UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
Commission file number: 1-8756
AMERICAN HEALTHCARE MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1636788
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
660 American Avenue, Suite 200
King of Prussia, Pa 19406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(610) 768-5900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock New York Stock Exchange
10% Notes Due August 1, 2003 New York Stock Exchange
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /x/ No //
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by
a court. Yes /x/ No /x/
The aggregate market value of the registrant's common
stock, par value $0.01 per share, held by non-affiliates of
the registrant as of the close of business on February 28,
1994 (an aggregate of 15,572,532 shares out of a total of
27,475,049 shares outstanding at that time) is $165,458,152
computed by reference to the last reported sale price
($10.625) on the New York Stock Exchange on February 28,
1994. For purposes of the foregoing calculation only, all
directors and executive officers have been deemed affiliates
of the registrant.
As of February 28, 1994, there were 27,475,049 shares of
the registrant's common stock, par value $0.01 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement
relating to the 1994 special shareholder meeting -- Part III
<PAGE>
TABLE OF CONTENTS
Page
Part I.
Item 1. Business 3
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Part II.
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 25
Item 8. Financial Statements and
Supplementary Data 30
Part III.
Item 9. Changes in and Disagreements with the
Accountants on Accounting and Financial
Disclosure 50
Item 10. Directors and Executive Officers of the
Registrant 50
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial
Owners of Management 54
Item 13. Certain Relationships and Related
Transactions 56
Part IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 59
Signatures 63
<PAGE>
PART I
Item 1. Business
THE COMPANY
American Healthcare Management, Inc. (together, unless the
context otherwise requires, with its subsidiaries, "AHI" or
the "Company") is a health care services company engaged in
the operation of 16 general acute care hospitals in nine
states, with a total of 2,028 licensed beds. The Company
owns 14 of these hospitals and operates two under leases.
The Company's hospitals provide a range of medical/surgical
inpatient and outpatient services, with a particular focus on
primary care services such as obstetrics, pediatrics and
minimally invasive and routine surgeries.
In 1987, AHI filed for reorganization under Chapter 11 of the
Federal Bankruptcy Code. While in bankruptcy, the Company
disposed of various assets and properties. On December 29,
1989 (the "Effective Date"), the Company's Internal Plan of
Reorganization (the "Plan") became effective and the Company
emerged from reorganization proceedings. In connection with
the Plan, a new Board of Directors was appointed and a new
President and Chief Executive Officer was elected. Since the
Effective Date, AHI has sold various assets for aggregate
gross proceeds of approximately $32 million. Further, since
the Effective Date, AHI has acted to improve operating margin
and cash flow by repositioning its operations to focus on
primary medical/surgical acute care services, establishing
services and programs to increase outpatient revenues,
relocating the corporate office, replacing all, and
substantially reducing the number of, corporate personnel,
implementing a new management information system to monitor
costs, cash flow and quality outcome and hiring new
administrators at 13 of the Company's hospitals.
<PAGE>
In addition, the Company's financial management efforts have
been focused on deleveraging the capital structure, enhancing
cash generation, managing working capital needs and funding
capital projects. In July of 1993, the Company issued
$100,000,000 of 10%, senior subordinated notes, due 2003 (the
"Notes"). The proceeds were used to pay down debt and for
general corporate purposes, including capital expenditures.
Also, in July 1993, the Company entered into an amended
credit facility to provide $42.5 million of a term loan
facility, $20 million of a revolving credit line for working
capital and a $60 million credit line to fund certain
permitted acquisitions (the "Credit Facility").
Since the year ended December 31, 1989, on a same-hospital
basis, AHI has increased hospital operating net revenue from
$259.8 million in 1989 to $339.4 million in 1993, a 30.6%
increase. For the same period, on a same-hospital basis,
outpatient gross revenue grew 68.3%, and hospital operating
costs were reduced from 89.5% to 84.5% of net revenue.
Earnings before interest, taxes, depreciation, write-downs of
assets and other charges ("EBITD") from hospitals (i.e.,
before corporate overhead) increased from $27.2 million in
1989 to $52.7 million in 1993, and EBITD from hospitals as a
percentage of net revenue grew from 10.5% to 15.5%. During
this period, corporate expenses were reduced $9.1 million and
accounts receivable at year-end decreased from $52.9 million
in 1989 to $45.8 million in 1993, notwithstanding the fact
that during this period net revenue increased. The Company
reduced its indebtedness by more than $58.5 million during
this period through asset dispositions, internally generated
cash flow and a debt-for-equity exchange. The Company's debt
to capitalization ratio has been reduced from 89.1% at
December 31, 1989 to 55.9% at December 31, 1993.
Since the beginning of 1990, AHI has instituted a variety of
programs to improve the health care services and operating
results of its hospitals as part of a strategy to achieve
profitable growth in an environment increasingly dominated by
fixed reimbursement payors (such as government-sponsored and
managed care insurance programs). These programs include:
> emphasizing particular medical and surgical services
which management believes will augment market share
and produce improved margins;
> targeting capital improvement projects to provide or
enhance services for which the Company expects demand
to remain stable or increase;
> managing costs to reduce the impact of the continuing
shift to a fixed reimbursement environment and to
allow the Company to price its services more
competitively to attract managed care plans;
<PAGE>
> establishing networks of primary-care,
medical/surgical physician practices to expand
service areas and patient bases and thus to better
position the Company to participate in managed care
contracts; and
> developing a quality outcome measurement system to
monitor effectiveness of services provided.
PROPOSED MERGER
On November 18, 1993, the Company entered into a definitive
Agreement and Plan of Merger with OrNda HealthCorp ("OrNda")
pursuant to which the Company will merge with and into OrNda.
Such Agreement, as amended and restated as of January 14,
1994, is referred to herein as the OrNda Merger Agreement.
It is expected the transaction will be a stock-for-stock,
tax-free exchange and accounted for as a pooling-of-
interests. Under the terms of the OrNda Merger Agreement,
which was unanimously approved by the Boards of Directors of
both companies, the Company's shareholders will receive 0.6
of a share of OrNda Common Stock in exchange for each share
of the Company's Common Stock held.
Additionally, pursuant to a Waiver and Consent Agreement
dated February 3, 1994 by and among OrNda and the holders of
a majority in principal amount of the Notes, as consideration
for their agreement to make certain changes to the Notes'
Indenture to effect the merger and other matters, OrNda will
(i) make consent payments to the holders on the closing date
of the merger of $15.00 for each $1,000 principal amount of
the outstanding Notes and (ii) following the consummation of
the merger, increase the rate of interest on the Notes from
10% per annum to 10 1/4% per annum. The merger will cause a
"change of control" under the Notes, which, therefore, will
allow each holder of the Notes to require the Company to
repurchase all or a portion of the Notes owned by such holder
at 101% of the principal amount thereof, together with
accrued interest thereon to the date of repurchase. Although
the Company does not anticipate that a substantial amount of
the Notes will be tendered for repurchase, if any, OrNda has
made financial arrangements to provide funding, to the extent
necessary, for the repurchase of any Notes tendered.
Consummation of the merger is subject to shareholder approval
of both companies. A special meeting of the Company's
shareholders is scheduled to be held April 19, 1994.
Shareholders of the Company representing approximately 44% of
the Company's Common Stock outstanding as of March 4, 1994
have informed the Company that they intend to vote such
shares in favor of the merger. The Company's management
believes that sufficient additional AHI shareholders to
<PAGE>
approve the merger will vote in favor of the transaction.
OrNda shareholders owning approximately 49% of OrNda's common
stock outstanding as of the record date have granted
irrevocable proxies to AHI pursuant to which AHI has the
power to vote the OrNda shares owned by them in favor of the
merger.
INDUSTRY ANALYSIS
Health care expenditures are a large part of the U.S. economy
and continue to escalate. In 1993, health care expenditures
amounted to approximately $940 billion, an increase of
approximately 12.1% from 1992, and approximately 30% of these
expenditures were attributable to general acute care
hospitals. Since 1989, the average annual compound growth
rate in health care spending attributable to general acute
care hospitals has been 11%. During this same period,
hospital utilization rates (the rate of admissions and
patient days per one thousand population) have declined,
reflecting more stringent controls and cost-containment
efforts by payors of hospital services, and there has been a
partial shift of patients from hospital inpatient to hospital
outpatient and alternate site settings.
Management believes that the acute care hospital will
continue to be the centerpiece in the delivery of health
care. Notwithstanding growth in the number and type of
alternative site providers, management believes that
hospitals can, with more efficient operations and effective
pricing practices, recover a significant amount of the
business which initially shifted to alternate site providers
because these providers do not offer the range of care
generally available at acute care hospitals and because
management believes that the trend toward managed care will
continue to put pressure on pricing and profitability levels
of alternative site providers. In addition, management
believes that in the future the industry will generally
experience increasing usage of inpatient and outpatient
services as a result of the aging of the population; expanded
health coverage, which is an anticipated part of health care
reform; and the general growth in population.
In management's view, cost containment pressures are causing
the role of the primary care physician within the health care
delivery system to become more central as compared to that of
the specialist. Managed care and fixed reimbursement payor
arrangements have created incentives for care to be delivered
by primary care physicians rather than specialists. Thus,
the role of the primary care physician as gatekeeper, as the
professional who chooses whether and when patients should be
referred to particular specialists or other providers (such
as hospital), has been enhanced. In certain markets,
<PAGE>
particularly where there is substantial managed care, the
enhanced position of the primary care physician has resulted
in two parallel developments. First, there has been an
increased consolidation of primary care physicians into
larger medical groups, some of which can potentially provide
professional coverage over broad geographic areas. Second,
because of the role of the primary care physician as
gatekeeper, there is competition among hospitals for the
loyalty of such physicians, and, as a result, there have been
increased affiliations, and in some cases consolidations,
between hospitals and primary care physicians. Management
believes that it will be necessary to respond to such
developments in order to maintain the Company's position in
these markets.
Over the last decade, changes in reimbursement policy have
significantly affected hospital revenues. In 1990, Medicare
accounted for approximately 33% of hospital revenues in the
U.S. Since the advent in 1983 of Medicare's prospective
payment system (with fixed reimbursements based upon a system
of diagnosis-related groups ["DRGs"] determined by a
patient's principal diagnosis) for hospital inpatient
reimbursement, hospital Medicare revenues have become tied
more to the nature of the diagnosis leading to hospital
admission and the volume of admissions and less to patients
days, the traditional basis of hospital revenues. Due to
these changes in Medicare reimbursement methodology,
hospitals are generally focusing on increased admissions and
expense reduction measures rather than longer length-of-stay
patient procedures. In addition, with the rise of a fixed
reimbursement based on DRGs, the management of resources used
during each patient stay becomes an important factor in the
financial success of a hospital. As health care costs have
increased, Medicaid (the federally subsidized and mandated
state program for categorical grant programs), insurance
companies, and employers have adopted many of the same types
of cost containment methodologies employed by the Medicare
program. Most notably, employers have turned to HMO- and
PPO-sponsored plans as alternatives to indemnity health
insurance coverage, and a number of states have moved away
from cost-based reimbursement to varying methods to limit
hospital expenditures, such as per diem, negotiated rates,
and in some cases DRG-based reimbursement. At the end of
1992, approximately 17.5% of the population was covered by
HMO plans compared with approximately 13.9% three years
earlier.
Management believes that a high percentage of the population
in the markets in which the Company operates is covered for
hospital care by managed care or fixed reimbursement
methodologies. In management's experience, these payors have
been seeking low-cost providers who can demonstrate that
hospitalization at their facilities will generally result in
<PAGE>
favorable outcomes for patients. In 1993, AHI derived
approximately 71% of its gross patient revenues from
governmental payors and approximately 12% from non-
governmental payors from which it receives fixed
reimbursement (through agreements providing for flat
pricing).
On an industry-wide basis, hospital operating costs per
discharge increased an average of 9.4% from 1983 to 1989, and
management believes that this trend has continued through
1993. The increases can be attributed to increases in the
severity of condition of the patients hospitalized (which can
be generally attributed to the incentives payors have created
for patients whose conditions are less medically serious to
seek treatment in non-hospital settings); the shift to
outpatient services; technological innovation; increases in
health care labor rates, supplies, equipment and drug costs;
trends towards lower lengths of stay; and trends towards more
costly physician practice patterns. Generally, revenue
increases earned through either price increases or changes in
fixed reimbursement levels have not kept up with the cost
increases. As a result, hospitals have sought operating
efficiencies, changed the focus of business development, and
increased the competition for patient volume.
On November 20, 1993, President Clinton submitted proposed
comprehensive health care reform legislation, The Health
Security Act of 1993 (the "Act"), to Congress. A central
component of the Act is the restructuring of health insurance
markets through the use of "managed competition." Under the
Act, states would be required to establish regional
purchasing cooperatives, known as "regional alliances," that
would be the exclusive source of coverage for individuals and
employers with less than 5,000 employees. "Employer
Mandates" would require all employers to make coverage
available to their employees and contribute 80% of the
premium, and all individuals would be required to enroll in
an approved health plan. Regional alliances would contract
with health plans that demonstrate an ability to provide
consumers with a full range of benefits, including hospital
services, and the provision of such benefits would be
mandated by the federal government. The federal government
would provide subsidies to low-income individuals and certain
small businesses to help pay for the cost of coverage. These
subsidies and other costs of the Act would be funded in
significant part by reductions in payments by the Medicare
and Medicaid programs to providers, including hospitals. The
Act would also place stringent limits on the annual growth in
health plan premiums. Other comprehensive reform proposals
have been or are expected to be introduced in Congress.
These other proposals contain or are expected to contain
coverage guarantees, benefit standards, financing and cost
control mechanisms which are different than the Act. Many
<PAGE>
other proposed health reform initiatives have been introduced
in the Congress. Therefore, the Company is unable to predict
what, if 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 impact on the
Company's revenues or earnings.
BUSINESS STRATEGY
Effect of Merger with OrNda
___________________________
In connection with the previously discussed merger between
AHI and OrNda, certain aspects of the Company's business
strategy may change. For example, certain OrNda hospitals
provide tertiary care services versus AHI's emphasis on
providing principally primary care services. Furthermore,
OrNda's strategy to acquire additional acute care hospitals
may be different subsequent to the merger due to differences
in the type of services emphasized and because of the terms
of a new credit facility negotiated in contemplation of the
combined companies. Additionally, different strategies
relating to hospital dispositions may need to be developed.
Other aspects of the Company's business strategy may also be
affected. The following discussion relates to the Company's
current business strategy, exclusive of considerations
relating to the merger.
Emphasis on Specific Services
_____________________________
The Company's hospitals focus on the delivery of primary
medical/surgical care services, including obstetrics,
pediatrics, and minimally invasive and routine surgeries.
The Company's strategy is based on its belief that (i) these
basic health care services will continue to experience steady
or growing demand because health care cost containment
efforts are likely to be aimed at costly or redundant
services, (ii) services such as obstetrics and pediatrics
currently receive generally favorable reimbursements from
fixed reimbursement plans (including from Medicare and
Medicaid) and are least likely to be adversely affected by
future federal, state, and third-party insurance
reimbursement policy changes, and (iii) concentration on
primary care eliminates the need to maintain costly
specialist medical teams and dedicated facilities for more
complex tertiary procedures, helping the Company control
costs.
AHI has responded to the shift of certain procedures to
outpatient settings by enhancing its hospitals' outpatient
capabilities with improved outpatient diagnostic and surgical
<PAGE>
services, and by introducing minimally invasive surgery to
shorten, and in some cases eliminate, overnight patient
stays. The Company's hospitals emphasize outpatient services
such as short-stay, minimally invasive surgeries that
management believes will experience steady or growing demand,
as a result of pressure by third-party payors to shift
treatments to the less costly outpatient setting, and offer
attractive margins. The Company believes that it is well
positioned in relation to alternative site providers of
outpatient services because its acute care hospitals can
offer a broader range of services at competitive prices.
Cost Management
_______________
A central aspect of the Company's strategy is to position
itself as a low-cost provider of health care services. The
Company's management devotes a substantial portion of its
efforts on managing costs to improve operating income.
Management believes its expertise and efforts in this area
will allow the Company to operate successfully in an
increasingly fixed reimbursement environment.
AHI has developed a centralized management information system
which provides both hospital and corporate management with
immediate access to financial, operational and clinical data.
This system assists the Company in managing resource
consumption by allowing it to (i) track patients' lengths of
stay, (ii) monitor physician admitting patterns and treatment
practices to identify and correct resource overutilization,
(iii) continuously monitor and adjust staffing levels in
response to hospital census fluctuations, (iv) screen
services to identify and eliminate those that are
unprofitable, (v) analyze proposed capital expenditures in
light of return on investment goals, and (vi) monitor the use
of high-cost pharmaceuticals consistent with established
protocols. The Company's cost control efforts also include
controls over supply purchases, including participation with
other providers to take advantage of group purchasing
discounts. In addition, AHI's emphasis on primary care
medical services, which require, in general, the commitment
of a lower "intensity" of resources than tertiary or other
types of acute care services, is a fundamental component of
AHI's cost management strategy.
As a result of the Company's efforts, AHI's payroll and
benefits as a percentage of net revenue have declined from
44.6% in 1989 to 42.2% in 1993, and nonpayroll operating
costs have been reduced from 47.3% of net revenue in 1989 to
43.9% of net revenue in 1993.
<PAGE>
Primary, Medical/Surgical Care Physician Practice Development
_____________________________________________________________
The number of primary medical/surgical care physician
practice groups has recently proliferated in response to the
increasing influence of managed care plans as purchasers of
health care services. Larger groups of physicians are able
to negotiate better with managed care plans, which are
seeking multiple primary medical/surgical care access points
and favorable rates. The Company has organized groups of
physicians to increase the breadth of the geographic base of
primary medical/surgical care physicians which support the
Company's facilities. The establishment of primary
medical/surgical care physician networks, together with the
Company's efforts to create a competitive cost structure and
strategic alliances with tertiary care hospitals, as
discussed below, are intended to improve the attractiveness
of the Company's hospitals to purchasers of health care
services, particularly managed care plans.
All of the Company's hospitals strive to create a physician-
supportive atmosphere by involving physicians in the
strategic planning of their hospitals and in more tangible
decision-making processes, such as those relating to
equipment acquisitions and facility improvements.
Quality Outcome Management
__________________________
A unique feature of the Company's management information
system is a proprietary on-line Quality Outcome Measurement
System, designed to measure selected outcome indicators
(e.g., mortality, returns to operating room during same
admission, unplanned transfers to intensive care, pressure
ulcers not present on admission) and to identify where
modifications to patient care are warranted. Measurement
data is used to develop appropriate physician practice
protocols, and to change practices where appropriate.
Targeted Capital Expenditures
_____________________________
Capital expenditures, aside from needed equipment
replacements and remodeling, are targeted to increase
capacity through expansion of existing services and new
services. Allocation of capital to such projects is
dependent upon specific criteria, including consistency with
existing strategies and estimated return on investment.
Currently, the projects expected to generate the greatest
returns are at hospitals which are somewhat constrained by
capacity, particularly for high-demand services within their
service areas. Management believes the rates of return
associated with these proposed capital investments are
<PAGE>
greater than AHI's cost of capital. Prior to July 1993, some
of these expenditures had been delayed because of capital
limitations inherent in AHI's capital structure. Upon AHI's
issuance of $100 million of senior subordinated debt in July
1993, sufficient capital became available to fund these
projects.
Strategic Alliances with Tertiary Care Hospitals
________________________________________________
AHI has developed an alliance between its Los Angeles area
facilities and the Hospital of the Good Samaritan, a major
tertiary care hospital in Los Angeles, in order to coordinate
a full range of patient services within the Company's Los
Angeles service area. Such a system is intended to eliminate
duplication of high-cost capital improvements and increase
access to managed care contracts for both AHI staff
physicians affiliated with the system and AHI hospitals.
Management intends to strengthen and expand the Los Angeles
alliance with the Hospital of the Good Samaritan through the
formation of new physician groups to work within the alliance
and through expansion of the alliance's geographic scope to
include more of the Company's hospitals in the Southern
California market.
The Company has targeted certain of the other markets in
which it operates for the potential development of
relationships similar to that which it is in the process of
developing in Los Angeles. Through strategic alliances of
this variety, the Company hopes to participate in integrated
health care delivery systems in certain of its markets in
order to obtain and retain market share.
Acquisitions
____________
On December 6, 1993, the Company signed a letter of intent
with Quorum Health Group, Inc. ("Quorum") under which the
Company will purchase Suburban Medical Center from a
subsidiary of Quorum. Suburban Medical Center in Paramount,
California, consists of a 184-bed acute care hospital and two
medical office buildings, all of which are leased on a long-
term basis from an unrelated third party. The proposed
transaction is subject to the completion of a definitive
agreement and the satisfaction of customary closing
conditions and obtaining certain approvals. The Company's
management anticipates that OrNda will complete the
transaction by May 31, 1994.
The Company does not currently have any other agreements or
understandings relating to the acquisition of any hospital by
the Company, but the Company is periodically made aware of
<PAGE>
opportunities which the Company evaluates in light of
strategic, operational and financial objectives.
Hospital Operations
___________________
The Company's hospitals are general acute care hospitals
which offer a range of medical services, including inpatient
services such as operating/recovery rooms, intensive care and
coronary care units, diagnostic services and emergency room
care and outpatient services such as same-day surgery,
laboratories, pharmacies and rehabilitation services. The
Company concentrates on primary care services, such as
obstetrics, pediatrics and minimally invasive and routine
surgeries. Because the Company's strategy is to provide
these basic services on a cost-effective basis, its hospitals
generally do not provide more complicated services, such as
open-heart and neurosurgeries, which require maintenance of
high-cost specialist medical teams and facilities. Certain
of the Company's hospitals provide selected specialty
services, such as cardiocatheter procedures, lung laser
surgery, psychiatric care and neurological care.
Each of the Company's sixteen hospitals is managed on a day-
to-day basis by a locally based administrator and a financial
controller. In addition, a local governing board, which
includes members of the hospital's medical staff and
community members, monitors the medical, professional and
ethical practices at each hospital. Each of the Company's
hospitals is responsible for ensuring that it conforms to all
applicable regulatory and licensure standards and
requirements.
The following table sets forth certain information relating
to each of the sixteen hospitals operated by the Company at
December 31, 1993. The Company's indebtedness under the
Credit Facility (see Item 8, Financial Statements and
Supplementary Data) is secured by liens on all owned
properties listed below, except Plateau Medical Center.
Certain properties also secure other debt agreements,
principally mortgages.
<PAGE>
<TABLE>
<CAPTION>
Licensed Occupancy
Licensed Facility Location Title Beds* Rates**
<S> <C> <C> <C> <C>
California
Chapman General Hospital Orange Leased (1) 99 36.4%
Community Hospital Huntington Park Leased (2) 99 22.7
Mission Hospital Huntington Park Owned 127 25.9
Greater El Monte Community South El Monte Owned 115 44.4
Monterey Park Hospital Monterey Park Owned 102 54.6
Woodruff Community Hospital Long Beach Owned (3) 96 40.8
Florida
North Bay Medical Center New Port Richey Owned 122 67.4
Louisiana
Minden Medical Center Minden Owned (3) 108 25.9
Nevada
Lake Mead Hospital
Medical Center North Las Vegas Owned (4) 163 63.3
Oregon
Eastmoreland Hospital Portland Owned (3) 100 23.8
Woodland Park Hospital Portland Owned (5) 209 18.6
Tennessee
Gibson General Hospital Trenton Owned 101 30.3
Texas
Pasadena General Hospital Pasadena Owned (3) 146 14.9
Sharpstown Hospital Houston Owned 190 9.9
Washington
Puget Sound Hospital Tacoma Owned 160 49.6
West Virginia
Plateau Medical Center Oak Hill Owned (6) 91 54.5
_______
2,028 35.2%
____________________________
* The number of licensed beds represents the number of beds permitted
in the facility under its state license. In certain instances, the
number of beds actually available for patient care is less than the
number of licensed beds.
** Based on the number of licensed beds.
*** Weighted average.
(1) Lease expires December 31, 2003, subject to renewal by the Company
until December 31, 2013.
(2) Lease expires November 25, 2023.
(3) Subject to mortgage (in addition to liens under the Credit Facility,
which extend to all hospital properties other than Plateau Medical
Center).
(4) A portion of the land on which the facility is located is leased, and
such ground lease expires on June 30, 2031, subject to renewal by the
Company until June 30, 2046.
(5) The land on which the facility is located is leased, and such ground
lease expires December 1, 2019.
(6) Subject to Industrial Development Bond financing and mortgage issued
through a local government authority.
</TABLE>
<PAGE>
The Company owns or leases at least 10,000 square feet of
space in 14 medical office buildings in proximity to 10 of
its hospitals. The aggregate square footage of this owned or
leased space is approximately 450,000 square feet. Also, the
Company leases approximately 17,000 square feet of executive
office space in Valley Forge Square, King of Prussia,
Pennsylvania. The lease expires October 31, 1995, subject to
renewal by the Company until October 31, 2005.
Each of the Company's hospitals is a Medicare- and Medicaid-
approved provider. Each hospital has established a quality
assurance program to support and monitor quality of care
standards and to meet applicable accreditation and regulatory
requirements. All but one of the Company's hospitals are
accredited by the Joint Commission on Accreditation of Health
Care Organizations. The Joint Commission is a nationwide
commission that establishes standards relating to the
physical plant, administration, quality of patient care and
operation of medical staffs. The hospital that is not
accredited by the Joint Commission is Eastmoreland General
Hospital, which is accredited by the American Osteopathic
Association.
In addition to the hospitals listed above, the Company owns
a 37-bed acute care hospital and related medical office
facilities in Wylie, Texas (the "Wylie Hospital"). On
February 3, 1989, the Company, as lessor, entered into a
Lease Purchase Agreement (the "Wylie Lease") for the Wylie
Hospital with Physicians Regional Hospital, Inc., a Texas
Corporation, the successor to Healthcare Enterprises of North
Texas, Ltd., a Texas limited partnership ("HENT"). The Wylie
Lease has a ten-year term and contains a purchase option.
On March 12, 1993, HENT sought protection under Chapter 11 of
the U.S. Bankruptcy Code, and was discharged from bankruptcy
on March 1, 1994. The Company expects to fully recognize the
benefits of the Wylie Lease.
STATISTICAL DATA
The following table sets forth certain operating statistics
for hospitals operated by the Company during the last three
fiscal years.
<TABLE>
<CAPTION>
Year Ended December 31,
__________________________
1991 1992 1993
_______ ______ _______
<S> <C> <C> <C>
Owned or leased hospitals
(end of period) 16 16 16
Licensed beds 2,028 2,028 2,028
Admissions--Medical/Surgical 43,050 43,177 45,736
Admissions--Other 5,002 5,070 5,490
Admissions--Total 48,052 48,247 51,226
Average daily census 687.1 687.4 713.3
Average length of stay (days) 5.2 5.2 5.1
Inpatient surgeries 13,981 14,193 14,407
Outpatient surgeries 17,911 19,625 19,417
Emergency room visits 148,910 153,758 158,120
Outpatient revenue as a % of
patient revenues 24.0% 24.3% 24.1%
</TABLE>
<PAGE>
The Company's management believes that occupancy rates have
been adversely impacted by the types of services offered at
the Company's hospitals and by increasing participation in
HMO and PPO programs in the populations served by its
hospitals, all of which tends to reduce lengths-of-stay and
increase the use of outpatient facilities. In addition,
management has implemented cost-management strategies to
reduce lengths-of-stay.
The occupancy rate of a hospital is further affected by a
number of factors, including the number of physicians
admitting patients to the hospital and the nature of their
practice, changes in the number of beds, the composition and
size of the local population, general and local economic
conditions and variations in type and quality of other
hospitals in the area. There are increasing pressures from
many sources to increase the rate of inpatient hospital
utilization. Among these pressures is the increasing
emphasis on ambulatory and outpatient care, diagnostic
services and preventive medicine. The Company is
aggressively developing its outpatient business and
attempting to increase each hospital's capacity to handle the
anticipated increase in outpatient volume.
The psychiatric and chemical dependency industry continues to
experience declining admissions. Insurers have intensified
their efforts to reduce utilization by denying admission and
payment, requiring shorter lengths of stay or forcing
treatment into an outpatient setting and reducing
reimbursement for services. The Company's strategy, with
respect to this business, has been to support programs in
markets where a need for such programs exists and where
reimbursement is favorable, but not to seek other
opportunities in these areas or add units in hospitals that
do not already provide these services.
SOURCES OF REVENUE
The Company's hospitals receive substantially all of their
payments for health care services from the federal
government's Medicare program, state government Medicaid
programs, private insurance carriers, HMOs, PPOs and from
patients directly.
The approximate percentages of gross patient revenue (before
contractual allowances and other deductions) and net patient
revenue derived by the Company's acute-care hospitals for the
following years ended December 31 were as follows:
<PAGE>
<TABLE>
<CAPTION>
Gross Revenue Net Revenue
1991 1992 1993 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C>
Medicare 38.2 % 38.6 % 37.7 % 31.9 % 33.0 % 34.2 %
Medicaid 20.5 25.1 29.4 10.5 16.6 21.2
Managed Care 15.4 17.6 16.0 13.0 12.3 13.0
All other payors,
including self-payors
and private insurance
companies 25.9 18.7 16.9 44.6 38.1 31.6
Total sources of
patient revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
</TABLE>
Amounts received under Medicare, Medicaid and cost-based Blue
Cross and from managed care organizations, such as HMOs and
PPOs, generally are less than the hospitals' customary
charges for the services provided. Patients are generally
not responsible for any difference between customary hospital
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 hospitals have
experienced an increase in the amount of such exclusions,
deductibles and co-insurance. See "Reimbursement."
Following the initiative taken by the federal government to
control health care costs, other major purchasers of health
care, including states, insurance companies and employers,
are increasingly negotiating the amounts they will pay for
services performed rather than simply paying health care
providers the amounts billed. Managed care organizations
such as HMOs and PPOs, which offer prepaid and discounted
medical service packages, represent an increasing segment of
health care payors.
REIMBURSEMENT
The two primary governmental programs under which the
Company's hospitals receive reimbursement for health care
services are Medicare and Medicaid. Medicare is a federal
program that provides certain hospital and medical insurance
benefits to persons age 65 and over, some disabled persons
and persons with end-stage renal disease. Medicaid is a
federal-state program administered by the states which
provides hospital benefits to qualifying individuals who are
unable to afford care. All of the Company's hospitals are
certified as providers of Medicare and Medicaid services.
The Civilian Health and Medical Program of the Uniformed
Services ("CHAMPUS") is a program administered by the U.S.
Department of Defense which provides hospital benefits to
military retirees and dependents of active duty military
personnel when these persons are unable to obtain treatment
in federal hospitals. Amounts received under Medicare,
Medicaid and CHAMPUS programs are generally less than the
hospital's customary charges for the services provided. Blue
Cross is a nonprofit, private health care program that funds
hospital benefits through independent plans that vary in each
location.
<PAGE>
In 1993, Medicare and Medicaid accounted for approximately
67% and 55% of the Company's gross and net patient revenue,
respectively. These governmental reimbursement programs are
highly regulated and subject to frequent changes which can
significantly reduce payments to hospitals. In recent years,
changes in these programs have significantly reduced
reimbursement rates paid to hospitals. In light of the
Company's hospitals' high percentage of Medicare and Medicaid
patients, the Company's ability in the future to operate its
business successfully will depend in large measure on its
ability to adapt to changes in these programs.
Medicare
________
Beginning in 1983, reimbursement to hospitals under the
Medicare program changed significantly and these changes have
had, and are expected to continue to have, significant
effects on the Company's hospitals and the health care
industry in general. Prior to 1983, Medicare reimbursed
acute care hospitals on a cost-based system. In 1983,
Medicare established a prospective payment system under which
inpatient discharges from acute care hospitals are classified
into categories of treatments, known as DRGs, which classify
illnesses according to the estimated intensity of hospital
resources necessary to furnish care for each principal
diagnosis. Hospitals generally receive a fixed amount per
Medicare discharge based upon the assigned DRG (the "DRG
rates") regardless of how long the patient remains in the
hospital or the volume of ancillary services ordered by the
attending physician. In certain limited circumstances,
Medicare will also pay an extra "outlier" payment for
extraordinary Medicare cases involving long hospital stays or
significant amounts of costs incurred. Under the prospective
payment system, hospitals generally are encouraged to operate
with greater efficiency, since they may retain payments in
excess of costs but must absorb costs in excess of such
payments. No assurance can be given that the operating costs
of the Company's hospitals with respect to Medicare
inpatients will not exceed their applicable DRG rates.
The Secretary of the Department of Health and Human Services
("HHS") is required to establish annual increases in the DRG
rates to counter inflationary pressure. In each year since
1984, however, the increases in the DRG rates have been
determined by Congress as part of the federal budget process.
DRG rates have increased at an average annual rate of
approximately 3% over the last three years, an average rate
well below market basket inflation. DRG rates effective for
discharges on or after October 1, 1993 were increased 1.8%
for hospitals in large urban and other urban areas and 3.3%
for hospitals in rural areas.
<PAGE>
Medicare reimbursement for hospital outpatient services is
currently based on a blended rate. Depending on the service,
a certain percentage of the blend is based on a facility's
reasonable costs and the remaining percentage is derived from
a fixed fee schedule amount. Because of the fixed nature of
the reimbursement for outpatient services, the ultimate
impact on a hospital depends upon its ability to control the
costs of providing such services. The Secretary of HHS is
charged with developing a proposal for a prospective pricing
system for all outpatient services. Such a system would
cause a hospital with costs above the payment rate to incur
losses on such services provided to Medicare beneficiaries.
In addition to DRG payments, Medicare provides a payment
amount for hospitals ("disproportionate share hospitals")
that (a) serve a significantly disproportionate share of low-
income patients or (b) that are located in an urban area,
have 100 or more beds and can demonstrate that more than 30%
of their revenues are derived from state and local government
payments for indigent care provided to patients not covered
by Medicare or Medicaid. The amount of additional payment
varies depending upon the location of the hospital (urban
versus rural) and the number of hospital beds. There is no
assurance that future changes in federal law will not have an
adverse effect on a hospital's qualification as a
disproportionate share hospital or on the amount of the
additional payment.
Through September 30, 1991, payments for hospital capital-
related costs of inpatient care were not included in the DRG
payments but were reimbursed separately on a "reasonable and
allowable cost" basis. However, commencing October 1, 1991,
Medicare payments for capital costs are based upon a
prospective payment system similar to the inpatient operating
cost prospective payment system ("PPS"). A separate per-case
standardized amount is paid for capital costs, adjusted to
take into account certain hospital characteristics and
weighted by DRG.
The capital cost PPS is subject to a ten-year transition
period. Two alternative payment methods apply during the
transition period, one being a prospective method and the
other a "hold harmless" method for high capital cost
hospitals. The prospective method is a blend of "standard
federal rates" and the subject hospital's specific rate, with
adjustments to each of those rates based on certain factors.
Over a ten-year transition period the federal portion of the
rate increases gradually until payment is based entirely on
the federal rate. Hospitals with hospital specific rates
above the federal rate receive hold harmless payments during
the transition period. At any point during the 10-year
transition period, a hospital may be paid fully at the
federal rate if that rate is more favorable to the hospital.
<PAGE>
For each fiscal year during the transition period, a payment
"floor" will be in effect, which generally provides that at
least 70% of allowable capital-related costs for most
hospitals (90% for sole community providers and 80% for
hospitals located in urban areas and which have over 100 beds
and a "disproportionate share" percentage of at least 20.2%)
will be paid.
For HHS fiscal years 1993 through 1995, HHS proposes to
update the federal rate based on actual increases in capital-
related costs per case in the previous two years. Beginning
in fiscal year 1996, HHS proposes to determine the update
using the capital "market basket" index designed to reflect
changes in capital requirements and new technology.
Of the sixteen hospitals owned or leased by the Company,
eleven are located in large urban areas, three are located in
small urban areas, and two are located in rural areas,
accounting for approximately 67%, 25%, and 8% of the
Company's Medicare inpatient gross revenue, respectively, for
the year ended December 31, 1993. The Omnibus Budget
Reconciliation Act of 1989 established a mechanism by which
hospitals can apply for geographical reclassification to
improve Medicare payment to the hospital under certain
circumstances. Applications for reclassification are made to
the Medicare Geographical Classification Review Board and
must be renewed annually. Because, under the statute, the
aggregate reimbursement effects of geographical
reclassifications must be budget neutral, these provisions
may have an adverse impact upon Medicare payments to
hospitals that are not eligible for reclassification. The
Company has received approval for Medicare geographical
reclassification for two of its hospitals effective October
1, 1993, having the effect of providing $0.5 million of
additional reimbursement to the Company for the Medicare
fiscal year ending September 30, 1994.
Considerable uncertainty surrounds the future determination
of payment levels for DRGs and for other services currently
being reimbursed on a cost basis. Congress could consider
further legislation in the prospective payment area, such as
further reducing or eliminating DRG rate increases or
otherwise revising DRG rates. Also, substantial areas of the
Medicare program are subject to legislative and regulatory
change, administrative rules, interpretations, administrative
discretion, governmental funding restrictions and
requirements for utilization review (such as second opinions
for surgery and preadmission criteria). These matters, as
well as more general governmental budgetary concerns, may
significantly reduce payments made to the Company's hospitals
under such programs, and there can be no assurance that
future Medicare payment rates will be sufficient to cover
cost increases in providing services to Medicare patients.
<PAGE>
Medicaid
________
Most state Medicaid payments are made under a prospective
payment system or under programs to negotiate payment levels
with individual hospitals. Medicaid is currently funded
approximately 50% by the states and approximately 50% by the
federal government. The federal government and many states
are currently considering significant reductions in the level
of Medicaid funding while at the same time expanding Medicaid
benefits, which could adversely affect future levels of
Medicaid reimbursement received by the Company's hospitals.
On November 27, 1991, Congress passed the Medicaid Voluntary
Contribution and Provider-Specific Tax Amendments of 1991
limiting states' use of provider taxes and donated funds to
obtain federal Medicaid matching funds. The legislation
prohibits the establishment of new voluntary donation
programs and provides that provider taxes will be eligible
for federal matching only if taxes apply to all providers in
a class and if providers are not held harmless from the cost
of the tax by compensating state payments.
The legislation provides a transition period whereby
voluntary donation programs in effect as of September 30,
1991 and provider tax programs in effect as of November 22,
1991 may continue through September 30, 1992. However, for
states with fiscal years beginning after July 1, such
programs were permitted to continue through December 31,
1992, and for states with no legislative session scheduled in
1992 or 1993, such programs are permitted to continue through
June 30, 1993.
The legislation also establishes a national limit on
disproportionate share hospital adjustments (additional
amounts required to be paid to hospitals providing a
disproportionate amount of Medicaid and low-income inpatient
services) equal to 12% of total Medicaid spending for each
fiscal year effective January 1, 1992. Individual states are
subject to a 12% cap; however, states currently using a
greater percentage of their Medicaid expenditures for
disproportionate share hospital payments may continue at
current levels. Adjustments will be made for states with
unusually high disproportionate share expenditures. After
January 1, 1996, states will not be subject to the
disproportionate share payment limits if Congress adopts new
maximum payment rules.
Because the Company cannot predict precisely what action
states will take as a result of this legislation, the Company
is unable to assess the effect of this legislation on its
business.
<PAGE>
State Medicaid payments are now generally made under a
prospective payment system or under programs to negotiate
payment rates with individual hospitals. Such payments,
however, generally are substantially less than a hospital's
cost of services. The federal government and many states are
currently considering ways to limit the increase in the level
of Medicaid funding which, in turn, could adversely affect
future levels of Medicaid reimbursement received by the
Company's hospitals.
Other Payors
____________
In 1993, revenue from non-Medicare and non-Medicaid payors
represented 33% and 45% of the Company's gross and net
patient revenue, respectively. These payors include (i) a
number of managed care contractual arrangements, including
HMOs, PPOs, most Blue Cross plans, CHAMPUS, and certain
workers' compensation arrangements, (ii) commercial insurance
carriers, and (iii) those without any other form of health
insurance coverage.
Managed Care--In 1993, revenue from managed care plans
represented approximately 16% and 13% of the Company's total
gross and net patient revenue, respectively. Hospitals
contract directly with these plans. Payments for services
are made directly to hospitals in amounts that are usually
less than a particular hospital's established charges. In
most cases, payments for inpatient services are calculated on
a per diem basis, while outpatient reimbursement is usually
based on a percentage of established charges.
The percentage of the population covered by managed care
varies substantially depending on the geographic area. If
changes resulting from health care reform or the general
business environment encourage substantially increased
managed care, there could be a major adverse financial impact
on hospitals in regions where there is a rapid expansion of
managed care, either because certain hospitals may not be
able to develop the contractual arrangements to participate
in managed care programs or because those that do participate
may not be able to respond adequately to increased cost
containment pressures.
The number of managed care plans has declined nationally over
the past three years. However, while the number of plans has
decreased with the recent consolidation of the HMO industry,
the number of HMO enrollees increased, largely due to fast
growth of hybrid HMO plans known as "open ended options" and
"point of service" plans. Managed care, including HMOs, has
also been gaining in political popularity as an effective
means of health care cost containment.
<PAGE>
Hospitals must contend with rapid changes within the managed
care movement. As managed care evolves, the Company believes
that quality and how it is measured will become more
important to purchasers of health care services and more
financial risk will be forced on providers.
The Company's failure or inability to participate in many
managed care plans remains a major impediment for the Company
to increase market share. In addition, some of the Company's
hospitals (those in California, Las Vegas and Tacoma)
participate in the lower priced/lower cost managed care
plans.
Commercial Insurance--In 1993, revenue from commercial
insurance carriers represented 12% and 23% of the Company's
gross and net patient revenue, respectively. Commercial
insurance companies reimburse their policyholders or make
direct payments to hospitals on the basis of the particular
hospital's established charges and the coverage provided for
within their insurance policies. Revenues from these
patients more closely approximate established charges than
those from other types of admissions.
GOVERNMENTAL REGULATIONS
The Company's facilities are generally subject to extensive
federal, state, and local regulations relating to licensure,
conduct of operations, construction of new facilities, the
expansion or acquisition of existing facilities and the
offering of new services. Failure to comply with applicable
laws and regulations could result in, among other things, the
imposition of fines, temporary suspension of admission of new
patients to a facility or, in extreme circumstances,
exclusion from participation in government health care
reimbursement programs (from which the Company derived
approximately 55% of its net revenue in 1993) or revocation
of facility licenses. The Company believes that it conducts
its business in substantial compliance with all laws material
to the conduct of its business.
EXPANSION
Approvals of new facilities to be constructed and for
renovations of or additions to existing facilities may be
subject to various governmental requirements and approvals,
including the issuance of certificates of need by certain
state agencies authorizing such projects. Availability of
reimbursement under government programs is often contingent
upon such authorizations. Some of the states in which the
Company's health care facilities are located have adopted
certificate of need or equivalent laws which generally
require that the appropriate state agency approve certain
acquisitions and determine that the need for additional beds,
<PAGE>
new services and capital expenditures exist prior to
implementation. State approvals often are issued for a
specified maximum expenditure and require implementation of
the proposed improvement within a specified period of time.
Failure to obtain necessary state approval can result in the
inability to complete the acquisition or addition, the
imposition of civil or, in some cases, criminal sanctions,
and the revocation of the facility's license. Various states
in which the Company's hospitals are located have proposals
pending for the expansion of their regulatory schemes.
Further, some of the states have other proposals under study
and consideration regarding statewide reform of health care
delivery systems. Therefore, there can be no assurance that
reimbursement will continue to be available for the expenses
the Company is currently reimbursed by such state programs,
or that the Company will be able to construct or renovate its
facilities or add beds or services in such services in such
manner and at such time as it deems appropriate.
ANTI-KICKBACK STATUTE
Section 1128B of the Social Security Act (the "Anti-Kickback
Statute") provides criminal penalties for individuals or
entities that knowingly and willfully offer, pay, solicit or
receive remuneration ("kickbacks") in order to induce
business reimbursed under the Medicare or Medicaid programs.
An offense is a felony and is punishable by fines up to
$25,000 and imprisonment for up to five years. The Office of
the Inspector General of the Department of Health and Human
Services ("OIG") also has authority to exclude an entity from
participation in the Medicare and Medicaid programs if it is
determined that the entity is engaged in a prohibited
remuneration scheme or other fraudulent or abusive
activities. The Anti-Kickback Statute is extremely broad and
many business practices common in the health care industry
may ultimately be found to be prohibited by the statute.
Legal decisions applying the Anti-Kickback Statute to
specific facts have held that if some purpose of a payment is
to induce future referrals, the statutory provision would be
violated even if the payment were also intended to compensate
for professional services or had other legal business
motivations.
So-called "safe harbor" regulations, which specify certain
practices that shall not be treated as a criminal offense
under the Anti-Kickback Statute even though they might
otherwise be considered illegal, have been published as final
regulations by the OIG. The OIG recognizes in the preamble
to the safe harbor regulations that the failure of a
particular business arrangement to comply with the provisions
of the safe harbors does not determine whether the
arrangement violates the statute. Certain of the Company's
practices are not eligible for protection under the safe
harbor regulations.
<PAGE>
In May 1992, the OIG issued a Fraud Alert regarding "Hospital
Incentives to Physicians" expressing the OIG's belief that
specified common arrangements between hospitals and hospital-
based physicians, including some practices engaged in by the
Company's hospitals, may violate under certain circumstances
the Anti-Kickback Statute. However, although the Company has
certain relationships which fall within categories specified
in such Fraud Alert, the Company does not believe that its
relationships violate the Anti-Kickback Statute.
Many states have enacted legislation similar to the Anti-
Kickback Statute that prohibits, as a matter of state law,
payment for referrals reimbursed by any source.
The Social Security Act also prohibits, with limited
exceptions, Medicare reimbursement for physician referrals to
clinical laboratories with which the referring physician has
an ownership interest or a compensation arrangement. There
is also proposed federal legislation that would apply the
self-referral ban to a wider range of services, including
diagnostic and therapy services. Several states have enacted
and other states are considering similar prohibitions as a
matter of state law. The Company cannot predict how such
limitations may be expanded or how such limitations may
affect the operation of the Company's hospitals.
UTILIZATION REVIEW
The Company's hospitals are subject to various forms of
governmental and private utilization and quality assurance
review. Procedures mandated by the Social Security Act to
ensure that services rendered to Medicare and Medicaid
patients meet recognized professional standards and are
medically necessary include review by a federally funded Peer
Review Organization ("PRO") of the appropriateness of
Medicare and Medicaid patient admissions and discharges,
quality of care, validity of DRG classifications and
appropriateness of services being provided in an inpatient
setting. Negative PRO reviews may result in denial of
reimbursement of payments, assessments of fines or exclusions
from such programs.
RATE REVIEW
Rate or budget review legislation, which affects the
Company's hospitals, exists in three of the states where the
Company owns hospitals. These laws limit the Company's
ability to increase rates at its hospitals. A number of
states also have adopted taxes on hospital revenue and/or
imposed licensure fees to fund indigent health care within
such states. There can be no assurance that these states or
other states in which the Company operates hospitals will not
<PAGE>
enact further or new rate-setting or other regulations that
may adversely affect the Company's hospitals.
In addition, health care reform initiatives could result in
one or more of the following which could have an adverse
effect on the revenues or operations of the Company's
hospitals: (i) increased efforts by insurers and governmental
agencies to limit the cost of hospital services (including,
without limitation, the implementation of negotiated rates),
to reduce the number of hospital beds, and to reduce
utilization of hospital facilities; (ii) imposition of wage
and price controls for the health care industry; (iii) future
efforts of insurers and of employers to limit hospital costs;
and (iv) the possible imposition of rate controls and the
resultant inability to maintain the quality and scope of
health care services.
COMPETITION
Competition among hospital providers has intensified in
recent years as hospital utilization rates (the rates of
hospital admissions per 1,000 population) have declined in
the United States as a result of cost containment pressures,
changing technology, changes in government regulation and
reimbursement, changes in practice patterns (e.g., shifting
from inpatient to outpatient treatments), preadmission
reviews by insurers, the shift from high-margin commercial
insurance to managed care and other lower-margin payors and
other factors. In each market in which the Company operates,
the Company faces substantial competition from other
providers and there is an excess capacity of beds. Such
competition can be formidable because of the reputation and
position of such providers in the local medical community as
well as their substantial resources. The Company's
competition ranges from large multifacility companies to
small single-hospital owners and freestanding outpatient
surgery and diagnostic centers. Hospitals competing with the
Company's facilities generally are larger and better
equipped, have much larger bases of physician and community
support, are more visible and offer a much broader range of
services and often are the exclusive providers of services to
certain managed care plans in their communities. In most
instances, other hospitals in the local areas served by the
Company's hospitals provide services similar to those offered
by the Company's hospitals. No assurances can be given that
the Company will be able to compete successfully with these
other providers. In addition, hospitals owned by
governmental agencies or other tax-exempt entities benefit
from endowment, charitable contributions and tax-exempt
financings, which advantages are not enjoyed by the Company's
hospitals.
<PAGE>
In addition, in an effort to contain costs, third-party
payors have encouraged a shift in medical and surgical
treatment from inpatient to outpatient settings. This shift
has supported the growth of various alternative site
providers, which have gained some market share that otherwise
may have gone to acute care hospitals.
The competitive position of a hospital may also be affected
by its ability to provide services to managed-care
organizations, including HMOs and PPOs. Such managed care
organizations represent an increasing segment of health care
payors and this trend could accelerate as a result of new
networks which may be formed to provide hospital services to
insurance-type purchasing cooperatives under the new health
reform proposals. See "Sources of Revenue." It is not
possible to predict how such private and governmental
initiatives may affect the Company's hospitals in the future.
Currently, the Company's limited penetration of managed care
plans significantly impedes its efforts to increase market
share. If the Company's hospitals are unable to maintain or
establish contractual relationships with managed care
providers in a particular market, those hospitals are likely
to be placed at a substantial competitive disadvantage.
In the view of management, the national trend is toward
integrated health systems that (i) encompass physicians
(through ownership of practices or management), (ii) have a
number of hospitals in their system (giving them additional
economies of scale and broad geographical access), and (iii)
own managed care plans (so they and their physicians are
exclusive providers).
LIABILITY AND INSURANCE
The Company maintains hospital professional and comprehensive
general liability insurance as well as other typical
business-risk insurance policies common to the industry. The
Company retains a significant portion of its risk for
hospital professional and comprehensive general liability
claims. The self-insured retention per claim is $3 million,
the annual aggregate is $9 million, and the amount of excess
umbrella coverage is $25 million. In addition, the Company
is completely self-insured for claims which occurred prior to
March 1, 1987, but not reported as of that date.
The Company has set aside funds in a trust account to
partially provide for its self-insured obligations and
retention. The Company believes that its self-insurance
reserves and insurance will be adequate to respond to known
claims. However, there can be no assurance that the
Company's present self-insurance and external coverage will
be adequate to respond to claims made against it or that such
external coverage will be available at reasonable rates. The
amount of expense relating to the Company's malpractice
<PAGE>
insurance, particularly that with respect to the self-
insurance portion, may materially increase or decrease from
year to year depending, among other things, on the nature and
number of new reported claims against the Company and amounts
of settlements of previously reported claims. If trust
assets are inadequate to fund actual losses, the Company's
cash flow would be adversely affected.
HOSPITAL STAFF AND EMPLOYEES
At December 31, 1993, approximately 3,500 physicians were
members of the medical staffs of the sixteen hospitals
operated by the Company and many also serve on the staffs of
other nearby hospitals. In addition certain physicians also
have arrangements with Company hospitals to staff emergency
rooms, serve as directors of departments, provide specific
professional services, and/or serve in other support
capacities. At December 31, 1993, the Company had
approximately 4,800 employees. A small number of employees
at one of the Company's hospitals have historically been
represented by labor unions. The Company considers its
relations with its employees to be satisfactory.
Labor costs are a significant component of the Company's
operating expenses. In certain regions of the country, the
health care industry is currently experiencing a shortage of
trained medical professionals, particularly nurses.
ENVIRONMENTAL FACTORS
The Company's hospitals generate pathological wastes,
biohazardous (infectious) wastes, chemical wastes, waste oil
and other solid wastes. The Company usually incinerates or
contracts for disposal of its wastes. No litigation has been
filed against the Company related to waste disposal, and the
Company is not aware of any related ongoing investigation by
any government agencies.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is party to,
and none of their properties is the subject of, any material
pending legal proceedings, other than ordinary, routine
litigation incidental to the business.
TAX CONSIDERATIONS
For federal income tax purposes, the Company currently has
substantial net operating loss ("NOL") carryforwards that are
available to offset the future taxable income of the Company
and its affiliates included in a consolidated federal income
tax return. These amounts are, however, subject to review
and allowance on audit by the Internal Revenue Service (the
<PAGE>
"IRS"). As of December 31, 1992, the aggregate NOL
carryforwards reported on the Company's consolidated tax
return were approximately $110.0 million. This figure has
been determined by the Company and is not binding on the IRS,
and in certain instances is subject to factual and legal
uncertainties. At December 31, 1993, this amount was
approximately $95.9 million. These carryforwards will
expire, if not previously utilized, in the taxable years
ending December 31, 2001 through December 31, 2006.
Application of Section 382
__________________________
The Company's NOL carryforwards are principally affected by
Section 382 of the Internal Revenue Code ("Section 382").
Generally, under Section 382 and the regulations promulgated
thereunder, following certain changes after December 31,
1986, in the ownership of more than 50 percentage points (by
value) in the stock of a loss corporation during a specified
time period (which normally is three years), the amount of a
loss corporation's taxable income in a tax year that can be
offset by existing NOL carryforwards cannot exceed an amount
equal to the value of the stock of the loss corporation
(determined, with certain adjustments, as of the date of the
ownership change) multiplied by a prescribed rate of return
determined as of such date (the "Section 382 Limitation").
Should an ownership change occur in 1994 or thereafter, the
Company's NOL carryforwards would be limited as set forth in
this paragraph.
Implementation of the Plan of Reorganization and the
transactions therein contemplated caused an "ownership
change" within the meaning of Section 382 to occur in
December 1989. Except as discussed below with respect to the
Special Bankruptcy Exception, the Plan of Reorganization
would cause the Section 382 Limitation to apply to the
utilization of the NOL carryforwards of the Company and its
subsidiaries for 1990 and subsequent years. The
implementation of the Company's recapitalization in September
1991 did not cause an ownership change under Section 382, and
therefore, the Company's NOL carryforwards will continue to
be fully available to it unless and until a change of
ownership results in the application of the Section 382
Limitation. Generally, a change of ownership will have
occurred with respect to the Company if the actual or deemed
ownership of Common Stock by certain shareholders or groups
of shareholders increases, in the aggregate, by more than 50
percentage points in any three-year period. The method of
calculating the changes in share ownership under Section 382
is subject to varying interpretations and analyses. In
connection with a recapitalization plan effected in September
1991, the Company, among other things, issued approximately
11.8 million shares of Common Stock in exchange for $42.8
<PAGE>
million face amount of its bankruptcy reorganization-related
senior debt. As a result of the issuance of such 11.8
million shares of Common Stock, as well as certain other
changes in ownership of outstanding Common Stock and options
and warrants to acquire such stock, based on certain
assumptions, which the Company believes to be conservative,
certain shareholders and relevant groups of shareholders of
the Company could be deemed to have already experienced an
aggregate increase of more than 46 percentage points in their
actual or deemed ownership of Common Stock under current
regulations of the Internal Revenue Service.
In order to assist the Company in its efforts to preserve its
ability to use its NOL carryforwards without being subject to
the Section 382 Limitation, certain transfers of common stock
and warrants are prohibited under the Company's Restated
Certificate of Incorporation, unless consented to by the
Board of Directors, until the Board of Directors terminates,
modifies or amends the restriction relating to the sale,
assignment or transfer of common stock and warrants.
The previously discussed merger between AHI and OrNda, when
consummated, will result in an ownership change pursuant to
the provisions of Section 382. Consequently, following the
merger, the Section 382 Limitation will apply to the use by
OrNda, in regard to taxable income of the Company's
subsidiaries, of the Company's NOL carryforwards.
Special Bankruptcy Exception
____________________________
Section 382 (I)(5) contains a special provision (the "Special
Bankruptcy Exception") which provides that in the case of an
exchange of debt for stock in a case under the jurisdiction
of a Bankruptcy Court brought under Title 11 of the United
States Code (relating to bankruptcy) (a "Title 11 Case"), the
Section 382 Limitation will not apply to any ownership change
resulting from such a proceeding if certain creditors and
shareholders immediately before the exchange own, as a result
of such exchange, at least 50 percent of the stock of the
loss corporation after the exchange. If the Special
Bankruptcy Exception applies to a bankrupt corporation, then
in lieu of the Section 382 Limitation, such corporation is
required to reduce NOL carryforwards as provided by such
Special Bankruptcy Exception. Under the Plan of
Reorganization, an ownership change occurred under Section
382 in a transaction that should satisfy the requirements of
Section 382 (I)(5). As a result, the NOL carryforwards were
reduced by $80.8 million upon emergence from bankruptcy on
December 29, 1989.
<PAGE>
Alternative Minimum Tax
_______________________
The Tax Reform Act of 1986 added an alternative minimum tax
applicable to corporations for taxable years beginning after
December 31, 1986. The tax equals 20 percent of the
corporation's alternative minimum taxable income ("AMTI") in
excess of a $40,000 exemption (which is phased out at higher
income levels) and is payable only to the extent it exceeds
the corporation's regular federal income tax liability. It
is possible that a corporation may have no taxable income or
even a loss and still owe an alternative minimum tax. AMTI
is computed by modifying the corporation's taxable income
(determined before any NOL carryforward is applied) for
certain adjustments and preferences. A corporation that has
an NOL carryforward may use the NOL carryforward in
calculating its regular taxable income and its alternative
minimum taxable income. However, the NOL carryforward that
is allowable against AMTI may not exceed 90 percent of AMTI,
so that AMTI cannot be reduced to zero through use of the NOL
carryforward and is subject to the limitations of Section
382, discussed above, in the event that a change of ownership
occurs. As a result, the Company may be liable for the
alternative minimum tax even if its taxable income in a year
is less than the available NOL carryforward. Alternative
minimum taxes paid are available on an indefinite
carryforward basis to offset the Company's future regular
federal income tax liability.
Tax Legislation
_______________
The Omnibus Reconciliation Act (the "Act") of 1993 was signed
into law by President Clinton on August 10, 1993. At
present, management is of the opinion that the Act will not
have a significant effect on 1993 and future operations.
Item 2. Properties
The response to this item is included in Item 1.
Item 3. Legal Proceedings
Neither the Company nor any of its subsidiaries is party to,
and none of their properties is the subject of, any material
pending legal proceedings, other than ordinary, routine
litigation incidental to the business.
Item 4. Submission of Matters to a Vote of Security Holders
There was no matter submitted to a vote of the Company's
security holders during the last quarter covered by this
report.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
On April 16, 1993, the registrant's common stock began
trading on the New York Stock Exchange (ticker symbol AHI).
Previously, the registrant's common stock was traded on the
American Stock Exchange. The table below sets forth the high
and low sales price per share for the registrant's common
stock on the applicable stock exchange for each quarterly
period during 1993 and 1992.
<TABLE>
<CAPTION>
High Low
______ ______
<S> <C> <C>
1993:
First 6 1/8 4 1/4
Second 5 1/8 4
Third 5 7/8 4 3/4
Fourth 9 1/8 5 1/2
1992:
First 6 4
Second 5 1/2 4 1/8
Third 5 1/8 3 7/8
Fourth 5 3/8 3 1/2
</TABLE>
Holders of common stock are entitled to receive dividends
when and as declared by the board of directors out of funds
legally available for the payment thereof. Under the terms
of a Credit Facility, the Company may not pay dividends prior
to July 21, 1994. Further, dividends in any fiscal year may
not exceed the lesser of ten percent of net income or $3.0
million. As of February 28, 1994, there were approximately
585 record- holders of the registrant's common stock.
As of February 28, 1994, warrants are outstanding that
entitle the holders thereof to purchase an aggregate of
955,524 shares of common stock at any time prior to 5:00
p.m., Central Time on April 28, 1995, at prices equal to
$1.60 (as to 691,192 shares) and $2.67 (as to 264,332 shares)
per share, subject to adjustments pursuant to the
antidilution provisions of the warrants. Warrantholders do
not have any voting or other rights as shareholders of the
Company.
<PAGE>
The common stock and warrants are subject to restrictions on
transfer by or to holders of 5 percent or more of the common
stock (determined after giving effect to the exercise of
warrants held by the applicable stockholder) or to persons
that will hold 5 percent or more of the common stock as a
result of the contemplated transfer. Warrantholders may
exercise the warrant by surrendering the certificate
evidencing such warrant, with the form of election to
purchase on the reverse side of such certificate properly
completed and executed, together with payment of the exercise
price and any transfer tax to American Stock Transfer & Trust
Company, New York, New York (The "Warrant Agent"). If a
warrant is exercised for fewer than all of the shares
evidenced by the Warrant Certificate, a new certificate will
be issued evidencing a warrant for the remaining number of
shares.
The Company currently has on file with the Securities and
Exchange Commission a registration statement relating to the
resale of up to 4,791,228 shares of common stock and shares
of common stock which will result from the conversion of
warrants to purchase 168,336 shares of common stock by
certain specified holders of the common stock.
The previously discussed merger between the Company and
OrNda, when consummated, will result in the exchange of 0.6
of a share of OrNda common stock for each share of the
Company's Common Stock. Thereafter, there will no longer be
any shares of the Company's Common Stock issued or
outstanding.
<PAGE>
Item 6. Selected Financial Data (in thousands, except per
share amounts)
The selected financial information presented below has been
derived from the audited consolidated financial statements of
the Company for each of the years ended December 31, 1989
through December 31, 1993.
The information presented below should be read in conjunction
with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the consolidated
financial statements and related notes thereto appearing
elsewhere in this document.
<TABLE>
<CAPTION>
Year Ended December 31,
_____________________________________________________________________
1989 1990 1991 1992 1993
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data (1):
Net revenue $292,498 $298,833 $289,466 $313,197 $343,066
Operating expenses 268,916 265,168 249,431 270,674 295,277
________ ________ ________ ________ ________
EBITD 23,582 33,665 40,035 42,523 47,789
Depreciation 16,816 17,182 16,452 17,366 19,083
Interest expense (2) 19,361 19,871 15,267 9,401 14,904
Write-down of assets
and other charges 17,466 11,412 -- -- --
________ ________ ________ ________ ________
Income (loss) before
income taxes and
extraordinary item (30,061 ) (14,800 ) 8,316 15,756 13,802
Provision for income taxes 96 70 280 249 571
________ ________ ________ ________ ________
Income (loss) before
extraordinary item (30,157 ) (14,870 ) 8,036 15,507 13,231
Extraordinary items:
(Loss) gain from early
extinguishment of debt 55,571 (3,717)
Gain on troubled debt
restructuring 30,455
________ ________ ________ ________ ________
Net income (loss) $ 298 $(14,870 ) $ 8,036 $ 71,078 $ 9,514
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Earnings (loss) per
common share:
Before extraordinary
item $(2.59 ) $(0.98 ) $0.43 $0.54 $0.46
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Net income (loss) $ 0.03 $(0.98 ) $0.43 $2.49 $0.33
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Capital expenditures $ 11,145 $ 11,182 $ 12,622 $ 24,731 $ 15,671
Ratio of EBITD to
interest expense 1.2 x 1.7 x 2.6 x 4.5 x 3.2x
Ratio of long-term debt
to EBITD 12.9 x 8.5 x 5.8 x 3.6 x 3.7x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
________________________________________________________________________
1989 1990 1991 1992 1993
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 21,551 $ 11,649 $ 15,749 $ -- (3) $ 14,126
Working capital 21,414 17,263 19,361 2,800 (3) 24,015
Property and equipment,
net 287,914 263,589 261,963 268,284 270,944
Total assets 399,820 353,731 334,931 337,836 358,685
Current portion of long-
term debt 13,561 12,274 3,136 10,932 6,409
Long-term debt, net of
current portion 290,972 274,248 227,275 143,822 168,031
Stockholders' equity 37,195 22,325 56,840 128,084 137,765
Long-term debt to total
capitalization 89.1 % 92.8 % 80.2% 54.7 % 55.9%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
________________________________________________________________________
1989 1990 1991 1992 1993
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Historical Operating Data:
Owned or leased hospitals
(end of period) 18 17 16 16 16
Licensed beds 2,353 2,187 2,028 2,028 2,028
Admissions--
Medical/Surgical 48,197 43,021 43,050 43,177 45,736
Admissions--Other 6,870 5,765 5,002 5,070 5,490
Admissions--Total 55,067 48,786 48,052 48,247 51,226
Average daily census 893.7 756.3 687.1 687.4 713.3
Average length of
stay (days) 5.9 5.7 5.2 5.2 5.1
Inpatient surgeries 15,959 15,725 13,981 14,193 14,407
Outpatient surgeries 18,806 18,237 17,911 19,625 19,417
Emergency room visits 158,388 146,017 148,910 153,758 158,120
Outpatient revenue as a % of
patient revenues 22.2 % 23.4 % 24.0 % 24.3 % 24.1%
Same-hospital Basis Operating Data:
Owned or leased hospitals
(end of period) 16 16 16 16 16
Licensed beds 2,041 2,025 2,028 2,028 2,028
Admissions--
Medical/Surgical 42,955 42,277 43,050 43,177 45,736
Admissions--Other 5,564 5,444 5,002 5,070 5,490
Admissions--Total 48,519 47,721 48,052 48,247 51,226
Average daily census 760.9 727.9 687.1 687.4 713.3
Average length of
stay (days) 5.7 5.6 5.2 5.2 5.1
Inpatient surgeries 14,623 15,507 13,981 14,193 14,407
Outpatient surgeries 16,765 17,157 17,911 19,625 19,417
Emergency room visits 143,623 144,293 148,910 153,758 158,120
Outpatient revenue as a % of
patient revenues 22.3 % 23.3 % 24.0 % 24.3 % 24.1%
_____________________________________
(1) The net losses for 1989 and 1990 include net noncash write-downs of
assets of $17.5 million and $11.4 million, respectively. These
adjustments primarily resulted from a valuation adjustment in 1989 to
notes receivable received in connection with previously disposed
operations and management's decision in the fourth quarter of 1990 (i)
to dispose of three subsidiaries, including two hospitals, and (ii)
recognize a diminution in value of two hospitals where the Company was
in process of disposition negotiations.
(2) For the years ended December 31, 1990 and 1991 and for the six months
ended June 30, 1992, long-term debt issued in connection with a debt
restructuring following the Company's emergence from bankruptcy on
December 29, 1989 was accounted for under Financial Accounting Standards
Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings," which rules had the effect of reducing reported
interest expense by $7.0 million, $8.7 million, and $5.9 million,
respectively.
(3) At December 31, 1992, indebtedness under the Company's revolving credit
facility was recorded as long-term debt. Short-term obligations were
funded therefrom and cash on hand was used to reduce the revolving credit
facility. At December 31, 1992, the Company had bank checks outstanding
that were subsequently funded upon presentation for payment.
Consequently, there was no cash reported on the balance sheet and bank
checks outstanding, less cash in bank were reported as a current
liability.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Interest Expense for the Year Ended December 31, 1993 and the Year
Ended December 31, 1992 Compared with the Year-Earlier Periods
Effective June 30, 1992, the Company refinanced approximately $100
million of the Senior Secured Notes ("Old Debt"), bearing a weighted
average annual interest rate (based on stated rate under the
indenture for the Old Debt) at June 30, 1992 of 12.8%, with
approximately $100 million borrowed under a bank-financed credit
facility (the "Old Credit Facility"), with a floating rate of
interest (6.5% at December 31, 1992 on a weighted average basis).
The Old Debt was accounted for in conformity with Financial
Accounting Standards Board (FASB) Statement No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructurings," which under
certain conditions prescribes the calculation of interest for
financial reporting purposes. Application of FASB Statement No. 15
rules had the effect of reducing reported interest expense for the
year ended December 31, 1992 by $5.9 million. Upon refinancing of
the Old Debt, the required application of FASB Statement No. 15
rules to interest expense was eliminated.
On July 28, 1993, the Company issued $100 million aggregate
principal amount of 10 percent senior subordinated notes due July
2003 (the "Notes") and on July 29, 1993 amended and restated its
senior secured credit facility (the "Credit Facility") with a
syndicate of commercial bank lenders (the "Lenders") increasing the
total facility to $122.5 million.
Interest expense increased $5.5 million or 58.5% for the year ended
December 31, 1993. The increase was principally due to the
previously discussed effect of the application of FASB Statement No.
15 rules decreasing interest expense in the first half of 1992 and,
to a lesser extent, the issuance of the Notes in July 1993. On a
pro forma basis, interest expense for the year ended December 31,
1993, assuming the 1992 refinancing and 1993 Notes issuance occurred
on January 1, 1992, was $17.3 million versus pro forma 1992 interest
expense of $16.8 million.
Pro forma income before extraordinary item for the year ended
December 31, 1993 and 1992 assuming the 1992 refinancing and 1993
Notes issuance occurred on January 1, 1992, would have been $11.3
million or $.39 per share and $8.8 million or $.31 per share,
respectively. See footnote 2 to the Company's consolidated
financial statements for the year ended December 31, 1993 included
in Item 8.
<PAGE>
For the year ended December 31, 1992, interest expense decreased
$5.9 million compared with the year-earlier period resulting from a
debt-for-equity exchange on September 27, 1991 eliminating $42.8
million of 14% senior secured debt, and the elimination of
approximately $21.0 million of debt in 1991 through cash repurchases
and the application of certain asset disposition proceeds.
Pro forma income before extraordinary item for the years ended
December 31, 1992 and 1991, assuming the debt-for-equity exchange
and refinancing occurred January 1, 1991, would be $12.6 million or
$.44 per share and $9.4 million or $.34 per share, respectively.
Year Ended December 31, 1993 Compared with Year Ended December 31,
1992
Net income for the year ended December 31, 1993 was $9.5 million or
$.33 per share. This included an extraordinary loss on
extinguishment of debt of $3.7 million or $.13 per share. Income
before the extraordinary item for year ended December 31, 1993 was
$13.2 million or $.46 per share on 28.7 million weighted average
shares outstanding compared with $15.5 million or $.54 per share on
28.5 million shares for the year ended December 31, 1992. The
principal reasons for the decreases in income before the
extraordinary item and related earnings per share from 1992 to 1993
are a $5.5 million increase in interest expense, previously
discussed, offset by improved operational performance with EBITD
increasing from $42.5 million in 1992 to $47.8 million in 1993--a
12.4% increase.
<PAGE>
Net revenue for the year ended December 31, 1993 was $343.1 million
compared with $313.2 million for the same period in 1992. This
represents an increase of 9.5%. The principal reasons for the net
revenue increases were (i) a 6.2% increase in the Company's overall
admissions (a 5.9% increase in medical/surgical admissions), and
(ii) a 14% increase in outpatient gross revenue attributable in part
to an increase in prices averaging approximately 8%.
For the most part, hospital EBITD increases from 1992 were due to
increased patient volume (e.g., Medicare discharges, non-Medicare
patient days, and outpatient volume). Puget Sound Hospital and
Chapman General Hospital experienced the largest EBITD growth in the
Company's portfolio, increasing $2.0 million and $1.7 million,
respectively. Lake Mead Hospital Medical Center, Woodruff Community
Hospital and North Bay Medical Center each increased EBITD $900,000
from the year-earlier period.
The Company's two hospitals in the Houston, Texas market, Pasadena
General Hospital and Sharpstown General Hospital, continued to
experience volume declines primarily due to the extremely
competitive nature of the market in terms of the number of beds and
managed care pricing. Although Sharpstown General Hospital was not
as severely affected in 1993 as in 1992, Pasadena General Hospital
experienced a $2.0 million EBITD decrease in 1993 compared with the
year-earlier period.
Operating expenses, exclusive of the provision for bad debts,
interest and depreciation expense, for the year ended December 31,
1993, were 7.6% above the same period in 1992. This increase
primarily resulted from (i) inpatient and outpatient volume
increases, (ii) normal inflationary pressures, and (iii) a change in
the Company's vacation policy accelerating the use of vacation
related expense in 1993. As a percentage of net revenue, operating
expenses, exclusive of the provision for bad debts, interest and
depreciation expense, were 79.5% for the year ended December 31,
1993 compared with 80.9% for the same period in 1992.
The provision for bad debts as a percentage of net revenue increased
to 6.5% for the year ended December 31, 1993 compared with 5.5% for
the same period in 1992. The principal reason for the increase is
the continuing market penetration of discounted managed care
programs in the Las Vegas and Houston markets.
Depreciation expense increased to $19.1 million from $17.2 million
for the year ended December 31, 1993 compared with the year-earlier
period. The principal reason for the increase was the significant
increase in capital expenditures in 1992, of which the full annual
depreciation effect was reflected in 1993.
In the third quarter of 1992, the Company adopted the accounting
provisions of Financial Accounting Standards Board (FASB) Statement
No. 109, "Accounting for Income Taxes," effective as of January 1,
1991. Deferred tax assets of $46.1 million and deferred tax
<PAGE>
liabilities of $45.2 million were reflected as a net amount in the
consolidated balance sheet as of December 31, 1993. The majority of
the Company's deferred tax assets relate to approximately $95.9
million in net operating loss carryforwards which the Company has
available to offset future taxable income. Management assesses the
realizability of the deferred tax assets on at least a quarterly
basis and currently is satisfied that it is more likely than not
that the deferred tax assets recorded at December 31, 1993 will be
realized through reversal of deferred tax liabilities and future
book earnings expected to be generated from operations before the
net operating loss carryforwards expire. The previously discussed
merger between AHI and OrNda, when consummated, will result in an
ownership change pursuant to the provisions of Section 382.
Consequently, following the merger, the Section 382 Limitation will
apply to the use by OrNda, in regard to taxable income of the
Company's subsidiaries, of the Company's NOL carryforwards.
However, if necessary and considering the effects of the merger,
management currently believes that it has the ability, through the
implementation of certain tax planning strategies, to accelerate
taxable income to assure realization of its net deferred tax assets.
For the year ended December 31, 1993, the effective income tax rate
was 4.1% compared with 1.6% in the prior year. The difference
between these rates and the combined federal and state statutory
income tax rates resulted primarily from the realization of
previously unrecognized tax benefits. Substantially all of the
Company's federal taxable income is offset by net operating loss
carryforwards. The provision for income taxes of $571,000
represents $500,000 and $571,000 of current federal and state income
taxes, respectively, and a deferred federal tax benefit of $500,000.
Significant differences between financial statement income before
income taxes and taxable income for income tax return purposes
include (i) interest expense differences due to the troubled debt
accounting treatment for book purposes, (ii) timing differences as
to the recognition of certain expenses, (iii) depreciation basis and
method differences, and (iv) amortization of a prior-year cash-to-
accrual income adjustment for income tax purposes. Substantially all
of the Company's federal taxable income in 1993 was offset by net
operating loss carryforwards.
The Omnibus Budget Reconciliation Act (the "Act") of 1993 was signed
into law by President Clinton on August 10, 1993. At present,
management is of the opinion that the Act will not have a
significant effect on 1993 and future operations.
Year Ended December 31, 1992 Compared with Year Ended December 31,
1991
Net income for the year ended December 31, 1992 was $71.1 million or
$2.49 per share. This included an extraordinary gain on
<PAGE>
extinguishment of debt of $55.6 million or $1.95 per share. Income
before the extraordinary item for year ended December 31, 1992 was
$15.5 million or $.54 per share on 28.5 million weighted average
shares outstanding compared with $8.0 million or $.43 per share
(primary) on 18.8 million shares for the year ended December 31,
1991. The principal reasons for the increases in income before the
extraordinary item and related earnings per share from 1991 to 1992
are (i) improved operational performance and (ii) the positive
effect on interest expense of certain capital restructuring
transactions, previously discussed.
Net revenue for the year ended December 31, 1992 was $313.2 million
compared with $289.5 million for the same period in 1991. During the
fourth quarter of 1991, the Company sold a hospital and related
leasehold interests to the hospital's lessee. Exclusive of the
effect of this sale, comparing 1992 with 1991, net revenue increased
8.8%, EBITD increased 10.5%, and EBITD as a percentage of net
revenue increased from 13.4% to 13.6%. The principal reasons for the
net revenue increases were (i) a less than 1% increase in the
Company's medical/surgical admissions, (ii) a 6% increase in
surgeries reflecting greater severity of illness, and therefore
generally increased net revenue per admission, and (iii) an 18%
increase in outpatient gross revenue attributable in part to an
increase in prices averaging approximately 8%.
An $8.0 million expansion program was completed at Lake Mead
Hospital Medical Center in Las Vegas, Nevada in 1992, which involved
an upgrading and expansion of the emergency department, a renovation
and expansion of the surgical department, a renovation of the
hospital's exterior, and the addition of a patient wing. This
hospital continued to play a significant role in the improved
operational performance of the Company. In 1992, net revenue from
this hospital increased $9.8 million or 31.5% and EBITD increased
$3.0 million or 30.6% from 1991 to 1992.
In addition to the $3.0 million improvement in the Company's EBITD
from 1991 to 1992 resulting from the operations of Lake Mead
Hospital Medical Center, the EBITD of two of the Company hospitals
in the East Los Angeles, California market, Chapman General Hospital
("CGH") and Greater El Monte Community Hospital ("GEMCH"), each
increased $3.0 million. During this period, CGH experienced a 50%
increase in patient days and a 19% increase in total surgeries. Much
of the volume increase resulted from the increase in minimally
invasive lung surgeries performed at the hospital. GEMCH received
$2.8 million additional state Medi-Cal reimbursement that was not
available in 1991 under California's disproportionate share program.
Another of the Company's hospitals in this market, Monterey Park
Hospital, experienced a $2.3 million decrease in EBITD primarily due
to unfavorable changes in the portion of the hospital's patients
covered by commercial insurance and an overall 5% decline in
admissions.
<PAGE>
The Company's two hospitals in the Houston, Texas market, Pasadena
General Hospital and Sharpstown General Hospital, experienced a
combined $1.4 million decrease in EBITD in 1992 compared with 1991.
This market has been, and continues to be, extremely competitive
both in terms of competing providers of health care services and
managed care pricing.
Operating expenses, exclusive of the provision for bad debts,
interest and depreciation, for the year ended December 31, 1992,
were 9.1% above the same period in 1991. This increase primarily
resulted from (i) inpatient and outpatient volume increases, (ii)
normal inflationary pressures, (iii) the increasing costs of
supplies, particularly those associated with noninvasive surgery and
orthopedic procedures, (iv) additional costs associated with
practice development strategies in an increasingly competitive
market, (v) additional costs associated with new medical services
programs, and (vi) a $1.9 million increase in malpractice
self-insurance expense. As a percentage of net revenue, operating
expenses, exclusive of the provision for bad debts, interest and
depreciation, on a same-hospital basis were 80.9% for the year ended
December 31, 1992 compared with 80.7% for the same period in 1991.
The provision for bad debts as a percentage of net revenue on a
same-hospital basis decreased to 5.5% for the year ended December
31, 1992 compared with 6.0% for the same period in 1991. Cash
collections on accounts receivable continued to improve in 1992 due
to more aggressive collection policies and the installation of a new
accounts receivable/billing management information system.
Depreciation expense increased to $17.4 million from $16.5 million
for the year ended December 31, 1992 compared with the year-earlier
period. The principal reason for the increase was the significant
increase in capital expenditures in 1992.
For the year ended December 31, 1992, the effective income tax rate
on income before an extraordinary item was 1.6%. The difference
between this rate and the combined federal and state statutory
income tax rates resulted primarily from the realization of
previously unrecognized tax benefits. The provision for income taxes
for the year ended December 31, 1992 represents $287,000 and
$477,000 of current federal and state income taxes, respectively,
and a deferred federal tax benefit of $515,000.
Liquidity and Capital Resources
Operating Activities
The Company anticipates that the efforts to reduce both federal and
state budget deficits will continue to dominate health care policy
and result in rate changes that fall below the inflation rate of
goods and services purchased by its hospitals. See "Reimbursement."
Management currently believes that changes, if any, in health care
<PAGE>
policy resulting from The Health Security Act of 1993 proposed by
the Clinton administration, or from other legislation currently
before the Congress, will not significantly impact the Company's
operating results for 1994, but there can be no assurance to that
effect.
Working capital at December 31, 1993 increased $21.2 million to
$24.0 million from December 31, 1992 principally due to an increase
in cash and decrease in the current portion of long-term debt both
resulting from the issuance of Notes and the implementation of the
Credit Facility. During 1993, accounts receivable increased $1.4
million or 3.2% mostly as a result of an increase in net revenue of
9.5%. Days outstanding in year-end accounts receivable decreased to
49 days at December 31, 1993 from 52 days at December 31, 1992.
The substantial reduction in cash interest expense due to the 1992
refinancing eliminating the Old Debt was the principal reason for
the $9.5 million or 53.6% increase in cash provided by operating
activities.
Investing Activities
The Company expended $13.6 million in cash for capital expenditures
in 1993. This represented a $6.3 million decrease over 1992. Total
capital expenditures, including capitalized lease obligations, were
$15.7 million in 1993 compared with $24.7 million in 1992. In 1992,
approximately $8.0 million of cash was expended relating to the
renovation and expansion of Lake Mead Hospital Medical Center and an
additional $3.5 million of cash is expected to be expended at the
hospital in 1994 for additional bed capacity and an additional
intensive care unit. The Company has budgeted approximately $25.6
million in cash for capital expenditures in 1994. Approximately
$7.0 million of such amount is expected to be expended on additional
bed capacity and on an intensive care unit at Chapman General
Hospital. The Company anticipates that OrNda will complete this
capital expenditure program subsequent to the merger.
Financing Activities
As previously discussed, in July 1993, the Company issued the Notes
and entered into the Credit Facility. The proceeds from the issuance
of the Notes were used to repay $42.5 million of previously
outstanding senior secured term debt, $13.0 million representing all
amounts outstanding under a previously outstanding senior secured
revolving credit facility, $20.5 million of subsidiary mortgages,
and transaction fees and expenses. The remainder of the proceeds
were invested in short-term investment-grade, interest-bearing
obligations pending use for general corporate purposes, including
capital expenditures.
The Credit Facility consists of (i) a $42.5 million term loan
facility, payable in incremental semiannual installments beginning
January 31, 1994 and maturing July 31, 2000, (ii) a working capital
<PAGE>
revolving credit facility limited to an aggregate principal amount
of $20 million, and (iii) a permitted acquisition facility limited
to an aggregate principal amount of $60 million. The working
capital and permitted acquisition facilities, which were undrawn at
December 31, 1993, are due July 29, 1995 but may, upon approval by
the Lenders, be extended for one-year periods through July 29, 1997.
These transactions were intended to increase the Company's financial
flexibility and has allowed the Company to accelerate its program of
capital expenditures at selected hospitals on projects which the
Company anticipates will result in enhanced operating margins and a
return in excess of the Company's cost of capital.
Inflation
The health care industry is labor intensive. Wages and other
expenses are subject to rapid escalation especially during periods
of inflation and when shortages in the marketplace occur.
In addition, suppliers pass along rising costs to the Company in the
form of higher prices. In general, the Company's revenue increases
through price increases or changes in reimbursement levels have not
kept up with the cost increases. In light of cost containment
measures imposed by government agencies, private insurance companies
and managed care plans, the Company is unable to predict its ability
to offset or control future cost increases.
<PAGE>
Item 8. Financial Statements and Supplementary Data
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
American Healthcare Management, Inc.
We have audited the accompanying consolidated balance sheets
of American Healthcare Management, Inc. as of December 31,
1993 and 1992, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows
for each of the three years in the period ended December 31,
1993. Our audits also include the financial statement
schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of American Healthcare
Management, Inc. at December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/Ernst & Young
January 26, 1994
<PAGE>
American Healthcare Management, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION> December 31
__________________________
1993 1992
________ ________
(000's)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,126 $ -
Accounts receivable, net of allowances for
doubtful accounts of $6,255 in 1993 and
$4,550 in 1992 45,801 44,400
Supplies, at cost 4,807 4,267
Funds held by trustee--current portion 1,038 1,058
Prepaid expenses 2,333 3,300
Other 321 171
_________ _________
Total current assets 68,426 53,196
Other assets:
Funds held by trustee 3,440 4,349
Property held for disposal - 1,609
Notes receivable, less allowances of $773
in 1993 and $1,108 in 1992 4,285 3,940
Debt issuance costs 5,995 4,009
Other 5,595 2,449
_________ _________
19,315 16,356
Property and equipment, at cost:
Land and improvements 24,166 24,034
Buildings and improvements 268,474 244,526
Equipment 116,285 107,107
Construction in progress 6,936 14,844
_________ _________
415,861 390,511
Less: Allowances for depreciation and
amortization 144,917 122,227
_________ _________
270,944 268,284
_________ _________
$ 358,685 $ 337,836
_________ _________
_________ _________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31
__________________________
1993 1992
________ ________
(000's)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Bank checks outstanding, less cash in bank $ - $ 3,364
Accounts payable 22,406 22,893
Accrued compensation 7,326 7,959
Accrued interest 5,213 1,767
Other payables and accruals 3,057 3,481
Current portion of long-term debt 6,409 10,932
_________ _________
Total current liabilities 44,411 50,396
Other liabilities 8,478 15,534
Long-term debt 168,031 143,822
_________ _________
220,920 209,752
Stockholders' equity:
Common Stock, $.01 par; authorized
60,000,000 shares; 27,190,623 and
27,073,280 issued and outstanding
in 1993 and 1992, respectively 272 271
Additional paid-in capital 138,457 138,291
Retained-earnings deficit (964) (10,478)
_________ _________
137,765 128,084
_________ _________
$ 358,685 $ 337,836
_________ _________
_________ _________
See accompanying notes.
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
___________________________________________
1993 1992 1991
________ ________ ________
(000's except
per share amounts)
<S> <C> <C> <C>
Net revenue $ 343,066 $ 313,197 $ 289,466
Expenses:
Salaries and benefits 144,777 132,831 123,754
Purchased services 63,316 58,480 52,750
Supplies 34,889 32,804 29,049
Provision for bad debts 22,441 17,184 17,142
Other 29,854 29,375 26,736
Depreciation 19,083 17,366 16,452
Interest 14,904 9,401 15,267
_________ _________ _________
329,264 297,441 281,150
_________ _________ _________
Income before income taxes
and extraordinary item 13,802 15,756 8,316
Income tax expense 571 249 280
_________ _________ _________
Income before extraordinary item 13,231 15,507 8,036
(Loss) gain on early extinguishment of debt (3,717) 55,571 -
_________ _________ _________
Net income $ 9,514 $ 71,078 $ 8,036
_________ _________ _________
_________ _________ _________
Earnings per share, primary:
Income before extraordinary
item $ .46 $ .54 $ .43
Extraordinary item (.13) 1.95 -
_____ _____ _____
Net income $ .33 $2.49 $ .43
_____ _____ _____
_____ _____ _____
Earnings per share, fully diluted $ .41
_____
_____
See accompanying notes.
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
(All amounts, including shares, in 000's)
Common Stock
_________________________ Additional Retained-
Number Paid-In Earnings
of Shares Par $.01 Capital Deficit
_________ ________ _________ ________
<S> <C> <C> <C>
Balances at January 1, 1991 15,160 $ 152 $111,765 $(89,592)
Recapitalization 11,776 117 26,362
Net income 8,036
_______ _____ ________ ________
Balances at December 31, 1991 26,936 269 138,127 (81,556)
Net income 71,078
Common stock issuance 137 2 164
_______ _____ ________ ________
Balances at December 31, 1992 27,073 271 138,291 (10,478)
Net income 9,514
Common stock issuance 118 1 166
_______ _____ ________ ________
Balances at December 31, 1993 27,191 $ 272 $138,457 $ (964)
_______ _____ ________ ________
_______ _____ ________ ________
See accompanying notes.
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992 1991
________ ________ ________
(000's)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,514 $ 71,078 $ 8,036
Adjustments to reconcile net income to
net cash provided by operations:
Extraordinary loss (gain) on early
extinguishment of debt 3,717 (55,571) -
Depreciation and amortization 20,041 17,792 16,452
Troubled debt interest - 884 10,486
Troubled debt interest paid in cash - (13,718) (14,726)
Provision for bad debts 22,441 17,184 17,142
Charges against reserve for losses on disposal - (245) (1,778)
Effect of changes in operating assets
and liabilities:
Accounts receivable (29,456) (20,784) (10,941)
Supplies (435) (608) (501)
Prepaid expenses and other current assets 823 92 1,003
Accounts payable (1,013) 2,282 4,105
Accrued compensation (822) 606 (215)
Accrued interest 3,446 963 (487)
Other payables and accruals (1,093) (2,276) 768
_________ _________ _________
Net cash provided by operating activities 27,163 17,679 29,344
INVESTING ACTIVITIES
Purchases of property and equipment (13,581) (19,911) (12,622)
Proceeds from asset sales - - 19,262
Funds held by trustee and other (7,616) (2,649) (2,467)
_________ _________ _________
Net cash (used in) provided by investing activities (21,197) (22,560) 4,173
FINANCING ACTIVITIES
Advance payments on troubled debt - (100,834) (22,738)
Repayments of other long-term debt (119,692) (38,375) (3,447)
Proceeds from issuance of long-term debt 137,288 134,000 -
Proceeds from issuance of common stock 167 166 -
Refinancing costs incurred (6,239) (9,189) -
Bank checks outstanding, less cash in bank
at end of year (3,364) 3,364 -
Recapitalization costs incurred - - (3,232)
_________ _________ _________
Net cash provided by (used in) financing activities 8,160 (10,868) (29,417)
_________ _________ _________
Increase (decrease) in cash and cash equivalents 14,126 (15,749) 4,100
Balance at beginning of year - 15,749 11,649
_________ _________ _________
Cash and cash equivalents at end of year $ 14,126 $ - $ 15,749
_________ _________ _________
_________ _________ _________
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992 1991
________ ________ ________
(000's)
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid (net of amounts capitalized in
1993 of $379 and 1992 of $653) $ 10,879 $ 20,846 $ 19,992
Income taxes paid 1,367 284 208
Supplemental schedule of noncash investing
and financing activities:
Payment of interest by delivery of
additional notes - - 8,286
Capital lease obligations, principally
equipment 2,090 4,820 -
Increase in stockholders' equity due
to recapitalization - see Note 3 - - 26,479
See accompanying notes.
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements
December 31, 1993
1. Business and Significant Accounting Policies
The Company is engaged primarily in the development,
ownership, and operation of hospitals and related health-care
facilities. Its more significant accounting policies follow.
Principles of Consolidation
The consolidated financial statements include all
subsidiaries. All significant intercompany transactions have
been eliminated.
Third-Party Payors
Net revenue represents patient service revenue and other
revenue and is reported at the net realizable amounts from
patients, third-party payors, and others for services
rendered. Patient service revenue generated from Medicare
and Medicaid/Medi-Cal reimbursement programs accounted for
approximately 55%, 50%, and 42% in 1993, 1992, and 1991,
respectively, of total net patient service revenue. Under
these programs, the Company is required to submit annual cost
reports which are subject to examination by agencies
administering these programs. Management believes that
adequate provision has been made in the consolidated
financial statements for potential adjustments resulting from
such examinations. Net accounts receivable from the Medicare
and Medicaid/Medi-Cal reimbursement programs at December 31,
1993 and 1992 were approximately $28.9 million and $26.7
million, respectively.
Debt Issuance Costs
Costs incurred in connection with the amendment and
restatement of the Company's senior secured credit facility
(refer to footnote 2) are being amortized using the effective
interest method over the term of the related debt.
Depreciation
Depreciation expense is computed by the straight-line method.
The estimated useful lives are: buildings, 30 to 40 years;
leasehold improvements, the shorter of the expected useful
life or the remaining lease term; equipment, 10 years; and
minor equipment, 3 years. Amortization of assets recorded
under capital lease is included with depreciation expense.
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
1. Business and Significant Accounting Policies (continued)
Earnings Per Share
The computation of primary earnings per share is based on the
weighted average number of shares outstanding during the
period after consideration of the dilutive effects of stock
options and warrants (1993--1,557,000; 1992--1,517,000; 1991-
- - -586,000 equivalent shares) based on the treasury stock
method using the monthly average market price of the stock
during the year. The primary weighted average number of
shares outstanding is 28,704,772; 28,547,600; and 18,810,708
for the years ended December 31, 1993, 1992, and 1991,
respectively.
The computation of fully diluted earnings per share considers
the dilutive effects of stock options and warrants (1991--
1,559,032 equivalent shares) based on the treasury stock
method using the year-end market price of the common stock.
For the year ended December 31, 1991, the fully diluted
weighted average number of common shares outstanding is
19,783,929.
Notes Receivable
Notes receivable includes $1.0 million of advances,
principally to officers of the Company.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with
maturities of three months or less when purchased to be cash
equivalents.
2. Long-term Debt
A summary of long-term debt follows:
<TABLE>
<CAPTION>
December 31
1993 1992
________ ________
(000's)
<S> <C> <C>
Parent Company:
Credit Facility:
Revolving credit facility $ - $ 12,000
Term Loans 42,500 87,500
10% Senior Subordinated Notes due 2003 100,000 -
_________ _________
$ 142,500 $ 99,500
Subsidiaries:
Secured debt--other; rates,
generally fixed, average
10.3%; payable in periodic
installments through 2002 31,940 55,254
_________ _________
174,440 154,754
Less current portion 6,409 10,932
_________ _________
$ 168,031 $ 143,822
_________ _________
_________ _________
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
2. Long-term Debt (continued)
The fair value of the Company's long-term debt is estimated
to approximate the recorded values, based on quoted market
prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining
maturities, except that the senior subordinated notes
approximate 104% of par value based on recent bid/ask
indications.
On July 28, 1993, the Company issued $100 million aggregate
principal amount of 10 percent senior subordinated notes due
July 2003 (the "Notes") and on July 29, 1993, amended and
restated its senior secured credit facility (the "Credit
Facility") with a syndicate of commercial bank lenders (the
"Lenders") under which $42.5 million remained outstanding and
a credit facility of up to $80.0 million was made available,
thereby increasing the total facility from $105 million to
$122.5 million.
The proceeds from the issuance of the Notes were used to
repay $42.5 million of previously outstanding senior secured
term debt, $13.0 million representing all amounts previously
outstanding under a senior secured revolving credit facility,
$20.5 million of subsidiary mortgages, and transaction fees
and expenses. The remainder of the proceeds were invested in
short-term investment grade, interest-bearing obligations
pending use for general corporate purposes, including capital
expenditures.
In connection with these transactions, the Company recorded
an extraordinary loss of $3.7 million, net of an income tax
benefit of $125,000, on early extinguishment of debt in the
third quarter of 1993. The loss primarily related to the
writeoff of unamortized debt issuance costs on the
extinguished indebtedness.
The Credit Facility consists of (i) a $42.5 million term loan
facility, payable in incremental, semiannual installments
beginning January 31, 1994 and maturing July 31, 2000, (ii)
a revolving credit facility, restricted for use for working
capital purposes and reimbursement for drawings under letters
of credit, limited to an aggregate principal amount of
$20 million, and (iii) a permitted acquisition facility
limited to an aggregate principal amount of $60 million. The
revolving credit and permitted acquisition facilities are due
July 29, 1995 but may, upon approval by the Lenders, be
extended for one-year periods through July 29, 1997. At
December 31, 1993, the permitted acquisition and revolving
credit facilities were undrawn; however, commitment
availability under the revolving credit facility had been
reduced by $1.7 million for issued letters of credit.
Funds advanced under the Credit Facility bear interest on the
outstanding principal at either a rate based on the Prime
Rate or London Interbank Borrowing Rate ("LIBOR") as elected
from time to time by the Company. Interest is payable
monthly if a rate based on the Prime rate is elected or at
the end of the LIBOR period if a rate based on LIBOR is
elected (but not to exceed three months). The Company has
elected various rates on the initial term loan facility
representing a weighted average annual interest rate at
December 31, 1993 of 6.0%.
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
2. Long-term Debt (continued)
In certain circumstances, the Company is required to make
principal prepayments on the term loan including the receipt
of proceeds from certain sales of material assets and the
issuance of additional indebtedness. The Company may prepay
all or part of the outstanding Credit Facility without
penalty.
The Notes are subordinated to the Credit Facility and to
indebtedness of the Company's subsidiaries. Interest on the
Notes is payable semiannually on February 1 and August 1 of
each year. The Notes mature on August 1, 2003 but may be
redeemed in whole or in part at the option of the Company on
or after August 1, 1998 through July 31, 2000 at specified
redemption prices in excess of par and thereafter at par.
The Credit Facility Agreement and Note Indenture limit, under
certain circumstances, the Company's ability to incur
additional indebtedness, sell material assets, acquire the
capital stock or assets of another business, or pay
dividends. The Credit Facility also requires the Company to
maintain a specified net worth and meet or exceed certain
coverage, leverage, and indebtedness ratios. Indebtedness
under the Credit Facility and under other secured debt and
capital lease agreements of the Company is secured by liens
on substantially all real and personal property and interests
in real and personal property of the Company and its
subsidiaries.
Effective June 30, 1992, the Company refinanced approximately
$100.0 million of fixed-rate senior secured debt ("Troubled
Debt") with a floating-rate senior secured credit facility of
$105.0 million. The Troubled Debt was issued in connection
with a debt restructuring followed by the Company's emergence
from bankruptcy on December 29, 1989. The Troubled Debt had
been accounted for under Financial Accounting Standards Board
Statement No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings." As a result of the
refinancing, the Company recognized an extraordinary gain on
early extinguishment of debt of $55.6 million. The gain
primarily resulted from the income recognition of "future
interest" included in long-term debt, less related expenses.
The following table sets forth pro forma income and earnings
per share before extraordinary item for the years ended
December 31, 1993 and 1992 giving effect to (i) the
refinancing and related expenses effective June 30, 1992 of
the Troubled Debt and (ii) issuance of the Notes on
July 28, 1993 and the application of the estimated net
proceeds thereof as if such transactions had occurred on
January 1, 1992.
<TABLE>
<CAPTION>
Year Ended
December 31
1993 1992
________ ________
(000's)
<S> <C> <C>
Income before extraordinary
item (000's) $ 11,304 $ 8,790
Earnings per share before
extraordinary item $ .39 $ .31
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
2. Long-term Debt (continued)
On September 22, 1992, the Company entered into interest rate
swap agreements effectively fixing the annual interest rate
on floating-rate term debt at 7.7% for three years on
$25.0 million of debt and 7.0% for two years on $10.0 million
of debt.
Maturities of long-term debt, exclusive of capital lease
obligations, over the next five years and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1994 $ 5,113
1995 5,794
1996 10,959
1997 7,412
1998 7,387
Thereafter 124,816
_________
$ 161,481
_________
_________
</TABLE>
A summary of assets under capital lease follows:
<TABLE>
<CAPTION>
1993 1992
________ ________
(000's)
<S> <C> <C>
Buildings and improvements $ 38,843 $ 37,845
Equipment 9,228 8,408
________ ________
48,071 46,253
Less allowance for amortization 14,255 10,739
________ ________
$ 33,816 $ 35,514
________ ________
________ ________
</TABLE>
At December 31, 1993, aggregate amounts of future minimum
payments under lease commitments are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
(000's)
<S> <C> <C>
1994 $ 2,684 $ 6,517
1995 2,371 5,773
1996 2,239 4,599
1997 1,634 3,385
1998 1,174 1,947
Subsequent to 1998 20,423 11,640
________ ________
Total future minimum lease payments 30,525 $ 33,861
________
________
Amount representing interest 17,566
________
Present value of minimum lease payments
(included in long-term secured debt--other) 12,959
Less: current portion 1,296
________
$ 11,663
________
________
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
2. Long-term Debt (continued)
Operations for the years ended December 31, 1993, 1992, and
1991 included rental expense on operating leases of property
and equipment of $9.0 million, $7.3 million, and $7.6
million, respectively, a majority of which represents rental
expense attributed solely to usage. Certain of these
operating leases include provisions for renewal options and
escalation clauses.
3. Debt-For-Equity Exchange
On September 27, 1991, the Company's stockholders approved a
nontaxable recapitalization plan (the "Recapitalization")
effective on that date to issue 11,776,768 shares of the
Company's common stock to fifteen holders (the "Exchanging B
Noteholders") of the Company's Senior Secured B Notes (the "B
Notes") in exchange for $42,824,610 principal amount of B
Notes. In addition, the Company purchased from the
Exchanging B Noteholders at par $2,450,720 principal amount
of B Notes held by them. For Exchanging B Noteholders
holding warrants to purchase shares of the Company's common
stock, which amounted to an aggregate of 897,198 warrants,
the Company lowered the exercise price of the warrants from
$2.67 per share to $1.60 per share. Accrued interest on the
B Notes through September 27, 1991 of $1.5 million was paid
on that date to the Exchanging B Noteholders on the B Notes
exchanged and purchased.
Expenses incurred in connection with the Recapitalization of
$3.2 million were recorded as a reduction of additional paid-
in capital.
4. Contingencies
Liability Risks
The general and professional liability risks of the Company
are self-insured up to $3.0 million per occurrence and $9.0
million in aggregate per claim year. The Company carries
general and professional liability insurance from an
unrelated commercial carrier for per-occurrence losses in
excess of $3.0 million on a claims-made basis. At December
31, 1993, liabilities for self-insured professional and
general liability risks, for both asserted and unasserted
claims, are based on actuarially projected estimates
discounted at a 7.5% average rate to their present value of
$5.0 million based on historical loss payment patterns. At
December 31, 1993, the Company maintained $3.0 million in a
trust fund for purposes of meeting in part these estimated
obligations. Although the ultimate settlement of these
liabilities may vary from such estimates, management believes
that the amounts provided in the Company's financial
statements are adequate.
Neither the Company nor any of its subsidiaries is party to,
and none of their properties is the subject of, any material
pending legal proceedings, other than ordinary, routine
litigation incidental to the business.
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
5. Stockholders' Equity and Stock Options
The Company has never paid any dividends on its common stock.
Under the terms of the Company's Credit Facility, the Company
may not pay dividends prior to July 21, 1994. Further,
dividends in any fiscal year may not exceed the lesser of
ten percent of net income or $3.0 million.
At December 31, 1993, warrants to purchase 1,163,284 shares
of common stock were outstanding. The warrants may be
exercised any time prior to April 29, 1995 at a price of
$2.67 per share for warrants for 278,586 shares, and at $1.60
per share for warrants for 884,698 shares.
The Company has reserved 1,640,000 shares (less options
canceled) of its common stock for issuance to officers and
employees under its 1990 Stock Plan and 360,000 shares under
its 1990 Non-Employee Directors' Stock Plan. Under both
plans, options granted will terminate unless exercised within
a ten-year period at the market price on the grant date and
are exercisable in three equal annual installments commencing
one year from date of grant. The following is a summary of
option transactions during 1991, 1992, and 1993:
<TABLE>
<CAPTION>
Outstanding
______________________
1990 Non-Employee Option
Stock Directors' Price
Plan Stock Plan Range
________ ____________ __________
<S> <C> <C> <C>
Balance at December 31, 1990 290,000 360,000 $1.00-$1.42
Options granted 250,000 - $1.00-$3.00
________ ________
Balance at December 31, 1991 540,000 360,000
Options granted 85,000 - $4.63
Options canceled (20,000 ) -
Options exercised (16,666 ) (120,000) $1.00-$1.38
________ ________
Balance at December 31, 1992 588,334 240,000
Options granted 405,000 - $4.50-$6.00
Options canceled (16,667 ) -
Options exercised (38,332 ) (60,000) $1.00-$2.88
________ ________
Balance at December 31, 1993 938,335 180,000
________ ________
________ ________
Exercisable at December 31, 1993 411,668 180,000
________ ________
________ ________
</TABLE>
Options available for future grant under the 1990 Stock Plan
at December 31, 1993 and 1992 were 610,000 and 1,015,000,
respectively. No options were available for future grant
under the Non-Employee Directors' Stock Plan at
December 31, 1993 and 1992.
In addition to the above plans, two officers of the Company
were granted options to acquire an aggregate of 470,000
shares of the Company's common stock. The options are fully
vested at a price of $1.89 per option. The options expire in
April 1995.
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
6. Income Taxes
At December 31, 1993, significant deferred tax assets consist
of: tax return net operating loss carryforwards
($95.9 million), allowances not yet deducted for tax purposes
($16.8 million), capital lease liabilities ($13.0 million),
and tax credit carryforwards ($5.2 million). Significant
deferred tax liabilities consist of: accelerated
depreciation ($116.9 million) and the unamortized deferral of
the effect of changing from the cash method of tax accounting
to the accrual method in a prior year ($12.3 million). The
ability of the Company to reduce future book income tax
expense with net operating loss carryforward benefits is
limited. As net operating loss carryforwards are utilized in
future years, the Company's taxable temporary differences may
exceed deductible temporary differences which will likely
require providing deferred income taxes beginning in 1994.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are tax
effected as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1993 1992 1991
________ _________ _________
<S> <C> <C> <C>
Deferred tax assets:
Capitalized inventory costs $ 19 $ 19 $ 10
Deductible allowances 5,869 5,474 6,746
Capital lease liability 4,537 4,182 3,621
Net operating losses 33,573 37,350 39,578
Tax credits 5,285 4,799 4,300
Excess book basis over tax
basis of parent company debt - - 25,600
________ ________ ________
Total deferred tax assets 49,283 51,824 79,855
Valuation allowance (3,180 ) (5,125 ) (32,354 )
________ ________ ________
Net deferred tax assets 46,103 46,699 47,501
Deferred tax liabilities:
Tax in excess of book depreciation 40,905 40,587 40,505
Unamortized cash to accrual method
adjustment 4,321 5,597 6,996
________ ________ ________
Total deferred tax liabilities 45,226 46,184 47,501
________ ________ ________
Net deferred tax assets $ 877 $ 515 $ -
________ ________ ________
________ ________ ________
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
Significant components of the provision for income taxes
attributable to continuing operations are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
________ ________ ________
<S> <C> <C> <C>
Current:
Federal $ 500 $ 287 $ 160
State 571 477 120
________ ________ ________
Total current 1,071 764 280
Deferred federal (500 ) (515 ) -
________ ________ ________
$ 571 $ 249 $ 280
________ ________ ________
________ ________ ________
</TABLE>
The reconciliation of income tax attributable to continuing
operations computed at the U.S. federal statutory tax rates
to income tax expense is:
<TABLE>
<CAPTION>
1993 1992 1991
_________________ _________________ _________________
Amount Percent Amount Percent Amount Percent
_________________ _________________ _________________
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory
rates $ 4,830 35 % $ 5,300 34 % $ 2,827 34 %
State income taxes, net
of federal tax benefit 1,140 8 777 5 549 6
Realization of previously
unrecognized tax benefits (4,899 ) (35) (5,600 ) (36) (3,256) (39)
_______ ___ _______ ___ _______ ___
1,071 8 477 3 120 1
Alternative minimum tax (500 ) (4) (228 ) (1) 160 2
_______ ___ _______ ___ _______ ___
$ 571 4 % $ 249 2 % $ 280 3 %
_______ ___ _______ ___ _______ ___
_______ ___ _______ ___ _______ ___
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The following schedule summarizes approximate tax return net
operating loss and tax credit carryforwards, which are
currently available on an unlimited basis to offset federal
net taxable income (in millions):
<TABLE>
<CAPTION>
Expiration
Amount Period
________ __________
<S> <C> <C>
Net operating loss ("NOL") $95.9 2001-2006
Alternative minimum tax
net operating losses 57.1 2001-2005
Investment tax credit, reduced
in accordance with TRA of 1986 4.4 1994-2001
Alternative minimum tax credit .8 No expiration
</TABLE>
The Company also has state tax loss carryforwards available
in various states in which it is required to file a return.
Pursuant to the provisions of Section 382 of the Internal
Revenue Code, the NOL carryforward could be subjected to
annual use limitations should an ownership change, as therein
defined, occur in any three-year period within the
carryforward period. Also refer to footnote 8.
7. Quarterly Financial Information (Unaudited)
The following tables summarize the quarterly results of
operations for the two years ended December 31, 1993:
<TABLE>
<CAPTION>
Quarters
Fourth Third Second First
(000's except per share amounts)
<S> <C> <C> <C> <C>
1993:
Net revenue $ 87,001 $ 84,464 $ 84,650 $ 86,951
Income before income taxes
and extraordinary item 2,735 1,346 4,219 5,502
Extraordinary item 125 (3,842 ) - -
Net income (loss) 3,035 (2,544 ) 3,903 5,120
Earnings per share before
extraordinary item .09 .05 .14 .18
Earnings (loss) per share .10 (.09 ) .14 .18
</TABLE>
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
7. Quarterly Financial Information (Unaudited) (continued)
<TABLE>
<CAPTION>
Quarters
Fourth Third Second First
(000's except per share amounts)
<S> <C> <C> <C> <C>
1992:
Net revenue $ 80,883 $ 75,808 $ 77,966 $ 78,540
Income before income taxes
and extraordinary item 2,590 1,331 5,375 6,460
Extraordinary item - - 55,571 -
Net income 2,549 1,584 60,737 6,208
Earnings per share before
extraordinary item .09 .06 .18 .22
Earnings per share .09 .06 2.12 .22
</TABLE>
8. Proposed Merger
On November 18, 1993, the Company entered into a definitive
Agreement and Plan of Merger with OrNda HealthCorp ("OrNda")
pursuant to which the Company will merge with OrNda. It is
expected the transaction will be tax-free and accounted for
as a pooling-of-interests. Under the terms of the agreement,
which was unanimously approved by the Boards of Directors of
both companies, the Company's shareholders will receive 0.6
of a share of OrNda common stock in exchange for each share
of the Company's common stock held.
Additionally, pursuant to a Waiver and Consent Agreement
dated February 3, 1994 by and among OrNda and the holders of
a majority in principal amount of the 10% Senior Subordinated
Notes, as consideration for their agreement to make certain
changes to the Notes' Indenture to effect the merger and
other matters, OrNda will make consent payments to the
holders on the closing date of the merger of $15.00 for each
$1,000 principal amount of the outstanding Notes resulting in
an expense upon completion of the merger of $1,500,000.
Following the consummation of the merger, the rate of
interest on the Notes will increase from 10% per annum to
10-1/4% per annum. The merger will cause a "change of
control" as defined in the Note Indenture, which, therefore,
will allow each holder of the Notes to require the Company to
repurchase all or a portion of the Notes owned by such holder
at 101% of the principal amount thereof, together with
accrued interest thereon to the date of repurchase. Although
the Company does not anticipate that a substantial amount of
the Notes will be tendered for repurchase, if any, OrNda has
made financial arrangements to provide funding, to the extent
necessary, for the repurchase of any Notes tendered.
<PAGE>
American Healthcare Management, Inc.
Notes to Consolidated Financial Statements (continued)
8. Proposed Merger (continued)
The merger, when consummated, will result in an ownership
change pursuant to the provisions of Section 382 of the
Internal Revenue Code. Consequently, following the merger,
annual use of the Company's tax attribute carryforwards will
be substantially limited for federal income tax purposes.
As of December 31, 1993, costs incurred totaling
approximately $800,000 associated with the proposed merger
have been deferred and will be charged to expense upon
completion of the merger. In addition, loans to employees of
approximately $750,000 will be forgiven pursuant to the
"change-of-control" provision of the loan agreements.
Consummation of the merger is subject to shareholder approval
of both companies. Shareholder meetings to vote on the
transaction are scheduled for April 19, 1994. If approved,
the merger is expected to be completed shortly thereafter.
<PAGE>
PART III
Item 9. Changes in and disagreements with the Accountants on
Accounting and Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
The table below sets forth the name, age, and position of the
Company's executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
______________________ ___ _________________________________________
<S> <C> <C>
Steven L. Volla 47 President,
Chief Executive Officer
and Chairman of the Board
Robert M. Dubbs 50 Senior Vice President, General
Counsel and Secretary
Robert W. Fleming, Jr. 54 Senior Vice President,
Operations
William S. Harrigan 50 Senior Vice President,
Chief Financial Officer,
and Treasurer
Bruce J. Colburn 39 Vice President, Controller
Brian G. Costello 53 Vice President, Human Resources
Lois M. Quinn 60 Vice President, Professional Affairs
Thomas M. Sposito 50 Vice President, Materiel Management
John W. Gildea 50 Director
William S. Kiser, M.D 66 Director and Medical Director
John F. Nickoll 59 Director
John J. O'Shaughnessy 49 Director
C. A. Rundell, Jr. 62 Director
Gerald L. Sauer, Ph.D 42 Director
</TABLE>
Steven L. Volla joined the Company on December 29, 1989, as
its President and Chief Executive Officer, at which time he
also became a Director of the Company. Mr. Volla served as
the Treasurer of the Company from March 1990 to September
1991 and he also served as Chief Financial Officer of the
Company from March 1990 until July 1991. From 1982 until
joining the Company, Mr. Volla had been employed by Universal
Health Services, Inc., King of Prussia, Pennsylvania, where
he most recently served as its Senior Vice President--
Operations. He is also a Director of Kendall, Inc., a
medical supply manufacturer; and Foothill Group, Inc., a
financial services company.
<PAGE>
Robert M. Dubbs has served as Vice President, General Counsel
and Secretary since February 1990. He was elected a Senior
Vice President in 1993. Prior to February 1990, and since
June 1984, Mr. Dubbs was General Counsel and Secretary for
Universal Health Services, Inc., King of Prussia,
Pennsylvania.
Robert W. Fleming, Jr. joined the Company on May 29, 1990, as
Senior Vice President, Operations. Before joining the
Company, he had been the Chief Operating Officer at St. Agnes
Medical Center, a 259 bed acute-care hospital in
Philadelphia. Prior to that, Mr. Fleming had served in a
variety of officer capacities at Universal Health Services,
Inc., King of Prussia, Pennsylvania, including Vice
President--Operations, Vice President--Management Services,
and most recently Vice President--Development.
William S. Harrigan joined the Company on July 29, 1991, as
Senior Vice President, Chief Financial Officer and was
elected Treasurer in September 1991. Prior to that and since
March 1986, he was Vice President and Treasurer of Rhone-
Poulenc Rorer (formerly Rorer Group, Inc.).
Bruce J. Colburn, has served the Company as Vice President,
Controller, since February 1993. Prior to that he served as
Controller, Hospital Financial Operations since joining the
Company in July 1990. From August 1985 to July 1990, Mr.
Colburn served as an executive with Ernst & Young's National
Accounting and Auditing Group in Cleveland, Ohio and New
York, New York.
Brian G. Costello joined the Company in July 1990, as its
Vice President, Human Resources. From June 1988 to July
1990, Mr. Costello was Vice President at Garfolo, Curtiss &
Company, Ardmore, Pennsylvania. From August 1981 to June
1988, Mr. Costello was Vice President of Human Resources at
Hahnemann Hospital in Philadelphia.
Lois M. Quinn has served as Vice President, Professional
Affairs since February 1993, and served as Director,
Professional Services since joining the Company in September
1990. From 1983 to 1990 she served in various capacities at
Universal Health Services, Inc., King of Prussia, Pa., where
she most recently served as Director, Professional Standards.
Thomas M. Sposito joined the Company in July 1990, as its
Vice President, Materiel Management. From September 1979 to
July 1990, Mr. Sposito was Director of Purchasing at
Universal Health Services, Inc., King of Prussia,
Pennsylvania.
<PAGE>
John W. Gildea has been President and Sole Director of Gildea
Investment Co. since 1983; Managing Director of the Network
Company II Limited since 1992; a General Partner of Gildea
Management Company, L.P. since 1990; and from 1986 to 1990
Senior Vice President of Donaldson, Lufkin, Jenrette. He has
been a Director of the Company since September 27, 1991.
William S. Kiser, M.D. has been Medical Director of the
Company since 1992. He served as Chairman of the Board of
Governors for The Cleveland Clinic Foundation from 1977 to
1989; currently, he is a Director of TRW, Inc. He became a
Director of the Company on May 27, 1993.
John F. Nickoll has been President and Co-Chief Executive
Officer, The Foothill Group, Inc., since 1970; Director,
American Shared Hospital Services, Inc., an owner/lessor of
mobile CAT-scan equipment; Director, CIM-High Yield
Securities, Inc., a closed-end investment company; Director,
Care Enterprises, Inc., a nursing home chain. He has been a
Director of the Company since September 27, 1991.
John J. O'Shaughnessy has been President of Strategic
Management Associates, Inc., Washington, D.C. since 1988;
from 1986 to 1988 Senior Vice President of Greater New York
Hospital Association; from 1983 to 1986 Assistant Secretary
for Management and Budget of the Department of Health and
Human Services, Washington, D.C. He has been a Director of
the Company since December 29, 1989.
C. A. Rundell, Jr. has been since 1988 a private investor in
Dallas, Texas. Prior to 1988, he was President, CEO,
Chairman of the Board of Business Records Corporation
(formerly known as Cronus Industries); currently, Chairman of
the Board of NCI Building Systems, Inc., Director of Tyler
Corporation, Tandy Brands Accessories, Inc., Bollinger
Industries, Inc., Inter-Regional Financial Group, Inc.,
Redman Industries, Inc. and Eljer Industries, Inc. He has
been a Director of the Company since December 29, 1989.
Gerald L. Sauer, Ph.D. has been a Partner at Strategic
Decisions Group, Menlo Park, CA since 1987; from 1982 to
1987, a faculty member at the Amos Tuck School of Business at
Dartmouth College. He has been a Director of the Company
since December 29, 1989.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
OF 1934
Section 16(a) of the Exchange Act requires the Company's
directors and executive officers, and persons who own more
than ten percent of a registered class of the Company's
equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of
changes in ownership of the Company's Common Stock and other
equity securities. Officers, directors and greater than ten
percent shareholders are required by Commission regulation to
furnish the Company copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on a review
of the copies of such reports furnished to the Company for
the fiscal year ended December 31, 1993, all Section 16(a)
filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied
with.
<PAGE>
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term
compensation for the Company's Chief Executive Officer and
the four highest paid executive officers, as well as the
total compensation paid to each individual for the Company's
two previous years.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
_________________________________ ___________________
Name Other
and Annual All Other
Principal Salary Bonus Compen- Options Compen-
Position Year ($) ($) sation($) (#) sation($)
______________________ ____ _______ ________ __________ ________ __________
(1) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven L. Volla
Chairman, President, 1993 $566,839 $598,137 $37,384 (2) 300,000 $35,494 (3)
and Chief Executive 1992 497,212 356,137 18,773 (2) 0 41,984 (3)
Officer 1991 328,700 358,637 - 0 -
Robert M. Dubbs 1993 160,200 121,120 50,000 4,283 (4)
Senior Vice Presi- 1992 154,200 74,016 0 3,852 (4)
dent, General Coun- 1991 147,200 98,000 - 0 -
sel, and Secretary
Robert W. Fleming, Jr. 1993 199,500 146,000 0 6,344 (4)
Senior Vice Presi- 1992 199,500 79,800 0 6,209 (4)
dent, Operations 1991 193,167 87,500 - 0 -
William S. Harrigan (5)
Senior Vice Presi- 1993 160,679 81,900 0 6,003 (4)
dent, Chief Finan- 1992 153,438 75,600 0 5,124 (4)
cial Officer 1991 64,231 41,719 - 100,000 -
Bruce J. Colburn 1993 118,167 107,930 20,000 3,421 (4)
Vice President, 1992 112,771 69,450 0 3,698 (4)
Controller 1991 107,188 75,150 - 0 -
(1) Information provided only for 1993 and 1992, pursuant to proxy transition
rules.
(2) Reimbursement for income taxes on certain bonus amounts, pursuant to
employment agreement, and for federal income taxes relating to imputed
interest on certain loans, pursuant to loan agreement.
(3) Includes contribution to defined contribution plan (vests over a period of
seven years commencing in third year); cost of group life benefits, health
and disability plans; and $31,591 and $37,817 imputed interest on certain
loans, for 1993 and 1992, respectively.
(4) Includes contribution to defined contribution plan (vests over a period of
seven years commencing in third year); cost of group life benefits, health
and disability plans; and imputed interest on certain loans.
(5) Mr. Harrigan commenced employment July 29, 1991.
</TABLE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning
options granted during 1993 to the named executives:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
__________________________________________________________ ______________________
% of Total
Options
Granted
to
Options Employees Exercise Expira-
Granted in Fiscal Price tion
Name (#) Year ($/Share) Date 5% ($) 10% ($)
_________________________________________________________ ___________________
<S> <C> <C> <C> <C> <C> <C>
Steven L. Volla 300,000 74.1% $5.375 6/15/00 $697,766 $1,642,554
Robert M. Dubbs 50,000 12.3% 4.500 6/15/00 92,488 215,872
Robert W. Fleming, Jr. 0 0.0%
William S. Harrigan 0 0.0%
Bruce J. Colburn 20,000 4.9% 4.500 6/15/00 36,995 86,349
</TABLE>
AGGREGATED OPTIONS EXERCISED AND FISCAL YEAR-END OPTION
VALUES
The following table summarizes options exercised during 1993
and presents the value of unexercised options held by the
named executives at fiscal year end:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money Options
Options at FY-End (#) (1) at FY-End($) (2)
_________________________ ____________________
Exercisable (E) Exercisable (E)
Name Unexercisable (U) Unexercisable (U)
____________________ _________________________ ____________________
<S> <C> <C> <C> <C>
Steven L. Volla 450,000 (E)(3) $3,255,750 (E)
300,000 (U) 1,125,000 (U)
Robert M. Dubbs 30,000 (E) 388,450 (E)
20,000 (E)(3)
50,000 (U) 231,250 (U)
Robert W. Fleming, Jr. 100,000 (E) 770,500 (E)
0 (U) 0 (U)
William S. Harrigan 66,667 (E) 408,335 (E)
33,333 (U) 204,165 (U)
Bruce J. Colburn 20,000 (E) 162,500 (E)
20,000 (U) 92,500 (U)
(1) Options granted under the Company's 1990 Stock Plan, unless otherwise
specified.
(2) Based on closing price of Company's Common Stock on the New York Stock
Exchange on December 31, 1993. Amounts shown are net of option exercise
prices. There can be no assurance that amounts set forth will be realized.
(3) Options granted under employment contracts.
</TABLE>
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information with
respect to beneficial ownership of Common Stock of AHM as of
March 1, 1994 (i) by each person known by AHM to be the
beneficial owner of five percent or more of the outstanding
shares of AHM Common Stock, (ii) by each of AHM's directors,
(iii) by each of the five most highly compensated executive
officers of AHM, and (iv) by all of AHM's directors and
executive officers as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Beneficially Owned of Class
__________________ _________
(1) (2) (2)
<S> <C> <C> <C>
John F. Nickoll 3,610,511 (3) 13.15%
Suite 1500
11111 Santa Monica Blvd.
Los Angeles, CA 90025
The Foothill Group, Inc 6,550,726 (4)(5) 23.80
Suite 1500
11111 Santa Monica Blvd.
Los Angeles, CA 90025
John W. Gildea 2,806,429 (6) 10.22
c/o Gildea Management Co.
90 Ferris Hill Road
New Canaan, CT 06840
The Network Company II Limited. 2,762,929 10.06
c/o Gildea Management Company
90 Ferry Hill Road
New Canaan, CT 06840
Leon Greenblat 2,450,399 (7) 8.86
175 W. Jackson
Suite A243
Chicago, IL 60004
Steven L. Volla, Chairman, President and Chief Executive Officer 785,816 (8) 2.81
William S. Kiser, M.D., Director 6,000 *
John J. O'Shaughnessy, Director 60,000 (9) *
C. A. Rundell, Jr., Director 60,000 (9) *
Gerald L. Sauer, Ph.D., Director 60,000 (9) *
Robert W. Fleming, Senior Vice President, Operations 171,270 (10) *
William S. Harrigan, Senior Vice President, Chief Financial Officer,
and Treasurer 124,667 (11) *
Robert M. Dubbs, Senior Vice President, General Counsel and Secretary 68,500 (12) *
Bruce J. Colburn, Vice President and Controller 47,216 (13) *
All executive officers and directors as a group (14 persons) 7,857,792 (14) 27.61
<PAGE>
________________________________________
* Less than 1%.
(1) Except as set forth in Footnotes 3, 5, 11 and 6 below, the Stockholders identified in this table have
sole voting and investment power with regard to the shares beneficially owned by them.
(2) Each named person and all directors and executive officers as a group are deemed to be beneficial
owners of securities that may be acquired within 60 days through the exercise of options and warrants,
if any, and such securities are deemed to be outstanding for the purpose of computing the percentage
of class beneficially owned by such person or group. Accordingly, the indicated numbers of shares
and percentages reflect shares issuable upon exercise of options and warrants (including employee
stock options) held by such person or group. However, such shares are not deemed to be
outstanding for the purpose of computing the number of shares or percentage of class beneficially
owned by any other person or group. This tabulation includes options granted to Non-Employee
Directors under the Director Plan with respect to 180,000 shares (at $1.38 per share) granted to the
three Non-Employee Directors.
(3) Mr. Nickoll is a Director of the Company. Includes 3,566,322 shares beneficially owned by Foothill
Partners, L.P. of which Mr. Nickoll is a General partner. Mr. Nickoll is also Co-Chief Executive Officer
of The Foothill Group, Inc. See Footnote 4 below. Mr. Nickoll disclaims beneficial ownership of such
shares in excess of his pecuniary interest therein. Mr. Nickoll is also the beneficial owner of 44,179
shares of Common Stock.
(4) Includes 2,206,354 shares held by Foothill Capital Corporation (of which The Foothill Group, Inc. is the
parent corporation), 702,850 shares plus warrants to acquire 75,190 shares held by The Foothill
Group, Inc. and 3,566,332 shares held by Foothill Partners, L.P. (of which The Foothill Group, Inc. is
a general partner).
(5) Messrs. Dennis R. Asher, Don L. Gevirtz and Jeffrey T. Nikora, each with a business address c/o The
Foothill Group, Inc., are all also General Partners of Foothill Partners, L.P. They disclaim beneficial
ownership of shares held by Foothill Partners, L.P. in excess of their pecuniary interest therein. Mr.
Gevirtz is also Co-Chief Executive Officer of The Foothill Group, Inc.
(6) Mr. Gildea is also a Director of the Company. Includes 2,762,929 shares held by The Network
Company II Limited, an offshore investment fund over which Mr. Gildea, as a Director and the
Managing Director, exercises sole voting and investment power. Mr. Gildea disclaims beneficial
ownership of such shares. Also includes 25,000 shares owned by Mr. Gildea and 19,000 held by Mr.
Gildea's spouse as custodian for their minor children (with respect to which Mr. Gildea disclaims
beneficial ownership).
(7) Includes warrants to acquire 203,036 shares.
(8) Includes options and warrants to acquire 550,113 shares.
(9) Represents options to acquire 60,000 shares.
(10) Includes options to acquire 100,000 shares.
(11) Includes options to acquire 66,667 shares.
(12) Includes options to acquire 50,000 shares.
(13) Includes options to acquire 20,000 shares.
(14) Includes options and warrants to acquire 1,006,780 shares.
</TABLE>
<PAGE>
Item 13. Certain Relationships and Related Transactions
INTERESTS OF CERTAIN PERSONS IN THE AHM MERGER
Stock Options and Warrants
__________________________
Directors and executive officers of AHI are the beneficial
owners of approximately 7,857,792 shares of AHI Common Stock.
Included within the foregoing are vested options to purchase
approximately 1,006,780 shares of AHI Common Stock at prices
ranging from $1.00 to $5.63 per share and warrants to
purchase approximately 113 shares of AHI Common Stock at
$2.67 per share at February 28, 1994. Under the previously
discussed merger agreement, options and warrants remaining
unexercised at the merger date will be converted into options
and warrants to purchase shares of OrNda Common Stock. In
addition, on February 28, 1994, the Foothill Group, Inc., of
which John F. Nickoll, a director of AHI, is the President
and Co-Chief Executive Officer, was the beneficial owner of
approximately 6,550,726 shares, of which 3,610,511 shares are
included in the 7,857,792 shares referred to in the first
sentence of this paragraph.
Officer and Director Indemnification and Insurance
__________________________________________________
Under the terms of the merger agreement, officers and
directors of AHI are entitled to be indemnified by OrNda
subsequent to the merger date and OrNda is required to
maintain directors and officers liability coverage for such
persons for a period of six years following the AHI merger
date.
Registration Rights
___________________
Under the merger agreement, OrNda is obligated to negotiate
in good faith with John F. Nickoll and John W. Gildea,
Directors of AHI, with respect to rights of entities with
which they are affiliated to obtain registration under the
Securities Act of 1933 of shares to be acquired by such
entities in the merger. Such entities owned on February 28,
1994 in the aggregate approximately 11,037,600 shares of AHI
Common Stock which will be converted into approximately
6,622,560 shares of OrNda Common Stock as a result of the AHI
merger.
<PAGE>
Forgiveness of Indebtedness
___________________________
In December 1991, AHI provided certain key employees an
aggregate of $749,993 in interest-free loans (of which an
aggregate of $698,198 was provided to executive officers) to
enable them to purchase shares of AHI's Common Stock. Under
the terms of such loans which are still outstanding, the
principal amount thereof would have been due and payable in
December 1995 provided that AHI was obligated to forgive 29%
of the principal amount thereof due from any employee who
remained employed on the maturity date. Under the terms of
such loans, the entire principal amount thereof is required
to be forgiven by AHI upon a change of control of AHI, as
defined in such loans. The merger will constitute a change
in control of AHI under the terms of such loans and,
accordingly, at the merger date, the entire principal amount
of all such loans will be forgiven by AHI.
Employment Agreement with Steven L. Volla
_________________________________________
AHI is party to an employment agreement with Steven L. Volla,
the Chairman, President and Chief Executive Officer of AHI,
which provides for Mr. Volla to receive an initial base
salary of $550,000, to be increased annually by not less than
the higher of: (i) such amount as may be determined by AHI's
Board of Directors; or (ii) the average percentage increase
in base compensation of other executive officers of AHI. The
agreement with Mr. Volla expires on March 26, 1997, and may
be extended for additional periods upon the written agreement
of the parties. In addition to base salary amounts, Mr.
Volla is eligible to receive incentive cash compensation in
an amount approved by the AHI Board of Directors. Under his
1990 employment contract, Mr. Volla was granted options to
purchase 450,000 shares of the AHI Common Stock at $1.89 per
share. These options have fully vested and expire on April
5, 1995. Pursuant to his 1992 amended and restated
employment agreement, which was approved by the AHI Board of
Directors, Mr. Volla was granted a loan in the amount of
$225,000. The principal on this loan is due and payable on
April 6, 1995, provided, however, that AHI shall, prior to
the due date, forgive the entire unpaid amount of the loan at
such time as Mr. Volla exercises the 450,000 options granted
him in 1990. The contract also provides that if Mr. Volla
resigns following a change in control, his loan is forgiven
in full. If the options are exercised in part, the unpaid
amount of the loan shall be forgiven pro rata. In February
1993, Mr. Volla was granted 300,000 additional options at
$5.375 per share, 100,000 of which vested on February 2,
1994.
<PAGE>
Mr. Volla's employment agreement provides that, under certain
circumstances in connection with a change in control, Mr.
Volla will receive severance payments following his voluntary
resignation. These payments are based directly upon the
then-remaining term of Mr. Volla's employment agreement, his
initial base salary and accrued incentive compensation for
the year of termination. The merger will constitute a change
in control under Mr. Volla's employment agreement, giving Mr.
Volla the right to elect to resign and receive such payments.
No different contractual arrangements have been made for the
continued employment of Mr. Volla by OrNda. If Mr. Volla
were to resign immediately following the merger date, he
would be entitled to receive an aggregate of approximately
$1,700,000 in severance payments, payable over three years,
plus accrued incentive compensation in the year of his
resignation.
Change in Control Severance Contracts for Other Officers
________________________________________________________
The employment agreements of Robert M. Dubbs, Senior Vice
President, General Counsel and Secretary of AHI, and William
S. Harrigan, Senior Vice President, Chief Financial Officer,
and Treasurer of AHI, each provide that if a "change in
control," as defined in the agreements, occurs, the employee
may terminate the agreement within six months thereafter if
his duties are changed in nature or if his compensation is
decreased or if other actions specified therein are taken.
The AHI merger will be a change of control under such
agreements. In the event of such termination by the
employee, he would be entitled to severance pay equal to one
year, in the case of Mr. Dubbs, and six months, on the case
of Mr. Harrigan, of his base compensation plus all accrued
incentive compensation and an amount in respect of all unused
vacation. At current compensation levels, such amounts would
approximate $167,000 for Mr. Dubbs and $78,000 for Mr.
Harrigan. In addition, unvested options with respect to
33,333 shares of AHI Common Stock held by Mr. Harrigan would
vest.
OTHER MATTERS
Under Mr. Dubbs' 1990 employment agreement, he has been
granted options with respect to 20,000 shares of the
Company's Common Stock, all of which are fully vested and
which expire on April 5, 1995. Further, Mr. Dubbs has been
granted options to purchase 80,000 additional shares of
Common Stock, pursuant to the Company's 1990 Stock Plan,
which was approved by the Stockholders of the Company on June
15, 1990. Messrs. Fleming and Harrigan, also under the
Company's 1990 Stock Plan, have each been granted options to
purchase 100,000 shares of Common Stock.
<PAGE>
Transfers of shares of the Company's Common Stock to holders
of 5 percent or more of the Company's Common Stock are
prohibited by the Company's Certificate of Incorporation
unless consented to by the Board of Directors after a
determination by them that the utilization by the Company of
its net operating loss carryforward would not be jeopardized
by the proposed transfer.
John F. Nickoll, President and Co-Chief Executive Officer of
The Foothill Group, Inc., is a Director of the Company. The
Foothill Group, Inc. is the parent company or ultimate
controlling entity of various entities which own Common Stock
of the Company. The Foothill Group, Inc. is party to a
contract with the Company pursuant to which The Foothill
Group, Inc. has agreed that it will not transfer 60,000
shares of Common Stock of the Company which it acquired
subsequent to December 29, 1989 without the prior written
consent of the Company and will not, without prior written
consent, acquire additional Common Stock or warrants of the
Company. In November 1992, the Board of Directors authorized
the acquisition from time to time by The Foothill Group and
its affiliated entities of up to an additional one percent of
the outstanding Common Stock of the Company.
John W. Gildea, as general partner of Gildea Management Co.,
exercises sole investment and voting power with respect to
the investments of The Network Company II Limited. In
November 1992, the Board of Directors authorized the
acquisition from time to time by the Network Company II
Limited and its affiliated entities of up to an additional
one percent of the outstanding Common Stock of the Company.
<PAGE>
PART IV
Item 14. Exhibits
(a)(1) Index to Consolidated Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991
Notes to Financial Statements
(a)(2) Index to Consolidated Financial Statement
Schedules for the years ended December 31, 1993,
1992 and 1991:
II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees
other than Related Parties
V - Property and Equipment
VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and
Equipment
VIII - Valuation and Qualifying Accounts
X - Supplementary Income Statement Information
All other schedules have been omitted because the required
information is not present or not present in material
amounts.
[*] (a) (3) Exhibits:
3.1 Restated Certificate of Incorporation of the
Company, as filed with the Secretary of State of
Delaware on December 16, 1991 (incorporated by
reference to Exhibit 3.1, 1992 Form 10-K, File
No. 1-8756).
3.2 Bylaws of the Company, as amended (incorporated
by reference to Exhibit 3.2, 1992 Form 10-K,
File No. 1-8756).
<PAGE>
4.1 Underwriting Agreement entered into between the
Company and Goldman, Sachs & Co. (incorporated
by reference to Exhibit 1 the Company's
Amendment No. 3 to its Registration Statement--
File No. 33-63552, filed on July 20, 1993).
4.2 Indenture entered into between the Company and
NationsBank of Tennessee, National Association,
as Trustee (incorporated by reference to Exhibit
4.1 to the Company's Amendment No. 3 to its
Registration Statement--File No. 33-63552, filed
on July 20, 1993).
4.3 Form of Note (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.2 to the
Company's Amendment No. 3 to its Registration
Statement--File No. 33-63552, filed on July 20,
1993).
4.4 Amended and Restated Credit Agreement by and
among the Company, AHM Capital Management, Inc.,
CoreStates Bank, N.A., agent, and certain
lenders named therein ("Credit Agreement")
(incorporated by reference to Exhibit 4.3 to the
Company's Amendment No. 3 to its Registration
Statement--File No. 33-63552, filed on July 20,
1993).
4.4.(a) Amendment No. 1 to Credit Agreement, dated July
27, 1993, filed herewith.
4.4.(b) Amendment No. 2 to Credit Agreement, dated
September 30, 1993, filed herewith.
4.4.(c) Consent Agreement to Credit Agreement, dated
November 1, 1993, filed herewith.
4.4.(d) Amendment No. 3 to Credit Agreement, dated
December 17, 1993, filed herewith.
4.5 Amended and Restated Agreement and Plan of
Merger dated as of January 14, 1994, among OrNda
HealthCorp and the Company (incorporated by
reference to the Company's Proxy Statement,
dated March 14, 1994).
4.6 Irrevocable Proxy, dated as of November 18,
1993, of Joseph Littlejohn and Levy Fund
(incorporated by reference to the Company's
Proxy Statement, dated March 14, 1994).
<PAGE>
4.7 Irrevocable Proxy, dated as of November 18,
1993, of Charles N. Martin (incorporated by
reference to the Company's Proxy Statement,
dated March 14, 1994).
4.8 Irrevocable Proxy, dated as of November 18,
1993, of M. Lee Pearce, M.D. (incorporated by
reference to the Company's Proxy Statement,
dated March 14, 1994).
10.1 Employment Agreement with Steven L. Volla
(incorporated by reference to Exhibit 10.1, 1992
Form 10-K, File No. 1-8756).
10.2 Employment Agreement with Robert M. Dubbs
(incorporated by reference to Exhibit 10.3, 1989
Form 10-K, File No. 1-8756).
10.2(a) Amendment to Employment Agreement with Robert M.
Dubbs (incorporated by reference to Exhibit
10.3(a) to the Company's Amendment No. 1 to its
Registration Statement--File No. 33-63552, filed
on July 2, 1993).
10.3 Employment Agreement with William S. Harrigan
(incorporated by reference to Exhibit 10.4, 1991
Form 10-K, File No. 1-8756).
10.4 Specimen of the Company's Stock Plan Agreement
(incorporated by reference to Exhibit 10.4, 1990
Form 10-K, File No. 1-8756).
10.5 Lease dated December 27, 1968 by and between
Woodland Park Corporation and W.P.H., Inc.
(incorporated by reference to Exhibit 10.12,
Registration No. 2-92027).
10.6 Ground Lease dated as of November 26, 1979 by
and between College Park Realty Co. as lessor
("Lessor") and Nevada Medical Properties, Inc.
as lessee ("Lessee"), Agreement for Consent to
Assignment of Lease and Guarantee dated as of
November 29, 1983 by and among Lessor, Lessee
and the Registrant (incorporated by reference to
Exhibit 10.25, Registration No. 2-92027).
10.7 Amendment to Ground Lease dated as of July 1,
1991, between College Park Realty Co., as
Lessor, and NLVH, Inc., as Lessee (incorporated
by reference to Exhibit 10.9, 1991 Form 10-K,
File No. 1-8756).
<PAGE>
10.8 Lease dated November 25, 1986 by and between
Southeast Medical Center as lessor ("Lessor")
and Community Hospital of Huntington Park, Inc.
as lessee ("Lessee"); Consent to Assignment of
Lease dated as of November 22, 1983 by and among
Lessor, Lessee and the Registrant; Guarantee
dated as of November 22, 1983 by the Registrant
(incorporated by reference to Exhibit 10.26,
Registration No. 2-92027).
10.9 Lease dated November 25, 1968 by and between
Community Hospital Developments, Inc. as lessor
("Lessor") and Community Hospital of Huntington
Park, Inc. as lessee ("Lessee"); Consent to
Assignment of Lease dated as of November 22,
1983 by and between Lessor, Lessee, and the
Registrant; Guarantee dated as of November 22,
1983 by the Registrant (incorporated by
reference to Exhibit 10.27, Registration No.
2-92027).
10.10 Lease Agreement by and between the Registrant
and The Westover Companies, dated July 10, 1990,
and First Amendment to Lease Agreement dated
January 10, 1991 (incorporated by reference to
Exhibit 10.13, 1990 Form 10-K, File No. 1-8756).
10.11 Lease between Chapman Investment Associates and
Chapman General Hospital, Inc. dated as of
December 31, 1984; Assignment and Assumption of
Lease (Lessee's interest) by and between Chapman
General Hospital, Inc., Greatwest Medical
Management, Inc. and AHM CGH, Inc. dated as of
April 15, 1985; Lease between Chapman Investment
Associates and Greatwest Medical Management,
Inc. dated as of December 31, 1984; Assignment
and Assumption of Lease (Lessee's interest) by
and between Chapman General Hospital, Inc.,
Greatwest Medical Management, Inc., and AHM of
California, Inc. dated as of April 15, 1985
(incorporated by reference to Exhibit 10.16,
1989 Form 10-K, File No. 1-8756).
10.12 First Amendment to Amended and Restated Lease
dated as of April 1, 1989 between Chapman
Investment Associates and AHM CGH, Inc.
(incorporated by reference to Exhibit 10.15,
1990 Form 10-K, File No. 1-8756).
10.13 Amendment to Amended and Restated Lease dated as
of November 5, 1990 between Chapman Investment
Associates and AHM CGH, Inc. (incorporated by
reference to Exhibit 10.15, 1991 Form 10-K, File
No. 1-8756).
<PAGE>
10.14 Lease dated September 15, 1986 between Monterey
Park Medical Plaza and Monterey Park Hospital
(incorporated by reference to Exhibit 10.17,
1989 Form 10-K, File No. 1-8756).
10.15 Release of Lease and Agreement of Lease dated as
of February 1, 1992 among the County Commission
of Fayette County, One Valley Bank, National
Association, formerly the Kanawha Valley Bank,
N.A., as Trustee, and MPC, Inc., regarding
Plateau Medical Center (incorporated by
reference to Exhibit 10.17, 1990 Form 10-K, File
No. 1-8756).
10.16 Registration Rights Agreement dated as of
December 19, 1989 relating to the Registrant's
Common Stock among certain holders thereof and
the Registrant (incorporated by reference to
Exhibit 10.20, 1989 Form 10-K, File No. 1-8756).
10.17 Warrant Agreement dated as of December 19, 1989,
between the Company and First City, Texas
(incorporated by reference to Exhibit 10.23,
1991 Form 10-K, File No. 1-8756).
10.18 Amendment to Warrant Agreement dated as of
September 1991, between the Company and First
City, Texas (incorporated by reference to
Exhibit 10.24, 1991 Form 10-K, File No. 1-8756).
11. Statement Re: Computation of Per Share
Earnings, filed herewith.
23.1 Consent of Ernst & Young, filed herewith.
25. Form T-1 Statement of Eligibility and
Qualification under the Trust Indenture Act of
1939 of NationsBank of Tennessee, National
Association, Trustee (incorporated by reference
to the Company's Amendment No. 1 to its
Registration Statement--File No. 33-63552).
(b) Reports on Form 8-K
On December 6, 1993 the Company filed a Form 8-K
describing the proposed merger transaction
between OrNda HealthCorp and the Company.
[* The Registrant will furnish a copy of any exhibit upon
the payment of a fee of $.50 per page.]
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in King of Prussia, Pennsylvania,
on March 25, 1994.
(Date)
AMERICAN HEALTHCARE MANAGEMENT, INC.
/s/William S. Harrigan
___________________________
William S. Harrigan
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and on
the dates indicated:
/s/Steven L. Volla /s/Gerald L. Sauer, Ph.D.
________________________ __________________________
March 25, 1994 (Date) March 25, 1994 (Date)
Steven L. Volla Gerald L.Sauer, Ph.D.
Chairman, President, Director
Chief Executive Officer
and Director
/s/John W. Gildea /s/William S. Kiser, M.D.
________________________ __________________________
March 25, 1994 (Date) March 25, 1994 (Date)
John W. Gildea William S. Kiser, M.D.
Director Director
/s/John F. Nickoll /s/William S. Harrigan
________________________ __________________________
March 25, 1994 (Date) March 25, 1994 (Date)
John F. Nickoll William S. Harrigan
Director Chief Financial Officer
/s/John J. O'Shaughnessy /s/Bruce J. Colburn
________________________ _____________________________
March 25, 1994 (Date) March 25, 1994 (Date)
John J. O'Shaughnessy Bruce J. Colburn
Director Chief Accounting Officer
/s/C.A. Rundell, Jr.
________________________
March 25, 1994 (Date)
C.A. Rundell, Jr.
Director
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
AMERICAN HEALTHCARE MANAGEMENT, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(000's)
Column A Column B Column C Column D Column E
________ ________ ________ ________ ________
Balance at End
Deductions of Period
Balances at ______________________ ________________
Beginning Amounts Amounts Non-
Name of Debtor of Period Additions Collected Written Off Current Current
______________ ___________ _________ _________ ___________ _______ _______
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1993
Notes Receivable (1)
Steven L. Volla.... $ 782 $ - $ 23 $ - $ - $ 759
________ ________ ________ _________ ______ _______
________ ________ ________ _________ ______ _______
YEAR ENDED
DECEMBER 31, 1992
Notes Receivable (2)
Steven L. Volla.... $ 579 $ 225 $ 22 $ - $ 23 $ 759
________ ________ ________ _________ ______ _______
________ ________ ________ _________ ______ _______
YEAR ENDED
DECEMBER 31, 1991
Notes Receivable (3)
Steven L. Volla.... $ 65 $ 534 $ 20 $ - $ 22 $ 557
________ ________ ________ _________ ______ _______
________ ________ ________ _________ ______ _______
(1) The ending outstanding balance consists of two separate notes. A $534,000 note does
not accrue interest and is payable in December 1995. A $225,000 note does not accrue
interest and is payable in April 1995.
(2) The ending outstanding balance consists of three separate notes. A $65,000 note
accrues interest at 10% per annum and is payable in three annual installments of
$26,137. A $534,000 note does not accrue interest and is payable in December 1995.
A $225,000 note does not accrue interest and is payable in April 1995. The current
and final portion of the $65,000 note was paid in February 1993.
(3) The ending outstanding balance consists of two separate notes. A $65,000 note accrues
interest at 10% per annum and is payable in three annual installments of $26,137.
A $534,000 note does not accrue interest and is payable in December 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
AMERICAN HEALTHCARE MANAGEMENT, INC.
PROPERTY AND EQUIPMENT
($000's)
Column A Column B Column C Column D Column E Column F
________ ________ ________ ________ ________ ________
Charges -
Balance at Add Balance
Beginning Additions (Deduct)- at End
Classification of Period at Cost Retirements Describe of Period
________________ ___________ _________ ___________ _________ _________
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1993
Land and improve-
ments............ $ 24,034 $ 62 $ - $ 70 (1) $ 24,166
Buildings and
improvements (in-
cluding construc-
tion in progress) 259,370 9,179 6,861 (1) 275,410
Equipment......... 107,107 6,371 ( 224) 3,031 (1) 116,285
________ ________ _________ ________ ________
Total........... $390,511 $ 15,612 $( 224) $ 9,962 $415,861
________ ________ _________ ________ ________
________ ________ _________ ________ ________
YEAR ENDED
DECEMBER 31, 1992
Land and improve-
ments............ $ 23,617 $ 417 $ - $ - $ 24,034
Buildings and
improvements (in-
cluding construc-
tion in progress) 244,753 14,617 259,370
Equipment......... 99,415 9,888 (2,196) - 107,107
________ ________ _________ ________ ________
Total........... $367,785 $ 24,922 $ (2,196) $ - $390,511
________ ________ _________ ________ ________
________ ________ _________ ________ ________
YEAR ENDED
DECEMBER 31, 1991
Land and improve-
ments............ $ 23,448 $ 16 $ - $ 153 (2) $ 23,617
Buildings and
improvements (in-
cluding construc-
tion in progress) 237,051 6,293 1,409 (2) 244,753
Equipment......... 93,570 6,313 ( 1,282) 814 (2) 99,415
________ ________ _________ ________ ________
Total........... $354,069 $ 12,622 $( 1,282) $ 2,376 $367,785
________ ________ _________ ________ ________
________ ________ _________ ________ ________
(1) Reclassification of net assets relating to Gibson General Hospital, no longer held for
disposal.
(2) Assets reclassified.
</TABLE>
<PAGE>
<TABLE>
<CAPTION> SCHEDULE VI
AMERICAN HEALTHCARE MANAGEMENT, INC.
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
($000's)
Column A Column B Column C Column D Column E Column F
________ _________ ________ ________ ________ ________
Other
Charges
Balance at Additions Add Balance
Beginning Costs and (Deduct)- at End
Description of Period Expenses Retirements Describe of Period
_____________ __________ _________ ___________ ________ _________
<S> <C> <C> <C> <C> <C> <C>
Buildings, building
improvements, and
equipment:
Year ended
December 31, 1993 $122,227 $19,044 $( 159) $ 3,805 (1) $144,917
________ _______ ________ ________ ________
________ _______ ________ ________ ________
Year ended
December 31, 1992 $106,092 $17,305 $(1,170) $ - $122,227
________ _______ ________ ________ ________
________ _______ ________ ________ ________
Year ended
December 31, 1991 $ 90,480 $16,894 $(1,282) $ - $106,092
________ _______ ________ ________ ________
________ _______ ________ ________ ________
_____________________________________
(1) Reclassification of net assets relating to Gibson General Hospital, no longer held
for disposal.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
AMERICAN HEALTHCARE MANAGEMENT, INC.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
($000's)
Column A Column B Column C Column D Column E
________ ________ ________ ________ ________
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Period Expenses Describe of Period
_____________ __________ _________ __________ _________
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1993 $ 4,550 $ 22,441 $(20,736) (1) $ 6,255
________ ________ _________ ________
________ ________ _________ ________
Year ended
December 31, 1992 $ 6,983 $ 17,184 $(19,617) (1) $ 4,550
________ ________ _________ ________
________ ________ _________ ________
Year ended
December 31, 1991 $ 7,446 $ 17,142 $(17,605) (1) $ 6,983
________ ________ _________ ________
________ ________ _________ ________
_______________________________
(1) Represents the writeoff of uncollectible accounts.
</TABLE>
<TABLE>
<CAPTION>
AMERICAN HEALTHCARE MANAGEMENT, INC.
ALLOWANCE FOR NOTES RECEIVABLE
($000's)
Column A Column B Column C Column D Column E
________ ________ ________ ________ ________
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Period Expenses Describe of Period
_____________ __________ _________ __________ _________
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1993 $ 1,108 $( 335) (2) $ - $ 773
________ _________ _________ ________
________ _________ _________ ________
Year ended
December 31, 1992 $ 1,108 $ - $ - $ 1,108
________ _________ _________ ________
________ _________ _________ ________
Year ended
December 31, 1991 $ 7,513 $( 4,319) (2) $( 2,086) (1) $ 1,108
________ _________ _________ ________
________ _________ _________ ________
_______________________________
(1) Represents the writeoff of remaining investment.
(2) Represents the write-up of notes based on revised assessments of collectibility.
</TABLE>
<PAGE>
SCHEDULE VIII (cont.)
<TABLE>
<CAPTION>
AMERICAN HEALTHCARE MANAGEMENT, INC.
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
($000's)
Column A Column B Column C Column D Column E
________ ________ ________ ________ ________
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Period Expenses Describe of Period
_____________ __________ _________ __________ _________
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1993 $ 5,125 $ - $( 1,945) (1) $ 3,180
_______ _______ _________ _______
_______ _______ _________ _______
Year ended
December 31, 1992 $32,354 $ - $(27,229) (2) $ 5,125
_______ _______ _________ _______
_______ _______ _________ _______
Year ended
December 31, 1991 $ - $33,495 $( 1,141) (1) $32,354
_______ _______ _________ _______
_______ _______ _________ _______
(1) Represents reductions of the valuation allowance based on revised assessments of
realizability of the Company's deferred tax assets.
(2) Represents the combination of the following:
Reversal of valuation allowance for the excess book
basis over tax basis of the parent company debt
originally assessed to be unrealizable $(25,600)
Reduction of valuation allowance based on revised
assessments of realizability of the Company's
deferred tax assets ( 1,629)
_________
$(27,229)
_________
_________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE X
AMERICAN HEALTHCARE MANAGEMENT, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
($000's)
Column A Column B
______________________________________ _________________________________________
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Maintenance and repairs................ $4,389 $4,079 $4,451
Advertising costs...................... $2,764 $2,943 $2,253
Taxes - other than income and payroll.. $6,282 $5,322 $4,988
</TABLE>
<PAGE>
EXHIBIT 4.4(a)
AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT
AGREEMENT ("Amendment No. 1") is made as of the 27th day of
July, 1993, by and among AHM CAPITAL MANAGEMENT, INC., a
Nevada corporation with offices at 1409 East Lake Mead
Boulevard, North Las Vegas, Nevada 89030 (herein "Capital"),
AMERICAN HEALTHCARE MANAGEMENT, INC., a Delaware corporation
with offices at 660 American Avenue, King of Prussia,
Pennsylvania 19403 (herein, the "Company"); CORESTATES BANK,
N.A., a national banking association, which also conducts
business as Philadelphia National Bank and as CoreStates
First Pennsylvania Bank, with offices at 1500 Market Street,
West Tower, Philadelphia, Pennsylvania 19101-7618, for itself
and as agent for the Lenders hereinafter identified (the
"Agent"); and the lenders listed on the signature pages
hereof (together with the Agent, the "Lenders").
W I T N E S S E T H:
WHEREAS, the Company, Capital, Agent and the
Lenders have entered into an Amended and Restated Credit
Agreement dated July 21, 1993 (as amended, including by this
Amendment No. 1, the "Credit Agreement"), pursuant to which
the Lenders have agreed, subject to the satisfaction of the
conditions set forth in Paragraph 6.01 of the Credit
Agreement, to amend and restate a credit agreement dated July
8, 1992 (as amended, the "Original Credit Agreement"), the
date such conditions are satisfied being, as defined in the
Credit Agreement, the "Effective Date";
WHEREAS, as of the Effective Date, the Lenders will
have provided, or agreed to provide, to the Company and
Capital a term loan, a revolving credit facility, and an
acquisitions facility and agreed to participate in letters of
credit to be issued by the Agent, in an aggregate outstanding
principal amount of up to One Hundred Twenty-Two Million Five
Hundred Thousand Dollars ($122,500,000); and
WHEREAS, the Company, Capital, Agent and the
Lenders wish to amend the Credit Agreement in order to
facilitate the Effective Date at a time when not all of the
conditions set forth in Paragraph 6.01 of the Credit
Agreement shall have been satisfied, and to make certain
additional modifications to the Credit Agreement, all as set
forth more particularly herein.
NOW, THEREFORE, in consideration of the foregoing
premises and the agreements hereinafter set forth, and
intending to be legally bound hereby, the parties hereto
agree as follows:
<PAGE>
1. Definitions. Capitalized terms used but not
defined herein shall have the meanings given to them in the
Credit Agreement.
2. Effective Date Conditions.
(a) The Company, Capital and the Lenders
hereby recognize that the following items have not been
delivered as required pursuant to Paragraph 6.01 of the
Credit Agreement, and, in consideration of the Company's
agreement, in the case of (i) below, to use its best efforts
to obtain and, in the case of (ii) below, to obtain on or
before September 7, 1993, such items, the Lenders hereby
agree to waive delivery of such items as a condition to the
Effective Date under Paragraph 6.01 of the Credit Agreement:
(i) Consent of the Retirement Fund Trust
of the Plumbing-Heating and Piping
Industry of Southern California to a
Confirmation and Modification of Deed of
Trust with respect to the Deed of Trust
covering Woodruff Medical Plaza; and
(ii) Payments of all indebtedness
secured by the Deed of Trust in favor of
Mutual Trust Life Insurance Company with
respect to the Woodruff Medical Arts
Building.
(b) Notwithstanding the waivers set forth in
paragraph (a) above, it is hereby agreed by the Company,
Capital and the Lenders that promptly upon the receipt of
such consent or payment of such indebtedness, the applicable
Confirmation and Modification of Deed of Trust shall be
executed and delivered by the Company or the applicable
Consolidated Subsidiary, whereupon such Deed of Trust or
Leasehold Deed of Trust will be delivered to Chicago Title
Insurance Company for recording and delivery of title
insurance.
3. Credit Agreement Amendments.
(a) Paragraph 8.04 (Liens and
Encumbrances). The word "and" is deleted following the end of clause (vii)
of Paragraph 8.04 of the Credit Agreement, and the period is
deleted and the following clause is added at the end of
clause (viii) of such Paragraph 8.04 of the Credit Agreement:
and (ix) mechanic's and materialman's liens,
notices of commencement and similar liens and
interests filed in the ordinary course of business
by contractors and suppliers with respect to
capital improvements at Health Care Facilities, so
long as such liens or notices (A) do not secure
<PAGE>
amounts due and payable or past due (other than
amounts being withheld pending satisfactory
completion) or (B) secure amounts that are being
contested in good faith by appropriate proceedings,
and in (A) or (B) for which appropriate reserves in
accordance with GAAP are being maintained.
(b) Paragraph 8.12 (Florida Mortgage). A new
Paragraph 8.12 is hereby added to the Credit Agreement as if
set forth therein in its entirety:
8.12. Florida Mortgage. Provide or permit
any entity on its behalf to provide, a notice or
the filing of record of any such notice,
contemplated by Chapter 679.504, Florida Statutes,
which would limit the maximum amount which may be
secured by the Mortgage at Riverside Hospital, or
any additional Mortgage on property located in the
state of Florida on which the Agent on behalf of
the Lenders shall have been provided a Mortgage,
pursuant to the future advance provision contained
in any such Mortgage.
(c) Exhibits A and E Amendments. Exhibit A
(List of Consolidated Subsidiaries of American Healthcare
Management, Inc.) is amended and restated in its entirety as
set forth on Exhibit A attached hereto. Exhibit E
(Disclosure pursuant to Representations and Warranties) is
hereby amended as set forth in the substitute pages attached
hereto (pages 15, 26, 27, 39, 42, 43, 44, 45, 46, 47, 49, 50,
53, 54, 55, 56 and 66).
IN WITNESS WHEREOF, the undersigned, by their duly
authorized officers, have executed this Amendment No. 1 as of
the day and year first above written.
Attest: AHM CAPITAL MANAGEMENT, INC.
By: Elizabeth A. Berryman By: Robert M. Dubbs
Title: Assistant Secretary Title:
[CORPORATE SEAL]
<PAGE>
[EXECUTIONS CONTINUED]
ATTEST: AMERICAN HEALTHCARE MANAGEMENT, INC.
By: Elizabeth A. Berryman By: Robert M. Dubbs
Title: Assistant Secretary Title: VP
[CORPORATE SEAL]
CORESTATES BANK, N.A.,
individually and in its capacity
as Agent
By:Nancy Smith
Title: VP
CITICORP USA, INC.
By:Barbara A. Cohen
Title: Vice President
NATIONSBANK OF TENNESSEE
By:Patrick J. Neal
Title: Asst. Vice President
CONTINENTAL BANK N.A.
By:________________________
Title: Managing Director
THE BANK OF NOVA SCOTIA
By:Mary K. Munoz
Title: Representative
EXHIBIT 4.4(b)
AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT No. 2 TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment No. 2") is made October __, 1993,
and effective September 30, 1993, among AMERICAN HEALTHCARE
MANAGEMENT, INC., a Delaware corporation (the "Company"); AHM
CAPITAL MANAGEMENT, INC., a Nevada corporation ("Capital");
the lenders party to the Credit Agreement hereinafter
mentioned (collectively, the "Lenders"); and CORESTATES BANK,
N.A., a national banking association which also conducts
business as Philadelphia National Bank and as CoreStates
First Pennsylvania Bank, as agent for the Lenders (in such
capacity, the "Agent").
WHEREAS, the Company, Capital, the Lenders and the
Agent are party to an Amended and Restated Credit Agreement
dated July 21, 1993, as amended by Amendment No. 1 thereto
dated as of July 27, 1993 (as amended, including by this
Amendment No. 2, the "Credit Agreement"); and
WHEREAS, the parties wish to amend the Credit
Agreement in certain respects.
NOW, THEREFORE, the parties agree as follows,
intending to be legally bound:
1. Definitions. Capitalized terms used but not
defined herein shall have the meanings given to them in the
Credit Agreement.
2. Consolidated Debt Service Coverage Ratio.
Paragraph 7.15 of the Credit Agreement is amended by striking
out the first four entries in the first table and inserting
in their place the following eight entries:
Consolidated Debt Service
"Fiscal Quarter: Coverage Ratio
________________ _________________________
September 30, 1993 1.95 to 1.0
December 31, 1993 2.10 to 1.0
March 31, 1994 2.00 to 1.0
June 30, 1994 2.10 to 1.0
September 30, 1994 2.00 to 1.0
December 31, 1994 2.00 to 1.0
March 31, 1995 2.10 to 1.0
June 30, 1995 2.15 to 1.0"
3. Consolidated Fixed Charge Coverage Ratio.
Paragraph 7.16 of the Credit Agreement is amended by striking
out the first entry in the first table and inserting in its
place the following four entries:
<PAGE> Consolidated Debt Service
"Fiscal Quarter: Coverage Ratio
________________ _________________________
September 30, 1993 1.10 to 1.0
December 31, 1993 1.15 to 1.0
March 31, 1994 1.10 to 1.0
June 30, 1994 1.20 to 1.0"
4. Representations and Warranties. The Company and
Capital hereby represent and warrant to the Lenders as
follows:
a. Representations. Except with respect to
such actions or the results thereof which are permitted by an
express exception to a prohibition in Section Eight of the
Credit Agreement or have been consented to in writing by the
Lenders or the Required Lenders, as applicable, the
representations and warranties set forth in Section Five of
the Credit Agreement are true and correct in all material
respects as of the date hereof (other than those which by
their terms were made only as of the date of execution of the
Credit Agreement); no Event of Default or Default under the
Credit Agreement has occurred or is in existence; and there
has been no change in the financial condition, business,
assets or prospects of the Company and its Consolidated
Subsidiaries since the date of the quarterly and audited
annual financial statements most recently delivered by the
Company to Lenders pursuant to Paragraphs 6.01(m), 7.02 or
7.03 of the Credit Agreement which might reasonably be
expected to have a Material Adverse Effect.
b. Power and Authority; Enforceability. The
Company and Capital have the power and authority under the
laws of the states of Delaware and Nevada, respectively, and
their respective certificates of incorporation and bylaws to
enter into and perform this Amendment No. 2, and all actions
required of the Company and Capital hereunder will not
violate any provisions of any federal, state or local law or
regulation or constitute a default under, any agreement by
which the Company and Capital or its or their respective
property may be bound.
c. No Violation of Laws or Agreements. The
making and performance of this Amendment No. 2 and the
actions required of the Company and Capital hereunder will
not violate any provisions of any federal, state or local law
or regulation or constitute a default under any agreement by
which the Company or Capital or their respective property may
be bound.
<PAGE>
5. Affirmation. The Company and Capital, and by
their acceptance hereof, the Consolidated Subsidiaries of the
Company executing below (to the extent applicable), hereby
affirm all of the provisions of the Credit Agreement, as
amended, including by this Amendment No. 2, the Guaranty
Agreements and all Collateral Security Documents, agree that
the terms and conditions of the Credit Agreement shall
continue in full force and effect as supplemented and amended
hereby and confirm that the Collateral Security Documents and
the Guaranty Agreements continue in full force and effect and
guaranty and secure all indebtedness, obligations and
liabilities as set forth in such Collateral Security
Documents and the Guaranty Agreements.
6. Miscellaneous.
a. This Amendment No. 2 shall be governed by
and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
b. The Company agrees to reimburse the Agent
for all reasonable costs and expenses (including but not
limited to, reasonable attorneys' fees and disbursements)
which Agent may pay or incur in connection with the
preparation of this Amendment No. 2 and the preparation and
review of other documents executed or delivered in connection
herewith.
c. All terms and provisions of this Amendment
No. 2 shall be for the benefit of and be binding upon and
enforceable by the respective successors and assigns of the
parties hereto.
d. This Amendment No. 2 may be executed by any
number of counterparts with the same effect as if all the
signatures on such counterparts appeared on one document and
each such counterpart shall be deemed an original.
<PAGE>
e. The execution, delivery and performance of
this Amendment No. 2 shall not effect a waiver of any right,
power or remedy of Lenders under applicable law or under the
Credit Agreement and the agreements and documents executed in
connection therewith or constitute a waiver of any provision
thereof.
IN WITNESS WHEREOF, the undersigned, by their duly
authorized officers, have executed this Amendment No. 2 on
the day and year first above written.
ATTEST: AMERICAN HEALTHCARE MANAGEMENT, INC.
Elizabeth A. Berryman By:Robert M. Dubbs
Title: SVP
[CORPORATE SEAL]
ATTEST: AHM CAPITAL MANAGEMENT, INC.
Elizabeth A. Berryman By: Robert M. Dubbs
Title: VP
[CORPORATE SEAL]
CORESTATES BANK, N.A., individually
and in its capacity as Agent
By:______________________________
Title:
CITICORP USA, INC.
By:______________________________
Title:
NATIONSBANK OF TENNESSEE
By:______________________________
Title:
<PAGE>
[EXECUTIONS CONTINUED]
CONTINENTAL BANK, N.A.
By:_____________________________
Title:
THE BANK OF NOVA SCOTIA
By:______________________________
Title:
ACCEPTED AND AGREED TO:
AHM CGH, INC.
AHM GEMCH, INC.
AHM MINDEN HOSPITAL, INC.
AHM WCH, INC.
AHM OF PENNSYLVANIA, INC.
AMERICAN HEALTHCARE MANAGEMENT
DEVELOPMENT COMPANY
CHHP, INC.
EGH, INC.
GIBSON GENERAL HOSPITAL, INC.
HCW, INC.
MPC, INC.
MONTEREY PARK HOSPITAL
NLVH, INC.
PSH, INC.
PASADENA HOSPITAL CORPORATION
RHPC, INC.
STH CORPORATION
WOODLAND PARK HOSPITAL, INC.
By:______________________________
Title:
<PAGE>
EXHIBIT 4.4(c)--CONSENT AGREEMENT TO CREDIT AGREEMENT
M E M O R A N D U M
To: Individuals on Attached Distribution List
From: CoreStates Bank, N.A.
Date: March 29, 1994
RE: American Healthcare Management, Inc. (the
"Company") and AHM Capital Management, Inc.
Subject: Request for Consents
_________________________________________________________________________
The purpose of this memorandum is to bring you up to date on various
of the matters which have transpired since closing in late July and, on behalf
of the Agent and the Company, request consents where appropriate:
1. Sharpstown M.O.B. Title Insurance.
In August, STH Corporation made an investment in the
Sharpstown General Hospital Professional Building, Ltd., including through an
equity investment in the partnership owning the building and a loan to the
partnership. The Banks consented to such investment pursuant to a consent
dated August 16, 1993.
One of the conditions to the effectiveness of such consent was the
delivery of title insurance in favor of the Agent on behalf of the Lenders
insuring the Leasehold Deed of Trust delivered as part of the transaction. As
is set forth in the attached letter dated September 10, 1993 from Charles D.
Bybee, Esq., Texas counsel to the Partnership, to Robert M. Dubbs, Esq.,
General Counsel of the Company, the cost of the leasehold title insurance was
increased from the originally quoted amount of $4,921.20 to $16,404
immediately prior to closing of the transaction, as a result of which the
Company did not purchase such insurance at closing.
The Agent has agreed to, and the Company and the Consolidated
Subsidiaries hereby request that each of the Lenders by execution in the space
provided below, waive the requirements of the delivery of such title insurance
as set forth in paragraph 2 od the August 16, 1993 consent.
<PAGE>
2. Woodruff Medical Plaza (F.50).
Amendment No. 1 to the Credit Agreement required that the
Company use its best efforts to obtain from the Plumbers' Union Retirement
Trust the consent to modifications of the existing Deed of Trust to reflect the
additional indebtedness to the Lenders. By letter dated August 28, 1993, from
Richard A. McDonald, the Company's Assistant Treasurer, to the Agent, a copy
of which is attached, the Company has informed the Agent that the Plumbers
Union had refused its request.
The Agent has agreed, and the company and Consolidated
Subsidiaries hereby requests that each of the Lenders by execution in the
space provided below agree, that the Company has satisfied the best efforts
requirement to obtain such consent.
The Lenders should note that the Agent will be receiving a bring-
down endorsement to its existing title insurance policy on Woodruff Medical
Plaza in the form attached to this letter.
3. Woodruff Medical Arts (F.51). As was anticipated, the
indebtedness to Mutual Trust was paid and its lien on the Woodruff Medical
Arts building terminated in September. The Company has proposed, consistent
with its policy as implemented last December, to transfer the Woodruff Medical
Arts property from the Company to AHM WCH, Inc. We will be obtaining a
confirmation of Deed of Trust from the appropriate entity.
4. Las Vegas Medical Centers.
As disclosed in Exhibit E (page 72) to the Credit Agreement, MPH
Management Services, Inc., a Consolidated Subsidiary of the Company, is a
limited partner in Las Vegas Medical Centers, a partnership that is managing
general partner in several outpatient clinics in the Las Vegas area. The
Company has agreed with the physician who controls Las Vegas Medical
Centers to a restructuring of the clinic ownership that results in the return
of approximately $640,000 of the Company's investment. The transaction takes
the form of the purchase of the Company's entire interest for $930,000 and the
Company's investment through (MPH Management Services, Inc.) of $290,000
as a limited partner in a new partnership that would indirectly own interests
in the clinics.
The Agent has agreed to, and the Company and the Consolidated
Subsidiaries hereby request that each of the Lenders by execution in the space
provided below, consent to this transaction.
<PAGE>
5. Lone Mountain Clinic.
Also as disclosed in Exhibit E (page 39), NLVH, Inc., a
Consolidated Subsidiary of the Company, is a 30% partner in Pollamed
Partnership, which operates a clinic in the Las Vegas area known as Rainbow
Medical Center East. The Company has recently agreed to invest up to
$200,000 for a 50% interest in a separate partnership, Pollamed Partnership II,
which will open and operate a clinic known as either Lone Mountain Clinic or
Rainbow Medical Center North. Both partnerships are controlled by a Las
Vegas physician.
The Agent has agreed to, and the Company and the Consolidated
Subsidiaries hereby request that each of the Lenders by execution in the space
provided below, consent to this investment.
6. Mega, Inc.
The Company wishes to invest up to $2,000,000 in the equity of
Mega, Inc., a company located in the Las Vegas area in the business of providing
third-party administrative and PPO services, outpatient testing and inpatient
utilization review for its clients. Mega's current and prospective clients
include a major health insurer and a number of casino-hotels and other large
employers. Mega intends to use the proceeds of the Company's investment to
finance expansion of its client base and services. The Company would receive a
non-controlling minority equity interest in Mega, in a percentage to be
determined by further negotiations.
The Agent has agreed to, and the Company and the Consolidated
Subsidiaries hereby request that each of the Lenders by execution in the space
provided below, consent to this investment.
7. Bergman Medical Group.
Monterey Park Hospital, a Consolidated Subsidiary of the
Company, proposes to purchase the assets of a medical practice located near
the Hospital from the Bergman Medical Group. The purchase price consists of
$100,000 in cash, assumption of a trust deed note of approximately $123,000,
and the issuance of a promissory note for approximately $777,000 payable in
installments over ten years with interest at 7%. The purchased assets include
real estate encumbered by the existing deed of trust mentioned above.
The Agent has agreed to, and the Company and the Consolidated
Subsidiaries hereby request that each of the Lenders by execution in the space
provided below, consent to this transaction and waive any requirement under
the Credit Agreement that the Company deliver to the Agent a deed of trust on
the acquired real estate.
Enclosures
<PAGE>
EACH OF THE LENDERS EXECUTING BELOW HEREBY CONSENTS TO
MATTERS 1 THROUGH 7 SET FORTH IN THE FOREGOING
MEMORANDUM. THE EXECUTION AND DELIVERY OF THIS CONSENT
DOES NOT EFFECT A WAIVER OF ANY RIGHT, POWER OR REMEDY OF
ANY UNDERSIGNED LENDER UNDER APPLICABLE LAW OR UNDER
THE CREDIT AGREEMENT OR ANY COLLATERAL SECURITY
DOCUMENT, OR CONSTITUTE A WAIVER OF ANY PROVISION
THEREOF, EXCEPT TO THE EXTENT EXPRESSLY SET FORTH IN THE
FOREGOING MEMORANDUM.
CORESTATES BANK, N.A., individually and
in its capacity as Agent
By:______________________________________
Title:
CITICORP USA, INC.
By:______________________________________
Title:
NATIONSBANK OF TENNESSEE
By:______________________________________
Title:
CONTINENTAL BANK N.A.
By:______________________________________
Title:
THE BANK OF NOVA SCOTIA
By:______________________________________
Title:
ACCEPTED AND AGREED:
AMERICAN HEALTHCARE MANAGEMENT, INC.
for itself and on behalf of its
Consolidated Subsidiaries
By:______________________________________
Title:
<PAGE>
EXHIBIT 4.4(D)--AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment No. 3") is made December ___, 1993, among AMERICAN
HEALTHCARE MANAGEMENT, INC., a Delaware corporation (the "Company"); AHM
CAPITAL MANAGEMENT, INC., a Nevada corporation ("Capital"); the lenders
party to the Credit Agreement hereinafter mentioned (collectively, the
"Lenders"); and CORESTATES BANK, N.A., a national banking association, as
agent for the Lenders (in such capacity, the "Agent").
WHEREAS, the Company, Capital, the Lenders and the Agent
are party to an Amended and Restated Credit Agreement dated July 21, 1993,
as amended by Amendment No. 1 thereto dated as of July 27, 1993, and by
Amendment No. 2 thereto dated October 21, 1993 (as so amended and as
amended hereby, the "Credit Agreement"); and
WHEREAS, the parties wish to amend the Credit Agreement in
certain respects.
NOW, THEREFORE, the parties agree as follows, intending
to be legally bound.
1. Definitions. Capitalized terms used but not
defined herein shall have the meanings given to them in the Credit Agreement.
2. Additional Definitions. Paragraph 1.01 of the
Credit Agreement is amended by adding the following definitions in their
proper alphabetical sequence:
"Affiliated Investment," when used in connection with a
Related Business in which the Company or a Consolidated Subsidiary
has made an investment or acquired the equity or assets (the
"first Related Business"), shall mean an investment by the Company
or a Consolidated Subsidiary in another Related Business which is
directly or indirectly owned or controlled by or under common
control (other than common control by the Company) with the
first Related Business.
"Related Business" means any business (other than owning,
leasing or operating a Health Care Facility) relating to the delivery
of health-care-related services, which business supports the
existing business of the Company or a Consolidated Subsidiary of
the Company and is intended by the applicable entity to expand or
retain the patient population at a Health Care Facility, including
without limitation through health maintenance organizations,
clinics, outpatient services, rehabilitation services, physical
therapy, home health care, preferred provider organizations,
physician practice management, claims administration, quality
assurance, and utilization review."
3. Use of Proceeds. Paragraph 2.04(a) of the Credit
Agreement is amended and restated in its entirety to read as follows:
(a) Working Capital Advances shall be used solely for the
Company's and the Consolidated Subsidiaries' working capital
purposes, for reimbursement of any draws under Letters of Credit,
and to make investments in, or acquire, equity interests in or
assets of a Related Business permitted by Paragraph 8.08(a)(iii)
hereof; provided, however, that no Working Capital Advances
shall be used to finance Permitted Acquisitions or by or for the
benefit of any Inactive Subsidiary.
_______________________
* CoreStates Bank, N.A. also conducts business as Philadelphia
National Bank, as CoreStates First Pennsylvania Bank, and as
CoreStates Hamilton Bank.
<PAGE>
4. Engaging and Investing in Related Businesses.
Paragraph 8.08 of the Credit Agreement is amended in its entirety to read
as follows:
8.08. Acquisitions and Investments.
(a) Purchase or otherwise acquire (including without
limitation by way of share exchange) any part or amount of the
capital stock or assets of, make any investments (other than
Permitted Investments, subject to the conditions and limitations
set forth in the definition thereof) in, any other firm or
corporation, or enter into any joint venture or partnership except
that (i) the Company and Capital may own the Consolidated
Subsidiaries of the Company owned by them on the Effective Date as
set forth on Exhibit E attached hereto; (ii) in the absence of an
Event of Default or a Default, and if such contemplated action
would not cause an Event of Default or a Default, the Company or
any of its Consolidated Subsidiaries may make Permitted Acquisitions,
subject to the conditions and limitations set forth in the definition
thereof financed with (A) a Permitted Acquisition
Advance if all the conditions to such an advance hereunder are
satisfied or (B) the Net Cash Proceeds of one or more Sale(s) of
Material Assets if such Net Cash Proceeds are available for such
purpose pursuant to Paragraph 2.05(c)(ii) or 3.05(b)(i) hereof as
applicable; and (iii) in the absence of an Event of Default or
a Default, and if such contemplated action would not cause an
Event of Default or a Default, the Company or any of its
Consolidated Subsidiaries may make controlling or non-
controlling investments in, or acquire, the equity or assets
of Related Businesses; provided that (A) the investment
of the Company or applicable Consolidated Subsidiary in a
Related Business and all Affiliated Investments of such
Related Business, including without limitation any contingent
or deferred obligations assumed in the transaction and the
fair market value of any contributed assets, shall not exceed
Two Million Five Hundred Thousand Dollars ($2,500,000) in the
aggregate (except that for this purpose Mega, Inc. shall not be
treated as an Affiliated Investment of any Related Business
controlled by Elias F. Ghanem); (B) the aggregate investment of
the Company and its Consolidated Subsidiaries in all such Related
Businesses since July 21, 1993 through July 31, 1994 shall not
exceed Fifteen Million Dollars ($15,000,000) and after August 1,
1994 shall not exceed in the aggregate from July 21, 1993 Twenty
Million Dollars ($20,000,000); and (C) in connection with each
investment in a Related Business, at the time of consummation of
such investment, if a new Consolidated Subsidiary is acquired or
formed and is, directly or indirectly, wholly owned by the Company
(1) the Company or the Consolidated Subsidiary owning the shares of
such new Consolidated Subsidiary shall deliver to Agent a joinder
or supplement, as applicable, to the Pledge Agreement covering all
shares of such new Consolidated Subsidiary as additional collateral
under the Pledge Agreement, together with the stock certificates
representing such shares and stock powers signed in blank, and
(2) the new Consolidated Subsidiary shall deliver to Agent a new
Guaranty Agreement and such other certificates, opinions of
counsel, documents and other information, including without
limitation, searches, as Lenders shall request.
(b) Enter into any new business activities or ventures not
related to its present business (other than a related Business
permitted hereunder); or merge or consolidate with or into any
other firm or corporation (other than (i) any merger or
consolidation among Consolidated Subsidiaries of the Company;
(ii) any merger among the Company and one or more if its
Consolidated Subsidiaries in which the Company is the surviving
corporation; and (iii) any other merger having as its effect a
Permitted Acquisition or the establishment or acquisition of, or
investment in an equity interest in, a Related Business
if such establishment, acquisition or investment is otherwise
<PAGE>
permitted by Paragraph 8.08(a) hereof, subject, however, in
clauses (i), (ii) and (iii) above, to the limitation that if any
Consolidated Subsidiary of the Company is liable under Indebtedness
which has $1,000,000 or more outstanding on such date and which is
secured by any assets, either real or personal, of such
Consolidated Subsidiary, such Consolidated Subsidiary may not
consummate such a merger without the prior written consent of
Required Lenders); or except in connection with an acquisition
permitted by subparagraph (a) above, create any new subsidiary
corporation or activate any Inactive Subsidiaries.
5. Related Businesses; Collateral and Guarantees.
Paragraph 7.10 of the Credit Agreement is amended by adding at the end
thereof a new subparagraph (e) as follows:
(e) None of the provisions of this Paragraph 7.10 shall
apply to assets or equity interests acquired in a transaction
permitted by Paragraph 8.08(a)(iii), except as otherwise
provided in Paragraph 8.08(a)(iii)(C).
6. Advances. (a) The following subparagraph is
hereby added to Paragraph 2.07(a)(i) of the Credit Agreement with respect to
investments in and acquisition of assets of Related Businesses.
(G) if the proceeds of the requested Working Capital
Advance are to be used to finance an investment in a Related Business, a
statement that such investment is being made in accordance with and subject
to the limitations set forth in Paragraph 8.08(a)(iii) hereof.
(b) The parties hereby agree that Exhibit B-1 to
the Credit Agreement is deemed to be amended by including subparagraph (G)
above as if set forth in such Exhibit B-1 in its entirety.
7. Additional Notification. The following
subparagraph is hereby added to Paragraph 7.07 of the Credit Agreement
at the end thereof as if set forth in the Credit Agreement in its
entirety:
(d) In connection with each investment in a Related
Business permitted by Paragraph 8.08(a)(iii) hereof (unless
Lenders have been previously made aware of such investment
pursuant to an Advance Request Form delivered pursuant to Paragraph
2.07(a) hereof or compliance with Paragrpah 8.08(a)(iii)(C) in
connection with the creation or acquisition of a new wholly-owned
Consolidated Subsidiary), notify Lenders of such investment upon
the earlier of: (i) thirty (30) days after the consummation of such
investment, or (ii) the next time of delivery of the certificate in
the form of Exhibit G hereto as required by Paragraph 7.02 hereof.
The Company and Capital shall provide such information to Lenders
as Lenders may reasonably request with respect to each investment
permitted by Paragraph 8.08(a)(iii) hereof, including without
limitation the Company's plan for insuring against transactional
and catastrophic loss in connection with any such investment in
health maintenance organizations, preferred provider organizations
and other managed care investments.
8. Representations and Warranties. The Company
and Capital hereby represent and warrant to the Lenders as follows:
(a) Representations. Except with respect to such
actions or the results thereof which are permitted by an express exception
to a prohibition in Section Eight of the Credit Agreement or have been
<PAGE>
consented to in writing by the Lenders or the Required Lenders, as applicable,
the representations and warranties set forth in Section Five of the Credit
Agreement are true and correct in all material respects as of the date hereof
(other than those which by their terms were made only as of the date of
execution of the Credit Agreement); no Event of Default or Default under the
Credit Agreement has occurred or is in existence; and there has been no
change in the financial condition, business, assets or prospects of the
Company and its Consolidated Subsidiaries since the date of the quarterly
and audited financial statements most recently delivered by the Company to
Lenders pursuant to Paragraphs 6.01(b), 7.02 or 7.03 of the Credit Agreement
which might reasonably be expected to have a Material Adverse Effect.
(b) Power and Authority; Enforceability. The
Company and Capital have the power and authority under the laws of the states
of Delaware and Nevada, respectively, and their respective certificates of
incorporation and bylaws to enter into and perform this Amendment No. 3, and
all actions required of the Company and Capital hereunder will not violate
any provisions of any federal, state or local law or regulation or constitute
a default under, any agreement by which the Company, Capital or their
respective property may be bound.
(c) No Violation of Laws or Agreements. The making
and performance of this Amendment No. 3 and the actions required of the
Company and Capital hereunder will not violate any provisions of any
federal, state or local law or regulation or constitute a default under any
agreement by which the Company or Capital or their respective property
may be bound.
9. Miscellaneous Consents.
(a) Sharpstown M.O.B. Title Insurance.
In August, 1993, STH Corporation made an investment in
the Sharpstown General Hospital Professional Building, Ltd., including
through an equity investment in the partnership owning the building
and a loan to the partnership. The Lenders consented to such investment
pursuant to a consent dated August 16, 1993.
One of the conditions to the effectiveness of such
consent was the delivery of title insurance in favor of the Agent on
behalf of the Lenders insuring the Leasehold Deed of Trust delivered as part
of the transaction. As is set forth in a letter dated September 10, 1993
from Charles D. Bybee, Esq., Texas counsel to the Partnership, to Robert
M. Dubbs, Esq., General Counsel of the Company, a copy of which has been
furnished to the Lenders, the cost of the leasehold title insurance was
increased from the originally quoted amount of $4,921.20 to $16,404
immediately prior to closing of the transaction, as a result
of which the Company did not purchase such insurance at closing.
The Agent and each of the Lenders hereby waive the
requirements of the delivery of such title insurance as set forth in
Paragraph 2 of the August 16, 1993 consent.
(b) Woodruff Medical Plaza (F.50).
Amendment No. 1 to the Credit Agreement required that
the Company use its best efforts to obtain from the Plumbers' Union
Retirement Trust the consent to modification of the existing Deed of
Trust to reflect the additional indebtedness to the Lenders. By letter
dated August 28, 1993, from Richard A. McDonald, the Company's Assistant
Treasurer, to the Agent, a copy of which has been furnished to the
Lenders, the Company has informed the Agent that the Plumbers Union had
refused its request.
The Agent and each of the Lenders hereby agree that the
Company has satisfied the best efforts requirement to obtain such consent.
<PAGE>
(c) Woodruff Medical Arts (F.51).
The indebtedness to Mutual Trust was paid and its lien
on the Woodruff Medical Arts building terminated in September 1993. The
Company has proposed, consistent with its policy as implemented in December
1992, to transfer the Woodruff Medical Arts property from the Company to AHM
WCH, Inc.
The Agent and each of the Lenders hereby consent to such
transfer. Contemporaneously with such transfer, the Company will cause
AHM WCH, Inc. to execute and deliver to the Agent a confirmation of Deed of
Trust relating to such property.
10. Affirmation. The Company and Capital, and by
their acceptance hereof, the Consolidated Subsidiaries of the Company
executing below (to the extent applicable), hereby affirm all of the
provisions of the Credit Agreement, as amended, including by this
Amendment No. 3, the Guaranty Agreements and all Collateral Security
Documents, agree that the terms and conditions of the Credit
Agreement shall continue in full force and effect as supplemented and
amended hereby and confirm that the Collateral Security Documents and the
Guaranty Agreements continue in full force and effect and guarantee and
secure all indebtedness, obligations and liabilities as set forth in
such Collateral Security Documents and the Guaranty Agreements.
11. Miscellaneous. (a) This Amendment No. 3
shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.
(b) The Company agrees to reimburse the Agent for
all reasonable costs and expenses (including but not limited to, reasonable
attorneys' fees and disbursements) which Agent may pay or incur
in connection with the preparation of this Amendment No. 3 and the
preparation or review of other documents executed or delivered in
connection herewith.
(c) All terms and provisions of this Amendment No.
3 shall be for the benefit of and be binding upon and enforceable by the
respective successors and assigns of the parties hereto.
(d) This Amendment No. 3 may be executed by any
number of counterparts with the same effect as if all the signatures on
such counterparts appeared on one document and each such counterpart shall
be deemed an original.
(e) The execution, delivery and performance of
this Amendment No. 3 shall not effect a waiver of any right, power or remedy
of Lenders under applicable law or under the Credit Agreement and
the agreements and documents executed in connection therewith or constitute
a waiver of any provision thereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned, by their duly
authorized officers, have executed this Amendment No. 3 on the day and year
first above written.
Attest: AMERICAN HEALTHCARE MANAGEMENT, INC.
Elizabeth A. Berryman By: Robert M. Dubbs
Title: Asst. Secretary Title: S.V.P.
[CORPORATE SEAL]
Attest: AHM CAPITAL MANAGEMENT, INC.
Elizabeth A. Berryman By: Robert M. Dubbs
Title: Asst. Secretary Title: V.P.
[CORPORATE SEAL]
CORESTATES BANK, N.A., individually
and in its capacity as Agent
By: Susan S. Callahan
Title: Vice President
CITICORP USA, INC.
By: Carolyn R. Bodmer
Title: Vice President
NATIONSBANK OF TENNESSEE
By: Patrick Neal
Title: Asst. Vice President
CONTINENTAL BANK N.A.
By: Adam Balbach
Title: V.P.
<PAGE>
[Executions continued]
THE BANK OF NOVA SCOTIA
By: Mary K. Munoz
Title: Representative
ACCEPTED AND AGREED TO:
AHM CGH, INC.
AHM GEMCH, INC.
AHM MINDEN HOSPITAL, INC.
AHM WCH, INC.
AHM OF PENNSYLVANIA, INC.
AMERICAN HEALTHCARE MANAGEMENT
DEVELOPMENT COMPANY
CHHP, INC.
EGH, INC.
GIBSON GENERAL HOSPITAL, INC.
HCW, INC.
MPC, INC.
MPH MANAGEMENT SERVICES, INC.
MONTEREY PARK HOSPITAL
NLVH, INC.
PSH,INC.
PASADENA HOSPITAL CORPORATION
RHPC, INC.
STH CORPORATION
WOODLAND PARK HOSPITAL, INC.
By: Robert M. Dubbs
Title: V.P.
<TABLE>
<CAPTION>
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 27,148 27,031 18,225
Net effect of dilutive stock options and
warrants -- based on treasury stock
method using average market price 1,557 1,516 586
_______ _______ _______
TOTAL 28,705 28,547 18,811
_______ _______ _______
_______ _______ _______
Income (loss) before extraordinary
item $13,231 $15,507 $ 8,036
_______ _______ _______
_______ _______ _______
Net income (loss) $ 9,514 $71,078 $ 8,036
_______ _______ _______
_______ _______ _______
Per share amounts:
Income before extraordinary item $ 0.46 $ 0.54 $ 0.43
_______ _______ _______
_______ _______ _______
Net income $ 0.33 $ 2.49 $ 0.43
_______ _______ _______
_______ _______ _______
PRO FORMA (1)
Weighted average shares outstanding 27,148 27,031
Net effect of dilutive stock options and
warrants -- based on treasury stock
method using average market price 1,557 1,516
_______ _______
TOTAL 28,705 28,547
_______ _______
_______ _______
Income before extraordinary item $11,304 $ 8,791
_______ _______
_______ _______
Per share amounts $ 0.39 $ 0.31
_______ _______
_______ _______
FULLY DILUTED
Weighted average shares outstanding 27,148 27,031 18,225
Net effect of dilutive stock options and
warrants -- based on treasury stock
method using period-end market price,
if higher than average market price 2,034 1,550 1,559
_______ _______ _______
TOTAL 29,182 28,581 19,784
_______ _______ _______
_______ _______ _______
Income before extraordinary item $13,231 $15,507 $ 8,036
_______ _______ _______
_______ _______ _______
Net income $ 9,514 $71,078 $ 8,036
_______ _______ _______
_______ _______ _______
Per share amounts:
Income before extraordinary item $ 0.45 $ 0.54 $ 0.41
_______ _______ _______
_______ _______ _______
Net income $ 0.33 $ 2.49 $ 0.41
_______ _______ _______
______________________________________________
(1) Pro forma figures assume the second quarter 1992 and third quarter 1993 refinancing
and Note issuance occurred January 1, 1992.
</TABLE>
<PAGE>
EXHIBIT 23.1 - CONSENTS OF EXPERTS AND COUNSEL
Consent of Independent Auditors
We consent to the incorporation by reference in the
Registration Statements (Form S-3 No. 33-34090 and Forms S-8
Nos. 33-45120, 33-45121, and 33-45552 pertaining to the 1990
Non-Employee Directors' Stock Plan, the 1990 Stock Plan, and
1990 Volla and Dubbs Executive Compensation Agreements,
respectively) of American Healthcare Management, Inc. and in
the related Prospectuses of our report dated January 26,
1994, with respect to the consolidated financial statements
and schedules of American Healthcare Management, Inc.
included in the Annual Report (Form 10-K) for the year ended
December 31, 1993.
/s/Ernst & Young
Ernst & Young
Philadelphia, Pennsylvania
March 23, 1994
<PAGE>
