federal............................................. (543) (280)
State............................................... (101) (50)
------ -----
(644) (330)
------ -----
$ 754 $ 113
====== =====
</TABLE>
The variation in the customary relationship between income tax expense and
pretax accounting income arises because the Company consists of partnerships and
corporations and therefore income taxes are paid by the individual partners and
corporations.
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at October 31, 1993 are as follows:
<TABLE>
<S> <C>
ASSETS
Provision for doubtful accounts................................ $ 476
Accrued rent................................................... 169
------
Gross deferred tax assets........................................ 645
------
LIABILITIES
Section 481.................................................... 3,753
Medicare settlement............................................ 443
Depreciation................................................... 333
------
Gross deferred tax liabilities................................... 4,529
------
$3,884
======
</TABLE>
5. PARTNERSHIP UNITS HELD FOR RESALE AND NOTES RECEIVABLE FROM PARTNERS FOR SALE
OF UNITS
In February 1985, the Partnership purchased certain partnership units from
existing partners. The Partnership initially paid $4,431,000 in February 1985
for approximately 5% of the units then outstanding. Through October 31, 1993,
the Company purchased a total of approximately $6,131,000 partnership units and
resold a total of approximately $3,545,000 partnership units. All resales have
been at the same per unit price as the Partnership paid in February 1985. The
majority of the units were sold in exchange for notes receivable from the
partners. The notes receivable from partners were approximately $2,162,000 and
$2,361,000 as of October 31, 1993 and 1992 and are recorded as a reduction of
equity.
6. CONTINGENCIES
The Company and Hospital maintain a $500,000 per occurrence medical
malpractice insurance policy. Occurrence basis insurance covers claims that
occur during the policy term regardless of when the claim was reported.
F-27
<PAGE> 93
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, the Company and Hospital have claims-made medical malpractice
insurance policies which cover the Company and Hospital for claims from $500,000
to $20,000,000 with 7-year prepaid discovery. Claims-made insurance covers only
those claims covered by the policy and reported to the insurance carrier during
the policy term.
As of October 31, 1993, the Hospital has no malpractice loss accruals. The
Hospital and the Company have a deductible reserve exposure of up to $247,000
for deductible liability on claims made, but not settled as of October 31, 1993.
During a prior year, the Company was joined by 118 other hospitals, as well
as another organization, in an action which was originally against four workers'
compensation insurance carriers and three other defendants alleging conspiracy
to suppress prices paid by workers' compensation insurance companies.
The action and a subsequent counterclaim between the defendants were
settled in December 1993. The settlement resulted in no liability to the
Company.
7. LEASE REVENUE
The Company's principle leasing activities consist of renting suites in
four medical office buildings. Lease terms for the medical office buildings
range from 1 to 5 years. Rental income for the years ended October 31, 1993 and
1992 was approximately $5,144,000 and $6,048,000. This rental income includes
the rent from the regional care center ("RCC") whose lease was terminated
effective June 1, 1992.
The following is a schedule of future minimum lease revenue for the four
medical office building leases:
<TABLE>
<CAPTION>
Year ending October 31, (IN THOUSANDS)
<S> <C>
1994........................................................ $ 3,953
1995........................................................ 3,287
1996........................................................ 2,389
1997........................................................ 1,554
1998........................................................ 621
-----------
Total............................................. $ 11,804
===========
</TABLE>
The Company leased to the RCC under a long-term lease agreement which the
tenant terminated effective June 1, 1992. An agreement was arrived at in which
the tenant agreed to 1) pay thirteen months additional rent and expenses from
the date of termination, 2) leave all the equipment valued at $206,000 to the
Company, and 3) leave all the leasehold improvements valued at $1,135,000 to the
Company. The Company agreed to return to the lessee any rents paid on the RCC
during the thirteen month period if a nonrelated party rented the facility, as
adjusted for various expenses to the Company. Additionally, a restricted cash
account of approximately $583,000 was established with a portion of the cash
paid by the lessee in the settlement in the event the facility was leased during
the thirteen month period. As the RCC was not leased during the thirteen month
period, the restricted cash became unrestricted during the year ended October
31, 1993. The Company recorded deferred revenue and recognized the rent and
value of the leasehold improvements ratably on a monthly basis over the thirteen
month period which expired during the year ended October 31, 1993. Rent is
included in medical building rent and other revenue. The leasehold improvements
and equipment value is included in nonoperating income.
F-28
<PAGE> 94
FOUNTAIN VALLEY MEDICAL DEVELOPMENT COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------
1993 1992
------ ------
(IN THOUSANDS)
<S> <C> <C>
Cash paid during the period for:
Interest (net of interest capitalized of $25 in 1993 and $17 in
1992)......................................................... $5,001 $5,838
Income taxes..................................................... $ 743 $ 480
</TABLE>
Schedule of non-cash investing and financing activities (in thousands):
Capital lease obligations of approximately $2,178 and $1,522 were incurred
when the Company entered into leases for new equipment in 1993 and 1992.
Lease settlement of $1,135,000 in leasehold improvements and $206,000 in
equipment.
Fifty percent interest in FVIC purchased included a note payable of
$1,834,000.
F-29
<PAGE> 95
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Investment Considerations.............. 10
Use of Proceeds........................ 14
Capitalization......................... 16
Selected Historical Financial Data..... 17
Selected Operating Statistics.......... 21
Business............................... 22
Properties............................. 27
Management............................. 29
Description of the Notes............... 33
Underwriting........................... 50
Legal Matters.......................... 50
Experts................................ 51
Available Information.................. 51
Incorporation of Certain Documents by
Reference............................ 51
Index to Financial Statements.......... 53
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$125,000,000
[LOGO]
ORNDA
HEALTHCORP
% SENIOR SUBORDINATED
NOTES DUE 2004
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CITICORP SECURITIES, INC.
, 1994
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 96
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
--------------------------------------
A map displaying the approximate geographic location of the Company's
hospitals is displayed on page 2 of the prospectus. This map appears in the
paper format of the document and not in this electronic filing.
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the SEC registration fee and the NASD filing fee. The Company will bear
all of such expenses.
<TABLE>
<S> <C>
SEC registration fee............................................................. $ 51,725
NASD filing fee.................................................................. 13,000
Rating Agency Fees............................................................... 125,000
Blue sky fees and expenses....................................................... 20,000
Printing and engraving expenses.................................................. 350,000
Legal fees and expenses.......................................................... 250,000
Accounting fees and expenses..................................................... 75,000
Trustee fees..................................................................... 30,000
Miscellaneous.................................................................... 85,275
----------
Total.................................................................. $1,000,000
=========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("Delaware Law")
provides generally and in pertinent part that a Delaware corporation may
indemnify its directors and officers against expenses, judgments, fines, and
settlements actually and reasonably incurred by them in connection with any
civil suit or action, except actions by or in the right of the corporation, or
any administrative or investigative proceeding if, in connection with the
matters in issue, they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
in connection with any criminal suit or proceeding, if in connection with the
matters in issue, they had no reasonable cause to believe their conduct was
unlawful. Section 145 further provides that, in connection with the defense or
settlement of any action by or in the right of the corporation, a Delaware
corporation may indemnify its directors and officers against expenses actually
and reasonably incurred by them if, in connection with the matters in issue,
they acted in good faith, in a manner they reasonably believed to be in, or not
opposed to, the best interest of the corporation, and without negligence or
misconduct in the performance of their duties to the corporation. Section 145
further permits a Delaware corporation to grant its directors and officers
additional rights of indemnification through by-law provisions and otherwise.
Article Seven of the Restated Certificate of Incorporation of the Company
and Article VI of the By-Laws of the Company provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by Delaware
Law. The Company has entered into indemnification agreements with each of its
directors and executive officers. Such indemnification agreements are intended
to provide a contractual right to indemnification, to the maximum extent
permitted by law, for expenses (including attorneys' fees) judgments, penalties,
fines, and amounts paid in settlement actually and reasonably incurred by the
person to be indemnified in connection with any proceeding (including, to the
extent permitted by applicable law, any derivative action) to which they are, or
are threatened to be made, a party by reason of their status in such positions.
Such indemnification agreements do not change the basic legal standards for
indemnification set forth under Delaware Law or the Restated Certificate of
Incorporation of the Company. Such agreements are intended to be in furtherance,
and not in limitation of, the general right to indemnification provided in the
Company's Restated Certificate of Incorporation. In addition, pursuant to an
Indemnification Trust Agreement, the Company has deposited with Texas Commerce
Bank National Association, as trustee under such agreement, $1,450,000 in cash
and has agreed to deposit $1,750,000 within two business days following a
II-1
<PAGE> 98
change in control of the Company in support of the Company's obligations under
the foregoing indemnification agreements.
Section 102(b)(7) of the Delaware law provides that a certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware Law (relating
to liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Article Eight of the Company's Restated Certificate
of Incorporation contains such a provision.
Summit's Articles of Incorporation, as amended, state that Summit is
authorized to provide indemnification of agents (as defined in Section 317 of
the California General Corporation Law) for a breach of duty to Summit and its
shareholders through by-law provisions or through agreements with agents, or
otherwise, in excess of the indemnification otherwise permitted by Section 317
of the California General Corporation Law, subject to limits on such excess
indemnification set forth in Section 204 of the California General Corporation
Law. The general effect of Section 317 of the California General Corporation Law
and Summit's By-laws, as amended, is to provide the indemnification of its
agents to the fullest extent permissible under California law.
The rights to indemnification provided by Section 317 of the California
General Corporation Law and by the By-Laws are not exclusive of any other right
which any person may have or acquire under a statute, by-law, agreement, vote of
shareholders or of disinterested directors or otherwise.
The officers and directors of Summit are parties to the indemnification
agreements referred to above. Such indemnification agreements do not change the
basic legal standards for indemnification set forth under California Law or
Summit's Articles of Incorporation. Such agreements are intended to be in
furtherance, and not in limitation of, the general right to indemnification
provided in Summit's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling either of the
Co-Obligors pursuant to the foregoing provisions, the Co-Obligors have been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
The form of Purchase Agreement, filed as Exhibit 1.1 to this Registration
Statement, obligates the underwriters to indemnify the Co-Obligors, their
officers who sign the Registration Statement and directors, and persons who
control either of the Co-Obligors under certain circumstances.
The foregoing summaries are necessarily subject to the complete text of the
statutes, the Company's Restated Certificate of Incorporation, the Company's
By-Laws, Summit's Articles of Incorporation, Summit's By-Laws and the agreements
referred to above and are qualified in their entirety by reference thereto.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Purchase Agreement.*
2.1 -- Stock Purchase Agreement, dated as of July 20, 1994, among Summit, the Company and
FVMDC. The Company will furnish supplementally a copy of all omitted schedules and
exhibits to Exhibit 2.1 upon request of the Securities and Exchange Commission.**
2.2 -- Agreement of Sale and Purchase, dated as of July 21, 1994, by and among FVMDC, the
Company and Healthcare Realty Trust Incorporated. The Company will furnish
supplementally a copy of all omitted schedules and exhibits to Exhibit 2.2 upon
request of the Securities and Exchange Commission.**
</TABLE>
II-2
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<S> <C> <C>
4.1 -- Indenture relating to the 12 1/4% Notes, dated as of May 15, 1992, by and among
OrNda HealthCorp and U.S. Trust Company of Texas, N.A. (the "OrNda Trustee")(1)
4.2 -- First Supplemental Indenture relating to the 12 1/4% Notes, dated as of April 19,
1994, by and among OrNda HealthCorp, Summit Health Ltd. and the OrNda Trustee.**
4.3 -- First Supplemental Indenture relating to the 10 1/4% Notes, dated as of April 19,
1994, by and among OrNda HealthCorp, AHM Acquisition Co., Inc. and the AHM
Trustee.**
4.4 -- Revised Form of Indenture relating to the Notes between OrNda HealthCorp, Summit
Health Ltd. and NationsBank of Tennessee, N.A., as Trustee.*
4.5 -- Credit, Security, Guaranty and Pledge Agreement, dated as of April 19, 1994, among
the Company, Summit, AHM Acquisition Co., The Bank of Nova Scotia and Citicorp USA
Inc., as Managing Agents, and the Lenders named therein.(2)
5 -- Opinion of Ronald P. Soltman, Esq. (including the consent of such counsel) regarding
legality of securities being offered.*
12 -- Statement re Computation of Ratio of Earnings to Fixed Charges.**
23.1 -- Consents of Independent Auditors.*
23.2 -- Consent of Ronald P. Soltman, Esq. (included as part of opinion filed pursuant to
Exhibit 5 hereof).*
24.1 -- Original Powers of Attorney of certain directors and officers of the Company
authorizing Keith B. Pitts and Ronald P. Soltman to sign the Registration Statement
and amendments thereto on their behalf. (See Signature Page)**
24.2 -- Certified resolutions of the Company's Board of Directors relating to the
appointment of Ronald P. Soltman and Keith B. Pitts as attorneys-in-fact.**
24.3 -- Certified resolutions of Summit's Board of Directors relating to the appointment of
Ronald P. Soltman and Keith B. Pitts as attorneys-in-fact.**
25 -- Statement of Eligibility and Qualification of Trustee on Form T-1 of NationsBank of
Tennessee, N.A.**
</TABLE>
- ---------------
* filed herewith
** previously filed
(1) Incorporated by reference to exhibits filed with the Company's Report on
Form 8-K dated as of May 28, 1992.
(2) Incorporated by reference to exhibits filed with the Company's Report on
Form 8-K dated as of April 19, 1992.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, the DGCL, the Amended and
Restated Certificate of Incorporation and the Bylaws, or otherwise, the
Registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in such Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court
II-3
<PAGE> 100
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in such Securities Act and will be governed
by the final adjudication of such issue.
(c) The Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of Prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nashville, State of
Tennessee, on the 16th day of August, 1994.
ORNDA HEALTHCORP
By: /s/ CHARLES N. MARTIN, JR.*
------------------------------------
Charles N. Martin, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- ----------------
<C> <S> <C>
/s/ CHARLES N. MARTIN, JR.* Chairman of the Board and August 16, 1994
- ----------------------------------------------- Chief Executive Officer
Charles N. Martin, Jr. (Principal Executive
Officer)
/s/ DONALD J. AMARAL* President, Chief Operating August 16, 1994
- ----------------------------------------------- Officer and Director
Donald J. Amaral
/s/ KEITH B. PITTS* Executive Vice President and August 16, 1994
- ----------------------------------------------- Chief Financial Officer
Keith B. Pitts (Principal Financial
Officer)
/s/ PHILLIP W. ROE Controller August 16, 1994
- -----------------------------------------------
Phillip W. Roe
/s/ YVONNE V. CLIFF* Director August 16, 1994
- -----------------------------------------------
Yvonne V. Cliff
/s/ RICHARD A. GILLELAND* Director August 16, 1994
- -----------------------------------------------
Richard A. Gilleland
*By: /s/ RONALD P. SOLTMAN, ESQ.
- -----------------------------------------------
Ronald P. Soltman, Esq.
Attorney-in-fact
</TABLE>
II-5
<PAGE> 102
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- ----------------
<C> <S> <C>
/s/ LEONARD GREEN* Director August 16, 1994
- -----------------------------------------------
Leonard Green
/s/ PETER A. JOSEPH* Director August 16, 1994
- -----------------------------------------------
Peter A. Joseph
/s/ PAUL S. LEVY* Director August 16, 1994
- -----------------------------------------------
Paul S. Levy
/s/ ANGUS C. LITTLEJOHN, JR.* Director August 16, 1994
- -----------------------------------------------
Angus C. Littlejohn, Jr.
/s/ JOHN F. NICKOLL* Director August 16, 1994
- -----------------------------------------------
John F. Nickoll
/s/ JOHN J. O'SHAUGHNESSY* Director August 16, 1994
- -----------------------------------------------
John J. O'Shaughnessy
Director
- -----------------------------------------------
M. Lee Pearce, M.D.
*By: /s/ RONALD P. SOLTMAN, ESQ.
- -----------------------------------------------
Ronald P. Soltman, Esq.
Attorney-in-fact
</TABLE>
II-6
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nashville, State of
Tennessee, on the 16th day of August, 1994.
SUMMIT HEALTH LTD.
By: /s/ CHARLES N. MARTIN, JR.*
------------------------------------
Charles N. Martin, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- ----------------
<C> <S> <C>
/s/ CHARLES N. MARTIN, JR.* Chairman of the Board and August 16, 1994
- ----------------------------------------------- Chief Executive Officer
Charles N. Martin, Jr. (Principal Executive
Officer)
/s/ DONALD J. AMARAL* President, Chief Operating August 16, 1994
- ----------------------------------------------- Officer and Director
Donald J. Amaral
/s/ Keith B. Pitts* Executive Vice President and August 16, 1994
- ----------------------------------------------- Chief Financial Officer
Keith B. Pitts and Director (Principal
Financial Officer)
/s/ PHILLIP W. ROE Controller August 16, 1994
- -----------------------------------------------
Phillip W. Roe
*By: /s/ RONALD P. SOLTMAN, ESQ.
- -----------------------------------------------
Ronald P. Soltman, Esq.
Attorney-in-fact
</TABLE>
II-7
<PAGE> 104
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ------ ---------------------------------------------------------------------- -------------
<C> <C> <S> <C>
1.1 -- Form of Purchase Agreement.*
2.1 -- Stock Purchase Agreement, dated as of July 20, 1994, among Summit, the
Company and FVMDC. The Company will furnish supplementally a copy of
all omitted schedules and exhibits to Exhibit 2.1 upon request of the
Securities and Exchange Commission.**
2.2 -- Agreement of Sale and Purchase, dated as of July 21, 1994, by and
among FVMDC, the Company and Healthcare Realty Trust Incorporated. The
Company will furnish supplementally a copy of all omitted schedules
and exhibits to Exhibit 2.2 upon request of the Securities and
Exchange Commission.**
4.1 -- Indenture relating to the 12 1/4% Notes, dated as of May 15, 1992, by
and among OrNda HealthCorp and U.S. Trust Company of Texas, N.A. (the
"OrNda Trustee")(1)
4.2 -- First Supplemental Indenture relating to the 12 1/4% Notes, dated as
of April 19, 1994, by and among OrNda HealthCorp, Summit Health Ltd.
and the OrNda Trustee.**
4.3 -- First Supplemental Indenture relating to the 10 1/4% Notes, dated as
of April 19, 1994, by and among OrNda HealthCorp, AHM Acquisition Co.,
Inc. and the AHM Trustee.**
4.4 -- Revised Form of Indenture relating to the Notes between OrNda
HealthCorp, Summit Health Ltd. and NationsBank of Tennessee, N.A., as
Trustee.*
4.5 -- Credit, Security, Guaranty and Pledge Agreement, dated as of April 19,
1994, among the Company, Summit, AHM Acquisition Co., The Bank of Nova
Scotia and Citicorp USA Inc., as Managing Agents, and the Lenders
named therein.(2)
5 -- Opinion of Ronald P. Soltman, Esq. (including the consent of such
counsel) regarding legality of securities being offered.*
12 -- Statement re Computation of Ratio of Earnings to Fixed Charges.**
23.1 -- Consents of Independent Auditors.*
23.2 -- Consent of Ronald P. Soltman, Esq. (included as part of opinion filed
pursuant to Exhibit 5 hereof).*
24.1 -- Original Powers of Attorney of certain directors and officers of the
Company authorizing Keith B. Pitts and Ronald P. Soltman to sign the
Registration Statement and amendments thereto on their behalf. (See
Signature Page)**
24.2 -- Certified resolutions of the Company's Board of Directors relating to
the appointment of Ronald P. Soltman and Keith B. Pitts as
attorneys-in-fact.**
24.3 -- Certified resolutions of Summit's Board of Directors relating to the
appointment of Ronald P. Soltman and Keith B. Pitts as
attorneys-in-fact.**
25 -- Statement of Eligibility and Qualification of Trustee on Form T-1 of
NationsBank of Tennessee, N.A.**
</TABLE>
- ---------------
* filed herewith
** previously filed
(1) Incorporated by reference to exhibits filed with the Registrant's Report on
Form 8-K dated as of May 28, 1992.
(2) Incorporated by reference to exhibits filed with the Company's Report on
Form 8-K dated as of April 19, 1992.
<PAGE> 1
EXHIBIT 1.1
===============================================================================
Draft of 8/15/94
ORNDA HEALTHCORP
(a Delaware corporation)
SUMMIT HEALTH LTD.
(a California corporation)
$125,000,000
____% Senior Subordinated Notes due 2004
PURCHASE AGREEMENT
Dated: August ___, 1994
===============================================================================
<PAGE> 2
ORNDA HEALTHCORP
(a Delaware corporation)
SUMMIT HEALTH LTD.
(a California corporation)
$125,000,000
___% Senior Subordinated Notes due 2004
PURCHASE AGREEMENT
August , 1994
---
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SALOMON BROTHERS INC
CITICORP SECURITIES, INC.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
OrNda HealthCorp, a Delaware corporation (the "Company"), and
Summit Health Ltd., a California corporation and a wholly owned subsidiary of
the Company ("Summit" and, together with the Company, the "Issuers"), as joint
and several obligors, propose to issue and sell to you, as the several
underwriters (the "Underwriters"), $125,000,000 aggregate principal amount of
their _____% Senior Subordinated Notes due 2004 (the "Securities"). Such
Securities are to be sold to each Underwriter, acting severally and not
jointly, in the respective principal amounts set forth in Schedule A opposite
the name of such Underwriter. The Securities are to be issued pursuant to an
indenture to be dated as of __________, 1994 (the "Indenture") among the
Company, Summit and NationsBank of Tennessee, N.A. (the "Trustee"). The
Securities and the Indenture are more fully described in the Prospectus
referred to below.
<PAGE> 3
You have advised us that you, acting severally and not
jointly, desire to purchase the Securities and that you shall execute this
Agreement and the Price Determination Agreement referred to below.
The principal amount and certain terms of the Securities, the
purchase price of the Securities to be paid by the Underwriters, and the
underwriting commission to be paid to the Underwriters by the Issuers shall be
agreed upon by the Issuers and the Underwriters, and such agreement shall be
set forth in a separate written instrument substantially in the form of Exhibit
A hereto (the "Price Determination Agreement"). The Price Determination
Agreement may take the form of an exchange of any standard form of written
telecommunication between the Issuers and the Underwriters and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering
of the Securities will be governed by this Agreement, as supplemented by the
Price Determination Agreement. From and after the date of the execution and
delivery of the Price Determination Agreement, this Agreement shall be deemed
to incorporate, and all references herein to "this Agreement" or "herein" shall
be deemed to include, the Price Determination Agreement. This Agreement, the
Securities and the Indenture are hereinafter referred to collectively as the
"Operative Documents."
The Issuers have prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(File No. 33-54651) covering the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus, or prospectuses, and either (A) have prepared and
propose to file, prior to the effective date of such registration statement, an
amendment to such registration statement, including a final prospectus, or (B)
if the Issuers have elected to rely upon Rule 430A ("Rule 430A") of the rules
and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), will prepare and file a prospectus, in accordance with the
provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act
Regulations, promptly after execution and delivery of the Price Determination
Agreement. The information, if any, included in such prospectus that was
omitted from the prospectus included in such registration statement at the time
it becomes effective but that is deemed, pursuant to Rule 430A(b), to be part
of such registration statement at the time it becomes effective is referred to
herein as the "Rule 430A Information." Each prospectus used before the time
such registration statement becomes effective, and any prospectus that omits
the Rule 430A Information that is used after such effectiveness and prior to
the execution and delivery of the Price
2
<PAGE> 4
Determination Agreement, is herein called a "preliminary prospectus." Any
reference to any preliminary prospectus shall be deemed to refer to and include
the documents incorporated by reference therein as of the date of such
preliminary prospectus. Such registration statement, including the exhibits
thereto and all documents incorporated or deemed to be incorporated by
reference therein, as amended at the time it becomes effective and including,
if applicable, the Rule 430A Information, is herein called the "Registration
Statement," and the prospectus included in the Registration Statement at the
time it becomes effective is herein called the "Prospectus," except that if the
final prospectus first furnished to the Underwriters after the execution of the
Price Determination Agreement for use in connection with the offering of the
Securities differs from the prospectus included in the Registration Statement
at the time it becomes effective (whether or not such prospectus is required to
be filed pursuant to Rule 424(b)), the term "Prospectus" shall refer to the
final prospectus first furnished to the Underwriters for such use.
The Issuers understand that the Underwriters propose to make a
public offering of the Securities as soon as you deem advisable after the
Registration Statement becomes effective, the Price Determination Agreement has
been executed and delivered and the Indenture has been qualified under the
Trust Indenture Act of 1939, as amended (the "1939 Act"), and the rules and
regulations of the Commission thereunder (collectively, the "1939 Act
Regulations").
Section 1. Representations and Warranties.
(a) The Company and Summit jointly and severally
represent and warrant to and agree with each of the Underwriters that:
(i) The Issuers meet the requirements for use of Form
S-3 under the 1933 Act. When the Registration Statement shall become
effective, if the Issuers have elected to rely upon Rule 430A, on the date
of the Price Determination Agreement, on the effective or issue date of
each amendment or supplement to the Registration Statement or the
Prospectus and at the Closing Time referred to below the Registration
Statement and any amendments and supplements thereto will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations. When the Registration Statement shall become effective, if
the Issuers have elected to rely upon Rule 430A, on the date of the Price
Determination Agreement and on the effective or issue date of each
3
<PAGE> 5
amendment or supplement to the Registration Statement or the Prospectus,
neither the Registration Statement nor any amendment or supplement thereto
will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Neither the Prospectus nor any
amendment or supplement thereto, on the issue date thereof, on the date of
the Price Determination Agreement and at the Closing Time, will include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Notwithstanding
the foregoing, this representation and warranty does not apply to
statements or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information furnished in
writing to the Issuers by or on behalf of any Underwriters expressly for
use in the Registration Statement or the Prospectus or to the Statement of
Eligibility of the Trustee on Form T-1 filed with the Commission as part
of the Registration Statement.
(ii) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when
so filed in all material respects with the 1933 Act.
(iii) Ernst & Young, which is reporting upon the audited
financial statements and schedules of the Company and Summit included or
incorporated by reference in the Registration Statement, and BDO Seidman,
which is reporting upon the audited financial statements and schedules of
Fountain Valley (as hereinafter defined), are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iv) This Agreement has been, and the Price Determination
Agreement on the date thereof will be, duly authorized, executed and
delivered by the Issuers.
(v) The consolidated financial statements of the Company
included or incorporated by reference in the Registration Statement and
the Prospectus, together with the related schedules and notes, present
fairly the consolidated financial position of the Company and its
Subsidiaries (as hereinafter defined) as of the dates indicated, and the
consolidated statements of operations, shareholders' equity and cash flows
of the Company and its Subsidiaries, for the periods
4
<PAGE> 6
specified. Except as otherwise stated in the Registration Statement, such
financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The financial statement schedules, if
any, included in the Registration Statement present fairly in accordance
with GAAP the information required to be stated therein. The selected
historical financial data included in the Prospectus present fairly in
accordance with GAAP the information shown therein and have been compiled
on a basis consistent with that of the audited consolidated financial
statements included or incorporated by reference in the Registration
Statement. The other financial and statistical information and data set
forth in the Registration Statement is, in all material respects,
accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company and Summit.
The pro forma financial statements and other pro forma financial
information included in the Prospectus present fairly the information
shown therein in accordance with the adjustments and assumptions described
therein, have been prepared in all material respects in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma basis described
therein and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred
to therein.
(vi) The consolidated financial statements of Summit
incorporated by reference in the Registration Statement and the
Prospectus, together with the related schedules and notes, present fairly
the consolidated financial position of Summit and its subsidiaries as of
the dates indicated, and the consolidated statements of income,
shareholders' equity and cash flows of Summit and its subsidiaries, for
the periods specified. Except as otherwise stated in the Registration
Statement, such financial statements have been prepared in conformity with
GAAP applied on a consistent basis throughout the periods involved.
(vii) The consolidated financial statements of Fountain Valley
Medical Development Company ("Fountain Valley") included in the
Registration Statement present fairly the consolidated financial position
of Fountain Valley as of the dates indicated and the consolidated
statements of income, partners' equity and cash flows of Fountain Valley
for the periods specified. Except
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as otherwise stated in the Registration Statement, such financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved.
(viii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this Agreement and the
Price Determination Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or conduct of business,
except where the failure to be so qualified or be in good standing would
not have a material adverse effect on the Company and its Subsidiaries,
considered as one enterprise.
(ix) Each corporation greater than 50% of whose securities
having ordinary voting power are directly or indirectly owned by the
Company, and each partnership or joint venture (a "partnership") greater
than 50% of the equity ownership of which is directly or indirectly owned
by the Company, or of which the Company directly or indirectly controls
the controlling general partner, whether in the form of a general,
special, or limited partnership (each such corporation or other entity, a
"Subsidiary"), other than Inactive Subsidiaries (as defined below), has
been duly incorporated (in the case of corporate Subsidiaries) or duly
formed (in the case of partnership Subsidiaries) and is validly existing
as a corporation in good standing or is validly existing as a partnership,
as the case may be, under the laws of its jurisdiction of organization,
with the corporate power or partnership power, as the case may be, and
authority to own, lease and operate its properties and conduct its
business as described in the Prospectus and each is duly qualified to do
business as a foreign corporation in good standing or as a foreign
partnership, as the case may be, in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or conduct of business, except where the failure to be so
qualified or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings or business affairs of
the Company and its Subsidiaries, considered as one enterprise. Each of
the Company's Subsidiaries (including the Inactive Subsidiaries, which are
identified as such)
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are listed on Schedule B hereto. For purposes of this paragraph (ix),
"Inactive Subsidiary" means each corporation greater than 50% of whose
securities having ordinary voting power or each partnership greater than
50% of the equity ownership of which is directly or indirectly owned by
the Company which (a) does not have assets exceeding $25,000 at any time
and (b) does not engage in any business activity other than those business
activities directly related to the maintenance of its corporate or
partnership existence; provided, however, that the aggregate fair market
value of all the assets of all Inactive Subsidiaries shall not exceed
$500,000 at any time.
(x) All of the issued and outstanding shares of capital stock
of the Company's corporate Subsidiaries and equity interests in the
Company's partnership Subsidiaries have been duly authorized and validly
issued, and are fully paid and non-assessable, and except for shares or
interests owned by the Company's joint venture partners, are owned by the
Company, directly or through one or more Subsidiaries, free and clear of
any pledge, lien, security interest, charge, claim, mortgage or
encumbrance of any kind (a "Lien"), except for Liens created pursuant to
the Credit, Security, Guaranty and Pledge Agreement, dated as of April 19,
1994, among the Company, Summit and AHM Acquisition Co., Inc., the
guarantors named therein, the Lenders named therein, The Bank of Nova
Scotia and Citicorp USA Inc., as Managing Agents for the Lenders, (the
"Bank Credit Facility").
(xi) The Company had at the date indicated in the Prospectus a
duly authorized and outstanding consolidated capitalization as set forth
in the Prospectus in the column entitled "Actual" under the caption
"Capitalization."
(xii) The Issuers have all of the requisite corporate power and
authority to execute, issue and deliver the Securities and to incur and
perform their obligations thereunder, the Securities have been duly
authorized by the Issuers and, when executed, authenticated and issued in
the manner provided for in the Indenture and delivered against payment of
the purchase price therefor as provided in this Agreement, will constitute
valid and binding obligations of the Issuers entitled to the benefits of
the Indenture and enforceable against the Issuers in accordance with their
terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting enforcement of
creditors' rights generally or by general principles of equity
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<PAGE> 9
(regardless of whether enforcement is considered in a proceeding in equity
or at law); and the Securities will conform in all material respects to
the descriptions thereof contained in the Prospectus.
(xiii) The Issuers have all of the requisite corporate power and
authority to execute, deliver and perform their obligations under the
Indenture, the Indenture has been duly authorized by the Issuers, will be
substantially in the form heretofore delivered to you, and when executed
and delivered by the Issuers and, assuming due execution by the Trustee,
will constitute a valid and binding obligation of the Issuers, enforceable
against the Issuers in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting enforcement of creditors' rights generally or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law); and the Indenture
conforms in all material respects to the description thereof contained in
the Prospectus. At the Closing Time, the Indenture will have been duly
qualified under the 1939 Act.
(xiv) All of the outstanding shares of capital stock of the
Company have been duly authorized and are validly issued, fully paid and
non-assessable; no holder thereof is subject to personal liability by
reason of being such a holder; and none of the outstanding shares of
capital stock of the Company was issued in violation of any preemptive or
similar rights of any stockholder of the Company arising by operation of
law, under the charter and bylaws of the Company or under any agreement to
which the Company or any of its Subsidiaries is a party.
(xv) There are no holders of securities (debt or equity) of
the Company or any of its Subsidiaries, or holders of rights (including,
without limitation, preemptive rights), warrants or options to obtain
securities of the Company or any of its Subsidiaries, who have the right
to request the Company or any of the Subsidiaries to register securities
held by them pursuant to the Registration Statement, other than holders
who have been given the opportunity to exercise such rights and have not
informed the Company that they wish to exercise such rights.
(xvi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein or contemplated thereby, there has not been (A)
any
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material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise),
earnings or business affairs of the Company and its Subsidiaries,
considered as one enterprise, whether or not arising in the ordinary
course of business, (B) any transaction entered into by the Company or any
of its Subsidiaries, whether or not arising in the ordinary course of
business, which is material with respect to the Company and its
Subsidiaries, considered as one enterprise or (C) any dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock, except with respect to the Company's Payable
in Kind Cumulative Redeemable Convertible Preferred Stock.
(xvii) Neither the Company nor any Subsidiary is in violation of
its charter, by-laws or other governing document, as the case may be, or
in default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, bond, debenture, note, lease or other
agreement or instrument to which it is a party or to which any of them or
any of its respective properties may be bound or to which any of its
property or assets is subject, except for such violations or defaults that
would not have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and its
Subsidiaries, considered as one enterprise.
(xviii) The issuance, sale and delivery of the Securities, the
execution, delivery and performance of this Agreement and the other
Operative Documents, the consummation by the Issuers of the transactions
contemplated by the Operative Documents and compliance by the Issuers with
the terms of the foregoing have been duly authorized by all necessary
corporate action on the part of the Issuers and do not, and at the Closing
Time will not, conflict with, or result in a breach or violation of any of
the terms or provisions of the charter, by-laws or governing documents of
the Company or any Subsidiary and do not, and at the Closing Time will
not, conflict with, or result in a breach or violation of any of the terms
or provisions of, or constitute a default or result in the creation or
imposition of any Lien upon any property or assets of the Company or its
Subsidiaries under, (A) any contract, indenture, mortgage, deed of trust,
loan or credit agreement, bond, debenture, note, lease or other agreement
or instrument to which any of the Company or any Subsidiary is a party or
by which any of them may be bound or to which any of their properties or
assets
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<PAGE> 11
is subject or (B) any existing applicable law, statute, rule, regulation
or any judgment, order, writ or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any Subsidiary or any of the Company's or any of the
Subsidiaries, properties, assets or operations, in each case with respect
to (A) and (B) above, except for such conflicts, breaches, violations or
defaults or Liens that would not, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and its Subsidiaries,
considered as one enterprise.
(xix) No authorization, approval, consent or license of any
government, governmental instrumentality or court is necessary in
connection with the due authorization, execution, delivery and performance
by the Issuers of each of the Operative Documents, and the valid
authorization, issuance, sale and delivery of the Securities, except such
as may be required under the 1933 Act, the 1933 Act Regulations, the 1939
Act, the 1939 Act Regulations or the securities or blue sky laws of the
various states in connection with the offer and sale of the Securities.
(xx) Except as disclosed in the Prospectus, there are no
actions, suits or proceedings before or by any government, governmental
instrumentality or court, now pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries
which, singly or in the aggregate, are required to be disclosed in the
Registration Statement or Prospectus or that could reasonably be expected
to result in any material adverse change in the condition (financial or
otherwise), earnings or business affairs of the Company and its
Subsidiaries, considered as one enterprise, or could reasonably be
expected to materially and adversely affect the properties or assets of
the Company and its Subsidiaries, considered as one enterprise, or could
reasonably be expected to materially and adversely affect the consummation
of the transactions contemplated by the Registration Statement.
(xxi) There are no contracts or documents of a character
required by the 1933 Act or the 1933 Act Regulations to be described in
the Registration Statement or the Prospectus or to be filed as exhibits
to, or incorporated by reference in, the Registration Statement that are
not described or filed or incorporated by reference as required.
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<PAGE> 12
(xxii) Each of the Company and its Subsidiaries has fee simple
title to all properties and assets described in the Prospectus as owned by
it, in each case free and clear of all Liens, except (A) as described in
the Prospectus, (B) as do not materially impair or interfere with the use
made and proposed to be made of such properties, (C) liens in favor of the
lenders under the Bank Credit Facility or (D) as could not be expected to
materially adversely affect the condition (financial or otherwise),
earnings or business affairs of the Company and its Subsidiaries,
considered as one enterprise. All of the leases and subleases material to
the business of the Company and its Subsidiaries, considered as one
enterprise, and under which the Company or any of its Subsidiaries holds
properties described in the Prospectus, are in full force and effect, and
neither the Company nor any of its Subsidiaries has any notice of any
claim of any sort that has been asserted by anyone adverse to the rights
of the Company or any of its Subsidiaries under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the
Company or any of the Subsidiaries to the continued possession of the
leased or subleased premises under any such lease or sublease, which
claims, in the aggregate, could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), earnings or
business affairs of the Company and its Subsidiaries, considered as one
enterprise.
(xxiii) The Company and each Subsidiary is in compliance
with, and each such entity has not received any notice of any outstanding
violation of, any laws, regulations, ordinances and rules applicable to it
and its operations, except, in either case, where any failure by the
Company or any Subsidiary to comply with any such law, regulation,
ordinance or rule would not have, individually, or in the aggregate, a
material adverse effect on the condition (financial or otherwise),
earnings, or business affairs of the Company and its Subsidiaries,
considered as one enterprise.
(xxiv) Each of the Company and its Subsidiaries owns or
possesses all governmental licenses, permits, certificates (including,
without limitation, certificates of need and Medicare and Medicaid
approvals), consents, orders, approvals and other authorizations necessary
to own or lease, as the case may be, and to operate its properties and to
conduct its business as presently conducted by it, except where the
failure to possess such licenses, permits, certificates, consents, orders,
approvals and other
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authorizations would not have a material adverse effect on the condition
(financial or otherwise), earnings or business affairs of the Company and
its Subsidiaries, considered as one enterprise (collectively, "Material
Licenses"); all of the Material Licenses are valid and in full force and
effect; and there are no pending or, to the knowledge of the Company,
threatened actions, suits, claims, or proceedings against the Company or
any Subsidiary before any court, governmental agency or body, or otherwise
that, if successful, would limit, revoke, cancel, suspend, or cause not to
be renewed any Material License, or that, if successful, would limit,
revoke, cancel, suspend, or cause not to be renewed any right of the
Company or any Subsidiary to receive reimbursement from the federal
government or any agency thereof, any state government or agency thereof,
or any other body for services rendered by the Company or any Subsidiary.
Each of the hospitals operated by any of the Company and its Subsidiaries
has received accreditation by the Joint Commission on Accreditation of
Health Care Organizations (except for one hospital which has received
accreditation by the American Osteopathic Association). All of the
hospitals operated by the Company and its Subsidiaries are licensed under
appropriate state laws to conduct the business as described in the
Prospectus and are "providers of services" as defined in the Social
Security Act and the regulations promulgated thereunder, and are eligible
to participate in, and are certified to receive reimbursement under, the
Medicare program.
(xxv) Neither the Company nor any of its Subsidiaries is an
investment company within the meaning of the Investment Company Act of
1940, as amended.
(xxvi) The Company and its Subsidiaries and their properties,
assets and operations comply with all Environmental Laws (as defined
below), except to the extent that failure to comply with such
Environmental Laws would not have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of the
Company and its Subsidiaries, considered as one enterprise. There are no
past, present or, to the knowledge of the Company, reasonably anticipated
future events, conditions, circumstances, practices, plans or legal
requirements that could reasonably be expected to prevent compliance with
Environmental Laws by the Company or any of its Subsidiaries or any of
their properties, assets or operations, except where such noncompliance
would not have a material adverse effect on the condition
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<PAGE> 14
(financial or otherwise), earnings or business affairs of the Company and
its Subsidiaries, considered as one enterprise. Neither the Company nor
any of its Subsidiaries nor any of their properties, assets or operations
is the subject of any pending or, to the knowledge of the Company,
threatened federal, state or local investigation relating to any violation
or potential violation of any Environmental Law or any release or
threatened release of, or cleanup of, any Hazardous Materials (as defined
below) that could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), earnings or business affairs of
the Company and its Subsidiaries, considered as one enterprise. Neither
the Company nor any of its Subsidiaries has received any notice or claim,
nor are there pending or, to the knowledge of the Company, threatened
actions, suits or proceedings against any of them, with respect to
violations of any Environmental Law or in connection with any release or
threatened release of, or cleanup of, any Hazardous Materials that, in the
aggregate, could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), earnings or business affairs of
the Company and the Subsidiaries, considered as one enterprise. As used
herein, "Environmental Laws" means any federal, state or local law,
regulation, common law principle, order, decree, judgment, injunction,
permit or license applicable to the Company or any of its Subsidiaries or
any of their properties, assets or operations relating to human health or
the environment, and "Hazardous Materials" means those substances that are
regulated by or form the basis of liability under any Environmental Laws.
(xxvii) To the knowledge of the Company, no labor dispute exists
with the employees of the Company or any of its Subsidiaries or is
imminent that, in either case, could reasonably be expected to materially
and adversely affect the condition (financial or otherwise), earnings or
business affairs of the Company and its Subsidiaries, considered as one
enterprise.
(xxviii) Except as disclosed in the Prospectus, all
United States federal income tax returns of the Company and its
Subsidiaries required by law to be filed have been filed and all taxes
shown by such returns or otherwise assessed, which are due and payable,
have been paid, except for such, if any, as are being contested in good
faith and as to which adequate reserves have been provided. Except as
disclosed in the Prospectus, all other corporate franchise and income tax
returns of the Company and its Subsidiaries
13
<PAGE> 15
required to be filed pursuant to applicable foreign, state or local law
have been filed, except insofar as the failure to file such returns would
not have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and its
Subsidiaries, considered as one enterprise, and all taxes shown on such
returns or otherwise assessed which are due and payable have been paid,
except for such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided. To the best of the
Company's knowledge, the charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of any income and corporate
franchise tax liability for any years not finally determined are adequate
to meet any assessments or re-assessments for additional income or
corporate franchise tax for any years not finally determined, except as
disclosed in the Prospectus and except to the extent of any inadequacy
that would not have a material adverse effect on the condition (financial
or otherwise), earnings or business affairs of the Company and the
Subsidiaries, considered as one enterprise.
(xxix) The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(b) Any certificate signed by any officer of the Company or
any Subsidiary and delivered to you or to counsel for the Underwriters at or
prior to the Closing Time pursuant to this Agreement or the transactions
contemplated hereby shall be deemed a representation and warranty by the
Company or such Subsidiary, as the case may be, to each Underwriter as to the
matters covered thereby.
Section 2. Sale and Delivery to the Underwriters; Closing.
(a) On the basis of the representations and warranties herein contained, and
subject to the terms and conditions herein set forth, the Issuers agree to sell
to each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Issuers, the Securities at
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<PAGE> 16
the purchase price to be agreed upon by you and the Issuers in accordance with
Section 2(b) or 2(c) and as set forth in the Price Determination Agreement, the
principal amount of Securities set forth opposite the name of such Underwriter
in Schedule A (plus any additional principal amount of Securities which such
Underwriters may become obligated to purchase pursuant to the provisions of
Section 10 hereof). If the Issuers elect to rely on Rule 430A, Schedule A may
be attached to the Price Determination Agreement.
(b) If the Issuers have elected not to rely upon Rule 430A,
then the initial public offering price of the Securities, the purchase price of
the Securities to be paid by the Underwriters and certain other principal terms
of the Securities shall be agreed upon and set forth in the Price Determination
Agreement, dated the date hereof, and an amendment to the Registration
Statement containing such information will be filed before the Registration
Statement becomes effective.
(c) If the Issuers have elected to rely upon Rule 430A,
then the initial public offering price of the Securities, the purchase price of
the Securities to be paid by the Underwriters and certain other principal terms
of the Securities shall be agreed upon and set forth in the Price Determination
Agreement. In the event that the Price Determination Agreement has not been
executed by the close of business on the fourth business day following the date
on which the Registration Statement becomes effective, this Agreement shall
terminate forthwith, without liability of either party to the other party
except that Sections 6 and 7 shall remain in effect.
(d) Payment of the purchase price for, and delivery of,
the Securities shall be made at the offices of Dewey Ballantine, 1301 Avenue of
the Americas, New York, New York 10019, or at such other place as shall be
agreed upon by the Company and you, at 10:00 A.M., New York City time, either
(i) on the fifth full business day after the effective date of the Registration
Statement or (ii) if the Issuers have elected to rely upon Rule 430A, on the
fifth full business day after execution of the Price Determination Agreement
(unless, in either case, postponed pursuant to Section 10), or at such other
time not more than ten full business days thereafter as you and the Company
shall determine (such date and time of payment and delivery being herein called
the "Closing Time"). Payment shall be made to the Company by certified or
official bank check or checks in New York Clearing House funds payable to the
order of the Company, against delivery of the Securities to you for the
respective accounts of the Underwriters.
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(e) The Securities shall be in such denominations ($1,000
or an integral multiple thereof) and registered in such names as you may
request in writing at least two full business days prior to the Closing Time.
The Securities, which may be in temporary form, will be made available in New
York City for examination and packaging by you not later than 10:00 A.M., New
York City time, on the business day prior to the Closing Time.
Section 3. Certain Covenants of the Issuers. The Company and
Summit jointly and severally covenant with each Underwriter as follows:
(a) The Issuers will use their best efforts to cause the
Registration Statement to become effective and, if the Issuers elect to rely
upon Rule 430A and subject to Section 3(b), will comply with the requirements
of Rule 430A and will notify you immediately, and confirm the notice in
writing, (i) when the Registration Statement, or any post-effective amendment
to the Registration Statement, shall have become effective, or any supplement
to the Prospectus or any amended Prospectus shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission to amend the Registration Statement, to amend or supplement the
Prospectus or for additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the institution or threatening of
any proceedings for any of such purposes. The Issuers will use every
reasonable effort to prevent the issuance of any such stop order or of any
order preventing or suspending such use and, if any such order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) The Issuers will not at any time file or make any
amendment to the Registration Statement, or any amendment or supplement (i) if
the Issuers have not elected to rely upon Rule 430A, to the Prospectus
(including amendments of the documents incorporated by reference into the
Prospectus) or (ii) if the Issuers have elected to rely upon Rule 430A, to
either the prospectus included in the Registration Statement at the time it
becomes effective or to the Prospectus (including amendments of the documents
incorporated by reference into the Prospectus), of which you shall not have
previously been advised and furnished a copy or to which you or your counsel
shall object in writing.
(c) The Issuers have furnished or will furnish to you and
your counsel, without charge, as many signed copies
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<PAGE> 18
(as reasonably requested) of the Registration Statement (as originally filed)
and all amendments thereto, whether filed before or after the Registration
Statement becomes effective, including exhibits and documents filed therewith
or incorporated by reference into the Prospectus pursuant to Item 12 of Form
S-3 under the 1933 Act, and signed copies of all consents and certificates of
experts (as reasonably requested) and, during the period mentioned in paragraph
(d) below, as many copies of the Prospectus and any supplements and amendments
thereto as you may reasonably request and has furnished or will furnish to you
for each other Underwriters, one conformed copy of the Registration Statement
as originally filed and each amendment thereto.
(d) The Issuers will deliver to each Underwriter, without
charge, from time to time until the effective date of the Registration
Statement (or, if the Issuers have elected to rely upon Rule 430A, until the
time the Price Determination Agreement is executed and delivered), as many
copies of each preliminary prospectus as such Underwriter may reasonably
request, and the Issuers hereby consent to the use of such copies for purposes
permitted by the 1933 Act. The Issuers will deliver to each Underwriter,
without charge, as soon as the Registration Statement shall have become
effective (or, if the Issuers have elected to rely upon Rule 430A, as soon as
practicable after the Price Determination Agreement has been executed and
delivered) and thereafter from time to time as requested during the period when
the Prospectus is required to be delivered under the 1933 Act, such number of
copies of the Prospectus (as supplemented or amended) as such Underwriter may
reasonably request.
(e) The Issuers will comply to the best of their ability
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934
Act Regulations and the 1939 Act and the 1939 Act Regulations so as to permit
the completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is required
by the 1933 Act to be delivered in connection with sales of the Securities any
event shall occur or condition exist as a result of which it is necessary, in
the reasonable opinion of your counsel, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of such counsel, at any such time
to amend the Registration Statement or amend or supplement any Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
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Regulations, the Issuers will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such untrue statement or omission or to make the Registration statement
or the Prospectus comply with such requirements.
(f) The Issuers will endeavor, in cooperation with the
Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of such states or other jurisdictions as you may
designate and to maintain such qualifications in effect from the effective date
of the Registration Statement for as long as may be required for the
distribution of the Securities; provided, however, that neither the Issuers nor
any of its Subsidiaries shall be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. The Issuers will file such statements and reports
as may be required by the laws of each state or other jurisdiction in which the
Securities have been qualified as above provided.
(g) The Issuers will make generally available to their
securityholders as soon as practicable, but in any event not later than 90 days
after the close of the period covered thereby, an earnings statement (which
need not be certified by independent certified public accountants unless
required by the 1933 Act or the 1933 Act Regulations) of the Issuers (in form
complying with the provisions of Section 11(a) of the 1933 Act and Rule 158 of
the 1933 Act Regulations), covering a period of 12 months beginning after the
effective date of the Registration Statement but not later than the first day
of the Company's fiscal quarter next following such effective date.
(h) The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
the heading "Use of Proceeds."
(i) The Issuers, during the period when the Prospectus is
required to be delivered under the 1933 Act, will file promptly all documents
required to be filed with the Commission pursuant to Section 13, 14 or 15 of
the 1934 Act subsequent to the time the Registration Statement becomes
effective.
(j) If the Issuers have elected to rely upon Rule 430A,
they will take such steps as they deem necessary to ascertain promptly whether
the form of prospectus transmitted for filing under Rule 424(b) was received
for
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filing by the Commission and, in the event that it was not, they will promptly
file such prospectus.
(k) The Issuers have complied, and will comply, with all
of the provisions of Florida H.B. 1771, as codified in Sec. 517.075 Florida
Statutes, 1987, as amended, and all regulations promulgated thereunder relating
to issuers or their affiliates doing business with the government of Cuba or
with any person or affiliate located in Cuba.
Section 4. Payment of Expenses. (i) The Company agrees to
pay all expenses incident to the performance of the Company's and Summit's
obligations under this Agreement, including (a) the printing and filing of the
Registration Statement (including financial statements and exhibits), as
originally filed and as amended, the preliminary prospectuses and the
Prospectus and any amendments or supplements thereto, and the cost of
furnishing copies thereof to the Underwriters, (b) the copying or printing, as
applicable, and distribution of this Agreement (including the Price
Determination Agreement), the Securities, the other Operative Documents and a
survey of state securities or blue sky laws (the "Blue Sky Survey"), (c) the
delivery of the Securities to the Underwriters, (d) the fees and disbursements
of counsel and accountants for the Issuers, (e) the qualification of the
Securities under the applicable securities laws in accordance with Section 3(f)
and any filing for review of the offering with the National Association of
Securities Dealers, Inc. ("NASD"), including filing fees and fees and
reasonable disbursements of counsel for the Underwriters in connection with the
NASD review and in connection with the Blue Sky Survey, (f) any fees charged by
rating agencies for rating the Securities and (g) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee, in
connection with the Indenture and the Securities.
(ii) If this Agreement is terminated by you in
accordance with the provisions of Section 5, 9(a)(i) or 11, the Issuers shall
reimburse the Underwriters for all of their reasonable out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters.
Section 5. Conditions of Underwriters' Obligations. In
addition to the execution and delivery of the Price Determination Agreement,
the obligations of the Underwriters to purchase and pay for the Securities
that they have respectively agreed to purchase hereunder are subject to the
accuracy of the representations and warranties of the Issuers contained herein
(including those contained in the Price Determination Agreement) or in
certificates of any officer of the Company or any Subsidiary delivered
pursuant to the provisions hereof, to the
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<PAGE> 21
performance by the Issuers of their respective obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become effective
not later than 5:30 P.M. on the date of this Agreement or, with your consent,
at a later time and date, but not later than 5:30 P.M. on the first business
day following the date hereof, or at such later time or on such later date as
you may agree to in writing; and at the Closing Time, no stop order suspending
the effectiveness of the Registration Statement shall have been issued under
the 1933 Act and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or the knowledge of the Issuers, shall
have been threatened by the Commission; and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. If the Issuers have
elected to rely upon Rule 430A, a prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with Rule
424(b) (or a post-effective amendment providing such information shall have
been filed and declared effective in accordance with the requirements of Rule
430A).
(b) At the Closing Time, you shall have received a signed
opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for the Issuers, dated
as of the Closing Time, together with reproduced copies of such opinion for
each of the Underwriters, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) Each of the Company and Summit is duly incorporated and
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as described in the Prospectus. Each
of the Company and Summit has the requisite corporate power and authority
to enter into and perform its obligations under this Agreement, the Price
Determination Agreement, the Securities and the Indenture. This Agreement
and the Price Determination Agreement have been duly authorized, executed
and delivered by the Company and Summit.
(ii) The Indenture has been qualified under the 1939 Act; the
Indenture has been duly authorized, executed and delivered by each of the
Company and Summit and (assuming due authorization, execution and delivery
of the Indenture by the Trustee) constitutes a valid and binding agreement
of each of the Company and Summit enforceable against each of the Company
and Summit in accordance with its terms, except to the extent that the
enforceability thereof may be limited
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<PAGE> 22
by (a) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law
or in equity).
(iii) The Securities have been duly authorized by the
requisite corporate action on the part of each of the Company and Summit,
and, when executed and authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, will be valid and binding
obligations of each of the Company and Summit entitled to the benefits of
the Indenture and enforceable against each of the Company and Summit in
accordance with their terms except to the extent that the enforceability
thereof may be limited by (a) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
(iv) The execution, delivery and performance of this
Agreement and the Indenture by each of the Company and Summit will not
contravene (a) the charter or by-laws of the Company, (b) the charter or
by-laws of Summit, (c) Applicable Law (as defined below) or (d) any
contract, agreement or other instrument binding upon the Company or
Summit, as the case may be, that is set forth on a schedule attached to
the opinion of such counsel (which schedule, to the knowledge of such
counsel, sets forth all contracts, agreements and instruments that are
material to the Company and its Subsidiaries, taken as a whole), except
that such counsel need not express any opinion as to the existence of any
default under any financial ratios or tests which may be contained in any
contract, agreement or other instrument listed on such schedule. Based
upon the review of such counsel of Applicable Law, but without such
counsel having made any special investigation concerning any other laws,
rules or regulations, no consent, approval, authorization or order of or
qualification with any governmental body or agency (the "Governmental
Approvals") which has not been obtained, taken or made (other than
pursuant to any state securities laws, as to which such counsel need not
express any opinion) is required for performance by the Company or Summit
of its obligations under this Agreement (including the execution, delivery
21
<PAGE> 23
and performance of the Indenture). The opinion of such counsel pursuant
to this paragraph (iv) need relate only to Governmental Approvals required
under Applicable Law and those court orders and judgments specifically
identified to such counsel by the Company, after inquiries of responsible
officers of the Company, as being judgments or court orders to which the
Company or Summit or any of their respective assets or operations is
subject. For purposes of this opinion, the term "Applicable Law" shall
mean those laws, rules and regulations of the United States of America,
the State of Delaware, the State of New York and the State of California,
in each case which, in the experience of such counsel, are normally
applicable to transactions of the type contemplated by this Agreement.
For purposes of the opinion of such counsel pursuant to this paragraph
(iv), such counsel need express no opinion as to any statutes, rules,
regulations and requirements (Federal, state and local) relating to the
certification, licensing, authorization, ownership, operation and/or
transfer of healthcare facilities or providers, or to Medicare/Medicaid or
other third-party reimbursement or payments to such facilities or
providers.
(v) Neither the Company nor Summit is an "investment
company" or an entity controlled by an "investment company" as such terms
are defined in the Investment Company Act of 1940 as amended.
(vi) The Indenture and the Securities conform in all material
respects to the descriptions thereof contained in the Prospectus.
(vii) The Registration Statement, the Prospectus and each
amendment or supplement to the Registration Statement and Prospectus as of
their respective effective or issue dates (in each case, except for the
financial statements, schedules and other financial data included therein
or omitted therefrom and the Statement of Eligibility of the Trustee on
Form T-1, as to which such counsel need express no opinion), comply as to
form in all material respects to the requirements of the 1933 Act and the
1933 Act Regulations.
Such counsel shall also state that such counsel has been
advised by the Commission that the Registration Statement was declared
effective under the 1933 Act, and, to the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act and no proceedings
therefor have been initiated or threatened by the Commission. Such
counsel shall also state that
22
<PAGE> 24
any required filing of the Prospectus or any supplement thereto
pursuant to Rule 424(b) of the 1933 Act Regulations has been made in
the manner and within the time period required by Rule 424(b).
In addition, such opinion shall state that such counsel has
participated in the preparation of the Registration Statement and Prospectus
and in conferences with officers and other representatives of the Issuers,
representatives of the independent public accountants for the Issuers, and your
representatives and your counsel at which the contents of the Registration
Statement, the Prospectus and related matters were discussed and, although such
counsel need not undertake to determine independently nor pass upon or assume
any responsibility, explicitly or implicitly, for the accuracy, completeness of
fairness of the statements contained in the Registration Statement or the
Prospectus, on the basis of and subject to the foregoing, no facts have come to
the attention of such counsel to lead such counsel to believe (i) that the
Registration Statement (including the Rule 430A Information, if applicable) or
any amendment thereto (except for the financial statements, schedules and other
financial data included therein or omitted therefrom and the Statement of
Eligibility of the Trustee on Form T-1, as to which such counsel need express
no opinion) as of the date the Registration Statement or any such amendment
became effective, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) that the Prospectus or any
amendment or supplement thereto (except for the financial statements, schedules
and other financial data included therein or omitted therefrom, as to which
such counsel need express no opinion), at the time the Prospectus was issued,
at the time any such amended or supplemented prospectus was issued or at the
Closing Time, contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and its Subsidiaries and
certificates of public officials.
(c) At the Closing Time, you shall have received a signed
opinion of Ronald P. Soltman, Esq., General Counsel for the Issuers, dated as
of the Closing Time, together with reproduced copies of such opinion for each
of the
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<PAGE> 25
Underwriters, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) Each corporate Subsidiary (other than Summit) is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as described in the Prospectus and each
of the partnership Subsidiaries is validly existing under the laws of its
jurisdiction of formation and has the partnership power and authority
required to carry on its business as described in the Prospectus; except
where failure to be in good standing or to be validly existing would not
have a material adverse effect on the Company and Subsidiaries, taken as
a whole. For purposes of this paragraph (i), such counsel need express no
opinion with respect to the incorporation, existence, good standing, power
or authority of any Inactive Subsidiary.
(ii) Each of the Company, Summit and the Subsidiaries is duly
qualified as a foreign corporation or partnership, as the case may be,
authorized to do business in each jurisdiction in which the Company has
certified to such counsel that it conducts business or owns or leases
property, except where the failure to be so qualified would not have a
material adverse effect on the Company and the Subsidiaries, taken as a
whole.
(iii) Each of the Company and Summit has the corporate power
and authority to enter into this Agreement and the Price Determination
Agreement and this Agreement and the Price Determination Agreement have
been duly authorized, executed and delivered by each of the Company and
Summit.
(iv) The Indenture has been duly authorized, executed and
delivered by each of the Company and Summit and (assuming due
authorization, execution and delivery of the Indenture by the Trustee)
constitutes a legal, valid and binding agreement of each of the Company
and Summit, enforceable against each of the Company and Summit in
accordance with its terms, except to the extent that the enforceability
thereof may be limited by (a) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
(v) The Securities have been duly authorized by the requisite
corporate action on the part of each of
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<PAGE> 26
the Company and Summit, and, when executed and authenticated in accordance
with the provisions of the Indenture and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be valid
and binding obligations of the Company and Summit entitled to the benefits
of the Indenture and enforceable against each of the Company and Summit in
accordance with their terms, except to the extent that enforceability may
be limited by (a) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (b) general principles
of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
(vi) All of the issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully
paid and non-assessable, and none of the outstanding shares of capital
stock was issued in violation of any preemptive rights or other similar
rights with respect to any stockholder of the Company. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption entitled
"Capitalization."
(vii) To the knowledge of such counsel, all of the outstanding
shares of capital stock of the corporate Subsidiaries have been duly and
validly authorized and issued and are fully paid and non-assessable and
are owned, directly or indirectly, by the Company; to the knowledge of
such counsel, all of the outstanding shares of capital stock of the
corporate Subsidiaries or other ownership interests in the partnership
Subsidiaries are owned free and clear of any security interest, claim,
lien or encumbrance, except for the pledges securing obligations in the
Bank Credit Facility; to the knowledge of such counsel, and except as
disclosed in the Prospectus, there are no preemptive rights or other
similar rights with respect to the capital stock or interests of any of
the Subsidiaries.
(viii) Neither the Company nor any of its Subsidiaries is in
violation of its respective charter, by-laws or organizational documents
and, to the knowledge of such counsel, neither the Company nor any of its
Subsidiaries is in default under any material bond, debenture, note or any
other evidence of material indebtedness or under any other agreement,
indenture or instrument material to the conduct of business of the Company
or the Subsidiaries, considered as one
25
<PAGE> 27
enterprise, to which the Company or any of its Subsidiaries is a party or
by which it or any of its Subsidiaries or their respective property is
bound.
(ix) The execution, delivery and performance of this Agreement
and the Indenture by each of the Company and Summit do not and will not
contravene the charter, bylaws or governing documents of any Subsidiary
(other than Summit), and, to the knowledge of such counsel, do not and
will not conflict with, or result in a breach or violation of any of the
terms or provisions of, or constitute a default or result in the creation
or imposition of any Lien upon any property or assets of the Company or
its Subsidiaries under, (A) any contract, indenture, mortgage, deed of
trust, loan or credit agreement, bond, debenture, note, lease or other
agreement or instrument to which any Subsidiary (other than Summit) is a
party or by which any of them may be bound or to which any of their
properties or assets is subject, (B) any existing applicable law, statute,
rule or regulation (other than the securities or blue sky laws of the
various states, as to which such counsel need express no opinion), or (C)
or any judgment, order, writ or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any Subsidiary or any of the Company's or any of the
Subsidiaries' properties, assets or operations, in each case, except for
such conflicts, breaches, violations or defaults or Liens that would not,
singly or in the aggregate, have a material adverse effect on the
condition (finacial or otherwise), earnings or business affairs of the
Company and its Subsidaries, taken as a whole.
(x) No authorization, approval, consent or license of any
government, governmental instrumentality or court is necessary in
connection with the due authorization, execution, delivery and performance
by the Issuers of each of the Operative Documents, and the valid
authorization, issuance, sale and delivery of the Securities, except such
as may be required under the 1933 Act, the 1933 Act Regulations, the 1939
Act, the 1939 Act Regulations or the securities or blue sky laws of the
various states in connection with the offer and sale of the Securities.
(xi) To the knowledge of such counsel, there is no legal or
governmental proceeding pending or threatened which the Company or any of
its Subsidiaries is a party or to which any of the properties of the
Company or Summit is subject that is required to be described in the
Registration Statement or the Prospectus and is not so described as
required therein
26
<PAGE> 28
and no contract or other document that is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement that is not so described or filed as required.
(xii) All of the hospitals operated by the Company and its
Subsidiaries are licensed under appropriate state laws to conduct the
business as described in the Prospectus and are "providers of services" as
defined in the Social Security Act and the regulations promulgated
thereunder, and are eligible to participate in, and are certified to
receive reimbursement under, the Medicare program.
(xiii) To the best knowledge of such counsel, there are no
holders of securities (debt or equity) of the Company or any of its
Subsidiaries, or holders of rights (including, without limitation,
preemptive rights), warrants or options to obtain securities of the
Company or any of its Subsidiaries, who have the right to request the
Company or any of the Subsidiaries to register securities held by them
pursuant to the Registration Statement, other than holders who have been
given the opportunity to exercise such rights and have not informed the
Company that they wish to exercise such rights.
(xiv) The statements made in the Prospectus under "Investment
Considerations -- Reimbursement and Regulation," and in the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1993, as
amended, under the captions "Item 1: Business - Regulation and Other
Factors and - Revenues," and in Summit's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 under the captions "Item 1. Business -
Medicare, Medicaid and Other Sources of Revenue and - Regulation" to the
extent that they constitute matters of law or legal conclusions, have been
reviewed by such counsel and fairly present, as of their respective dates,
the information disclosed therein.
Such counsel shall also state that such counsel has been
advised by the Commission that the Registration Statement was declared
effective under the 1933 Act, and, to the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act and no proceedings
therefor have been initiated or threatened by the Commission.
27
<PAGE> 29
In addition, such opinion shall state that such counsel has
participated in the preparation of the Registration Statement and Prospectus
and in conferences with officers and other representatives of the Issuers,
representatives of the independent public accountants for the Issuers, and your
representatives and your counsel at which the contents of the Registration
Statement, the Prospectus and related matters were discussed and, although such
counsel need not undertake to determine independently nor pass upon or assume
any responsibility, explicitly or implicitly, for the accuracy, completeness of
fairness of the statements contained in the Registration Statement or the
Prospectus, on the basis of and subject to the foregoing, no facts have come to
the attention of such counsel to lead such counsel to believe (i) that the
Registration Statement (including the Rule 430A Information, if applicable) or
any amendment thereto (except for the financial statements and other financial
data included therein or omitted therefrom and the Statement of Eligibility of
the Trustee on Form T-1, as to which such counsel need express no opinion), as
of the date the Registration Statement or any such amendment became effective,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) that the Prospectus or any amendment or
supplement thereto (except for the financial statements and other financial
data included therein or omitted therefrom, as to which such counsel need
express no opinion), at the time the Prospectus was issued, at the time any
such amended or supplemented prospectus was issued or at the Closing Time,
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Such counsel may also state that, insofar as such opinion
involves factual matters, he has relied, to the extent he deems proper, upon
certificates of officers of the Company and its Subsidiaries and certificates
of public officials.
(d) At the Closing Time, you shall have received the
favorable opinion of Dewey Ballantine, counsel for the Underwriters, dated as
of the Closing Time, to the effect that the opinions delivered pursuant to
Section 5(b) and (c) appear on their face to be appropriately responsive to the
requirements of this Agreement except, specifying the same, to the extent
waived by you, and with respect to the Securities, this Agreement, the
Indenture, the Registration Statement, the Prospectus, the incorporation and
legal existence of the Company and such other related matters as
28
<PAGE> 30
you may require. In giving such opinion, such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the federal law of the
United States, the law of the State of New York and the General Corporation Law
of the State of Delaware, upon the opinions of counsel satisfactory to you.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers or other appropriate representatives of the Company and its
Subsidiaries and certificates of public officials.
(e) At the Closing Time, (i) the Registration Statement
and the Prospectus, as they may then be amended or supplemented, shall conform
in all material respects to the requirements of the 1933 Act and the 1933 Act
Regulations and the 1939 Act and the 1939 Act Regulations, the Issuers shall
have complied in all material respects with Rule 430A (if they shall have
elected to rely thereon), the Registration Statement, as it may then be amended
or supplemented, shall not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and the Prospectus, as it may then
be amended or supplemented, shall not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) there shall not have been, since the
date as of which information is given in the Prospectus, any material adverse
change or any development involving a prospective material adverse change, in
the condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business; (iii) no action,
suit or proceeding at law or in equity shall be pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries that
would be required to be set forth in the Prospectus other than as set forth
therein and no proceedings shall be pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries before or by
any federal, state or other commission, board or administrative agency that
could reasonably be expected to materially adversely affect the condition
(financial or otherwise), earnings or business affairs of the Company and its
Subsidiaries, considered as one enterprise, other than as set forth in the
Prospectus; (iv) the Issuers shall have complied in all material respects with
all agreements and satisfied all conditions on their part to be performed or
satisfied at or prior to the Closing Time; (v) no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
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proceedings for that purpose shall have been initiated or threatened by the
Commission; and (vi) the other representations and warranties of the Issuers
set forth in Section 1(a) shall be accurate as though expressly made at and as
of the Closing Time. At the Closing Time, you shall have received a
certificate of the President or a Senior Vice President of each of the Company
and Summit and the Chief Financial Officer or Treasurer of each of the Company
and Summit, dated as of the Closing Time, to such effect. As used in this
Section 5(e), the term "Prospectus" means the Prospectus in the form first used
to confirm sales of the Securities.
(f) At the time that this Agreement is executed by the
Issuers and at the Closing Time, you shall have received from Ernst & Young,
independent public accounts for the Issuers, a letter, dated the respective
dates of delivery thereof, in form and substance satisfactory to you,
containing statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information included or incorporated by the
reference in the Registration Statement and the Prospectus.
(g) At the time that this Agreement is executed by the
Company and at the Closing Time, you shall have received from BDO Seidman,
independent public accountants for Fountain Valley, a letter, dated the
respective dates of delivery thereof, in form and substance satisfactory to you
containing statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information included in the Registration
Statement and the Prospectus.
(h) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Time, there shall not have been any
downgrading, nor any notice given of any intended or potential downgrading or
of a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's or any of its Subsidiaries'
securities, including the Securities, by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule 436(g)(2)
under the 1933 Act.
(i) At the Closing Time, counsel for the Underwriters
shall have been furnished with all such documents, certificates and opinions as
they may reasonably request for the purpose of enabling them to pass upon the
issuance and sale of the Securities as contemplated in this Agreement and the
matters referred to in Section 5(d) and in
30
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order to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Issuers, the performance of the covenants of
the Issuers, or the fulfillment of any of the conditions herein contained; and
all proceedings taken by the Issuers at or prior to the Closing Time in
connection with the authorization, issuance and sale of the Securities, and by
the Issuers at or prior to the Closing Time in connection with the
authorization and delivery of the other Operative Documents, each as
contemplated in this Agreement, shall be reasonably satisfactory in form and
substance to you and to counsel for the Underwriters.
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement may be terminated by you on notice to the Issuers at any time at
or prior to the Closing Time, and such termination shall be without liability
of either party to any other party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of Sections 6 and 7 shall
remain in effect.
Section 6. Indemnification. (a) The Company and Summit,
jointly and severally, agree to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, arising out of an
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto),
including the Rule 430A Information, if applicable, and all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out
of an untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever
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based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected with the
written consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to the last sentence of Section 6(c),
fees and disbursements of counsel chosen by you) reasonably incurred
in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever, in each case, based
upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is
not paid under subparagraph (i) or (ii) above;
provided, however, that (i) the Issuers' obligation under this indemnity does
not apply to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue statement or
omission made in the Registration Statement (or any amendment thereto),
including the Rule 430A Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Issuers by any Underwriter expressly for use in the Registration Statement (or
any amendment thereto), including the Rule 430A Information, if applicable, or
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) and (ii) such indemnity with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter (or any person controlling
such Underwriter) from whom the person asserting such loss, claim, damage or
liability or expense purchased the Securities which are the subject thereof if
such person did not receive a copy of the Prospectus (or the Prospectus as
amended or supplemented) at or prior to the confirmation of the sale of such
Securities to such person in any case where such delivery is required by the
1933 Act and the untrue statement or omission or alleged untrue statement or
omission of a material fact contained in such preliminary prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented).
(b) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company and Summit, their respective
directors, their respective officers who signed the Registration Statement, and
each person, if any, who controls the Issuers within the meaning of Section 15
of the 1933 Act, against any and all loss, liability, claim, damage and expense
described in the
32
<PAGE> 34
indemnity contained in Section 6(a), as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Issuers by such
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information, if applicable, or such
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. Any indemnifying party may participate
at its own expense in the defense of such action. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdictions arising out
of the same general allegations or circumstances.
Section 7. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnity provided for
in Section 6 is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Issuers and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Issuers and one or more of the Underwriters, as incurred, in such
proportions that (a) the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the initial public offering price
appearing thereon and (b) the Issuers are responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Underwriter, and each director of
the Issuers, each officer of the Issuers who signed the Registration Statement,
and each person, if any, who controls the Issuers within the meaning of Section
15 of the
33
<PAGE> 35
1933 Act shall have the same rights to contribution as the Issuers.
Section 8. Representations, Warranties and Agreements to
Survive Delivery. The representations, warranties, indemnities, agreements and
other statements of the Issuers or their respective officers set forth in or
made pursuant to this Agreement will remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Issuers or
any Underwriter or controlling person and will survive delivery of and payment
for the Securities.
Section 9. Termination of Agreement. (a) You may terminate
this Agreement, by notice to the Issuers, at any time at or prior to the
Closing Time (i) if there has been, since the respective dates as of which
information is given in the Prospectus, any material adverse change or any
development involving a prospective material adverse change, in the condition
(financial or otherwise), earnings, business affairs or business prospects of
the Company and its Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, (ii) if there has occurred any
material adverse change in the financial markets in the United States or any
outbreak of hostilities or escalation thereof or other calamity or crisis the
effect of which in each case is such as to make it, in your reasonable
judgment, impracticable to market the Securities or enforce contracts for the
sale of the Securities, (iii) if trading in any securities of the Issuers have
been suspended by the Commission or if trading generally on the New York Stock
Exchange or in the over-the-counter market has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either such exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority or (iv) if a banking moratorium has been declared by
either federal or New York authorities. As used in this Section 9(a), the term
"Prospectus" means the Prospectus in the form first used to confirm sales of
the Securities.
(b) If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any
other party, except to the extent provided in Section 4 hereof.
Notwithstanding any such termination, the provisions of Sections 6 and 7 shall
remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2 and Section 5, with the effect stated in such Section.
34
<PAGE> 36
Section 10. Default by One Or More of the Underwriters. If
one or more of the Underwriters shall fail at the Closing Time to purchase the
Securities that it or they are obligated to purchase pursuant to this Agreement
(the "Defaulted Securities"), you shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and upon
the terms set forth in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
(a) if the aggregate principal amount of
Defaulted Securities does not exceed 10% of the aggregate
principal amount of the Securities to be purchased pursuant to
this Agreement, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligation
proportions bear to the underwriting obligation proportions of
all non-defaulting Underwriters, or
(b) if the aggregate principal amount of
Defaulted Securities exceeds 10% of the aggregate principal
amount of the Securities to be purchased pursuant to this
Agreement, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 10 shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default that does not result in a
termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for a Underwriter pursuant to this Section 10.
Section 11. Default by the Issuers. If the Issuers shall
fail at the Closing Time to sell and deliver the aggregate principal amount of
Securities that it is obligated to sell, then this Agreement shall terminate
without any liability on the part of any non-defaulting party except to the
extent provided in Section 4 and except that the provisions of Sections 6 and 7
shall remain in effect.
35
<PAGE> 37
No action taken pursuant to this Section shall relieve the
Issuers from liability, if any, in respect of such default.
Section 12. Notices. All notices and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given if delivered, mailed or transmitted by any standard form of
telecommunication. Notices to you shall be directed to you, c/o Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, at Merrill Lynch
World Headquarters, North Tower, World Financial Center, New York, New York
10281, attention of Christopher A. Johnson, with a copy to Dewey Ballantine,
1301 Avenue of the Americas, New York, New York 10019, attention of Morton A.
Pierce, Esq.; notices to the Issuers shall be directed to them c/o OrNda
HealthCorp, 3401 West End Avenue, Suite 700, Nashville, Tennessee 37203,
Attention of General Counsel, with a copy to Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022, Attention of Mark C. Smith,
Esq.
Section 13. Parties. This Agreement is made solely for the
benefit of the several Underwriters, the Issuers and, to the extent expressed,
any person controlling the Issuers, or any of the Underwriters, and the
directors of the Issuers, the officers of the Issuers who have signed the
Registration Statement, and the executors, administrators, successors and
assigns of such persons and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from any of the several
Underwriters of the Shares. All of the obligations of the Underwriters
hereunder are several and not joint.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF THE DAY
REFER TO NEW YORK CITY TIME.
Section 15. Counterparts. This Agreement may be executed in
one or more counterparts and when a counterpart has been executed by each
party, all such counterparts taken together shall constitute one and the same
agreement.
36
<PAGE> 38
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon
this instrument will become a binding agreement among the Issuers and the
several Underwriters in accordance with its terms.
Very truly yours,
ORNDA HEALTHCORP
By:
-----------------------------------
Name:
Title:
SUMMIT HEALTH LTD.
By:
-----------------------------------
Name
Title:
Confirmed and accepted as of the date
first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CITICORP SECURITIES, INC.
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
By:
-----------------------------
Name:
Title:
37
<PAGE> 39
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount of
Securities
Underwriter to be Purchased
----------- -----------------
<S> <C>
MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED . . . . . . . . . . . . . . . . . .
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION . . . . . . . . . . . . . . . . . . .
SALOMON BROTHERS INC . . . . . . . . . . . . . . . . . . . .
CITICORP SECURITIES, INC . . . . . . . . . . . . . . . . . .
------------------------
Total . . . . . . . . . . . . . . . $125,000,000
</TABLE>
<PAGE> 40
EXHIBIT A
ORNDA HEALTHCORP
(a Delaware corporation)
Summit Health Ltd.
(a California corporation)
$125,000,000
% Senior Subordinated Notes due 2004
---
PRICE DETERMINATION AGREEMENT
, 1994
--------------
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CITICORP SECURITIES, INC.
c/o Merrill Lynch & Co.
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Dear Sirs:
Reference is made to the Purchase Agreement, dated
___________,1994 (the "Purchase Agreement"), among OrNda HealthCorp, a Delaware
corporation (the "Company"), Summit Health Ltd., a California corporation and a
wholly owned subsidiary of the Company ("Summit" and, together with the
Company, the "Issuers"), Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Brothers Inc and Citicorp Securities, Inc. (the "Underwriters"). The
Purchase Agreement provides for the purchase by the Underwriters from the
Issuers, subject to the terms and conditions set forth therein, of $125,000,000
aggregate principal amount of the Issuers' ___% Senior Subordinated Notes due
2004 (the "Securities"). This Agreement is the Price Determination Agreement
referred to in the Purchase Agreement.
<PAGE> 41
Pursuant to Section 2 of the Purchase Agreement, the
undersigned agree with the Underwriters as follows:
(1) The initial public offering price of the Securities
shall be ___% of the principal amount thereof, plus accrued interest
from ________, 1994 to the Closing Time;
(2) The purchase price of the Securities to be paid by
the Underwriters shall be ____% of the principal amount thereof, plus
accrued interest from __________, 1994 to the Closing Time;
(3) The interest rate to be borne by the Securities shall
be ___% per annum; and
(4) The Securities will mature on ________, 2004.
The Issuers represent and warrant to each of the Underwriters that the
representations and warranties of the Issuers set forth in Section 1(a) of the
Purchase Agreement are accurate as though expressly made at and as of the date
hereof.
As contemplated by Section 2 of the Purchase Agreement,
attached as Schedule A hereto is a completed list which sets forth the
principal amount of Securities to be purchased by each of the Underwriters.
This Agreement shall be governed by the laws of the State of
New York.
<PAGE> 42
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Issuers a counterpart hereof,
whereupon this instrument along with all counterparts and together with the
Purchase Agreement shall be a binding agreement among the Underwriters and the
Issuers in accordance with its terms and the terms of the Purchase Agreement.
Very truly yours,
ORNDA HEALTHCORP
By:
------------------------------
Name:
Title:
SUMMIT HEALTH LTD.
By:
------------------------------
Name:
Title:
Confirmed and accepted as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CITICORP SECURITIES, INC.
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
By:
----------------------------
Name:
Title:
<PAGE> 43
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount of
Securities
Underwriter to be Purchased
----------- -----------------
<S> <C>
MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED . . . . . . . . . . . . . . . . . .
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION . . . . . . . . . . . . . . . . . . .
SALOMON BROTHERS INC . . . . . . . . . . . . . . . . . . . .
CITICORP SECURITIES, INC . . . . . . . . . . . . . . . . . .
---------------------
Total . . . . . . . . . . . . . . . $125,000,000
</TABLE>
<PAGE> 44
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
[To Come]
<PAGE> 1
Exhibit 4.4
================================================================================
Draft of 8/15/94
OrNda HealthCorp
and
Summit Health Ltd.
as Joint and Several Obligors
$125,000,000
_____% Senior Subordinated Notes due 2004
____________________
INDENTURE
Dated as of __________, 1994
____________________
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<S> <C>
TIA Section Indenture Section
- ----------- -----------------
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.08; 4.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12
Section 316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . 11.06
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
TIA Section Indenture Section
- ----------- -----------------
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
_______________
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 16
1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II
THE SECURITIES
2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.05. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.07. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.08. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.09. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.10. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.11. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.12. Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III
REDEMPTION
3.01. Right of Optional Redemption; Prices . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.02. Notice of Redemption; Partial Redemptions . . . . . . . . . . . . . . . . . . . . . . . . 22
3.03. Payment of Securities Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . 24
3.04. Exclusion of Certain Securities from Eligibility for Selection for Redemption . . . . . . 24
ARTICLE IV
COVENANTS
4.01. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.03. Limitation on Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.04. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.05. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries . . . . . . 29
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Section Heading Page
<S> <C> <C>
4.06. Limitations on Liens Securing Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.07. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.08. Officers' Certificates as to Default and as to Compliance . . . . . . . . . . . . . . . . 31
4.09. Reports to Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.10. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.11. Maintenance of Properties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.12. Limitation on Other Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
5.01. When Company May Merge, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.02. Opinion of Counsel to Trustee; Officers' Certificate . . . . . . . . . . . . . . . . . . 36
5.03. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VI
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF
DEFAULT
6.01. Event of Default Defined; Acceleration of Maturity; Waiver of Default . . . . . . . . . . 36
6.02. Collection of Indebtedness by Trustee; Trustee May Prove Debt . . . . . . . . . . . . . . 39
6.03. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.04. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.05. Restoration of Rights and Abandonment of Proceedings . . . . . . . . . . . . . . . . . . 43
6.06. Limitations on Suits by Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.07. Unconditional Right of Securityholders to Institute Certain Suits . . . . . . . . . . . . 44
6.08. Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default . . . . . . . . . 44
6.09. Control by Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.10. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.11. Right of Court to Require Filing of Undertaking to Pay Costs . . . . . . . . . . . . . . 46
ARTICLE VII
TRUSTEE
7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Section Heading Page
<S> <C> <C>
7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.09. Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.11. Preferential Collection of Claims Against Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE VIII
DEFEASANCE
8.01. Defeasance upon Deposit of Moneys or U.S. Government Obligations . . . . . . . . . . . . . . . . . . 52
8.02. Survival of Issuers' Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.03. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.04. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.05. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE IX
SUBORDINATION OF SECURITIES
9.01. Securities Subordinated to Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.02. No Payment on Securities in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.03. Securities Subordinated to Prior Payment of All Senior Debt on Dissolution,
Liquidation or Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.04. Holders of Securities to Be Subrogated to Rights of Holders of Senior Debt . . . . . . . . . . . . . . 58
9.05. Obligations of the Issuers Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.06. Trustee and Paying Agent Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . 59
9.07. Application by Trustee of Moneys Deposited with It . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.08. Subordination Rights Not Impaired by Acts or Omissions of the Issuers or Holders of Senior Debt . . . . 60
9.09. Securityholders Authorize Trustee to Effectuate Subordination of Securities . . . . . . . . . . . . . . 61
9.10. Right of Trustee and Paying Agent to Hold Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.11. This Article Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.12. No Fiduciary Duty Created to Holders of Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.13. Trustee's Compensation Not Prejudiced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.14. Representative of Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
Section Heading Page
ARTICLE X
SUPPLEMENTAL INDENTURES
<S> <C> <C>
10.01. Supplemental Indentures Without Consent of Securityholders . . . . . . . . . . . . . . . 62
10.02. Supplemental Indentures with Consent of Securityholders . . . . . . . . . . . . . . . . 64
10.03. Effect of Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.04. Documents to Be Given to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.05. Notation on Securities in Respect of Supplemental Indenture . . . . . . . . . . . . . . 66
ARTICLE XI
MISCELLANEOUS
11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.03. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . 67
11.04. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . 67
11.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . 67
11.06. When Treasury Securities Disregarded . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.07. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.08. Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . . . . . . . . . 68
11.09. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.10. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . 68
11.11. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.12. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.13. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.14. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
vi
<PAGE> 8
INDENTURE, dated as of __________, 1994, among OrNda
HealthCorp, a Delaware corporation (the "Company"), Summit Health Ltd., a
California corporation and a wholly owned subsidiary of the Company (the
"Co-Obligor" and, together with the Company, the "Issuers") and NationsBank of
Tennessee, National Association, as Trustee (the "Trustee").
WHEREAS, the Issuers have duly authorized the creation of
an issue of _____% Senior Subordinated Notes due 2004 (the "Securities") in the
aggregate principal amount of $125,000,000 and to provide therefor the Issuers
have duly authorized the execution and delivery of this Indenture.
Therefore, intending to be legally bound hereby, each party
agrees as follows for the benefit of the other party and for the equal and
ratable benefit of the Holders of the _____% Senior Subordinated Notes due
2004.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acceleration Notice" shall have the meaning specified in
Section 6.01.
"Acquisition Debt" means (i) Debt or Preferred Stock of any
Person existing at the time such Person becomes a Subsidiary of the Company,
including but not limited to Debt or Preferred Stock incurred or created in
connection with, or in contemplation of, such Person becoming a Subsidiary of
the Company (but excluding Debt of such Person which is extinguished, retired
or repaid in connection with such Person becoming a Subsidiary of the Company),
(ii) Debt incurred or created by the Company or any of its Subsidiaries in
connection with the transaction or series of transactions pursuant to which
such Person became a Subsidiary of the Company or (iii) Debt incurred or
created by the Company or any of its Subsidiaries in connection with the
acquisition of substantially all of the assets of an operating unit or business
of another Person.
"Affiliate" of any Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms
<PAGE> 9
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or co-Registrar.
See Section 2.03.
"Attributable Debt" in respect of a sale-leaseback
transaction means, at the time of determination, the present value (discounted
at the interest rate implicit in the lease, compounded semiannually) of the
obligation of the lessee of the property or asset subject to such
sale-leaseback transaction for rental payments during the remaining term of the
lease included in such transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended or until the
earliest date on which the lessee may terminate such lease without penalty or
upon payment of penalty (in which case the rental payments shall include such
penalty), after excluding all amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water, utilities and
similar charges. For purposes of the foregoing, a "sale-leaseback transaction"
means an arrangement with any lender or investor or to which such lender or
investor is a party providing for the leasing by a Person of any property or
asset which has been or is being sold or transferred by such Person more than
270 days after the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any Person
to whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset.
"Board of Directors" means the Board of Directors of the
Company or any committee of such Board duly authorized to act hereunder.
"Business Day" means a day which in the City of New York or
in the cities in which the Corporate Trust office or the Corporate Trust
Operations Office of the Trustee is located, is neither a legal holiday nor a
day on which banking institutions are required or authorized by law or
regulation to close.
"Capital Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's capital stock whether now outstanding or issued after the date
of this Indenture, including, without limitation, all Common Stock and all
Preferred Stock and all equity rights with respect thereto.
"Capitalized Lease Obligation" means the discounted present
value of the rental obligations of any Person under any lease of Property
which, in accordance with
2
<PAGE> 10
generally accepted accounting principles, is required to be capitalized on the
balance sheet of such Person.
"Change of Control" means (i) the direct or indirect, sale,
lease or other transfer of all or substantially all of the assets of the
Company to any Person or entity or group of Persons or entities acting in
concert as a partnership or other group (a "Group of Persons") other than (a)
Joseph Littlejohn & Levy Fund, L.P., a Delaware limited partnership, and its
Affiliates or (b) Charles N. Martin, Jr. and his Affiliates, (ii) during any
period of two consecutive calendar years, individuals who at the beginning of
such period constituted the Company's Board of Directors (together with any new
directors whose election by the Company's Board of Directors or whose
nomination for election by the Company's shareholders was approved by a vote of
at least two- thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors then in office, (iii) a Person or Group of Persons
(other than (a) Joseph Littlejohn & Levy Fund, L.P., a Delaware limited
partnership, and its Affiliates or (b) Charles N. Martin, Jr. and his
Affiliates) shall, as a result of a merger or consolidation, a tender or
exchange offer, open market purchases, privately negotiated purchases or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of securities of the Company or the entity surviving
the merger or consolidation representing 50% or more of the combined voting
power of the then outstanding securities of the Company or the entity surviving
the merger or consolidation ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors.
"Closing Date" means the date on which the Securities are
originally issued.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and
all shares, interests, participations and other equivalents (however
designated, whether voting or non-voting) of such Person's common stock,
whether now outstanding or issued after the date of this Indenture, and
includes, without limitation, all series and classes of such common stock.
"Consolidated Cash Flow" for any Person, for any period,
means, without duplication, the Consolidated Net Income of such Person plus the
sum of (a) Consolidated Tax
3
<PAGE> 11
Expense, (b) Consolidated Interest Expense, (c) Consolidated Non-cash Charges,
(d) one/third of the rental expense on Attributable Debt and (e) Consolidated
Pooling Expenses.
"Consolidated Interest Expense" of any Person means, for
any period, without duplication, the sum of (a) the aggregate of the interest
expense of such Person and its Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with generally accepted
accounting principles, plus (b) net payments in respect of Interest Swap
Obligations (if any such payment applies to a period in excess of one year it
shall be amortized accordingly) of such Person and its Consolidated
Subsidiaries.
"Consolidated Net Income" of any Person, for any period,
means the net income (loss) of such Person and its Consolidated Subsidiaries
for such period, determined in accordance with generally accepted accounting
principles, adjusted by excluding (a) net extraordinary gains or net
extraordinary losses, as the case may be (including any gain or loss from the
purchase, redemption, acquisition or other retirement of Debt) and (b) net
gains or losses in respect of dispositions of assets, provided that, without
duplication, (i) the net income of any Person, other than a Consolidated
Subsidiary, in which the Company or any of its Consolidated Subsidiaries has a
joint interest with a third party shall be included only to the extent of the
amount of dividends or distributions actually paid to the Company or a
Consolidated Subsidiary during such period, (ii) the net income of any
Unrestricted Subsidiary shall be included for the purpose of determining net
income to the extent of the amount of cash, Property, dividends or
distributions actually paid by such Unrestricted Subsidiary to the Company or a
Subsidiary of the Company, (iii) the tax benefits of any net operating loss
carryforwards added directly to retained earnings and not otherwise included
for the purpose of determining net income in accordance with generally accepted
accounting principles for such period shall be included, (iv) the net income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded and (v) the net income of any
Subsidiary of such Person shall be excluded to the extent such Subsidiary is
prohibited, directly or indirectly, from distributing such net income or any
portion thereof to such Person.
"Consolidated Net Tangible Assets" of any Person, for any
period means, the assets of such Person and its Subsidiaries, less intangible
assets of such Person and its Subsidiaries (including, without limitation,
trademarks and tradenames, goodwill, excess reorganization value, research and
development expenses, and write-ups in the book value of
4
<PAGE> 12
any intangible assets), on a consolidated basis, determined in accordance with
generally accepted accounting principles.
"Consolidated Non-cash Charges" of any Person means, for
any period, the aggregate depreciation, amortization and other non-cash charges
(other than reserves or expenses established in anticipation of future cash
requirements such as reserves for taxes and uncollectible accounts) of such
Person and its Consolidated Subsidiaries, on a consolidated basis, for such
period, as determined in accordance with generally accepted accounting
principles, provided that (i) any charges which are not included for the
purpose of determining Consolidated Net Income shall be excluded from
Consolidated Non-cash Charges and (ii) any charges which are included for the
purpose of determining Consolidated Interest Expense or Consolidated Tax
Expense shall be excluded from Consolidated Non-cash Charges.
"Consolidated Pooling Expenses" of any Person for any
period means, with respect to such Person and its Consolidated Subsidiaries on
a consolidated basis, the expenses for such period in connection with a pooling
of interests transaction, determined in accordance with generally accepted
accounting principles, but only to the extent that such expenses would have
been capitalized, in accordance with generally accepted accounting principles,
if such transaction had been a purchase transaction.
"Consolidated Subsidiary" of any Person means a Person
which for financial reporting purposes is or, in accordance with generally
accepted accounting principles, should be accounted for by such Person as a
consolidated subsidiary.
"Consolidated Tax Expense" of any Person means, for any
period the aggregate of the tax expense of such Person and its Consolidated
Subsidiaries for such period, determined in accordance with generally accepted
accounting principles.
"Co-Obligor" means Summit Health Ltd., a corporation duly
organized under the laws of the State of California.
"Corporate Trust Office" means the principal office of the
Trustee in Nashville, Tennessee, at which at any particular time its corporate
trust business shall be administered.
"Corporate Trust Operations Office" means the principal
operations office of the Trustee located at Corporate Trust Operations, 715
Peachtree Street, Midtown Center, 7th Floor, Atlanta, Georgia 30308 or such
other address as the Trustee may designate in writing to the Issuers.
"Credit Agreement" means (a) the Credit, Security, Guaranty
and Pledge Agreement, dated as of April 19, 1994, among the Company, Summit
Health, Ltd. and AHM Acquisition
5
<PAGE> 13
Co., Inc., the Guarantors named therein, the lenders named therein, The Bank of
Nova Scotia, as Administrative Agent and Managing Agent, Citicorp USA Inc., as
Managing Agent, and the other financial institutions described therein (the
"Scotiabank Credit Agreement"), together with all agreements, documents and
instruments from time to time delivered in connection with the Scotiabank
Credit Agreement, as in effect on the date hereof, and as the Scotiabank Credit
Agreement and such other agreements, documents and instruments may be amended,
amended and restated, renewed, extended, restructured, supplemented or
otherwise modified from time to time, and (b) any credit agreement, loan
agreement, note purchase agreement, indenture or other agreement, document or
instrument refinancing, refunding or otherwise replacing the Scotiabank Credit
Agreement or any other agreement deemed a Credit Agreement under clause (a) or
(b) hereof, whether or not with the same agent, trustee, representative lenders
or holders, and irrespective of any changes in the terms and conditions
thereof. Without limiting the generality of the foregoing, the term "Credit
Agreement" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to any Credit Agreement
and all refundings, refinancings and replacements of any Credit Agreement,
including any agreement (i) extending the maturity of any Debt incurred
thereunder or contemplated thereby, (ii) adding or deleting borrowers or
guarantors thereunder, so long as such borrowers and issuers include one or
more of the Company and its Subsidiaries and their respective successors and
assigns, (iii) increasing the amount of Debt incurred thereunder or available
to be borrowed thereunder , or (iv) otherwise altering the terms and conditions
thereof in a manner not prohibited by the terms hereof.
"Currency Agreements" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in currency
values.
"Debt" means, as to any Person, without duplication, (a)
any indebtedness of such Person, including accrued and unpaid interest, for
borrowed money (including net overdrafts in any bank to the extent such
overdrafts are not extinguished within three Business days of their
incurrence), (b) all indebtedness of such Person evidenced by bonds,
debentures, notes, letters of credit or similar instruments, (c) all
indebtedness of such Person to pay the deferred purchase price of property or
services, except accounts payable arising in the ordinary course of business
that are not overdue by more than 180 days or that are being contested in good
faith, if and to the extent any of the foregoing indebtedness described in
clauses (a)-(c)
6
<PAGE> 14
inclusive would appear as a liability upon a balance sheet of such Person,
prepared on a consolidated basis in accordance with generally accepted
accounting principles, and shall also include, to the extent not otherwise
included, (d) all Capitalized Lease Obligations of such Person, (e) all Debt of
others secured by a Lien on any asset of such Person, whether or not such Debt
is assumed by such Person or guaranteed by such Person, (f) Attributable Debt
of such Person, (g) Preferred Stock issued by a Subsidiary of such Person, (h)
Redeemable Stock, (i) all Debt of others guaranteed by such Person and (j) all
indebtedness due to the Senior Agent or any Lender under or in respect of the
Credit Agreement or otherwise due to any Lender.
"Designated Senior Debt" means all obligations under or in
respect of the Credit Agreement and any other single issue of Debt constituting
Senior Debt which at the time of determination has an aggregate principal
amount of at least $40,000,000 and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" of the Company.
"Event of Default" means any event or condition specified
as such in Section 6.01 which shall have continued for the period of time, if
any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Fixed Charges" for any period are, without duplication,
the Consolidated Interest Expense, the interest component of capital leases and
one-third of the rental expense on Attributable Debt (without duplication) plus
the product of (x) the sum of (i) cash dividends paid on any Preferred Stock of
such Person plus (ii) cash dividends paid on any Preferred Stock of any
Subsidiary of such Person, times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective aggregate
federal, state and local tax rate of such Person, expressed as a decimal, but
excluding (a) the amortization of debt issuance costs, (b) amortization of
original issue discount (the excess of stated redemption price at maturity over
the issue price) which, with respect to any Debt, may not be greater than 1/4%
times the number of full years from issuance to maturity, and (c) non-cash
dividends paid on any Preferred Stock of such Person. For purposes of this
definition, interest on a capital lease shall be deemed to accrue at an
interest rate reasonably determined to be the rate of interest implicit in such
capital lease in accordance with generally accepted accounting principles
(including Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board).
7
<PAGE> 15
"Fountain Valley" means Fountain Valley Regional Hospital
and Medical Center and the related health care businesses of Fountain Valley
Medical Development Co. ("FVMD") acquired by the Company pursuant to the
Stock Purchase Agreement, dated as of July 20, 1994, among the Company, as
guarantor, Summit Health Ltd. and FVMD.
"Holder," "Securityholder" or any other similar term means
the registered holder of any Security.
"Indenture" means this instrument as originally executed
and delivered or, if amended or supplemented as herein provided, as so amended
or supplemented.
"Interest Swap Obligations" means the obligations of any
Person, pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
other Person calculated by applying a fixed or a floating rate of interest on
the same notional amount.
"Investment" means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business, which are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries) or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or acquisition
of Capital Stock, bonds, notes, debentures or other securities issued by any
other Person. For the purposes of Section 4.04 hereof, (i) "Investment" shall
include the fair market value of the net assets of any Subsidiary at the time
that such Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market value of the net assets of any Unrestricted Subsidiary that is
designated a Subsidiary and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at fair market value at the time of
such transfer, in each case as determined by the Board of Directors of such
Person in good faith.
"Lender" means any lender or other holder of Senior Debt
from time to time incurred or issued under the Credit Agreement.
"Lien" means, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such Property.
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<PAGE> 16
"Material Subsidiary" of any Person means, as of any date,
any Subsidiary of such Person (a) the value of whose assets, as such assets
would appear on a consolidated balance sheet of such Subsidiary and its
Consolidated Subsidiaries prepared on such date in accordance with generally
accepted accounting principles, is at least 10% of the value of the assets of
such Person and its Consolidated Subsidiaries, determined as aforesaid, or (b)
whose Consolidated Cash Flow for the most recently completed fiscal quarter
immediately preceding such date was at least 10% of the Consolidated Cash Flow
of such Person for such fiscal quarter.
"Measurement Date," when used with respect to any
calculation, means the date of the transaction giving rise to the need to make
such calculation.
"Net Worth" means, at any date, the aggregate of capital,
surplus and retained earnings of the Company and its Consolidated Subsidiaries
as would be shown on a consolidated balance sheet of the Company and its
Consolidated Subsidiaries prepared in accordance with generally accepted
accounting principles.
"Officers' Certificate" means a certificate signed, in the
case of the Company, by the Chairman of the Board of Directors or the President
or any Vice President (whether or not designated by a number or numbers or a
word or words added before or after the title "Vice President") and by the
Treasurer or the Secretary or any Assistant Secretary and delivered to the
Trustee. Each such certificate shall include the statements provided for in
Section 11.05.
"Opinion of Counsel" means an opinion in writing signed by
legal counsel who may be an employee of or counsel to the Company or who may be
other counsel reasonably satisfactory to the Trustee. Each such opinion shall
include the statements provided for in Section 11.05, if and to the extent
required hereby.
"Permitted Investments" means Investments in Unrestricted
Subsidiaries (A) in a cumulative aggregate amount not to exceed the sum of (1)
$25,000,000 (less previous Investments in Unrestricted Subsidiaries pursuant to
this clause (A)(1)) plus (2) any amounts received by the Company or any
Subsidiary from any Unrestricted Subsidiary which represents a repayment of the
principal portion of any loan or advance or any return of contributed capital
in respect of any previous Permitted Investment and (B) through the
contribution or other transfer of the Company's, or its Subsidiaries', interest
in HNMC, Inc. and Horizon Health Group, Inc. or any successors thereto.
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"Permitted Joint Venture" means all of the Company's
existing joint ventures on the Closing Date or a Person which owns, operates or
services a health care business or facility or manufactures or markets health
care products and (i) is formed by the Company or a Subsidiary of the Company
to offer an equity participation in the assets or businesses owned or to be
acquired by such Person primarily to physicians or employees of the Company or
any of its Subsidiaries or to any other Person involved directly or indirectly
in the health care industry and (ii) of which the Company or any Subsidiary of
the Company is a general partner or controls the general partner.
"Permitted Liens" with respect to the Company and its
Subsidiaries means: (1) Liens existing on the date of this Indenture and
renewals and extensions thereof; (2) Liens granted to secure obligations under
or in respect of the Credit Agreement; (3) rights of banks to set off deposits
against debts owed to said banks; (4) Purchase Money Obligations incurred in
the normal and ordinary course of the Company's business; (5) Liens in respect
of Debt incurred in connection with the sale by the Company or any Subsidiary
of the Company of receivables; and (6) Liens on the Property of any entity
existing at the time such Property is acquired by the Company or any of its
Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise, provided in the case of this clause (6) that such Liens (x) are not
created, incurred or assumed in contemplation of such assets being acquired by
the Company or any of its Subsidiaries and (y) do not extend to any other
Property of the Company or any of its Subsidiaries.
"Permitted Payments" means, with respect to the Company or
any of its Subsidiaries, (i) the redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock in exchange for
(including any exchange pursuant to the exercise of a conversion right or
privilege in connection with which cash is paid in lieu of the issuance of
fractional shares), or out of the proceeds of a substantially concurrent issue
and sale (other than to a Subsidiary) of, shares of Capital Stock (other than
Redeemable Stock) of the Company, (ii) any dividend or other distribution
payable to the Company or any of its Subsidiaries, (iii) the repurchase or
redemption by a wholly owned Subsidiary of its Capital Stock, (iv) the
declaration and payment of dividends on the PIK Preferred (A) in additional
shares of PIK Preferred or (B) to the extent required by the terms of the PIK
Preferred as of the Closing Date, in cash or (v) any dividend on, or
distribution of, the Capital Stock or Property of an Unrestricted Subsidiary.
"Person" means an individual, a corporation, a partnership,
an association, a trust or any other entity or
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organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Physician Support Obligation" means any obligation or
guarantee to any physician or allied health care professional pursuant to a
written agreement for a period not in excess of five years incurred in
connection with recruiting, redirecting or retaining such physician or allied
health care professional to provide service to patients in the service area of
any health care facility owned or operated by any Consolidated Subsidiary of
the Company or any Permitted Joint Venture, but excluding actual compensation
for services provided by such physician or allied health care professional to
any health care facility owned or operated by the Company or any of its
Subsidiaries or any Permitted Joint Venture.
"PIK Preferred" means the $.01 par value Payable in Kind
Cumulative Redeemable Preferred Stock of the Company outstanding on the Closing
Date or issued subsequent to the Closing Date as a Permitted Payment.
"Preferred Stock" means, with respect to any Person, any
and all shares, interests, participations or other equivalents (however
designated) of such Person's preferred or preference stock whether now
outstanding or issued after the date of this Indenture, and including, without
limitation, all classes and series of preferred or preference stock.
"principal" wherever used with reference to the Securities
or any Security or any portion thereof, shall be deemed to include "and
premium, if any".
"Pro Forma Coverage Ratio" of any Person means the pro
forma ratio of such Person's Consolidated Cash Flow to its Fixed Charges for
the Reference Period immediately prior to the Measurement Date. The Pro Forma
Coverage Ratio shall, as applicable, be calculated on the following basis:
(1) notwithstanding clause (iv) of the definition of
Consolidated Net Income, if the Debt which is being created, incurred
or assumed is Acquisition Debt, the Pro Forma Coverage Ratio shall be
determined after giving effect to both the Fixed Charges related to
the creation, incurrence or assumption of such Acquisition Debt and
the Consolidated Cash Flow (x) of the Person becoming a Subsidiary of
such Person or (y) in the case of an acquisition of assets which
constitute substantially all of an operating unit or business,
relating to the assets being acquired by such Person;
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(2) there shall be excluded from Fixed Charges any Fixed
Charges related to Debt repaid during and subsequent to the Reference
Period and which is not outstanding on the Measurement Date; and
(3) the creation, incurrence or assumption of any Debt
during the Reference Period or subsequent to the Reference Period and
prior to the Measurement Date, and the application of the proceeds
therefrom, shall be assumed to have occurred on the first day of the
Reference Period.
"Property" of any Person means all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included on the most recent consolidated balance sheet of such Person in
accordance with generally accepted accounting principles.
"Purchase Money Obligations" means Debt of the Company or
its Subsidiaries secured by Liens (i) on Property purchased, acquired, or
constructed after the Closing Date and used in the ordinary course of business
by the Company and its Subsidiaries and (ii) securing the payment of all or any
part of the purchase price or construction cost of such assets and limited to
the Property so acquired and improvements thereof.
"Redeemable Stock" means, with respect to any Person, any
class or series of Capital Stock of such Person which is redeemable at the
option of the holder (except pursuant to a change in control provision that
does not (i) cause such Capital Stock to become redeemable in circumstances in
which the Company would not be required to make a Change in Control Offer and
(ii) require the Company to pay the redemption price therefor prior to the
Change of Control Payment Date) or is subject to mandatory redemption prior to
the maturity of the Securities.
"Reference Period" means the four fiscal quarters ending
with the most recent fiscal quarter for which financial information is
available and which ended immediately preceding the Measurement Date.
"Responsible Officer" when used with respect to the Trustee
means any officer in its Corporate Trust Office, or any other officer of the
Trustee customarily performing functions similar to those performed by the
persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"Restricted Payments" means with respect to any Person (i)
any dividend or other distribution on any shares
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of such Person's Capital Stock (except dividends or distributions in additional
shares of Capital Stock other than Redeemable stock), (ii) any payment on
account of the purchase, redemption or other acquisition of (a) any shares of
such Person's Capital Stock or (b) any option, warrant or other right to
acquire shares of such Person's Capital Stock, or (iii) any Investment in an
Unrestricted Subsidiary which is not a Permitted Investment; provided that
distributions to joint venture participants or repurchases of interests in
Permitted Joint Ventures (other than distributions or repurchases of joint
venture interests of Affiliates of the Company and its Subsidiaries) shall not
constitute Restricted Payments; provided, further, that an individual shall not
be deemed to be an Affiliate of the Company or any Subsidiary solely because
such individual is employed by the Company or any Subsidiary.
"Security" or "Securities" means any of the Senior
Subordinated Notes due 2004 authenticated and delivered under this Indenture.
"Senior Agent" means, collectively, The Bank of Nova Scotia
and Citibank USA, Inc., any successor to The Bank of Nova Scotia and Citibank
USA Inc., respectively, under the Credit Agreement and any other agent,
trustee or representative of the holders of Debt under or in respect of the
Credit Agreement serving in such capacity from time to time and, if there is no
such agent, trustee or representative, "Senior Agent" shall mean, collectively,
the holders from time to time of Debt incurred under or in respect of the
Credit Agreement.
"Senior Debt" means (i) all obligations of the Company and
its Subsidiaries, now or hereafter existing under or in respect of the Credit
Agreement, whether for principal, interest (including without limitation,
interest accruing after filing of a bankruptcy petition initiating bankruptcy
proceedings of the Company or any of its Subsidiaries at the rates prescribed
in the Credit Agreement, whether or not interest is an allowed claim
enforceable against the debtor), reimbursement of amounts drawn under letters
of credit issued or arranged for pursuant thereto, guaranties in respect
thereof, and all charges, fees, expenses (including reasonable fees and
expenses of counsel) and other amounts incurred by or owing to the Senior Agent
and the Lenders under or in respect of the Credit Agreement, and all other
obligations of the Company and its Subsidiaries incurred under or in respect of
the Credit Agreement including, without limitation, in respect of premiums,
indemnities or otherwise, and all indebtedness under the Credit Agreement which
is disallowed, avoided or subordinated pursuant to Section 548 of Title 11,
United States Code or any applicable state fraudulent
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conveyance law; (ii) the principal of, premium if any, and interest on
indebtedness for money borrowed by the Company or the Co- Obligor, as
applicable (other than the Securities), whether outstanding on the date of this
Indenture or hereafter created or incurred, unless such indebtedness, by its
terms or the terms of the instrument creating or evidencing it is subordinate
in right of payment to or pari passu with the Securities; (iii) any obligations
of the Company or the Co-Obligor, as applicable, in respect of capital leases
of the Company or the Co-Obligor, as applicable, whether outstanding on the
date of this Indenture or hereafter created or incurred; (iv) any obligations
of the Company or the Co-Obligor, as applicable, in respect of (x) any
indebtedness for money borrowed by another Person or (y) any capital leases of
any other Person, in either case which is guaranteed in whole or in part
directly or indirectly by the Company or the Co-Obligor, as applicable,
(whether such guarantee is outstanding on the date of this Indenture or
hereafter created or incurred); (v) the principal of, premium if any, and
interest on any indebtedness constituting Purchase Money Obligations for the
payment of which the Company or the Co-Obligor, as applicable, is directly or
contingently liable (whether such Purchase Money Obligations are outstanding on
the date of this Indenture or hereafter created or incurred); (vi) any
obligation of the Company or the Co-Obligor, as applicable, to compensate,
reimburse or indemnify an issuer with respect to any letter of credit issued at
the request of or for the account of the Company or the Co-Obligor, as
applicable; (vii) any obligation of the Company or the Co-Obligor, as
applicable, under any Interest Swap Obligations or Currency Agreements; (viii)
any obligation of the Company or the Co-Obligor, as applicable, to any Person
in respect of surety or similar bonds issued by such Person; (ix) all charges,
fees, expenses (including reasonable fees and expenses of counsel) and other
amounts incurred by or owing to the holders of indebtedness referred to in
clauses (ii)-(viii) above in connection with such indebtedness; and (x) all
interest payable during the pendency of a proceeding under Title 11, United
States Code on indebtedness referred to in clauses (ii)-(viii) above incurred
prior to the commencement of such proceeding; provided that the term "Senior
Debt" shall not include any indebtedness of the Company or the Co-Obligor, as
applicable, to an Affiliate of the Company or the Co-Obligor, as applicable,
except to the extent any such indebtedness is pledged to the Senior Agent as
security for Senior Debt incurred under or in respect of the Credit Agreement.
"Senior Representative" means any agent, trustee or other
representative of the holders of any Senior Debt other than Senior Debt
incurred under or in respect of the
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Credit Agreement and, if there is no such agent, trustee or other
representative with respect to any such Senior Debt, "Senior Representative"
shall mean, collectively, the holders of at least a majority in dollar amount
of any such Senior Debt.
"Stock Appreciation Rights" means a payment of cash in lieu
of shares of Common Stock by the Company to an employee of the Company in
accordance with a stock option plan approved by the Board of Directors.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which a majority of the Capital Stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is at the time
directly or indirectly owned by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof; provided that an
Unrestricted Subsidiary shall not be deemed to be a Subsidiary of the Company
for purposes of this Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Section Section 77aaa-77bbbb) as in force at the date of this Indenture.
"Trust Officer" means any vice president, assistant vice
president or any other officer or assistant officer of the Trustee assigned by
the Trustee to administer its corporate trust matters.
"Trustee" means the entity identified as "Trustee" in the
first paragraph hereof and, subject to the provisions of Article Seven, shall
also include any successor trustee.
"Unrestricted Subsidiary" means (1) any Subsidiary of the
Company which at the time of determination shall be an Unrestricted Subsidiary
(as designated by the Board of Directors of the Company, as provided below) and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate each Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary) to be an Unrestricted Subsidiary not more than one time
during any 24 month period, provided that a Subsidiary which owns any Capital
Stock of, or owns, or holds any Lien on, any Property of, any other Subsidiary
of the Company which is not a Subsidiary of such Subsidiary may not be so
designated; provided, further, that immediately after giving effect to such
designation, no default or Event of Default shall have occurred and be
continuing. The Board of Directors may designate each Unrestricted Subsidiary
to be a Subsidiary not more than one time during any 24 month period; provided
that immediately after giving effect to
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such designation, no default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the resolution of
the Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions; provided that no Subsidiary of the Company shall be (and, if such
Subsidiary is an Unrestricted Subsidiary, it shall immediately cease to be) an
Unrestricted Subsidiary if, at any time, the Company or any other Subsidiary of
the Company shall create, incur, issue, assume, guarantee or in any other
manner whatsoever be or become liable with respect to any claim against or any
contractual obligation or indebtedness of, such Subsidiary.
"U.S. Government Obligations" means securities which are
(i) direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United
States of America the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of interest on or principal of
the U.S. Government Obligation evidenced by such depository receipt.
SECTION 1.02. Other Definitions.
Term Defined in Section
---- ------------------
"Change of Control Date" 4.11
"Change of Control Offer" 4.11
"Change of Control Payment Date" 4.11
"Discharge" 8.01
"Paying Agent" 2.03
"Registrar" 2.03
"Scotiabank Credit Agreement" 1.01
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act. Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by
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reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means each of the
Issuers.
All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute or defined by
SEC rule have the meanings so assigned to them.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles in effect on the date hereof, and any other
reference in this Indenture to "generally accepted accounting
principles" refers to generally accepted accounting principles
on the date hereof;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
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ARTICLE II
THE SECURITIES
SECTION 2.01. Form and Dating. The Senior Subordinated
Notes and the Trustee's certificate of authentication for such Series shall be
substantially in the form set forth in Exhibit A, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Issuers shall
approve the form of the Securities and any notation, legend or endorsement on
them. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the form of the
Securities annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Indenture.
SECTION 2.02. Execution and Authentication. Two officers
of each of the Issuers shall execute the Securities by manual or facsimile
signature. The seal of the Issuers shall be reproduced on the Securities.
If an officer whose signature is on a Security no longer
holds that office at the time the Trustee authenticates the Security, the
Security shall be valid nevertheless.
A Security shall not be valid until the Trustee manually
signs the certificate of authentication on the Security. The signature shall
be conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Senior Subordinated Notes
for original issue in the aggregate principal amount of up to $125,000,000 upon
a written order of the Issuers signed by two officers or by an officer and an
Assistant Treasurer of each of the Issuers. The aggregate principal amount of
Senior Subordinated Notes outstanding at any time may not exceed $125,000,000
except as provided in Sections 2.07 and 2.08.
The initial written authentication order delivered by the
Issuers to the Trustee shall specify the amount of Senior Subordinated Notes to
be issued on the Closing Date.
The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Securities. The Company shall pay all fees
payable to the authenticating agent. Any authenticating agent appointed
hereunder shall be entitled to the benefits of Section 7.07. An
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authenticating agent may authenticate Securities whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as
an Agent to deal with the Company or an Affiliate of the Company.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 2.03. Registrar and Paying Agent. The Issuers
shall maintain an office or agency where Securities may be presented for
registration of transfer or for exchange (the "Registrar") and an office or
agency where Securities may be presented for payment (the "Paying Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Issuers may have one or more additional paying agents. The term
"Paying Agent" includes any additional paying agent.
The Issuers shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Issuers shall notify the Trustee in writing of the name and address of any such
Agent and any change in the address of such Agent. If the Issuers fail to
maintain a Registrar or Paying Agent, the Trustee shall act as such.
The Issuers initially appoint the Trustee as Registrar and
Paying Agent. The Trustee shall have the right to designate one of its
Affiliates as Registrar and Paying Agent.
SECTION 2.04. Paying Agent to Hold Money in Trust. The
Company shall require each Paying Agent other than the Trustee to agree in
writing to hold in trust for the benefit of the Securityholders or the Trustee
all moneys held by the Paying Agent for the payment of principal of or interest
on the Securities, and the Issuers and the Paying Agent shall notify the
Trustee of any default by the Issuers in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
of the Issuers held by it to the Trustee. If an Issuer or its Affiliates acts
as Paying Agent, it shall segregate the money and hold it as a separate trust
fund. The Company at any time may require a Paying Agent to pay all money held
by it to the Trustee. Upon doing so the Paying Agent shall have no further
liability for the money.
SECTION 2.05. Securityholder Lists. The Trustee shall
preserve in as current a form as is reasonably practi-
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cable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee at least 10 days before each semi-annual interest
payment date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require, of
the names and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange. When a Security is
presented to the Registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if duly endorsed or accompanied by a
proper instrument or instruments of assignment and transfer thereof. When
Securities are presented to the Registrar with a request to exchange them for
an equal principal amount of Securities of other denominations, the Registrar
shall make the exchange as requested if the same requirements are met. To
permit transfers and exchanges, the Trustee shall authenticate Securities at
the Registrar's request. Any exchange or transfer shall be without charge,
except that the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto (other
than any such transfer taxes or similar governmental charges payable upon
exchanges pursuant to Section 2.09, 3.02 or 10.05). The Registrar need not
transfer or exchange any Security or portion of a Security selected for
redemption other than that portion not called for redemption, or transfer or
exchange any Securities for a period of 15 days before a selection of
Securities to be redeemed.
SECTION 2.07. Replacement Securities. In case any
Security shall become mutilated, defaced or be apparently destroyed, lost or
stolen, the Issuers shall execute, and upon the written request of an officer
of each of the Issuers the Trustee shall authenticate a replacement Security
of like date, maturity, denomination and interest rate as such mutilated, lost,
stolen or destroyed Security if its requirements as well as requirements of
applicable law are met. In every case the applicant for a substitute security
shall furnish to the Company and the Trustee and any agent of the Company or the
Trustee such security or indemnity (which may be in the form of a bond) as may
be required by them to indemnify and defend and to save each of them harmless,
and in every such case of destruction, loss or theft, the applicant shall also
furnish to the Company and the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Security and the ownership thereof. The
Company and the Trustee may charge for their expenses in replacing a Security
mutilated, lost, stolen or destroyed. Every replacement Security is an
additional obligation of the Issuers.
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SECTION 2.08. Outstanding Securities. Securities
outstanding at any time are all Securities that have been authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, Securities for the payment or redemption of which moneys in the
necessary amount shall have been deposited in trust with the Trustee, provided
that if Securities are to be redeemed prior to the maturity thereof, notice of
such redemption shall have been duly given or provision satisfactory to the
Trustee shall have been made for giving such notice, and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because an Issuer or one of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Security is held by a Person in whose hands such Security is
a legal, valid and binding obligation of the Issuers.
If the Paying Agent (other than the Company or any
Subsidiary) holds on a redemption date or maturity date money sufficient to pay
principal of and accrued interest on Securities payable on that date, then on
and after that date such Securities shall be deemed to be no longer outstanding
and interest on them shall cease to accrue.
SECTION 2.09. Temporary Securities. Until definitive
Securities are ready for delivery, the Issuers may prepare and the Trustee
shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Issuers consider appropriate for temporary Securities. Without
unreasonable delay, the Issuers shall prepare and the Trustee shall
authenticate definitive Securities in exchange for the temporary Securities.
SECTION 2.10. Cancellation. The Issuers at any time may
deliver Securities to the Trustee for cancellation. The Registrar and Paying
Agent shall forward to the Trustee any Securities surrendered to them for
transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy all Securities surrendered for transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company. The
Issuers may not issue new Securities to replace Securities which the Issuers
have redeemed or paid, or that have been delivered to the Trustee for
cancellation.
SECTION 2.11. Defaulted Interest. If the Issuers default
in a payment of interest on the Securities, subject to the provisions of
Article Nine hereof, they shall pay the defaulted interest, plus to the extent
permitted by law, any
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interest payable on the defaulted interest, to the persons who are
Securityholders on a subsequent special record date. The Issuers shall fix
such special record date and payment date, provided that there shall be at
least five days between the special record date and payment date unless the
Issuers and the Trustee shall agree otherwise. At least 15 days before such
special record date, the Issuers shall mail to each Securityholder a notice
that states the special record date, the payment date and the amount of
defaulted interest to be paid. The Issuers may pay defaulted interest in any
other lawful manner.
SECTION 2.12. Ownership. The Trustee, the Issuers and the
Registrar and Paying Agent shall deem and regard the person in whose name any
Security shall be registered on the registration books as the owner thereof for
all purposes, and payment of or on account of the principal of any such
Security and the interest thereon shall be made only to or upon the order of
the registered owner thereof or his legal representative.
All payments made to the persons designated by this Section
2.12 to be the owner of any Security shall be valid and effective to satisfy
and discharge the liability of the Issuers and the Trustee upon such Security,
including the interest thereon, to the extent of the sum or sums so paid.
ARTICLE III
REDEMPTION
SECTION 3.01. Right of Optional Redemption; Prices. The
Securities may not be redeemed prior to __________, 1999. On and after
__________, 1999, the Company at its option may redeem all, or from time to
time any part of, the Securities upon payment of the redemption price as set
forth in the Securities, together with accrued and unpaid interest to the date
fixed for redemption.
SECTION 3.02. Notice of Redemption; Partial Redemptions.
Notice of redemption to the Holders of Securities to be redeemed pursuant
Section 3.01 as a whole or (subject to Section 3.01) in part shall be given by
mailing notice of such redemption by first-class mail, postage prepaid, at
least 30 and not more than 60 days prior to the date fixed for redemption to
such Holders of Securities at their last addresses as they shall appear upon
the registry books. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
Holder receives the notice. Failure to give notice by mail, or any defect in
the notice to the Holder of any Security designated for
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redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Security.
The notice of redemption to each such Holder shall specify
the principal amount of each Security held by such Holder to be redeemed, the
date fixed for redemption, the redemption price, the place or places of
payment, that payment will be made upon presentation and surrender of such
Securities, that interest accrued to the date fixed for redemption will be paid
as specified in said notice, and that on and after said date interest thereon
or on the portions thereof to be redeemed will cease to accrue. In case any
Security is to be redeemed in part only the notice of redemption shall state
the portion of the principal amount thereof to be redeemed and shall state that
on and after the date fixed for redemption, upon surrender of such Security, a
new Security or Securities in principal amount equal to the unredeemed portion
thereof will be issued.
The notice of redemption of Securities to be redeemed at
the option of the Company or pursuant to Section 4.10 shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Company shall notify the Trustee of such
redemption at least 15 days (or five days in the case of any notice of
redemption pursuant to Section 4.10) prior to the date the notice of redemption
is to be sent to the Holders and shall specify in such notice whether the
Trustee is to give such notice.
On or prior to the redemption date specified in the notice
of redemption given as provided in this Section, the Company will deposit with
the Trustee or with the Paying Agent (or, if the Company is acting as Paying
Agent, the Company will set aside, segregate and hold in trust) an amount of
money sufficient to redeem in immediately available funds on the redemption
date all the Securities so called for redemption at the appropriate redemption
price, together with accrued interest to the date fixed for redemption. If
less than all the outstanding Securities are to be redeemed the Company will
deliver to the Trustee at least 45 days prior to the date fixed for redemption
an Officers' Certificate stating the aggregate principal amount of Securities
to be redeemed.
If less than all the Securities are to be redeemed, the
Trustee shall select, by lot or pro rata, or as otherwise directed by the
Company in a manner which is appropriate and fair, the Securities or portions
thereof to be redeemed. Securities may be redeemed in part in multiples of
$1,000 principal amount only. The Trustee shall promptly notify the Company in
writing of the
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Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case
of any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
SECTION 3.03. Payment of Securities Called for Redemption.
If notice of redemption has been given as above provided, the Securities or
portions of Securities specified in such notice shall become due and payable on
the date and at the place stated in such notice at the applicable redemption
price, together with interest accrued to the date fixed for redemption, and on
and after said date (unless the Company shall default in the payment of such
Securities at the redemption price, together with interest accrued to said
date) interest on the Securities or portions of Securities so called for
redemption shall cease to accrue and such Securities shall cease from and after
the date fixed for redemption to be entitled to any benefit or security under
this Indenture. On presentation and surrender of such Securities at a place of
payment specified in said notice, said Securities or the specified portions
thereof shall be paid and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to the date fixed for redemption;
provided that if the date fixed for redemption is after a record date for the
payment of interest on the Securities and on or before the corresponding
semiannual interest payment date, such accrued interest shall be payable to the
Holders of such Securities registered as such on the relevant record date.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate
borne by the Securities then in effect.
Upon presentation of any Security redeemed in part only,
the Issuers shall execute and the Trustee shall authenticate and deliver to or
on the order of the Holder thereof, at the expense of the Company, a new
Security or Securities, of authorized denominations, in principal amount equal
to the unredeemed portion of the Security so presented.
SECTION 3.04. Exclusion of Certain Securities from
Eligibility for Selection for Redemption. Securities shall be excluded from
eligibility for selection for redemption if they are identified by registration
and certificate number in a written statement signed by an
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officer of the Company and delivered to the Trustee at least 40 days
prior to the last date on which notice of redemption may be given as being
owned of record and beneficially by, and not pledged or hypothecated by, (a)
the Company or (b) an entity specifically identified in such written statement
as directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company.
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Securities. The Company or the
Co-Obligor shall pay the principal of and interest on the Securities on the
dates and in the manner provided in the Securities. An installment of
principal or interest shall be considered paid on the due date if the Trustee
or Paying Agent (other than the Company, the Co-Obligor, any Subsidiary of the
Company or the Co-Obligor, or any Affiliate of any thereof) holds on that date
money, in immediately available funds, deposited for and sufficient to pay the
installment.
The Company or the Co-Obligor shall pay interest on overdue
principal at the rate borne by the Securities and they shall pay interest on
overdue installments of interest at the same rate, to the extent lawful.
The obligations of each of the Company and the Co-Obligor
under this Section shall be joint and several.
SECTION 4.02. Maintenance of Office or Agency. The
Issuers will maintain in The City of New York, an office or agency where
Securities may be surrendered for registration of transfer or exchange or
tendered for payment and where notices and demands to or upon the Issuers in
respect of the Securities and this Indenture may be served. The Issuers will
give prompt written notice to the Trustee of the location, and any change in
the location, of such office or agency. If at any time the Issuers shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee as set forth in
Section 11.02.
The Issuers may also from time to time designate one or
more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations. The Issuers will give prompt written notice to the Trustee of
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any such designation or rescission and of any change in the location of any
such other office or agency.
The Issuers hereby initially designate the Corporate Trust
Operations Office of the Trustee or the office of its designated agent or
Affiliate located in the Borough of Manhattan, The City of New York, as such
office of the Company in accordance with Section 2.03.
SECTION 4.03. Limitation on Debt. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume, guarantee or otherwise become liable for, any Debt, except:
(a) Debt evidenced by the Securities;
(b) Debt under the Credit Agreement in an aggregate
principal amount at any time outstanding not to exceed $700,000,000;
(c) Debt incurred for working capital purposes at any time
outstanding not to exceed $300,000,000; provided that the amount of
such debt outstanding at any time pursuant to this clause (c) may not,
together with any amounts outstanding or subject to a commitment of
the Lenders under the Credit Agreement, exceed the amount that is
permitted to be outstanding under the Credit Agreement pursuant to
clause (b);
(d) Debt of the Company to any Consolidated Subsidiary or
of any Consolidated Subsidiary to the Company or to any other
Consolidated Subsidiary;
(e) Debt of the Company and its Subsidiaries outstanding
on the Closing Date;
(f) Debt evidenced by letters of credit which are issued
in the ordinary course of business of the Company and its
Subsidiaries;
(g) Debt incurred to purchase or to finance the purchase
of any Person's ownership interest in a Permitted Joint venture in
accordance with the terms of the agreement creating such interest or
on terms no more favorable to such Person than that provided for by
such agreement on the Closing Date;
(h) Debt in respect of performance bonds provided by the
Company in the ordinary course of business;
(i) Purchase Money Obligations incurred in the ordinary
course of business;
(j) Debt representing additional shares of PIK Preferred
payable as dividends on such PIK Preferred;
(k) Physician Support Obligations;
(l) Capitalized Lease Obligations and Attributable Debt
(without duplication) in an aggregate amount outstanding at any time
not to exceed 10% of the Company's Consolidated Net Tangible Assets;
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(m) Debt assumed in connection with the acquisition of
Fountain Valley in an aggregate principal amount not exceeding
$20,000,000;
(n) Any extension, renewal or replacement of any of
clauses (a), (c), (e) or (g) above (without (i) increasing the
principal amount of any Debt then outstanding (unless such Debt is
issued at a discount in which case the issuance price of such discount
Debt shall not exceed the principal amount of Debt being so
refinanced) plus the amount of any premium required to be paid under
the terms of the instrument governing such Debt being refinanced or
the amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing through means of a tender
offer or privately negotiated transactions and, in each case, actually
paid, (ii) altering the issuer or obligor (except that the Company may
incur Debt to replace Debt of a Subsidiary) or (iii) shortening the
maturity of subordinated debt; and
(o) Debt, other than Debt permitted under clauses (a)
through (m), provided that the aggregate principal amount (or
liquidation preference) of such Debt may not exceed $125,000,000 at
any time outstanding, which Debt may be incurred under the Credit
Agreement.
Notwithstanding the foregoing, the Company and its
Consolidated Subsidiaries may create, incur or assume Debt (including
Acquisition Debt) if, at the time such Debt is so created, incurred or assumed
and after giving effect thereto and the application of the proceeds thereof,
and after giving pro forma effect to any acquisition or disposition by the
Company or any Subsidiary of (i) a hospital or (ii) any assets with a value in
excess of $10,000,000, whether by merger, stock purchase or sale, or asset
purchase or sale, as if such acquisition or disposition occurred on the first
day of the Reference Period, the Company's Pro Forma Coverage Ratio shall not
be less than 2.0 to 1.0 for the period beginning on the date of the Indenture
through August 31, 1995 and 2.25 to 1.0 thereafter; provided that, if the
Company and its Consolidated Subsidiaries are unable to incur or assume
Acquisition Debt pursuant to the foregoing clause, the Company and its
Consolidated Subsidiaries may nonetheless create, incur or assume Acquisition
Debt so long as, after giving effect thereto and the application of the
proceeds thereof, and after giving pro forma effect to any acquisition or
disposition by the Company or any Subsidiary of (i) a hospital or (ii) any
assets with a value in excess of $10,000,000, whether by merger, stock purchase
or sale, or asset purchase or sale,
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as if such acquisition or disposition occurred on the first day of the
Reference Period, the Company's Pro Forma Coverage Ratio (i) is not less than
2.0 to 1.0 and (ii) is not less than the ratio of the Company's Consolidated
Cash Flow to Fixed Charges (applying the provisions of (2) and (3) of the
definition of Pro Forma Coverage Ratio) for the period with respect to which
the Pro Forma Coverage Ratio was calculated.
For purposes of this Section 4.03, any waiver, extension or
continuation under the Credit Agreement of any or all mandatory prepayments or
installment payments or maturity date of any of the Debt referred to in clause
(b) above shall not be or be deemed to be the creation, incurrence or
assumption of Debt by the Company.
SECTION 4.04. Limitation on Restricted Payments. The
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly make any Restricted Payment, if, after giving effect thereto:
(a) an Event of Default, or an event that through the
passage of time or the giving of notice, or both, would become an
Event of Default, shall have occurred and be continuing,
(b) the Company could not incur an additional $1.00 of
Debt (other than permitted or Acquisition Debt) in accordance with
Section 4.03; or
(c) the aggregate amount of all Restricted Payments made
by the Company and its Subsidiaries (the amount expended or
distributed for such purposes, if other than in cash, to be determined
in good faith by the Board of Directors) from and after the Closing
Date shall exceed the sum of:
(i) the aggregate of 50% of the Consolidated Net
Income of the Company (determined by excluding any amounts
included in such Consolidated Net Income which were
received by the Company or a Subsidiary from an
Unrestricted Subsidiary) accrued for the period (taken as
one accounting period) commencing with the first full month
after the Closing Date to and including the first full
month ended immediately prior to the date of such
calculation (or, in the event Consolidated Net Income is a
deficit, then minus 100% of such deficit),
(ii) the aggregate net proceeds to the Company,
including the fair market value of Property other than cash
(as determined in good
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faith by the Board of Directors), received by the
Company from the issuance or sale (other than to a
Subsidiary of the Company) of its Capital Stock (other than
Redeemable Stock) from and after the date of this Indenture,
and options, warrants and rights to purchase its Capital
Stock other than Redeemable Stock, and
(iii) the aggregate amount received by the Company
or a Subsidiary of the Company from its Unrestricted
Subsidiaries (excluding all amounts received by the Company
or any Subsidiary from all such Unrestricted Subsidiaries
which represent a repayment of the principal portion of any
loan or advance or any return of contributed capital in
respect of any previous advance).
The foregoing clauses (a), (b) and (c) will not prevent
Permitted Payments and the foregoing clauses (b) and (c) will not prevent (i)
the payment of any dividend within 60 days after the date of its declaration if
such dividend could have been made on the date of its declaration in compliance
with the foregoing provisions, (ii) amounts payable by the Company to its
employees pursuant to the Stock Appreciation Rights, and (iii) the repurchase
or redemption of shares of Capital Stock from any officer, director or employee
of the Company or its Subsidiaries whose employment has been terminated, or who
has died or become disabled in an aggregate amount not to exceed $7,500,000 per
annum.
SECTION 4.05. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries. The Company will not, and will not permit
any of its Subsidiaries to, create, assume or otherwise cause or suffer to
exist or to become effective any consensual encumbrance or restriction on the
ability of any Subsidiary to (A) pay dividends or make any other distributions
on its Capital Stock to the Company or any Subsidiary; (B) make payments in
respect of any Debt owed to the Company or any Subsidiary; or (C) make loans or
advances to the Company or any of the Company's Subsidiaries; provided,
however, that the following restrictions shall not be prohibited pursuant to
this Section 4.05: (i) those contained in the Credit Agreement; (ii)
consensual encumbrances or restrictions binding upon any Person at the time
such Person becomes a Subsidiary of the Company so long as such encumbrances or
restrictions are not created, incurred or assumed in contemplation of such
Person becoming a Subsidiary of the Company; (iii) restrictions contained in
security agreements permitted by this Indenture securing Debt permitted by this
Indenture to the extent such restrictions restrict the transfer of Property
subject to such security agreements; (iv) any
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encumbrance or restriction consisting of customary non-assignment provisions in
leases to the extent such provisions restrict the transfer of the leases; (v)
any encumbrance or restriction pursuant to an agreement in effect at or entered
into on the date of this Indenture; (vi) any encumbrance or restriction
relating to a Permitted Joint Venture; or (vii) any restrictions with respect
to a Subsidiary imposed pursuant to an agreement which has been entered into
for the sale or disposition of all or substantially all the capital stock or
assets of such Subsidiary.
SECTION 4.06. Limitations on Liens Securing Debt. (a)
The Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create, incur, assume or permit to exist any Lien upon or with
respect to any of the Property of the Company or any such Subsidiary whether
now owned or hereafter acquired, or on any income or profits therefrom, to
secure any Debt which is pari passu with or subordinate in right of payment to
the Securities unless, contemporaneously therewith or prior thereto, effective
provision shall be made whereby the Securities are secured equally and ratably
with such other Debt; provided that the restrictions in this Section 4.06 shall
not prohibit Permitted Liens and it is expressly understood the creation,
incurrence, assumption or existence of any Permitted Lien shall not give rise
to any rights of the Holders pursuant to this Section 4.06.
(b) If at any time the Company or any of its Subsidiaries
shall incur any Lien requiring that the Securities be equally and ratably
secured pursuant to the covenant in subsection (a) of this Section 4.06, the
Company shall promptly deliver to the Trustee an Officers' Certificate, stating
that such covenant has been complied with, and an Opinion of Counsel, stating
that in such counsel's opinion such covenant has been complied with and that
any instruments executed by the Company or any Subsidiary in their performance
of such covenant complied with the requirements thereof.
SECTION 4.07. Transactions with Affiliates. The Company
will not, and will not permit any of its Subsidiaries to, enter into any
transactions with Affiliates of the Company unless (i) such transactions are
between or among the Company and its Subsidiaries or Unrestricted Subsidiaries,
(ii) such transactions are in the ordinary course of business and consistent
with past practice or (iii) the terms of such transactions are fair and
reasonable to the Company or such Subsidiary or Unrestricted Subsidiary, as the
case may be, and are at least as favorable as the terms which could be obtained
by the Company or such Subsidiary or Unrestricted Subsidiary, as
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the case may be, in a comparable transaction made on an arm's-length basis
between unaffiliated parties. In the event of any transaction or series of
transactions occurring subsequent to the date of this Indenture with an
Affiliate of the Company which involves in excess of $5,000,000 and is not
permitted under clause (i) or (ii) of the preceding sentence, the majority of
the disinterested members of the Board of Directors shall by resolution
determine that such transaction or series of transactions meets the criteria
set forth in clause (iii) of the preceding sentence; provided, further, that if
such transaction or series of transactions involves in excess of $10,000,000
and is not permitted under clause (i) or (ii) of the preceding sentence, the
Company shall also deliver to the Trustee a written opinion of a nationally
recognized investment banking firm to the effect that such business or
transaction is fair to the Company from a financial point of view.
Notwithstanding the foregoing, such provisions do not prohibit (i) the making
of Physician Support Obligations, (ii) transactions with Permitted Joint
Ventures or (iii) the payment of regular fees to directors of the Company who
are not employees of the Company.
SECTION 4.08. Officers' Certificates as to Default and as
to Compliance. The Company will, so long as any of the Securities are
outstanding, deliver to the Trustee within 120 days after the end of each
fiscal year of the Company beginning with the fiscal year ending August 31,
1994, an Officers' Certificate to the effect that:
(1) a review of the activities of the Company and its
Subsidiaries during such year and of performance under this
Indenture has been made under such officers' supervision, and
(2) to the best of such officers' knowledge, based on such
review, the Issuers have fulfilled all their obligations under
this Indenture throughout such year, or if there has been a
default in the fulfillment of any such obligation, specifying
each such default known to them and the nature and status thereof.
SECTION 4.09. Reports to Securityholders. (a) Within 15
days after the Company files with the SEC copies of its annual reports and
other information, documents and reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which it is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act the Company shall file the same with the Trustee. If the Company is not
required to file reports or other documents with the SEC pursuant to Section 13
or 15(d) of the Exchange Act, the Company shall file with the Trustee reports
or other documents containing
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information substantially equivalent to that which the Company would have been
required to file with the SEC had it been subject to such filing requirements
within the same 15 days after the last date on which it would have been
required to make such filing with the SEC. The Company also shall comply with
the other provisions of TIA Section 314(a).
(b) The Company will mail or cause to be mailed to each
Holder of Securities, at its registered address, annual audited financial
statements of the Company and its Consolidated Subsidiaries and quarterly
financial statements of the Company and its Consolidated Subsidiaries which, to
the extent that the Company may be required to file annual and quarterly
reports with the SEC under the Exchange Act, may be copies of such reports. If
the Company is not, or ceases to be, subject to the requirements of Section 13
or 15(d) of the Exchange Act, it shall mail or cause to be mailed, copies of
the reports filed with the Trustee pursuant to the second sentence on Section
4.10(a) (in lieu of comparable reports pursuant to the Exchange Act) to each
holder of record at the end of the fiscal period involved.
SECTION 4.10. Change of Control. (a) Upon the occurrence
of a Change of Control (the "Change of Control Date"), each Holder of a
Security shall have the right to require the repurchase of all or part of such
Securityholder's Securities pursuant to the offer described in Section 4.10(b)
(the "Change of Control Offer") at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. Prior to the mailing of the notice to Securityholders provided
for below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full in cash any Designated Senior Debt which
by its terms would require such repayment or to offer to repay in full in cash
all such Debt and to repay the Debt of each Person who has accepted such offer
or (ii) obtain the requisite consents under such Designated Senior Debt to
permit the repurchase of the Securities as provided for in Section 4.10(b).
The Company shall first comply with the covenant in the preceding sentence
before it shall be required to repurchase Securities pursuant to this covenant.
(b) Within 30 days following any Change of Control, the
Company shall mail or at the Company's request the Trustee shall mail a notice
to each Securityholder stating:
(i) that the Change of Control Offer is being made
pursuant to Section 4.10 and that all Securities tendered will be
accepted for payment;
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(ii) the purchase price and the purchase date (which shall
be no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Change of Control Payment Date");
(iii) that any Security not tendered will continue to
accrue interest;
(iv) that any Security accepted for payment pursuant to
the Change of Control Offer will cease to accrue interest after the
Change of Control Payment Date;
(v) that Securityholders electing to have a Security
purchased pursuant to a Change of Control Offer will be required to
surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the
Trustee at the address specified in the notice prior to the close of
business on the Change of Control Payment Date;
(vi) that Securityholders will be entitled to withdraw
their election if the Trustee receives, not later than the close of
business on the third Business Day (or such shorter period as may be
required by applicable law) preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Securityholder, the principal amount of
Securities the Securityholder delivered for purchase and a statement
that such Securityholder is withdrawing his election to have such
Securities purchased; and
(vii) that Securityholders whose Securities are purchased
only in part will be issued new Securities in a principal amount equal
to the unpurchased portion of the Securities surrendered. In the
event a Change of Control occurs and the Holders of Securities
exercise their right to require the Company to repurchase Securities,
and assuring that such a repurchase constitutes a "tender offer" for
purposes of Rule 14e-1 under the Exchange Act at the time it is
required, the Company will comply with the requirements of Rule 14e-1
as then in effect and any other applicable securities law or
regulations with respect to such repurchase.
On the Change of Control Payment Date, subject to the
provisions of Article Nine hereof, the Company will (i) accept for payment the
Securities or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Trustee money sufficient to pay the purchase price
of all the Securities or portions thereof so
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tendered and (iii) deliver or cause to be delivered to the Trustee, Securities
so accepted together with an Officers' Certificate describing the Securities or
portions thereof tendered to the Company. The Trustee shall promptly mail to
each Holder of the Securities so accepted payment in an amount equal to the
purchase price of such Securities, and the Trustee shall promptly authenticate
and mail to such Holder a new Security in the principal amount equal to any
unpurchased portion of the Securities surrendered by such Securityholder. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
SECTION 4.11. Maintenance of Properties, etc. The Company
shall, and shall cause each of its Subsidiaries to, maintain its material
properties and assets in normal working order and condition and make all
necessary repairs, renewals, replacements, additions, betterments and
improvements thereto, ordinary wear and tear excepted, all as in the judgment
of the Company may be necessary so that the business carried on in connection
therewith may be conducted at all times; provided, however, that nothing in
this Section 4.11 shall prevent the Company or one of its Subsidiaries from
discontinuing the operation and maintenance of any of its properties or assets
if such discontinuance is, in the judgment of the Company or such Subsidiary,
desirable in the conduct of its business.
The Company shall, and shall cause each of its Subsidiaries
to, maintain with insurers which the Company believes in good faith to be
financially sound and reputable such insurance as may be required by law and
such other insurance (or self insurance), to such extent and against such
hazards and liabilities, as it in good faith determines is customarily
maintained by companies similarly situated with like properties.
The Company shall, and shall cause each of its Subsidiaries
to, use its commercially reasonable efforts to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights and franchises, except to the extent permitted by this Indenture and
except in such cases where the Company determines in good faith that failure to
do so would not have a material adverse effect on the business, earnings,
properties, assets, financial condition or results of operation of the Company
and its Subsidiaries taken as a whole.
The Company shall, and shall cause each of its Subsidiaries
to, in good faith attempt to comply with all statutes, laws, ordinances, or
government rules and regulations to which it is subject, noncompliance with
which would materially adversely affect the business, earnings,
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properties, assets, financial condition or results of operation of the Company
and its Subsidiaries taken as a whole.
The Company shall, and shall cause each of its Subsidiaries
to, pay prior to delinquency all taxes, assessments and governmental levies
which if not paid would have a material adverse effect on the business,
earnings, properties, assets, financial condition or results of operations of
the Company and its Subsidiaries taken as a whole, except as contested in good
faith by appropriate proceedings.
SECTION 4.12. Limitation on Other Subordinated Debt. The
Company will not incur any Debt that is by its terms subordinate in right of
payment to any Senior Debt and senior in right of payment to the Securities.
ARTICLE V
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 5.01. When Company May Merge, etc. The Company
shall not consolidate with, or merge with or into, or sell, lease or convey all
or substantially all of its assets to, another Person unless
(i) (x) the Company is the continuing corporation in the
case of a merger or (y) the resulting, surviving or transferee Person
(the "Surviving Entity") shall be a corporation or partnership
organized under the laws of the United States, one of the States
thereof or the District of Columbia and shall expressly assume by
supplemental indenture (satisfactory in form to the Trustee) all the
obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction,
no Event of Default or event or condition which through the giving of
notice or lapse of time or both would become an Event of Default shall
have occurred and be continuing;
(iii) the Net Worth of the Company or the Surviving
Entity, as the case may be, on a pro forma basis after giving effect
to such consolidation, merger or sale, lease or conveyance of assets
is at least as great as the Net Worth of the Company immediately prior
to the date of such transaction; and
(iv) immediately after giving effect to such transaction,
the Company or the Surviving Entity, as
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the case may be, would be able to incur $1 of additional Debt under
Section 4.03 (other than pursuant to Section 4.03(a) through (o).
Notwithstanding the foregoing, clauses (iii) and (iv) shall
not prohibit a transaction, the principal purpose of which is (as determined in
good faith by the Board of Directors of the Company and evidenced by a
resolution thereof) to change the state of incorporation of the Company, and
such transaction does not have as one of its purposes the evasion of the
restrictions of this Section 5.01.
SECTION 5.02. Opinion of Counsel to Trustee; Officers'
Certificate. The Trustee, subject to the provisions of Sections 7.01 and 7.02,
shall receive an Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger, sale, lease or conveyance, and any such
assumption, complies with the applicable provisions of this Indenture and that
all conditions precedent herein provided relating to such transaction have been
complied with.
SECTION 5.03. Successor Corporation Substituted. Upon any
consolidation, merger, sale, lease or conveyance in accordance with Sections
5.01 and 5.02, the successor corporation or partnership formed by such
consolidation or into which the Company is merged or the Person to which any
such transfer is made shall succeed to, and be substituted for and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company herein, all
without any further act or deed on the part of such successor being required.
ARTICLE VI
REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 6.01. Event of Default Defined; Acceleration of
Maturity; Waiver of Default. In case one or more of the following Events of
Default (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
(a) default in the payment of any installment of interest
upon any of the Securities as and when the
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same becomes due and payable, and continuance of such default for a
period of 30 days; or
(b) default in the payment of all or any part of the
principal on any of the Securities as and when the sane shall become
due and payable either at maturity, upon any redemption, by
declaration or otherwise; or
(c) failure on the part of the Company to observe, perform
or comply with any of the covenants or agreements contained in the
Securities or in this Indenture and the continuance of such failure
for a period of 60 days after written notice specifying such failure
stating that such notice is a "Notice of Default" hereunder and
demanding that the Company remedy the same shall have been given by
registered or certified mail, return receipt requested, to the Company
by the Trustee or to the Company and the Trustee by Holders of at
least 40% in aggregate principal amount of the Securities at the time
outstanding; or
(d) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Company or any of
its Material Subsidiaries in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or any of
its Material Subsidiaries or for any substantial part of the property
of the Company or any of its Material Subsidiaries or ordering the
winding up or liquidation of the affairs of the Company or any of its
Material Subsidiaries, and such decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or
(e) the Company or any of its Material Subsidiaries shall
commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the
entry of an order for relief in an involuntary case under any such
law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or any of its Material Subsidiaries or for any
substantial part of the property of the Company or any of its Material
Subsidiaries, or the Company or any of its Material Subsidiaries shall
make any general assignment for the benefit of creditors; or
(f) any acceleration of the maturity of Debt of the
Company or any of its Material Subsidiaries for a
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failure to pay any such Debt at its stated maturity, or (upon demand
for payment) under any guarantee of payment by the Company or any of
its Subsidiaries of any Debt, whether such Debt or guarantee existed
at the Closing Date or as thereafter created, aggregating at least
$25,000,000 provided that such acceleration or failure to pay is not
cured or waived within 10 days after such acceleration or failure to
pay; or
(g) final judgments not covered by insurance (which
coverage shall be in full force and effect) or the payment of money
which in the aggregate at any one time exceed $10,000,000 shall be
rendered against the Company or any of its Subsidiaries by a court of
competent jurisdiction and shall remain undischarged for a period
(during which execution shall not be effectively stopped by appeal or
otherwise) of 60 days after such judgments become final and
nonappealable;
then, and in each and every such case (other than an Event of Default described
in clause (d) or (e) of the preceding paragraph relating to the Company), unless
the principal of all the Securities shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in the aggregate
principal amount of the Securities then outstanding, by notice in writing to
the Company (and to the Trustee if given by the Securityholders) (the
"Acceleration Notice") may declare the principal of all Securities and the
interest accrued thereon to be due and payable (i) immediately if no Designated
Senior Debt is outstanding or (ii) if any Designated Senior Debt is
outstanding, upon the earlier of (x) 10 days after such Acceleration Notice is
received by the Senior Agent and each Senior Representative with respect to
Designated Senior Debt at their last address specified pursuant to Section
11.02 or (y) the acceleration of such Designated Senior Debt, and upon any such
declaration the same shall become due and payable on the date specified in the
foregoing clause (i) or (ii), as applicable; provided, that (i) prior to the
expiration of such period, such acceleration shall be automatically rescinded
and annulled without further action required on the part of the Holders in the
event that any default specified in the Acceleration Notice under the
Securities shall have been cured, waived or otherwise remedied and (ii) at any
time before the entry of a judgment or decree for the payment of moneys due
under the Indenture, the Holders of a majority in aggregate principal amount of
the Securities may waive all defaults except (a) a default in the payment of
principal or interest on the Securities or (b) in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of
each Holder of the Security affected. If an Event of Default specified in
clause (d) or (e) above relating to the Company occurs, the principal of and
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accrued interest on all outstanding Securities shall become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of Securities.
The provisions of this Section 6.01, however, are subject
to the condition that if, at any time after the principal of the Securities
shall have been so declared due and payable, and before any judgment or decree
for the payment of the moneys due shall have been obtained or entered, the
Company or the Co-Obligor shall pay or shall deposit with the Trustee a sum
sufficient to pay all matured installments of interest upon all the Securities
and the principal of any and all Securities which shall have become due
otherwise than by acceleration (with interest upon such principal and, to the
extent that payment of such interest is enforceable under applicable law, on
overdue installments of interest, at the rate borne by the Securities, to the
date of such payment or deposit) and such amount as shall be sufficient to
cover reasonable compensation to the Trustee and each predecessor Trustee,
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee except as a result of negligence or bad faith, and if any
and all Events of Default under this Indenture, other than the non-payment of
the principal of Securities which shall have become due by acceleration, shall
have been cured, waived or otherwise remedied as provided herein -- then and in
every such case, Holders of a majority in aggregate principal amount of the
Securities then outstanding, by written notice to the Company and the Trustee,
may waive all defaults and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or impair any right consequent thereon.
The Company shall promptly upon receipt of an Acceleration
Notice provide written notice to the Senior Agent and any Senior Representative
of the receipt of such Acceleration Notice. Failure to deliver such notice
shall not affect the validity of the notice delivered by the Holders in
accordance with the provisions referred to above.
SECTION 6.02. Collection of Indebtedness by Trustee;
Trustee May Prove Debt. The Issuers covenant that (a) in case default shall be
made in the payment of any installment of interest on any of the Securities
when such interest shall have become due and payable, and such default shall
have continued for a period of 30 days or (b) in case default shall be made in
the payment of all or any part of the principal of any of the Securities when
the same shall have become due and payable, whether upon maturity or upon any
redemption or by declaration or otherwise -- then upon
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demand by the Trustee, the Company or the Co-Obligor will pay to the Trustee
for the benefit of the Holders of the Securities, subject to the provisions of
Article Nine hereof, the whole amount that then shall have become due and
payable on all such Securities for principal or interest, as the case may be
(with interest to the date of such payment upon the overdue principal and, to
the extent that payment of such interest is enforceable under applicable law,
on overdue installments of interest at the rate borne by the Securities); and
in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including reasonable compensation to the
Trustee and each predecessor Trustee, their respective agents, attorneys and
counsel, and any expenses and liabilities incurred, and all advances made, by
the Trustee and each predecessor Trustee, except as a result of its negligence
or bad faith.
Until such demand is made by the Trustee, the Company or
the Co-Obligor may pay the principal of and interest on the Securities to the
registered Holders, whether or not the Securities be overdue.
In case the Issuers shall fail forthwith to pay such
amounts upon such demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any action or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceedings to judgment or final
decree, and may enforce any such judgment or final decree against the Issuers
or other obligor upon the Securities and collect in the manner provided by law
out of the property of the Issuers or other obligor upon the Securities,
wherever situated, the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings relative to the
Issuers or any other obligor upon the Securities under Title 11 of the United
States Code or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuers or the property of the Issuers
or such other obliger, or in case of any other judicial proceedings relative to
the Issuers or other obligor upon the Securities, or to the creditors or
property of the Issuers or such other obligor, the Trustee, irrespective of
whether the principal of the Securities shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether
the Trustee shall have made any demand pursuant to the
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provisions of this Section, shall be entitled and empowered, by intervention in
such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Securities, and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for reasonable compensation to the Trustee and
each predecessor Trustee, and their respective agents, attorneys and
counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Trustee and each predecessor
Trustee, except as a result of negligence or bad faith) and of the
Securityholders allowed in any judicial proceedings relative to the
Issuers or other obligor upon the Securities, or to the creditors or
property of the Issuers or such other obligor;
(b) unless prohibited by applicable law and regulations,
to vote on behalf of the Holders of the Securities in any election of
a trustee or a standby trustee in arrangement, reorganization,
liquidation or other bankruptcy or insolvency proceedings or person
performing similar functions in comparable proceedings; and
(c) subject to the provisions of Article Nine, to collect
and receive any moneys or other property payable or deliverable on any
such claims, and to distribute all amounts received with respect to
the claims of the Securityholders and of the Trustee on their behalf;
and any trustee, receiver, liquidator, custodian or other similar
official is hereby authorized by each of the Securityholders to make
payments to the Trustee, and, in the event that the Trustee shall
consent to the making of payments directly to the Securityholders, to
pay to the Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Trustee, each predecessor Trustee and
their respective agents, attorneys and counsel, and all other expenses
and liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee, except as a result of negligence or bad
faith.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding
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except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
All rights of action and of asserting claims under this
Indenture, or under any of the Securities, may be enforced by the Trustee
without the possession of any of the Securities or the production thereof on
any trial or other proceedings relative thereto, and any such action or
proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Securities.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party) the Trustee shall be held to represent all
the Holders of the Securities, and it shall not be necessary to make any
Holders of the Securities parties to any such proceedings.
SECTION 6.03. Application of Proceeds. Any moneys
collected by the Trustee pursuant to this Article shall, subject to the
provisions of Article Nine hereof, be applied in the following order at the
date or dates fixed by the Trustee and, in case of the distribution of such
moneys on account of principal or interest, upon presentation of the several
Securities and stamping (or otherwise noting) thereon the payment, or issuing
Securities in reduced principal amounts in exchange for the presented
Securities if only partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses, including
reasonable compensation to the Trustee and each predecessor Trustee
and their respective agents and attorneys and of all expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee except as a result of negligence or bad faith;
SECOND: In case the principal of the Securities shall not
have become and be then due and payable, to the payment of interest in
default in the order of the maturity of the installments of such
interest, with interest (to the extent that such interest has been
collected by the Trustee) upon the overdue installments of interest at
the interest rate borne by the Securities, such payments to be made
ratably to the
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persons entitled thereto, without discrimination or preference;
THIRD: In case the principal of the Securities shall have
become and shall be then due and payable, to the payment of the whole
amount then owing and unpaid upon all the Securities for principal and
interest, with interest upon the overdue principal, and (to the extent
that such interest has been collected by the Trustee) upon overdue
installments of interest at the interest rate born by the Securities;
and in case such moneys shall be insufficient to pay in full the whole
amount so due and unpaid upon the Securities, then to the payment of
such principal and interest, without preference or priority of
principal over interest, or of interest over principal, or of any
installment of interest over any other installment of interest, or of
any Security over any other Security, ratably to the aggregate of such
principal and accrued and unpaid interest; and
FOURTH: To the payment of the remainder, if any, to the
Company or any other person lawfully entitled thereto.
SECTION 6.04. Suits for Enforcement. In case an Event of
Default has occurred, has not been waived and is continuing, the Trustee shall
proceed, unless otherwise directed by the Holders of a majority in aggregate
principal amount of the Securities then outstanding, to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either in law or in equity or in bankruptcy or otherwise, whether for
the specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this Indenture or
to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
SECTION 6.05. Restoration of Rights and Abandonment of
Proceedings. In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely to the
Trustee, then and in every such case the Issuers and the Trustee shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Issuers, the Trustee and the Securityholders
shall continue as though no such proceedings had been taken.
SECTION 6.06. Limitations on Suits by Securityholders. No
Holder shall have any right by virtue
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or by availing of any provision of this Indenture to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise upon or under or
with respect to this Indenture or for the appointment of a trustee, receiver,
liquidator, custodian or other similar official or for any other remedy
hereunder, unless such Holder previously shall have given to the Trustee
written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided, and unless the Holders of not less than 25% in aggregate
principal amount of the Securities then outstanding shall have made written
request upon the Trustee to institute such action or proceeding in its own name
as trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein and thereby and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity shall have failed to institute any
such action or proceedings and no direction inconsistent with such written
request shall have been given to the Trustee pursuant to Section 6.09; it being
understood and intended, and being expressly covenanted by the taker and Holder
of every Security with every other taker and Holder and the Trustee, that no
one or more Holders of Securities shall have any right in any manner whatever
by virtue or by availing of any provision of this Indenture to affect, disturb
or prejudice the rights of any other Holder of Securities, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce
any right under this Indenture, except in the manner herein provided and for
the equal, ratable and common benefit of all Holders of Securities. For the
protection and enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
SECTION 6.07. Unconditional Right of Securityholders to
Institute Certain Suits. Notwithstanding any other provision in this Indenture
and any provision of any Security, the right of any Holder to receive payment
of the principal of and interest on such Security on or after the respective
due dates expressed in such Security, or to institute suit for the enforcement
of any such payment on or after such respective dates shall not be impaired or
affected without the consent of such Holder.
SECTION 6.08. Powers and Remedies Cumulative; Delay or
Omission Not Waiver of Default. Except as provided in Section 6.06, no right
or remedy herein conferred upon or reserved to the Trustee or to the
Securityholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law
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or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder to
exercise any right or power accruing upon any Event of Default occurring and
continuing as aforesaid shall impair any such right or power or shall be
construed to be a waiver of any such Event of Default or an acquiescence
therein; and subject to Section 6.06, every power and remedy given by this
Indenture or by laws to the Trustee or to the Securityholders may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee or
by the Securityholders.
SECTION 6.09. Control by Securityholders. The Holders of
a majority in aggregate principal amount of the Securities at the time
outstanding shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee by this Indenture;
provided that such direction shall not be otherwise than in accordance with law
and the provisions of this Indenture; and provided, further, that (subject to
the provisions of Section 7.01) the Trustee shall have the right to decline to
follow any such direction if the Trustee, being advised by counsel, shall
determine that the action or proceeding so directed may not lawfully be taken
or if the Trustee in good faith by its board of directors, the executive
committee or a trust committee of directors or Responsible Officers of the
Trustee shall determine that the action or proceeding so directed would involve
the Trustee in personal liability or if the Trustee in good faith shall so
determine that the actions or forbearances specified in or pursuant to such
direction shall be unduly prejudicial to the interests of holders of the
Securities not joining in the giving of said direction, it being understood
that (subject to Section 7.01) the Trustee shall have no duty to ascertain
whether or not such actions or forbearances are unduly prejudicial to such
Holders.
Nothing in this Indenture shall impair the right of the
Trustee in its discretion to take any action deemed proper by the Trustee and
which is not inconsistent with such direction by Securityholders.
SECTION 6.10. Waiver of Past Defaults Prior to the
declaration of the acceleration of maturity of the Securities as provided in
Section 6.01, the Holders of a majority in aggregate principal amount of the
Securities at the time outstanding may on behalf of all Holders waive any past
default or Event of Default hereunder and its
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consequences, except a default (a) in the payment of principal of or interest
on any of the Securities or (b) in respect of a covenant or provisions hereof
which cannot be modified or amended without the consent of the Holder of each
Security affected. In the case of any such waiver, the Issuers, the Trustee
and the Holders of the Securities shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
Upon any such waiver, such default shall cease to exist and
be deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured, and not to have occurred
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 6.11. Right of Court to Require Filing of
Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may
in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Securityholder or group of
Securityholders holding in the aggregate more than 10% in aggregate principal
amount of the Securities outstanding, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of or
interest on any Security on or after the due date expressed in such Security.
ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) The Trustee, except
during the continuance of any Event of Default, undertakes to perform such
duties and only such duties as are specifically set forth in this Indenture.
If an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and
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skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee shall not be liable except for the
performance of those duties as are specifically set forth in this
Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effects of
paragraph (b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.09.
(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this
Section 7.01.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree with the Company. Money
held in trust by the Trustee need
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not be segregated from other funds except to the extent required by law.
SECTION 7.02. Rights of Trustee. Subject to Section 7.01:
(a) The Trustee may rely on and shall be protected in
acting or refraining from acting upon any document believed by it to
be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel, which
shall conform to the provisions of Section 11.05. The Trustee shall
not be liable for any action it takes or omits to take in good faith
in reliance on such Certificate or Opinion.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any
agent (other than an agent who is an employee of the Trustee)
appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it reasonably believes to
be authorized or within its rights or powers.
(e) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and
complete authorization and protection in respect of any action taken,
omitted or suffered by it hereunder in good faith and in accordance
with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
written request or direction of any of the Securityholders pursuant to
this Indenture, unless such Securityholder shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in compliance with such
request or direction.
(g) The Trustee shall not be bound to make any
investigation into, the facts or matters stated in any document but
the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit.
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SECTION 7.03. Individual Rights of Trustee. The Trustee
in its individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Issuers or their Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture, the Securities
or any statements in the registration statement pursuant to which the
Securities were issued; it shall not be accountable for the Company's use of
the proceeds from the Securities; and it shall not be responsible for any
statement in the Securities other than its certificate of authentication.
SECTION 7.05. Notice of Defaults. If a default (the term
"default" for the purposes of this Section being hereby defined to mean any
event or condition which is, or with notice or lapse of time or both would
become, an Event of Default) or an Event of Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to each
Securityholder, the Senior Agent and any Senior Representative notice of the
default or Event of Default within 90 days after it occurs. Except in the case
of a default or an Event of Default in payment of principal of or interest on
any Security, the Trustee may withhold the notice if and so long as a committee
of its Responsible Officers in good faith determines that withholding the
notice is in the interest of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. Within 60
days after each May 15 beginning with May 15, 1995, the Trustee shall mail
to (i) each Securityholder, (ii) such other holders of Securities as have
within the two years preceding such mailing filed their names with the Trustee
for that purpose or whose names and addresses have been supplied to or received
by the Trustee pursuant to TIA Section 312, and (iii) the Issuer a brief
report dated as of such May 15 that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Section 313(b).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
The Company shall notify the Trustee if the Securities
become listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity. The Company
shall pay to the Trustee from time to time
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reasonable compensation for its services. The Trustee's compensation shall not
be limited by any law on compensation relating to the trustee of an express
trust. The Company shall reimburse the Trustee upon request for all reasonable
disbursements and expenses incurred or made by it. Such expenses shall include
the reasonable compensation, disbursements and expenses of the Trustee's agents
and counsel and any taxes or other expenses incurred by a trust created
pursuant to Section 8.01 hereof.
The Company shall indemnify the Trustee and its officers,
directors, agents and employees for, and hold the Trustee and such officers,
directors, agents and employees harmless against any loss, liability or
expense incurred by the Trustee or any of such officers, directors, agents and
employees in connection with the administration of this Indenture and the
Trustee's duties hereunder, including the reasonable expenses of defending
itself against any claim of liability arising hereunder. The Trustee shall
notify the Company promptly of any claim asserted against the Trustee for which
it may seek indemnity. However, the failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The
Company need not pay for any settlement made without its written consent;
provided, however, that consent of the Company shall not be required if the
Company shall have instituted proceedings to be adjudicated a bankrupt or
insolvent, or is otherwise subject to proceedings under Title 11 of the U.S.
Bankruptcy Code, or has consented to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or of any
substantial part of its property, or has made an assignment for the benefit of
its creditors, or has admitted in writing to its inability to pay its debts
generally as they become due, or has taken corporate action in furtherance of
any such action. The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through gross negligence
or bad faith.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a senior claim prior to the Securities against all
money or property held or collected by the Trustee in its capacity as Trustee
except money or property held in trust to pay principal of or interest on
particular Securities. Such lien shall survive satisfaction and discharge of
the Indenture.
When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 6.06 occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. A resignation or
removal of the Trustee and the appointment of a successor Trustee shall become
effective only upon the
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successor Trustee's acceptance of appointment as provided in this Section 7.08.
The Trustee may at any time resign and be discharged from the trust hereby
created by so notifying the Company in writing. The Holders of a majority in
principal amount of the outstanding Securities may remove the Trustee by so
notifying the Trustee and the Company in writing and may appoint a successor
Trustee with the Company' consent. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the Company or the Holders of
at least 10% of the principal amount of the outstanding Securities may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a
majority in principal amount of the Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
Any removal of the Trustee and any appointment of a
successor Trustee pursuant to any of the provisions of this Section 7.08 shall
become effective upon acceptance of appointment by the successor Trustee as
provided by this Section 7.08.
A successor Trustee appointed as provided in this Section
7.08 shall deliver a written acceptance of its appointment to the retiring
Trustee and to the Company, and thereupon the removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance shall become vested with all the rights, powers and duties
of its predecessor hereunder. Immediately after that, the retiring Trustee
shall transfer all property held by it as Trustee to the successor Trustee,
subject to the senior claim provided in Section 7.07, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
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If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc. If the
Trustee consolidates with, merges or converts into or transfers all or
substantially all of its corporate trust business to, another corporation, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
SECTION 7.10. Eligibility; Disqualification. This
Indenture shall always have a Trustee who satisfies the requirements of TIA
Section 310(a)(1) and (2). The Trustee together with its Affiliates shall have
at all times a combined capital and surplus of at least $150,000,000 as set
forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b), including the optional provision
permitted by the second sentence of TIA Section 310(b)(9).
SECTION 7.11. Preferential Collection of Claims Against
Issuers. The Trustee shall comply with TIA Section 311(a); provided, however,
that the operation of TIA Section 311(a) shall not apply to any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or
been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE VIII
DEFEASANCE
SECTION 8.01. Defeasance upon Deposit of Moneys or U.S.
Government Obligations. This Indenture shall cease to be of further effect
(except that the Company's obligations under Sections 7.07 and 8.04 hereof
shall survive) when all outstanding Securities theretofore authenticated and
issued (other than Securities which have
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been destroyed, lost or stolen and which have been replaced as provided in
Section 2.07 hereof) have been delivered to the Trustee for cancellation and
the Issuers have paid all sums payable hereunder.
Notwithstanding the first paragraph of this Section 8.01,
at the Company's option indicated by notice to the Trustee, either (a) the
Company shall be deemed to have been Discharged (as defined below) from its
obligations with respect to the Securities on the 91st day after the applicable
conditions set forth below have been satisfied or (b) the Company shall cease
to be under any obligation to comply with any term, provision or condition set
forth in Sections 4.03 through 4.07 and Section 4.10, 4.11 and 4.12 and shall
cease to be subject to the provisions of Section 6.01(c) with respect to
Sections 4.03 through 4.07 and Section 4.10 and Section 6.01(f) with respect to
the Securities at any time after the applicable conditions set forth below have
been satisfied:
(1) the Company shall have deposited or caused to be
deposited irrevocably with the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities (i) money in an amount, or
(ii) U.S. Government Obligations which through the payment of interest
and principal in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment,
money in an amount, or (iii) a combination of (i) and (ii),
sufficient, in the opinion with respect to (ii) and (iii) of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay
and discharge each installment of principal of and interest on the
outstanding Securities on the dates such installments of interest or
principal are due;
(2) if the Company has elected to be deemed Discharged
from its obligations with respect to the Securities pursuant to option
(a) above in this paragraph, the Company shall have delivered to the
Trustee an Opinion of Counsel stating that (x) the Company has
received from, or there has been published by, the Internal Revenue
Service a ruling, or (y) since the Closing Date there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the outstanding Securities will not recognize income, gain
or loss for Federal income tax purposes as a result of such defeasance
and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as
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would have been the case if such defeasance had not occurred; and
(3) if the Credit Agreement is in effect, the Company
shall have delivered to the Trustee an Officers' Certificate that all
required consents of the Senior Agent or the Lenders to the
transactions contemplated by this Section 8.01 have been obtained; and
(4) the Company shall have delivered to the Trustee an
Opinion of Counsel stating that all conditions prcedent provided for
relating to defeasance have been complied with.
"Discharged" shall mean that the Issuers shall be deemed to
have paid and discharged the entire indebtedness represented by, and
obligations under, the Securities and to have satisfied all the obligations
under this Indenture relating to the Securities (and the Trustee, upon the
request of the Company and at the expense of the Company, shall execute proper
instruments acknowledging the same).
SECTION 8.02. Survival of Issuers' Obligations.
Notwithstanding the satisfaction and discharge of the Indenture under Section
8.01, the obligations of the Company and the Co-Obligor, as the case may be, in
Sections 2.04, 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 7.08, 8.04 and 8.05,
however, shall survive until the Securities are no longer outstanding.
Thereafter, the obligations of the Company and the Co-Obligor, as the case may
be, in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.03. Application of Trust Money. The Trustee
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 8.01. It shall apply the deposited money and the money
from U.S. Government Obligations in accordance with this Indenture to the
payment of principal of and interest on the Securities.
SECTION 8.04. Repayment to Company. The Trustee and the
Paying Agent shall promptly pay to the Company upon request any excess money or
securities held by them at any time. The Trustee and the Paying Agent shall
pay to the Company upon request any money held by them for the payment of
principal or interest that remains unclaimed for two years; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once in a
newspaper of general circulation in the City of New York or mail to each such
Holder notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Securityholders
entitled to the money must look to the Company for payment as general creditors
unless applicable abandoned property law designates another person.
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The Company shall indemnify Trustee to the fullest extent
permissible by law for Trustee's failure to comply with any abandoned property
or escheat law by acting in accordance with this Section 8.04.
SECTION 8.05. Reinstatement. If the Trustee is unable to
apply any money or U.S. Government Obligations in accordance with Section 8.01
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Issuers' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.01 until such time as the Trustee is permitted to apply
all such money or U.S. Government Obligations in accordance with Section 8.01;
provided, however, that if the Issuers have made any payment of interest on or
principal of any Securities because of the reinstatement of their obligations,
the Issuers shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the money or U.S. Government Obligations held by
the Trustee.
ARTICLE IX
SUBORDINATION OF SECURITIES
SECTION 9.01. Securities Subordinated to Senior Debt. The
Issuers, for themselves and their successors, and each Holder, by his
acceptance of the Securities, agrees that the payment of the principal of and
interest on the Securities by the Issuers is subordinated and subject in right
of payment, to the extent and in the manner provided in this Article, to the
prior payment in full in cash of Senior Debt, whether outstanding upon the
issuance of the Securities or thereafter incurred.
This Article will constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt, and such
holders are made obligees under this Article and they and/or each of them may
enforce its provisions.
SECTION 9.02. No Payment on Securities in Certain
Circumstances. (a) No payment or distribution of cash, Property or securities
of the Issuers will be made on account of principal of or interest on the
Securities, or to defease or acquire any of the Securities, or on account of
the redemption provisions of the Securities, (x) upon the maturity of any
Senior Debt by lapse of time, acceleration or otherwise, unless and until all
Senior Debt shall first
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be paid in full in cash, or such payment duly made in a manner satisfactory to
the holders of such Senior Debt or (y) in the event that the Issuers default in
the payment of any principal of, premium, if any, or interest on or any other
amounts payable on or in connection with any Senior Debt when it becomes due
and payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise, unless and until such default has been cured or
waived in writing or has ceased to exist; provided, however, that the Issuers
may make such payment or distribution in respect of the Securities without
regard to the foregoing if the Issuers and the Trustee receive written notice
from the Senior Agent and any other Senior Representatives approving such
payment.
(b) Upon the happening of an event of default (or if an
event of default would result upon any payment with respect to the Securities)
with respect to any Designated Senior Debt, as such event of default is defined
in the Credit Agreement and in any other instrument evidencing the Designated
Senior Debt or under which it is outstanding, permitting the holders to
accelerate its maturity (if the event of default is other than a default in
payment of the principal of, premium, if any, or interest on or other amount
due in connection with such Designated Senior Debt), upon written notice of the
event of default given to the Issuers and the Trustee by the Senior Agent on
behalf of the Lenders or by any Senior Representative for the holders of other
Designated Senior Debt then outstanding, then, unless and until such event of
default has been cured or waived in writing or has ceased to exist and no event
of default exists under any other Designated Senior Debt or any such other
event of default has also been waived in writing or has ceased to exist, no
payment or distribution of cash, Property or securities of the Issuers will be
made by the Issuers with respect to the principal of or interest on the
Securities or to defease or acquire any of the Securities or on account of the
redemption provisions of the Securities; provided that this paragraph (b) will
not prevent the making of any payment for a period of more than 180 days after
the date the written notice of the event of default is given unless the payment
thereof would be prohibited by Section 9.02(a) hereof. If, upon the expiration
of such 180-day period, the payment thereof would not be prohibited by Section
9.02(a) hereof, promptly after the end of such 180-day period, the Issuers will
pay to the Trustee all sums not paid during such 180-day period because of this
Section 9.02(b). Only one such 180-day period during which payment of
principal of or interest on the Securities may not be made pursuant to this
subsection (b) may commence during any consecutive 360-day period.
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(c) The Issuers will give prompt written notice to the
Trustee of any event of default under any Senior Debt or under any agreement
pursuant to which Senior Debt may have been issued, and in the event of any
such event of default, will provide to the Trustee in the form of an Officers'
Certificate the names and addresses of the holders of such Senior Debt, and
the name and address of the Senior Agent or Senior Representative acting on
their behalf. The Trustee will be entitled to rely conclusively on such
Officers' Certificate without independent investigation unless it shall have
received notice to the contrary from the Senior Agent on behalf of the Lenders
or by the Senior Representative of the holders of such other Designated Senior
Debt then outstanding. The Trustee shall not be deemed to have notice of any
default under any Senior Debt until it receives written notice thereof from
any holder of Senior Debt or from the Issuers as set forth above.
(d) If any payment or distribution of assets of the Issuers
is received by the Trustee or any Holder or any paying agent at a time when
that payment or distribution should not have been made because of
Section 9.02(a) or 9.02(b), such payment or distribution will be promptly paid
over to the Senior Agent on behalf of the Lenders and to the respective Senior
Representatives for the holders of all other Senior Debt for application to the
payment of such Senior Debt (pro rata as to each of such holders on the basis
of the respective amounts of Senior Debt outstanding) until all such Senior
Debt has been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Debt.
SECTION 9.03. Securities Subordinated to Prior Payment of All
Senior Debt on Dissolution, Liquidation or Reorganization. Upon any
distribution of assets of the Issuers upon any dissolution, winding up,
liquidation or reorganization of the Issuers (whether voluntary or involuntary,
in bankruptcy, insolvency, receivership or similar proceeding related to the
Issuers or its property or upon an assignment for the benefit of creditors or
otherwise):
(a) the holders of all Senior Debt will first be entitled to
receive payment in full in cash of the Senior Debt before the
Holders are entitled to receive any payment or distribution of
any kind or character on account of principal of or interest on
the Securities;
(b) any payment or distribution of assets of the Issuers of
any kind or character, whether in cash, Property or securities,
to which the Holders or the Trustees on behalf of the Holders
would be entitled except for the provisions of this Article will
be paid
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by the liquidating trustee or agent or other Person making such a
payment or distribution directly to the holders of Senior Debt or
their respective Senior Agent or Senior Representatives to the extent
necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the
holder of such Senior Debt; and
(c) if, notwithstanding the foregoing, any payment or
distribution of assets of the Issuers of any kind or character,
whether in cash, Property or securities is received by the Trustee or
the Holders or any Paying Agent on account of principal of, premium,
if any, or interest on the Securities before all Senior Debt is paid
in full in cash, or effective provision made for its payment in cash,
such payment or distribution will be received and held in trust for
and will be promptly paid over to the holders of the Senior Debt which
remains unpaid or to their respective Senior Agent or Senior
Representative for application to the payment of such Senior Debt pro
rata as to each of such holders on the basis of the respective amounts
of Senior Debt which is held by then,) until all such Senior Debt has
been paid in full in cash.
The Issuers will give prompt written notice to the Trustee
of any dissolution, winding up, liquidation or reorganization of it or any
assignment for the benefit of its creditors.
SECTION 9.04. Holders of Securities to Be Subrogated to
Rights of Holders of Senior Debt. Subject to the prior payment in full in cash
of all Senior Debt, the Holders shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of assets, cash,
Property or securities of the Issuers applicable to the Senior Debt until all
amounts owing on the principal of and interest on the Securities shall be paid
in full; and, for the purposes of such subrogation, (a) no such payments or
distributions to the holders of the Senior Debt of any cash, Property or
securities to which the Holders of the Securities or the Trustee on their
behalf would be entitled except for the provisions of this Article, and no
payment over pursuant to the provisions of this Article to the holders of
Senior Debt by Holders of the Securities or the Trustee on their behalf shall,
as between the Issuers, their creditors other than holders of Senior Debt, and
the Holders of the Securities, be deemed to be a payment by the Issuers to or
on account of the Senior Debt, and (b) no payment or distributions of cash,
Property or securities to or for the benefit of the Holders of the Securities
pursuant to the subrogation provision of this Article which would otherwise
have been paid to the holders of Senior Debt shall be deemed
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to be a payment by the Issuers to or for the account of the Securities. It is
understood that the provisions of this Article are intended solely for the
purpose of defining the relative rights of the Holders of the Securities, on
the one hand, and the holders of the Senior Debt, on the other hand.
SECTION 9.05. Obligations of the Issuers Unconditional.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or will impair, as between the Issuers and the
Holders of the Securities, the obligations of the Issuers, which are absolute
and unconditional, to pay to the Holders of the Securities the principal of and
interest on the Securities as and when they become due and payable in
accordance with their terms, or is intended to or will affect the relative
rights of the Holders of the Securities and creditors of the Issuers other than
the holders of the Senior Debt, nor will anything herein or therein prevent the
Trustee or any Holder of the Securities from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Debt in respect of
cash, Property or securities of the Issuers received upon the exercise of any
such remedy. So long as the provisions of this Article Nine have been brought
to the attention of the court of competent jurisdiction, tribunal, trustee or
other person making the payment or distribution, upon any distribution of
assets of the Issuers referred to in this Article, the Trustee and the Holders
of the Securities will be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation, reorganization or similar proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or to the Holders of the Securities for the purpose
of ascertaining the persons entitled to participate in such distribution, the
amounts distributed or to be distributed to them and all other facts pertinent
to this Article.
SECTION 9.06. Trustee and Paying Agent Entitled to Assume
Payments Not Prohibited in Absence of Notice. The Issuers shall give prompt
written notice to the Trustee of any fact known to the Issuers that would
prohibit the making of any payment to or by the Trustee in respect of the
Securities. Notwithstanding any other provision of this Indenture, the Trustee
and Paying Agent will not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee or the Paying Agent unless and until a Responsible Officer of the
Trustee or the Paying Agent has received such a written notice thereof from the
Issuers or from the Senior Agent or a Senior Representative for one or more
holders of Senior Debt or from the Senior Agent or a Senior
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Representative therefor and, prior to the receipt of any such written notice,
the Trustee and Paying Agent will be entitled in all respects conclusively to
assume that no such fact exists.
The Trustee will be entitled to rely on the delivery to it
of a written notice by a person representing himself, herself, or itself to be
a holder of Senior Debt (or the Senior Agent or a Senior Representative for
such holder).
Nothing contained in this Section 9.06 limits the
respective rights of the holders of Designated Senior Debt and other Senior
Debt to recover payments as contemplated by Section 9.02.
SECTION 9.07. Application by Trustee of Moneys Deposited
with It. Any deposit of moneys by the Issuers with the Trustee or any Paying
Agent for the payment of principal of or interest on the Securities, will be
subject to the provisions of Sections 9.01, 9.02, 9.03 and 9.04 except that,
prior to the receipt of the notice provided for in Section 9.06, the Trustee
will be entitled to assume that no such facts exist; provided, however, that if
on a date not less than two Business Days prior to the date on which by the
terms of this Indenture any such moneys may become payable for any purpose
(including, without limitation, the payment of either principal of or interest
on the Securities) the Trustee or such Paying Agent has not received with
respect to such moneys the notice provided for in Section 9.06, then, anything
herein to the contrary notwithstanding, the Trustee or such Paying Agent will
have full power and authority to receive such moneys and to apply the same to
the purpose for which they were received, and will not be affected by any
notice to the contrary which may be received by it after such date. Nothing
herein will be construed to relieve any Holders from duties imposed upon them
under Section 9.03(c) with respect to moneys received in violation of the
provisions of this Article.
SECTION 9.08. Subordination Rights Not Impaired by Acts or
Omissions of the Issuers or Holders of Senior Debt. No right of the Senior
Agent, any Senior Representative or any present or future holders of any Senior
Debt to enforce subordination as provided herein will at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Issuers
or by any act or failure to act, in good faith, by the Senior Agent, any Senior
Representative or any such holder, or by any noncompliance by the Issuers with
the terms of this Indenture, regardless of any knowledge thereof which the
Senior Agent, any Senior Representative or any such holder may have or
otherwise be charged with. Without limiting the generality of the foregoing,
the Senior Agent, any Senior
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Representative or the holders of Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provisions in this Article
Nine or the obligations hereunder of the Holders of the Securities to the
holders of Senior Debt, do any one or more of the following: (1) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Debt or the Credit Agreement or any other document, instrument or
agreement evidencing Senior Debt or under which Senior Debt is outstanding, (2)
sell, exchange, release or otherwise deal with any Property pledged, mortgaged
or otherwise securing Senior Debt, (3) release any Person liable in any manner
for the collection or payment of Senior Debt, (4) exercise or refrain from
exercising or waive any rights against the Issuers, any of its Subsidiaries and
any other Person, and (5) otherwise deal freely with the Issuers, all without
affecting the liabilities and obligations of the parties to the Indenture or
the Holders of the Securities. No provision in any supplemental indenture
which affects the superior position of the holders of the Senior Debt will be
effective against the holders of the Senior Debt who have not consented
thereto.
SECTION 9.09. Securityholders Authorize Trustee to
Effectuate Subordination of Securities. Each Holder of Securities by his
acceptance of them authorizes and expressly directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article, and appoints the Trustee his
attorney-in-fact for such purposes, including, in the event of any dissolution,
winding up, liquidation or reorganization of the Issuers (whether in
bankruptcy, insolvency, receivership, reorganization or similar proceedings or
upon an assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of the Issuers or the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings. If the Trustee does not file a proper claim or proof of debt in
the form required in such proceeding at least 30 days before the expiration of
the time to file such claim or claims, then the Senior Agent and the Senior
Representatives for the holders of Senior Debt shall have the right to file and
are hereby authorized to file an appropriate claim for and on behalf of the
Holders of Securities.
SECTION 9.10. Right of Trustee and Paying Agent to Hold
Senior Debt. Subject to the provisions of TIA Section 310(b) and 311, the
Trustee and the Paying Agent will be entitled to all of the rights set forth
in this Article in
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respect of any Senior Debt at any time held by either of them to the same
extent as any other holder of Senior Debt, and nothing in this Indenture will
be construed to deprive the Trustee or the paying agent of any of its rights as
such holder.
SECTION 9.11. This Article Not to Prevent Events of
Default. The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article will not be
construed as preventing the occurrence of an Event of Default.
SECTION 9.12. No Fiduciary Duty Created to Holders of
Senior Debt. With respect to the holders of Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied obligations or
covenants with respect to the holders of Senior Debt will be read into this
Indenture against the Trustee. The Trustee will not be deemed to owe any
fiduciary duty to holders of Senior Debt.
SECTION 9.13. Trustee's Compensation Not Prejudiced.
Nothing in this Article will apply to amounts due to the Trustee pursuant to
other sections in the Indenture.
SECTION 9.14. Representative of Senior Debt. Any notices
to be given or payments to be made to any holders of Senior Debt pursuant to
this Indenture may be made or given to the Senior Agent and to any other Senior
Representatives.
ARTICLE X
SUPPLEMENTAL INDENTURES
SECTION 10.01. Supplemental Indentures Without Consent of
Securityholders. The Company, when authorized by a resolution of its Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto (which shall conform to the
provisions of the TIA) for one or more of the following purposes:
(a) to the extent not prohibited by the terms of the
Credit Agreement or any other agreement, document or instrument
evidencing or governing Senior Debt, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Securities any
property or assets;
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(b) to evidence the succession of another corporation or
partnership to the Company or successive successions, and the
assumption by the successor corporation or partnership of the
covenants, agreements and obligations of the Company pursuant to
Article Five;
(c) to the extent not prohibited by the terms of the
Credit Agreement or any other agreement, document or instrument
evidencing or governing Senior Debt, to add to the covenants of the
Company such further covenants, restrictions, conditions or provisions
as the Company's Board of Directors and the Trustee shall consider to
be for the protection of the holders of Securities, and to make the
occurrence, or the occurrence and continuance, of a default in any
such additional covenants, restrictions, conditions or provisions an
Event of Default permitting the enforcement of all or any of the
several remedies provided in this indenture as herein set forth;
provided that in respect of any such additional covenant, restriction,
condition or provision such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter
or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such an Event of Default or
may limit the remedies available to the Trustee upon such an Event of
Default or may limit the right of the Holders of a majority in
aggregate principal amount of the Securities to waive such an Event of
Default;
(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture; or to make such other provisions in
regard to matters or questions arising under this Indenture or under
any supplemental indenture as the Company's Board of Directors deems
necessary or desirable and which shall not adversely affect the
interests of the holders of the Securities;
(e) to provide for the issuance under this Indenture of
uncertificated Securities in addition to or in place of certificated
Securities, and to make all appropriate changes for such purpose; and
(f) to comply with the provisions of the TIA.
The Trustee is hereby authorized to join in the execution
of any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be
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therein contained and to accept the conveyance, transfer, assignment, mortgage
or pledge of any property thereunder, but the Trustee shall not be obligated to
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section may be executed without the consent of the holders of any of the
Securities at the time outstanding, notwithstanding any of the provisions of
Section 10.02.
SECTION 10.02. Supplemental Indentures with Consent of
Securityholders. With the consent (evidenced as provided in Article Seven) of
the Holders of not less than a majority in aggregate principal amount of the
Securities at the time outstanding, the Company, when authorized by a
resolution of its Board of Directors, and the Trustee may, from time to time
and at any time, enter into an indenture or indentures supplemental hereto
(which shall conform to the provisions of the TIA) for the purpose of adding
any provisions to or chancing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying
in any manner the rights of the holders of the Securities; provided that no
such supplemental indenture shall, without the consent of the Holders of all
Securities then outstanding (a) extend the final maturity of any Security, or
reduce the principal amount thereof (including the amount payable upon
redemption), reduce the rate or extend the time of payment of interest thereon,
or impair or affect the right of any holder of Securities to institute suit for
the payment of any Securities or (b) reduce the aforesaid percentage of
Securities, the consent of the Holders of which is required for any such
supplemental indenture.
The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled to consent to
any indenture supplemental hereto. If a record date is fixed, then those
persons who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent to such
supplemental Indenture or to revoke any consent previously given, whether or
not such persons continue to be Holders after such record date. No such
consent shall be valid or effective for more than 90 days after such record
date.
Upon the request of the Company accompanied by a copy of a
resolution of the Board of Directors certified by the Secretary or an Assistant
Secretary of the Company authorizing the execution of any such supplemental
indenture
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and receipt of the consent of the Holders as set forth above, the Trustee shall
join with the Company in the execution of such supplemental indenture unless
such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the
Securityholders under this Section to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee
of any supplemental indenture pursuant to the provisions of this Section, the
Company shall mail a notice thereof by first-class mail to the Holders of
Securities at their addresses as they shall appear on the registry books of the
Company, setting forth in general terms the substance of such supplemental
indenture. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 10.03. Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture pursuant to the provisions hereof, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Issuers and the Holders
of Securities shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 10.04. Documents to Be Given to Trustee. In
connection with the execution and delivery of any supplemental indenture
pursuant to this Article Ten, the Trustee shall receive an Officers'
Certificate and an Opinion of Counsel and subject to the provisions of Sections
7.01 and 7.02, may rely thereon as conclusive evidence that any such
supplemental indenture complies with the applicable provisions of this
Indenture. The Opinion of Counsel delivered pursuant to this Section 10.04
shall include a statement that the execution, delivery and performance of such
supplemental indenture by the Company will not result in a breach or violation
of, or constitute a default under this Indenture or the Credit Agreement, which
breach, violation or default could have a material adverse effect on
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the business or financial condition of the Company and its Subsidiaries in the
aggregate.
SECTION 10.05. Notation on Securities in Respect of
Supplemental Indenture. Securities authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article may bear a notation in form approved by the Trustee as to any matter
provided for by such supplemental indenture or as to any action taken at any
such meeting. If the Company or the Trustee shall so determine, new Securities
so modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained in any such
supplemental indenture may be prepared and executed by the Issuers,
authenticated by the Trustee and delivered in exchange for the Securities then
outstanding.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls. If any
provision of this Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by the TIA, the
required provision shall control.
SECTION 11.02. Notices. Any notice or communication shall
be sufficiently given if in writing and delivered in person or mailed by
first-class mail addressed as follows:
(a) if to OrNda HealthCorp or Summit Health Ltd.:
3401 West End Avenue
Suite 700
Nashville, Tennessee 37203
Attention: General Counsel; and
(b) if to the Trustee:
NationsBank of Tennessee, N.A.
One NationsBank Plaza
Nashville, Tennessee 37239
Attention: Corporate Trust Department
in each case with a copy to the Senior Agent and any Senior Representative who
has filed with the Trustee an address for notices or with respect to which the
Issuers have filed such an address with the Trustee.
The Issuers shall promptly notify the Holders and the
Trustee of the identity and address of the Senior Agent and any Senior
Representative.
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The Issuers, the Senior Agent, any Senior Representative or
the Trustee by notice to the others may designate additional or different
addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder
shall be mailed by first class mail to such Securityholder at the address which
appears on the registration books of the Registrar and shall be sufficiently
given to such Securityholder if so mailed within the time prescribed.
Failure to mail a notice or communication to a
Securityholder or any defect in it shall not affect its sufficiency with
respect to other Securityholders. Except for a notice to the Trustee, which is
deemed given only when received, if a notice or communication is mailed in the
manner provided above, it is duly given, whether or not the addressee receives
it. If an Issuer mails a notice or communication to Securityholders, it shall
mail a copy of such notice to the Trustee and each Agent at the same time. All
other notices or communications shall be in writing.
SECTION 11.03. Communication by Holders with Other
Holders. Securityholders may communicate in accordance with TIA Section
312(b) with other Securityholders with respect to their rights under this
Indenture or the Securities. The Issuers, the Trustee, the Registrar and
anyone else shall have the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or
Opinion. Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than certificates
provided pursuant to Section 4.09(b)) shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
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(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or
she has made such examination or investigation as is necessary to
enable him or her to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
SECTION 11.06. When Treasury Securities Disregarded. In
determining whether the Holders of the required principal amount of Securities
have concurred in any direction, waiver or consent, Securities owned by an
Issuer or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with an Issuer shall be disregarded,
except that for the purpose of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
which the Trustee knows are so owned shall be so disregarded.
SECTION 11.07. Rules by Trustee and Agents. The Trustee
may make reasonable rules for action by, or at a meeting of, Securityholders.
The Registrar or Paying Agent may make reasonable rules for its functions.
SECTION 11.08. Payments Due on Saturdays, Sundays and
Holidays. If the date of maturity of interest on or principal of the
Securities or the date fixed for redemption of any Security shall not be a
Business Day, then payment of interest or principal need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date of maturity or the date fixed for redemption,
and no interest shall accrue for the period after such date.
SECTION 11.09. GOVERNING LAW. THIS INDENTURE SHALL BE
DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN CHOICE OF
LAW RULES) OF SAID STATE.
SECTION 11.10. No Adverse Interpretation of Other
Agreements. This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Issuers. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
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SECTION 11.11. No Recourse Against Others. Liabilities of
directors, officers, employees, stockholders and limited partners, as such, of
the Issuers or the Trustee is waived and released as provided in paragraph 17
of the Securities.
SECTION 11.12. Successors. All agreements of the Issuers
in this Indenture and the Securities shall bind its successors. All agreements
of the Trustee in this Indenture shall bind its successors.
SECTION 11.13. Duplicate Originals. The parties may sign
any number of copies of this Indenture. Each signed copy shall be an original,
but all of them together represent the same agreement.
SECTION 11.14. Separability. In case any provision in
this Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby, and a Holder shall have no claim
therefor against any party hereto.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be executed in their respective corporate names as of the __th day
of August, 1994.
ORNDA HEALTHCORP,
a Delaware corporation
[CORPORATE SEAL]
By:___________________________
Name:
Attest: Title:
By:____________________________________
SUMMIT HEALTH LTD.
a California corporation
[CORPORATE SEAL] By:___________________________
Name:
Title:
Attest:
By:____________________________________
NATIONSBANK OF TENNESSEE, N.A., as
Trustee
[CORPORATE SEAL] By:___________________________
Name:
Title:
Attest:
By:____________________________________
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STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the _____ day of _________, 1994, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and
say that he is the __________________ of ORNDA HEALTHCORP, one of the
corporations described in and which executed the foregoing instrument; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by the authority of the Board of Directors of said corporation; and that he
signed his name thereto by like authority.
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ______ day of _________, 1994, before me personally came
__________________, to me known, who being by me duly sworn, did depose and say
that he is the ____________________ of SUMMIT HEALTH LTD., one of the
corporations described in and which executed the foregoing instrument; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by the authority of the Board of Directors of said corporation; and that he
signed his name thereto by like authority.
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STATE OF TENNESSEE )
: ss.:
COUNTY OF DAVIDSON )
On the _____ day of _______________, 1994, before me personally came
____________________, to me known, who, being by me duly sworn, did depose and
say that he is the ____________________ of NATIONSBANK OF TENNESSEE, NATIONAL
ASSOCIATION, one of the corporations described in and which executed the
foregoing instrument; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by the authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
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EXHIBIT A
[FACE OF SECURITY]
No. $
ORNDA HEALTHCORP
and
SUMMIT HEALTH LTD.
____ % Senior Subordinated Note Due 2004. OrNda HealthCorp and Summit Health
Ltd., as joint and several obligors, promise to pay to
or registered assigns
the principal sum of ____________ Dollars on
Interest Payment Dates: ______ and ______
Record Dates: ______ and _______
OrNda HealthCorp,
a Delaware corporation
[CORPORATE SEAL] By:_______________________________
By:________________________________
Summit Health Ltd.,
a California corporation
[CORPORATE SEAL] By:________________________________
By:________________________________
DATED:
CERTIFICATE OF AUTHENTICATION
This is one of the Notes described
in the Indenture referred to herein:
NationsBank of Tennessee, N.A.,
as Trustee
By:_______________________________________
Authorized Officer
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(REVERSE OF SECURITY)
ORNDA HEALTHCORP
and
SUMMIT HEALTH LTD.
as Joint and Several Obligors
______% SENIOR SUBORDINATED NOTE DUE 2004
1. Interest. OrNda HealthCorp (the "Company") and Summit
Health Ltd., a wholly owned subsidiary of the Company (the "Co-Obligor" and,
together with the Company, the "Issuers"), promise to pay interest on the
principal amount of this Note at the rate per annum shown above. The Issuers
will pay interest semi-annually on _________ and _________ of each year,
commencing _________, 1995. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
2. Method of Payment. The Issuers will pay interest on the
Notes (except defaulted interest) to the persons who are registered holders of
Notes at the close of business on the __________ or _________ next preceding
the interest payment date. Principal and interest will be payable and transfer
of the Notes will be registrable at the corporate trust operations office of
the Trustee in Atlanta, Georgia, or at the office of the Trustee's designated
agent or affiliate in New York, New York, or at other agencies maintained for
that purpose. The Issuers will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. The Issuers may, however, pay principal and interest by
check payable in such money. They may mail an interest check to a holder's
registered address.
3. Paying Agent and Registrar. Initially, NationsBank of
Tennessee, N.A. (the "Trustee") will act as Paying Agent and Registrar. The
Issuers may change any Paying Agent or Registrar without notice. The Company
or any of its subsidiaries may act as Registrar or, except in certain
circumstances set forth in the Indenture, Paying Agent.
4. Indenture. The Issuers issued the Notes under an
Indenture dated as of __________, 1994 (the "Indenture") between the Issuers
and the Trustee which provides for the issuance of the Notes provided that the
aggregate principal amount of the Notes outstanding at any time may not exceed
$125,000,000, except as otherwise provided in the Indenture. The terms of the
Notes include those stated in the Indenture and those made part of the
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Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Section
Section 77aaa-77bbbb) as in effect on the date of the Indenture. The Notes
are subject to all such terms, and Noteholders are referred to the Indenture
and the Act for a statement of them. The Notes are general joint and several
unsecured obligations of the Issuers, subordinate in right of payment to Senior
Debt as set forth in the Indenture.
Capitalized terms contained in this Note to the extent not
defined herein shall have the meanings assigned to them in the Indenture. As
used herein, Notes and Noteholders means Securities and Securityholders,
respectively, each as defined in the indenture.
5. Optional Redemption. The Notes will be redeemable at the
option of the Company, in whole or in part, on not less than 30 nor more than
60 days' notice mailed by first class mail to a Holder's last address as shall
appear upon the register, at the following prices (expressed as percentages of
principal amount), plus interest accrued to the redemption date, if redeemed
during the 12-month period beginning _________ of the years indicated below;
provided, however, that the Notes will not be redeemable prior to _________,
1999:
Year Percentage
6. Selection and Notice of Redemption. If less than all
the Notes are to be redeemed, the Trustee shall select, by lot or pro rata, or
as otherwise directed by the Company in a manner which is appropriate and fair,
the Notes or portions thereof to be redeemed. Notes in denominations larger
than $1,000 may be redeemed in part, but only in integral multiples of $1,000.
Notice of redemption will be mailed at least 30 days but not more than 60 days
before the redemption date to each Holder of Notes to be redeemed at its
registered address. On and after the redemption date, interest ceases to
accrue on Notes or portions thereof called for redemption.
7. Change of Control. If a Change of Control occurs,
each Holder has a right to require the Company to repurchase such Holder's
Notes at a redemption price of 100% plus accrued and unpaid interest.
8. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A Holder may transfer or exchange Notes in accordance
with the Indenture.
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The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any Note or portion of a Note selected for redemption, or transfer or exchange
any Notes for a period of 15 days before a selection of Notes to be redeemed,
or need not transfer or exchange any Note after it is called for redemption,
other than that portion not called for redemption.
9. Persons Deemed Owners. The registered Holder of a
Note may be treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of
principal or interest remains unclaimed for two years, the Trustee or Paying
Agent will pay the money back to the Company at its request. After that,
Holders entitled to the money must look to the Company for payment as general
creditors unless an "abandoned property" law designates another person.
11. Defeasance. The Indenture contains certain
provisions pertaining to defeasance, which provisions shall for all purposes
have the same effect as if set forth herein.
12. Supplemental Indentures. The Indenture may be
amended, or supplemented or modified in certain cases without the consent of
Holders and in general with the consent of the Holders of not less than a
majority in principal amount of the Notes at the time outstanding, provided
that no such modification, amendment or supplemental indenture shall, without
the consent of Holders of all Notes then outstanding, (a) extend the final
maturity of any Note, or reduce the principal amount thereof (including the
amount payable upon redemption), reduce the rate or extend the time of payment
of interest thereon, or impair or affect the right of any Holder of Notes to
institute suit for the payment of any of the Notes or (b) reduce the aforesaid
percentage of Notes, the consent of Holders of which is required for any such
supplemental indenture.
13. Restrictive Covenants. The Indenture contains
certain restrictive covenants that are applicable to the Company.
14. Successors. When a successor assumes all the
obligations of its predecessor under the Notes and the Indenture pursuant to
the terms of the Indenture, the predecessor will be released from those
obligations.
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15. Defaults and Remedies. An Event of Default is:
(i) (a) any failure to pay an installment of interest
on the Notes as and when the same becomes due and payable, and the continuance
of such failure for 30 days; (b) failure to pay all or any part of the
principal on the Notes when and as the same shall become due and payable at
maturity, redemption, by declaration or otherwise; (c) failure by the Company
duly to, observe or perform any covenant or agreement contained in the Notes or
the Indenture and the continuance of such failure for a period of 60 days after
written notice specifying such failure and demanding that the Company remedy
the same shall have been given to the Company by the Trustee or to the Company
and the Trustee by Holders of at least 40% in aggregate principal amount of
Notes then outstanding; (d) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Material Subsidiaries;
(e) any acceleration of the maturity of Debt of the Company or any of its
Material Subsidiaries or a failure to pay any such Debt at its stated maturity,
or (upon demand for payment) under any guarantee of payment by the Company or
any of its Subsidiaries of any Debt, whether such Debt or guarantee existed at
the Closing Date or was thereafter created, aggregating at least $25,000,000,
provided that such acceleration or failure to pay is not cured within 10 days
after such acceleration or failure to pay; and (f) final judgments not covered
by insurance aggregating in excess of $10,000,000 rendered against the Company
or any of its Subsidiaries and not stayed or discharged within 60 days after
such judgments become final and nonappealable. The Indenture provides that if a
default (the term "default" for purposes of this provision being defined as any
event or condition which is, or with notice or lapse of time or both would be,
an Event of Default) occurs and is continuing and if it is known to the
Trustee, the Trustee must, within 90 days after the occurrence of such default,
give to the Holders of Notes notice of such default, provided that, except in
the case of a default in payment of principal or interest in respect of such
Notes, the Trustee will be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interests of the
Holders of Notes.
If an Event of Default shall occur and be continuing (other
than an Event of Default described in clause (d) of the preceding paragraph
relating to the Company); unless the principal of all the Notes shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Notes then outstanding, by notice
in writing to the Company (and to the Trustee if given by Holders of Notes)
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(the "Acceleration Notice"), may declare the principal of all Notes and the
interest accrued thereon to be due and payable (i) immediately if no Designated
Senior Debt is outstanding or (ii) if any Designated Senior Debt is
outstanding, upon the earlier of (x) 10 days after such Acceleration Notice is
received by the Senior Agent and each Senior Representative with respect to
Designated Senior Debt at their last addresses specified pursuant to the
Indenture or (y) the acceleration of such Designated Senior Debt, and upon any
such declaration the same shall become due and payable on the date specified in
the foregoing clause (i) or (ii), as applicable; provided, that (i) prior to
the expiration of such period, such acceleration shall be automatically
rescinded and annulled without further action required on the part of the
Holders in the event that any default specified in the Acceleration Notice
under the Notes shall have been cured, waived or otherwise remedied and (ii) at
any time before the entry of a judgment or decree or the payment of moneys due
under the Indenture, the Holders of a majority in aggregate principal amount of
the Notes may waive all defaults except (a) a default in the payment of
principal or interest on the Notes or (b) in respect of a covenant or
provisions hereof which cannot be modified or, amended without the consent of
each Holder of the Notes affected. If an Event of Default specified in clause
(d) above relating to the Company occurs, the principal of and accrued interest
on all outstanding Notes shall become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of Notes.
Prior to the declaration of acceleration of the maturity of
the Notes, the Holders of a majority in aggregate principal amount of the Notes
at the time outstanding may waive on behalf of all the Holders of Notes any
past default, or Event of Default, except a default in the payment of principal
of or interest on any Notes or a default with respect to any covenant or
provision which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. The Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
of direction of any of the Holders of Notes unless such Holders of Notes have
offered to the Trustee reasonable security or indemnity. Subject to all the
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Notes at the time outstanding have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
The Company is required to furnish the Trustee, within 120
days after the end of each fiscal year, an Officers' Certificate to the effect
that such officers have
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conducted, or supervised, a review of the activities of the Company and its
Subsidiaries and of performance under the Indenture and that, to the best of
such officers' knowledge, based on their review, the Issuers have fulfilled all
their obligations under the Indenture, or, if there has been a default,
specifying each default known to them, its nature and its status.
16. Trustee Dealings with Issuers. Subject to the
provisions of the TIA, NationsBank of Tennessee, N.A., the Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for, the Company, the Co-Obligor or their
Affiliates, and may otherwise deal with the Company, the Co-Obligor or their
Affiliates, as if it were not Trustee.
17. No Recourse Against Others. A director, officer,
employee, stockholder or limited or general partner, as such, of the Issuers or
the Trustee shall not have any liability for any obligations of the Issuers
under the Notes or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Noteholder by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Notes.
18. Authentication. This Note shall not be valid until
the Trustee or its agents sign the certificate of authentication on the other
side of this Note.
19. Abbreviations. Customary abbreviations may be used
in the name of a Noteholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
The Issuers will furnish to any Noteholder upon written
request and without charge a copy of the Indenture. Requests may be made to:
OrNda HealthCorp, 3401 West End Avenue, Suite 700, Nashville, Tennessee 37203,
Attn: Vice President, Finance.
A-7
<PAGE> 87
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 4.10 of the Indenture, check this Box: [ ]
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 4.10 of the Indenture, state the amount:
$____________________
Date: ________________ Your Signature:____________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: _____________________________
A-8
<PAGE> 88
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- -------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date: _______________ Your Signature:_____________________
(Sign exactly as your
name appears on the
other side of this Note)
Signature Guarantee: _____________________________
A-9
<PAGE> 1
OrNda EXHIBIT 5
HealthCorp
August 15, 1994
OrNda HealthCorp
3401 West End Avenue
Suite 700
Nashville, TN 37203
Re: OrNda HealthCorp -- Summit Health Ltd.
Registration Statement on Form S-3 relating
to $125,000,000 principal amount of Senior
Subordinated Notes due 2004
-------------------------------------------
Dear Ladies and Gentlemen:
I am Senior Vice President and General Counsel of OrNda HealthCorp, a
Delaware corporation ("OrNda"), and Summit Health Ltd., a California corporation
("Summit" and, together with OrNda, the "Co-Obligors"), and have acted as
such in connection with the Registration Statement on Form S-3 (File No.
33-54651), as amended (the "Registration Statement"), of the Co-Obligors
under the Securities Act of 1933, as amended (the "Act"), relating to the
offering of $125,000,000 principal amount of the Senior Subordinated Notes due
2004 of the Co-Obligors (the "Notes").
This opinion is delivered in accordance with the requirements of Item
601(b) (5) of Regulation S-K promulgated under the Act.
In connection with this opinion, I have examined and am familiar with (a)
the Registration Statement; (b) the Restated Certificate of Incorporation of
OrNda, as currently in effect; (c) the By-laws of the OrNda, as amended; (d)
the Articles of Incorporation of Summit, as currently in
<PAGE> 2
August , 1994
Page 2
effect; (e) the By-laws of Summit; (f) certain resolutions of the Board of
Directors of OrNda; (g) certain resolutions of the Board of Directors of
Summit; (h) the form of Indenture, (the "Indenture"), among the Co-Obligors and
NationsBank of Tennessee, N.A. as trustee (the "Trustee"); (i) the proposed
form of Purchase Agreement, among the Co-Obligors, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc and Citicorp Securities, Inc. (the "Purchase
Agreement"); and (j) such other agreements, certificates of public officials
and officers of the Co-Obligors, records, documents, and matters of law that I
deemed necessary or appropriate as a basis for the opinion set forth herein.
In my examination, I have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified or photostatic copies and the
authenticity of all originals of such copies. I have also assumed that the
Purchase Agreement, when executed and delivered, will be substantially in the
form submitted to me for examination.
I am admitted to the bars of the States of New York and Tennessee and I
express no opinion as to the laws of any other jurisdiction except for the
General Corporation Law of the State of Delaware and the California General
Corporation Law.
Based upon and subject to the foregoing, I am of the opinion that the
Notes have been duly authorized by each of the Co-Obligors and, when (i) the
Registration Statement shall become effective under the Act, (ii) the Purchase
Agreement shall have been duly executed and delivered by the
<PAGE> 3
August , 1994
Page 3
parties thereto and (iii) the Notes shall have been duly executed on behalf of
the Co-Obligators and authenticated by the Trustee and issued and delivered
pursuant to the Indenture and the Purchase Agreement against payment to OrNda
of the authorized consideration therefor, the Notes will be validly issued and
will be valid and binding obligations of each of the Co-Obligators, enforceable
against each of the Co-Obligators in accordance with their terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting enforcement of creditors' rights generally and
except as enforcement) is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity at law).
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name in the Registration Statement
under the caption "Legal Matters." In giving such consent, I do not hereby
admit that I come into the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Ronald P. Soltman
-------------------------
Ronald P. Soltman
Senior Vice President
and General Counsel
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 33-54651) and related
Prospectus of OrNda HealthCorp/Summit Health Ltd. for the registration of
$125,000,000 Senior Subordinated Notes due 2004 and to the incorporation by
reference therein of:
<TABLE>
<S> <C>
a. our report dated June 30, 1994, with respect to the consolidated financial statements
and schedules of OrNda HealthCorp at August 31, 1993 and 1992, and for each of the three
years in the period ended August 31, 1993, restated to give retroactive effect to the
OrNda HealthCorp merger with American Healthcare Management, Inc., effective April 19,
1994, which was accounted for as a pooling of interests, included in its Current Report
on Form 8-K dated July 11, 1994, filed with the Securities and Exchange Commission;
b. our report dated October 15, 1993, except for Note 14 as to which the date is November
18, 1993, and Note 1 as to which the date is March 5, 1994, with respect to the
consolidated financial statements and schedules of OrNda HealthCorp included in its
Annual Report (Form 10-K as amended by Form 10-K/A No. 4) for the year ended August 31,
1993, filed with the Securities and Exchange Commission, which have subsequently been
restated to give retroactive effect to the OrNda HealthCorp merger with American
Healthcare Management, Inc. effective April 19, 1994, which was accounted for as a
pooling of interests;
c. our report dated October 29, 1993, with respect to the consolidated financial statements
and schedules of Houston Northwest Medical Center, Inc. included in the OrNda HealthCorp
Annual Report (Form 10-K/A No. 4) for the year ended August 31, 1993, filed with the
Securities and Exchange Commission;
d. our report dated September 8, 1993, with respect to the consolidated financial
statements of Summit Health Ltd. for the three years ended June 30, 1993, included in
OrNda HealthCorp's Current Report on Form 8-K dated July 11, 1994, filed with the
Securities and Exchange Commission;
e. our reports dated September 8, 1993, with respect to the consolidated financial
statements and schedules of Summit Health Ltd. included in its Annual Report (Form 10-K)
for the year ended June 30, 1993, filed with the Securities and Exchange Commission; and
f. our reports dated February 11, 1993, with respect to the financial statements of MCF,
Inc., Florida Medical Center, Ltd., and Florida Medical Center, Inc. for the year ended
December 31, 1992, included in the Form 8-K as amended by Form 8-K/A No. 3, of OrNda
HealthCorp dated March 11, 1994, filed with the Securities and Exchange Commission.
</TABLE>
ERNST & YOUNG LLP
Nashville, Tennessee
August 12, 1994
<PAGE> 2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Fountain Valley Medical Development
Company and Subsidiaries
Fountain Valley, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated January 21, 1994, relating to the
consolidated financial statements of Fountain Valley Medical Development Company
and Subsidiaries which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN
Orange, California
August 12, 1994
