<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1994
REGISTRATION NO. 33-52403
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
4525 HARDING ROAD
NASHVILLE, TENNESSEE 37205
(615) 383-4444
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<TABLE>
<S> <C>
DELAWARE 62-1234332
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
------------------------
PHILIP D. WHEELER, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
4525 HARDING ROAD
NASHVILLE, TENNESSEE 37205
(615) 383-4444
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
MORTON A. PIERCE, ESQ. WINTHROP B. CONRAD, ESQ.
DEWEY BALLANTINE DAVIS POLK & WARDWELL
1301 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NY 10019 NEW YORK, NY 10017
(212) 259-8000 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION *
* IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* JURISDICTION. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED APRIL 22, 1994
PROSPECTUS
, 1994
$200,000,000
HEALTHTRUST INC.
The Hospital Company
% SUBORDINATED NOTES DUE 2004
------------------------
The % Subordinated Notes due 2004 (the "Securities") are being
offered by Healthtrust, Inc. - The Hospital Company (the "Company"). Interest on
the Securities will be payable semi-annually on and of each year,
commencing , 1994. The Securities are redeemable at the option of the
Company, in whole or in part, at any time on or after , 1999 at the
redemption prices set forth herein, together with accrued and unpaid interest.
Upon a Change of Control Triggering Event (as defined herein) and the
satisfaction of certain conditions regarding Senior Indebtedness (as defined
herein), each holder of the Securities may require the Company to repurchase
such Securities at 100% of the principal amount thereof, together with accrued
and unpaid interest, if any. There can be no assurance, however, that the
Company will have sufficient funds to repurchase the Securities at such time.
See "Description of the Securities."
Concurrently with the offering of the Securities, the Company is publicly
offering 5,200,000 shares of its common stock. This offering and the common
stock offering are being made as part of the financing of the Company's
acquisition of EPIC Holdings, Inc. and certain related transactions. This
offering and the common stock offering are contingent upon the consummation of
the acquisition. See "The Acquisition and the Financing Plan."
The Securities will be subordinated in right of payment to all existing and
future Senior Indebtedness of the Company and effectively subordinated in right
of payment to all existing and future liabilities of the Company's subsidiaries.
The Securities will be pari passu in right of payment to the Company's 10 3/4%
Subordinated Notes due 2002 and 8 3/4% Subordinated Debentures due 2005. After
giving effect to the offering of the Securities, the Acquisition and the other
transactions contemplated by the Financing Plan, all as described herein, as
though they had occurred on February 28, 1994, the amount of Senior Indebtedness
and obligations of the Company's subsidiaries (excluding intercompany
indebtedness) effectively ranking senior to the Securities would have been
approximately $749.8 million, assuming 100% of the Specified EPIC Debt
Securities (as defined herein) is purchased in the Tender Offers (as defined
herein). As of February 28, 1994, there were $500 million aggregate principal
amount of 10 3/4% Subordinated Notes due 2002 and $300 million aggregate
principal amount of 8 3/4% Subordinated Debentures due 2005 of the Company
outstanding. The ability of the Company and its subsidiaries to incur
indebtedness, including Senior Indebtedness, is limited by the instruments
governing the Company's existing bank credit facility and certain of the
Company's other long-term indebtedness, and the Company anticipates that similar
restrictions will be included in the 1994 Credit Agreement (as defined herein)
and the indenture governing the Securities. See "Description of the Securities."
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
PER SECURITY.................................. % % %
TOTAL......................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses of the offering payable by the Company estimated
at $ .
The Securities are offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to various prior conditions, including its right to reject orders in whole or in
part. It is expected that delivery of the Securities will be made in New York,
New York on or about , 1994.
DONALDSON, LUFKIN & JENRETTE MERRILL LYNCH & CO.
SECURITIES CORPORATION
<PAGE> 3
MAP SEE APPENDIX
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SECURITIES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OPEN MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
THE COMPANY
Healthtrust, Inc. - The Hospital Company (together with its subsidiaries,
"Healthtrust" or the "Company") is one of the largest providers of health care
services in the United States, delivering a full range of inpatient, outpatient
and other health care services principally through its affiliated hospitals. At
February 1, 1994, the Company owned or leased through its subsidiaries or joint
ventures 81 acute care hospitals (the "affiliated hospitals") and is an
investor, through joint ventures, in four other acute care hospitals. The
Company's affiliated hospitals are located in rural, suburban and urban
communities in 21 southern and western states. Approximately 40% of
Healthtrust's affiliated hospitals are the sole providers of general acute care
hospital services in their communities, and an additional 20% are one of two
general acute care hospitals in their communities. The Company's affiliated
hospitals generally provide a full range of inpatient and outpatient health care
services, including medical/surgical, diagnostic, obstetric, pediatric and
emergency services. Many of the Company's affiliated hospitals also offer
certain specialty programs and services, including occupational medicine
programs, home health care services, skilled nursing services, physical therapy
programs, rehabilitation services, alcohol and drug dependency programs and
selected mental health services.
The Company has experienced consistent growth since it began operations
through the acquisition of a group of hospitals and related assets (the
"Formation") from Hospital Corporation of America ("HCA") in September 1987. The
81 affiliated hospitals presently operated by the Company generated
approximately $2.4 billion of net operating revenue, net income before
extraordinary charges and preferred stock dividends of $135.2 million and net
income of $121.6 million for the fiscal year ended August 31, 1993, compared
with approximately $1.8 billion of net operating revenue, a net loss before
extraordinary charges and preferred stock dividends of $101.3 million and a net
loss of $159.9 million for the fiscal year ended August 31, 1989 generated by
the 94 hospitals then operated by the Company. In addition, for the same
periods, the Company's operating cash flow (net operating revenue less hospital
service costs) increased from $339.2 million to $506.0 million. Operating cash
flow should not be considered as a substitute for cash provided by operating
activities or any consolidated income statement data prepared in accordance with
generally accepted accounting principles ("GAAP"). See "Selected Historical
Financial Information."
The Company's principal objective is to be a significant and growing
provider of low cost, high quality health care services in the markets in which
it operates. Although the means of achieving this objective will vary depending
upon the local market and the relative position of the Company's affiliated
hospitals and other health care businesses in that market, the strategies
employed generally include (i) expanding market share through improvements in
quality and reductions in cost for existing services and through the provision
of new or expanded services to meet underserved needs, (ii) participating in
quality health care delivery networks through affiliations, joint ventures,
partnerships and other arrangements with physicians, other hospitals and
providers of other health care related services, (iii) continuously improving
operating and financial performance, and (iv) developing the resources needed by
management to operate more effectively in the changing health care environment.
In addition, the Company has pursued and will continue to pursue other
opportunities to grow through the acquisition, construction or development of
hospital facilities or other health care related businesses that are or can be
positioned competitively in their markets consistent with the Company's
objectives. The Company recently acquired Nashville Memorial Hospital in
Madison, Tennessee and executed a definitive agreement to purchase Holy Cross
Hospital of Salt Lake City, Utah, Holy Cross-Jordan Valley Hospital in Jordan
Valley, Utah and St. Benedict's Hospital in Ogden, Utah. On March 22, 1994, the
Federal Trade Commission ("FTC") informed the Company that it will challenge the
acquisition of the three Utah hospitals. The Company is seeking to resolve the
issues raised by the FTC.
Consistent with the Company's strategy, Healthtrust entered into an
agreement on January 9, 1994 to acquire EPIC Holdings, Inc. ("EPIC Holdings"
and, together with its subsidiaries, "EPIC") (the "Acquisition"). EPIC is a
health care services provider that owns and operates 34 general acute care
hospitals providing inpatient, outpatient and other specialty services in 10
southern, southwestern and western states. Approximately 29% of EPIC's hospitals
are the sole providers of general acute care hospital services in their
communities, and an additional 27% of EPIC's hospitals are one of two general
acute care hospitals in their communities. Following the Acquisition,
Healthtrust will be the second largest hospital management company
3
<PAGE> 5
in the United States, operating 115 hospitals in 22 states. Of these 115
hospitals, approximately 37% are the sole providers of general acute care
hospital services in their communities and an additional 22% are one of two such
providers in their communities. Total pro forma combined net operating revenue,
operating cash flow and net income before extraordinary charges for Healthtrust
and EPIC for their 1993 fiscal years were approximately $3.4 billion, $651.4
million and $127.7 million, respectively, after giving effect to the Acquisition
and the Financing Plan, assuming 100% of each issue of Specified EPIC Debt
Securities are purchased in the Tender Offers (all as hereinafter defined). See
"Selected Pro Forma Financial Information."
The Company believes that the Acquisition will enhance the Company's
presence in the geographic areas it presently serves and provide access to new
markets. In addition, the Acquisition will allow the Company to expand its
health care delivery capabilities in such areas as home health care,
geropsychiatric care, rehabilitation services and physical therapy services,
thereby enhancing the Company's development of integrated health care delivery
networks designed to provide a full range of health care services to managed
care plans, self-insured employers and certain government payors. Healthtrust
also expects to realize operating cost savings of approximately $50 million
during the fiscal year ending August 31, 1995 resulting from increased economies
of scale and improved operating efficiencies following the Acquisition. After
giving effect to these savings, the Acquisition is expected to add $0.10 to
$0.12 per share to the Company's earnings during fiscal year 1995. See
"Investment Considerations -- Acquisition-Related Considerations," "The
Acquisition and the Financing Plan" and the Unaudited Pro Forma Condensed
Combined Financial Statements of the Company included elsewhere in this
Prospectus.
THE FINANCING PLAN
In connection with the Acquisition, on March 15, 1994, EPIC and certain of
its subsidiaries commenced offers to purchase up to 100% of five series of
outstanding debt securities of EPIC (the "Specified EPIC Debt Securities") in an
aggregate principal amount of approximately $608.5 million (representing an
aggregate accreted value of approximately $529.9 million as of December 31,
1993). In connection therewith, the consent of the holders of the Specified EPIC
Debt Securities is being solicited to eliminate or modify substantially all of
the restrictive covenants and certain event of default provisions related
thereto. The offers to purchase the Specified EPIC Debt Securities and the
related solicitation of consents are hereinafter referred to as the "Tender
Offers." In addition, following the consummation of the Acquisition, it is
anticipated that approximately $220.8 million aggregate principal amount of
certain other outstanding EPIC indebtedness (representing an aggregate accreted
value of approximately $142.6 million as of December 31, 1993) will be redeemed
or prepaid in accordance with the provisions thereof (the "Debt Redemption").
The Acquisition, the Tender Offers and the Debt Redemption will be financed
through the following: (i) the offering by the Company of the Securities offered
hereby (the "Offering"), (ii) the public offering by the Company of 5,200,000
shares of Common Stock (par value $.001 per share) (the "Common Stock
Offering"), (iii) the refinancing of the Company's existing bank credit facility
with a new bank credit facility (the "1994 Credit Agreement") providing for
aggregate commitments of up to $1.2 billion and (iv) cash on hand. The Offering
is expected to occur substantially contemporaneously with the Acquisition, the
Common Stock Offering, the Debt Redemption and the 1994 Credit Agreement, and is
conditioned upon the consummation of the Acquisition. It is anticipated that the
Tender Offers will remain open until approximately five business days after the
consummation of the Acquisition. See "The Acquisition and the Financing Plan"
and the Unaudited Pro Forma Condensed Combined Financial Statements of the
Company included elsewhere in this Prospectus.
4
<PAGE> 6
THE OFFERING
SECURITIES OFFERED......... $200,000,000 principal amount of % Subordinated
Notes due 2004 of the Company.
MATURITY DATE.............. , 2004.
INTEREST PAYMENT DATES..... and commencing
, 1994.
OPTIONAL REDEMPTION........ The Securities are redeemable by the Company, in
whole or in part, at any time on or after
, 1999 at the redemption prices set
forth herein, together with accrued and unpaid
interest.
CHANGE OF CONTROL.......... Upon the occurrence of both a Change of Control (as
defined herein) and a Rating Decline (as defined
herein) (a "Change of Control Triggering Event")
(including a Change of Control Triggering Event
involving a transaction led or approved by
Company management or in connection with a
recapitalization of the Company) and the
satisfaction of certain conditions regarding
Senior Indebtedness, each holder of Securities
may require the Company to repurchase the
Securities at a purchase price equal to 100% of
the principal amount thereof together with
accrued and unpaid interest thereon to the date
of repurchase. See "Description of the
Securities -- Certain Definitions" and
" -- Certain Covenants of the Company."
RANKING.................... The Securities are subordinated to all Senior
Indebtedness (as defined herein) of the Company
and effectively subordinated to all existing and
future liabilities of the Company's subsidiaries.
The Securities will be pari passu in right of
payment to the Company's 10 3/4% Subordinated
Notes due May 1, 2002 (the "10 3/4% Notes") and
8 3/4% Subordinated Debentures due March 15, 2005
(the "8 3/4% Debentures"). As of February 28,
1994, the amount of Senior Indebtedness and
obligations of the Company's subsidiaries
(excluding intercompany indebtedness) that
effectively ranked senior to the Securities was
approximately $167.0 million. After giving effect
to the Offering, the Acquisition and the other
transactions contemplated by the Financing Plan
as though they had occurred on February 28, 1994,
the amount of Senior Indebtedness and obligations
of the Company's subsidiaries (excluding
intercompany indebtedness) that effectively
ranked senior to the Securities would have been
approximately $749.8 million, assuming 100% of
the Specified EPIC Debt Securities (as
hereinafter defined) is purchased in the Tender
Offers. See "The Acquisition and the Financing
Plan" and "Description of the Securities --
Subordination."
RESTRICTIVE COVENANTS...... The Indenture limits, among other things, (i) the
incurrence of indebtedness by the Company and its
subsidiaries, including the incurrence of
indebtedness by the Company that is subordinate
in right of payment to the Securities, (ii)
dividends and distributions on and repurchases of
the Company's capital stock and certain other
restricted payments and investments by the
Company and its subsidiaries and (iii) the
Company's ability to engage in certain mergers,
consolidations or sales of all or substantially
all of its assets. All of these limitations are
subject to a number of important qualifications.
See "Description of the Securities -- Certain
Covenants of the Company."
USE OF PROCEEDS............ The proceeds of the Offering, together with the
proceeds of the Common Stock Offering, borrowings
under the 1994 Credit Agreement and cash on hand,
will be used to finance the Acquisition, the
Tender Offers and the Debt Redemption (all as
hereinafter defined). See "Use of Proceeds."
5
<PAGE> 7
INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing the Securities offered hereby.
SUBSTANTIAL INDEBTEDNESS
Following the consummation of the Acquisition and the Financing Plan, the
Company will continue to have substantial indebtedness and, as a result,
significant debt service obligations. As of February 28, 1994, the Company's
ratio of long-term debt to stockholders' equity was 1.3 to 1 and approximately
$150.3 million of the Company's $967.0 million of long-term debt was subject to
variable interest rates (in each case including current maturities). After
giving effect to the Offering, the Acquisition and the other transactions
contemplated by the Financing Plan (as hereinafter defined), at February 28,
1994, the ratio of the Company's long-term debt to stockholders' equity would
have been 2.0 to 1, and the portion of the Company's $1,749.8 million of
long-term debt subject to variable interest rates would have been approximately
$712.7 million, in each case assuming 100% of each issue of Specified EPIC Debt
Securities is purchased in the Tender Offers. See "Capitalization" and the
Unaudited Pro Forma Condensed Combined Financial Statements of the Company
included elsewhere in this Prospectus.
The degree to which the Company is leveraged could have important
consequences to holders of the Securities, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for its
operations; (iii) certain of the Company's borrowings are and will continue to
be at variable rates of interest, which causes the Company to be vulnerable to
increases in interest rates; and (iv) such indebtedness contains numerous
financial and other restrictive covenants, including those restricting the
incurrence of indebtedness, the creation or existence of liens, the declaration
or payment of dividends, certain investments, the acquisition of securities of
the Company, and certain extraordinary corporate transactions. Failure by the
Company to comply with such covenants may result in an event of default which,
if not cured or waived, could have a material adverse effect on the Company.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
Although the Company's cash flow from its operations has been sufficient to meet
its debt service obligations in the past, there can be no assurance that the
Company's operating results will continue to be sufficient for payment of the
Company's indebtedness.
SUBORDINATION; EFFECT OF ENCUMBRANCES
The Securities will be subordinated to all Senior Indebtedness of the
Company and will rank pari passu with the 10 3/4% Notes and the 8 3/4%
Debentures. The Securities also will be effectively subordinated to all existing
and future liabilities of the Company's subsidiaries. As of February 28, 1994,
the amount of Senior Indebtedness and obligations of the Company's subsidiaries
(excluding intercompany indebtedness) that effectively ranked senior to the
Securities was approximately $167.0 million. After giving effect to the
Acquisition and the transactions contemplated by the Financing Plan, as of
February 28, 1994, the amount of Senior Indebtedness and obligations of the
Company's subsidiaries (excluding intercompany indebtedness) that effectively
ranked senior to the Securities would have been approximately $749.8 million,
assuming 100% of each issue of Specified EPIC Debt Securities is purchased in
the Tender Offers. Under the 1994 Credit Agreement, and after giving effect to
the Acquisition and the Financing Plan, the Company expects to have available an
aggregate of approximately $487.3 million of unutilized commitments, assuming
100% of each issue of Specified EPIC Debt Securities is purchased in the Tender
Offers. All indebtedness incurred under the 1994 Credit Agreement constitutes
Senior Indebtedness. See "The Acquisition and the Financing Plan."
6
<PAGE> 8
The Company may not pay the principal of, premium, if any, or interest on,
the Securities or repurchase, redeem or otherwise retire the Securities if any
Senior Indebtedness is not paid when due or any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, the default has been cured
or waived, any such acceleration has been rescinded or such Senior Indebtedness
has been paid in full. In addition, if any default exists with respect to
certain Senior Indebtedness and certain other conditions are satisfied, the
Company may not make any payments on the Securities for a designated period of
time. Upon any payment or distribution of assets of the Company upon
liquidation, dissolution, reorganization or any similar proceeding, the holders
of Senior Indebtedness will be entitled to receive payment in full before the
holders of the Securities are entitled to receive any payment. See "Description
of the Securities."
The Company has granted the lenders under its existing bank credit facility
a senior security interest in the capital stock of the Company's subsidiaries
and instruments evidencing indebtedness owed to the Company by its subsidiaries
and anticipates that it will grant the lenders under the 1994 Credit Agreement a
senior security interest in the capital stock of the Company's subsidiaries. At
February 28, 1994, there was approximately $150.3 million outstanding under the
Company's existing bank credit facility. Upon consummation of the Acquisition
and Financing Plan, the Company anticipates that there will be approximately
$712.7 million outstanding under the 1994 Credit Agreement, assuming 100% of
each issue of Specified EPIC Debt Securities is purchased in the Tender Offers.
The Securities will be unsecured. If the Company becomes insolvent or is
liquidated, or if its indebtedness is accelerated, the lenders under its
existing credit facility or the 1994 Credit Agreement, as the case may be, will
be entitled to payment in full from the proceeds of their security prior to any
payment to the holders of Securities. In such event, it is possible that there
would be no assets remaining from which claims of the holders of Securities
could be satisfied or, if any assets remain, such assets may be insufficient to
satisfy fully such claims. See "The Acquisition and the Financing Plan."
SUBSIDIARY OPERATIONS
Since substantially all of the Company's operations are conducted, and
substantially all of the Company's assets are owned, by its subsidiaries, the
Securities will effectively be subordinated to all existing and future
liabilities of the Company's subsidiaries, including the subsidiaries'
guarantees of indebtedness incurred under its bank credit facility. In addition,
following the consummation of the Acquisition, EPIC and its subsidiaries will be
subsidiaries of the Company, and any indebtedness existing or incurred in the
future at the EPIC level, including any Specified EPIC Debt Securities that are
not purchased in the Tender Offers and any EPIC indebtedness that remains
outstanding if the Debt Redemption does not occur, also will be effectively
senior to the Securities. Any right of the Company to participate in any
distribution of the assets of any of the Company's subsidiaries upon the
liquidation, reorganization or insolvency of such subsidiary (and the consequent
right of the holders of the Securities to participate in those assets) will be
subject to the claims of the creditors (including trade creditors) and preferred
stockholders, if any, of such subsidiary, except to the extent the Company has a
claim against such subsidiary as a creditor of such subsidiary. The Company has
expressly subordinated certain of its claims against its subsidiaries to the
subsidiaries' guarantees of indebtedness incurred under its existing bank credit
facility, and anticipates that it will similarly subordinate certain of its
claims against its subsidiaries to the subsidiaries' guarantees of indebtedness
incurred under the 1994 Credit Agreement. In addition, in the event that claims
of the Company as a creditor of a subsidiary are recognized, such claims would
be subordinate to any security interest in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company. A majority
of the hospitals presently owned and operated by EPIC are subject to mortgages
granted in connection with the issuance of the EPIC Mortgage Notes.
Additionally, the capital stock of EPIC Properties has been pledged as
collateral for the EPIC Mortgage Notes and the capital stock of certain
subsidiaries of EPIC has been pledged as collateral for certain of the EPIC
indebtedness to be redeemed pursuant to the Debt Redemption (the "EPIC
Redeemable Debt"). Following the consummation of the Acquisition, the claims of
holders of any EPIC Mortgage Notes that are not purchased in the Tender Offers
and the claims of holders of any EPIC Redeemable Debt not redeemed in the Debt
Redemption will be senior with respect to such security interests to the claims
of the Company as a creditor of the applicable EPIC subsidiaries. See
"Description of EPIC." However, the ability of a subsidiary to incur
indebtedness is limited by certain of the restrictive covenants set forth in the
7
<PAGE> 9
Company's existing bank credit facility and in the indentures relating to
certain of the Company's other long-term indebtedness, and the Company
anticipates that similar restrictions will be included in the 1994 Credit
Agreement and the indenture governing the indebtedness to be issued in the
Offering.
In addition, the Company's ability to make required principal and interest
payments with respect to the Company's indebtedness, including the Securities,
depends on the earnings of its subsidiaries and on its ability to receive funds
from such subsidiaries through dividends or other payments. Since the Securities
are obligations of the Company only, the Company's subsidiaries are not
obligated or required to pay any amounts due pursuant to the Securities or to
make funds available therefor in the form of dividends or advances to the
Company. Additionally, if the Tender Offers (including the related consent
solicitations) and the Debt Redemption are not consummated, the indentures
governing the Specified EPIC Debt Securities and the EPIC Redeemable Debt that
remain outstanding will contain provisions that restrict EPIC's ability to make
payments to the Company in the form of dividends or otherwise.
HEALTH CARE REFORM
On November 20, 1993, President Clinton submitted proposed comprehensive
health care reform legislation ("Administration's Proposal") to Congress. A
central component of the Administration's Proposal is the restructuring of
health insurance markets through the use of "managed competition." Under the
Administration's Proposal, 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. All employers would be required 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
Administration's Proposal would be funded in significant part by reductions in
payments by the Medicare and Medicaid programs to providers, including
hospitals. The Administration's Proposal 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
Administration's Proposal. 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.
REIMBURSEMENT AND REGULATION
The Company derives a substantial portion of its revenue from Medicare and
Medicaid programs. Such programs are highly regulated and subject to frequent
and in certain cases substantial changes. Significant changes in Medicare and
Medicaid reimbursement programs have resulted in reduced levels of reimbursement
for a substantial portion of hospital procedures and costs. Changes in other
existing reimbursement programs are scheduled or anticipated in the future which
changes are likely to result in further reductions in reimbursement levels. In
addition, the Company's revenue could be affected by any implementation of
federal government sequestration under the Balanced Budget and Emergency Deficit
Control Act of 1985, as amended.
The health care industry is subject to extensive federal, state and local
regulation relating to licensure, conduct of operations, addition of facilities
and services and cost containment. Over the past several years, federal and
state initiatives have been undertaken to evaluate the impact that financial
arrangements between health care providers and physicians may have on Medicare
and state health care programs. As a result of such initiatives, the U.S.
Department of Health and Human Services ("HHS") issued final regulations
outlining certain "safe harbor" practices which, although potentially capable of
inducing prohibited referrals of business, would not be subject to enforcement
action under the Social Security Act of 1935, as amended (the "Social Security
Act"). In addition, certain provisions of Section 1877 of the Social Security
Act, commonly
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known as the "Stark Bill," have recently been amended to significantly broaden
the scope of prohibited physician self-referrals thereunder. Certain of the
Company's current financial arrangements with physicians do not qualify for the
safe harbor exemptions and, as a result, risk scrutiny by HHS and may be subject
to enforcement action. Additionally, the Company believes that certain of EPIC's
financial arrangements with physicians do not qualify for the safe harbor
exemptions. The Company's participation in and development of joint ventures and
other financial arrangements with physicians could be adversely affected by the
recent HHS regulations and Stark Bill amendments. The Company is unable to
predict the future course of federal, state and local regulation or legislation,
including Medicare and Medicaid statutes and regulations. Further changes in the
regulatory framework could have an adverse impact on the Company.
DEPENDENCE ON PHYSICIANS AND OTHER KEY PERSONNEL
Since physicians generally control the majority of hospital admissions, the
success of the Company, in part, is dependent upon the number and quality of
physicians on its hospitals' medical staffs. The Company's operations also are
dependent on the efforts, ability and experience of its key corporate and
hospital management teams. The loss of some or all of these key personnel or an
inability to attract and retain sufficient numbers of qualified physicians could
adversely affect the Company's hospitals.
COMPETITION
The health care business is highly competitive and subject to excess
capacity. Competition among hospitals and other health care providers for
patients has intensified in recent years. During this period, hospital occupancy
rates in the United States have declined as a result of cost containment
pressures, changing technology, changes in regulations and reimbursement,
changes in practice patterns from inpatient to outpatient treatment, an
increasing supply of physicians and other factors. In many geographic areas in
which the Company operates, there are other hospitals or facilities that provide
inpatient or outpatient services comparable to those offered by the Company's
hospitals. Certain of these hospitals have greater financial resources than the
Company's hospitals and offer a wider range of services than the Company's
hospitals. Even in communities in which the Company's hospitals are the sole
providers of general acute care hospital services, the Company may face
competition from local providers of outpatient services and hospitals and other
health care providers in nearby communities. The competitive position of the
Company's hospitals also has been, and in all likelihood will continue to be,
affected by the increased initiatives undertaken during the past several years
by federal and state governments and other major purchasers of health care,
including insurance companies and employers, to revise payment methodologies and
monitor health care expenditures in order to contain health care costs. Due in
part to these initiatives, managed care organizations such as health maintenance
organizations ("HMOs") and preferred provider organizations ("PPOs"), which
offer prepaid and discounted medical services packages, represent an increasing
segment of health care payors, tending to reduce the historical rate of growth
of hospital revenue. In addition, hospitals owned by governmental agencies or
other tax-exempt entities benefit from endowments, charitable contributions and
tax-exempt financing, which advantages are not enjoyed by the Company's
hospitals.
LEGAL PROCEEDINGS
Certain of the Company's Utah hospitals, along with other Utah hospitals,
were the subject of a federal grand jury investigation of possible criminal
violations of the federal antitrust laws in connection with nursing compensation
practices. The Company has been informed by the Antitrust Division of U.S.
Department of Justice that the Government does not intend to pursue criminal
charges against the Company but may pursue civil proceedings in connection with
the actions of its Utah facilities. Although the Company attempts to structure
its compensation practices to comply with federal and state law, the Company
cannot predict with certainty the outcome of this ongoing civil investigation.
On March 9, 1994, Memorial Hospital at Gulfport ("Memorial") filed suit
against EPIC and the Company in Mississippi State court, alleging that EPIC
agreed to sell Garden Park Community Hospital ("Garden Park") in Garden Park,
Mississippi to Memorial for approximately $23.3 million. The suit seeks specific
performance of the alleged agreement and actual and punitive damages. In
addition, Memorial is
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seeking a preliminary injunction to prohibit consummation of the Acquisition
until the final disposition of its suit or, in the alternative, a preliminary
injunction prohibiting EPIC and the Company from encumbering or disposing of the
assets comprising Garden Park. Following a bench trial, the court concluded that
no contract for the sale of Garden Park was reached, and denied Memorial's
motion for specific performance and injunctive relief. In addition, in April
1994, Lawrence Lacroix filed suit against EPIC in Texas state court alleging
that the payment to certain EPIC executives of severance and other benefits in
connection with the Acquisition, the payment of the Acquisition consideration
with respect to outstanding EPIC stock appreciation rights and the cash
contribution to the EPIC Employee Stock Ownership Plan (the "EPIC ESOP")
contemplated by the ESOP Agreement (as defined herein) are fraudulent transfers,
the effect of which would be to deplete the assets of EPIC available to satisfy
Mr. Lacroix's claims as a potential judgment creditor. EPIC has informed the
Company that it believes Mr. Lacroix's suit is without merit.
PROFESSIONAL LIABILITY
As is typical in the health care industry, the Company is subject to claims
and legal actions by patients and others in the ordinary course of business. The
Company generally self-insures against substantially all of its professional and
general liabilities and maintains an unfunded reserve for liability risks. While
the Company's cash flow has been adequate to provide for liability claims in the
past, there can be no assurance that the Company's cash flow will continue to be
adequate. If payments with respect to self-insured liabilities increase in the
future, the results of operations of the Company could be adversely affected.
PRINCIPAL STOCKHOLDER
As of December 31, 1993, the trustee (the "Plan Trustee") of the Company's
401(k) Retirement Program (the "Plan") held approximately 31% of the outstanding
common stock, par value $.001 per share, of the Company (the "Common Stock").
After giving effect to the Common Stock Offering, as of December 31, 1993, the
Plan Trustee would have held approximately 28% of the outstanding Common Stock.
Shares of Common Stock held by the Plan Trustee are held in the accounts of
participants in the Plan. Such participants are able to direct the Plan Trustee
to vote the shares allocated to their accounts, except when the Plan Trustee
believes its fiduciary duties obligate it to override such directions. As a
principal stockholder, the Plan Trustee may have the ability to influence the
policies and affairs of the Company to a greater extent than other stockholders.
LACK OF PUBLIC MARKET FOR SECURITIES
There is no public market for the Securities and the Company may or may not
list the Securities on a securities exchange. The Company has been advised by
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") (collectively, the
"Underwriters") that they presently intend to make a market in the Securities
after the consummation of the Offering, although they are under no obligation to
do so and may discontinue any market making at any time. No assurance can be
given as to the liquidity of the trading market for the Securities or that an
active trading market for the Securities will develop. If an active public
market does not develop, the market price and liquidity of the Securities may be
adversely affected.
FORMATION-RELATED CONSIDERATIONS
In connection with the Formation of Healthtrust in 1987, HCA agreed to
indemnify the Company against tax claims, professional liability claims and
claims covered by standard public liability insurance relating to the acquired
assets, in each case relating to periods prior to the Formation. In the past HCA
has satisfied its obligation to indemnify the Company for all such claims, and
the Company has no reason to believe that HCA would not continue to do so.
However, if HCA should fail to meet its indemnification obligations, the Company
would be responsible for the satisfaction of any such claims in the future,
which claims, if substantial, could have a material adverse effect on the
Company.
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With respect to certain taxable periods ending on or prior to the Formation
in September 1987, the Company and certain of its subsidiaries filed federal
income tax returns on a consolidated basis with HCA and, as a result, under
federal income tax law, the Company and such subsidiaries are severally liable
with HCA for the federal income taxes of HCA's consolidated group for such
periods. However, in connection with the Formation, HCA agreed that it would be
responsible for the payment of all taxes, assessments, interest and penalties
imposed by any taxing authority for any periods prior to and including the date
of the Formation. HCA has disclosed that following a recent examination of HCA's
federal income tax returns for tax years 1981 through 1990, the Internal Revenue
Service has proposed certain adjustments to such returns, and HCA has received
notices of deficiencies for certain years, which it is contesting through
litigation. Should HCA be unable to sustain its position on disputed matters,
additional taxes would approximate $383 million, plus accrued interest of
approximately $640 million as of December 31, 1993, for taxable periods in which
the Company and certain of its subsidiaries were members of HCA's consolidated
group. If the additional taxes that have been asserted by the Internal Revenue
Service were finally determined to be due and HCA were unable to, or for any
other reason did not, pay such taxes or related interest, the Company could be
responsible for such payment, which payment could have a material adverse effect
on the Company.
ERISA MATTERS
In connection with the Formation in 1987, the Company's Employee Stock
Ownership Plan (the "ESOP") purchased approximately 50.9 million shares of
Common Stock for $810 million. The purchase price was based on the determination
of the committee administering the ESOP (the "ESOP Committee") as to the fair
market value of such shares at that time. Based on such determination, and
subject to limitations contained in the Internal Revenue Code of 1986, as
amended (the "Code"), the Company has claimed income tax deductions for
contributions to the ESOP for the years to which such contributions relate.
Contributions to the ESOP were used by the ESOP to pay interest and principal on
the loans owed to the Company. These payments were in turn used by the Company
to pay interest and principal on the ESOP term loans under the Company's
previous bank credit agreement and certain other indebtedness related to the
ESOP. As a result, the Company was effectively able to obtain a deduction for
principal, as well as interest payments, on ESOP-related borrowings. If the ESOP
Committee's determination of fair market value was incorrect, the Company's
contribution to the ESOP might not be fully deductible, which could have a
material adverse effect on the Company.
It was intended that qualified holders of the ESOP term loans and the other
indebtedness incurred in connection with the ESOP be entitled to exclude from
taxable income 50% of the interest received on such indebtedness. In addition,
the loans to the ESOP and the purchase of Common Stock by the ESOP were intended
to qualify for exemption from the "prohibited transaction" rules under the Code
and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
which rules generally prohibit sale and loan transactions between an employer
and a qualified retirement plan. The 50% interest exclusion and the prohibited
transaction exemption were available only if the plan was designed to invest
primarily in "employer securities." It is likely that if Healthtrust and HCA
were deemed to have been members of the same "controlled group of corporations"
for purposes of the relevant section in the Code or ERISA, the stock of HCA, and
not Healthtrust's Common Stock, would have been "employer securities" for these
purposes. Healthtrust and HCA concluded that they were not in the same
"controlled group of corporations" (as defined in Section 409(1) of the Code).
If, notwithstanding such conclusion, HCA's common stock were deemed to have been
"employer securities" for such purposes, there could be severe adverse
consequences to Healthtrust, including violation of the prohibited transaction
rules discussed above (which could subject Healthtrust or other disqualified
persons with respect to the ESOP to an excise tax and could require that certain
corrective action be taken) and retroactive increases in the rate of interest
payable on certain of the Company's previously outstanding ESOP-related
indebtedness as a result of the loss of the 50% interest exclusion. In addition,
the 50% interest exclusion and the prohibited transaction exemption were
available only if the price paid by the ESOP reflected the fair market value of
the employer securities as determined in good faith by the plan fiduciaries.
Accordingly, if the ESOP Committee's determination of fair market value was
incorrect, the 50% interest exclusion might not have been fully available and
the Company or other disqualified persons may
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have committed prohibited transactions, either of which events could have a
material adverse effect on the Company. See Note 6 to "Capitalization."
ACQUISITION-RELATED CONSIDERATIONS
The purchase of EPIC common stock by the EPIC ESOP in connection with
EPIC's acquisition (the "EPIC Formation") of its facilities from American
Medical International, Inc. ("AMI") in 1988 was structured in a manner similar
to the purchase of Common Stock by the ESOP in connection with the Formation of
Healthtrust and was intended to (i) qualify for exemption from the "prohibited
transaction" rules of the Code and ERISA, (ii) permit EPIC to deduct for federal
income tax purposes its contributions to the EPIC ESOP used to pay principal and
interest on loans made by EPIC to the EPIC ESOP and (iii) permit qualified
holders of indebtedness incurred in connection with the EPIC ESOP to benefit
from the 50% interest exclusion provision referred to in "-- ERISA Matters"
above. Exemption from the prohibited transaction rules and the availability of
the ESOP-related benefits described above depends on (i) the amount the EPIC
ESOP paid for EPIC common stock not having exceeded the fair market value of
that EPIC common stock, (ii) the EPIC common stock being "employer securities"
and (iii) compliance with the other relevant provisions of the Code and ERISA.
If (i) the EPIC ESOP paid an amount in excess of fair market value for the EPIC
common stock, (ii) the EPIC common stock were to fail to qualify as "employer
securities" or (iii) the EPIC ESOP were to fail to comply with the other
relevant provisions of the Code or ERISA, such events could result in material
adverse consequences to EPIC similar to those described with respect to the
Company under "-- ERISA Matters" above, which could have a material adverse
effect on the Company following consummation of the Acquisition. See "The
Acquisition and the Financing Plan" and Note 6 to "Capitalization." In addition,
although the Company believes that the actions which the parties intend to take
with respect to the EPIC ESOP pursuant to the ESOP Agreement (as hereinafter
defined) should not give rise to any adverse tax or other consequences to EPIC
or the Company, if the Internal Revenue Service or the Department of Labor were
to successfully challenge certain aspects of such actions, the Company or EPIC
could be subject to certain taxes or penalties, which could have a material
adverse effect on the Company following consummation of the Acquisition.
Additionally, the termination of contributions to the EPIC ESOP in connection
with the Acquisition will result in a default on the EPIC ESOP Notes (as
hereinafter defined). If the EPIC ESOP Notes are not redeemed pursuant to the
Debt Redemption, such default could adversely affect the Company. See "The
Acquisition and the Financing Plan."
In connection with the EPIC Formation, AMI agreed to indemnify EPIC against
certain losses, including the loss of certain expected tax benefits. If AMI is
unable to or otherwise does not satisfy such indemnification obligations, EPIC
could be responsible for such losses, which could adversely affect the Company
following the Acquisition.
The Company will use the proceeds of the Offering to fund a portion of the
Acquisition. While the Company believes that it can improve the profitability of
the operations acquired from EPIC, there can be no assurance that this will be
the case. In addition, there can be no assurance that the Company will be able
to realize expected operating and economic efficiencies following the
Acquisition or that the Acquisition will not adversely affect the Company's
results of operations or financial condition. See the Unaudited Pro Forma
Condensed Combined Financial Statements of the Company included elsewhere in
this Prospectus.
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THE ACQUISITION AND THE FINANCING PLAN
On January 9, 1994, Healthtrust, Odyssey Acquisition Corp., a wholly-owned
subsidiary of Healthtrust ("Odyssey") and EPIC entered into a merger agreement
pursuant to which Odyssey will merge into EPIC and EPIC will become a
wholly-owned subsidiary of Healthtrust. Upon consummation of the Acquisition,
the holders of EPIC common stock (and securities exercisable therefor) will
become entitled to receive $7.00 per share in cash from Healthtrust. It is
anticipated that the Company will purchase approximately 35.7 million shares of
EPIC common stock (and securities exercisable therefor) at the closing of the
Acquisition, for an aggregate purchase price of approximately $250.2 million,
comprised of the following securities: (i) approximately 13.6 million shares of
EPIC common stock allocated or allocable to EPIC ESOP participants, (ii)
approximately 15.9 million other shares of outstanding EPIC common stock and
(iii) outstanding stock appreciation rights, warrants and options exercisable
for approximately 6.2 million shares of EPIC common stock. The consummation of
the Acquisition is subject to certain conditions, including, among others, the
approval of the stockholders of EPIC, certain regulatory approvals and the
consent solicitation in connection with the Specified EPIC Debt Securities
described below. The approval of the Acquisition requires the affirmative vote
of the holders of a majority of the outstanding shares of EPIC common stock
entitled to vote thereon. Subject to certain conditions, each of AMI and the
EPIC ESOP Trustee has agreed to vote the shares of EPIC common stock over which
it exercises voting power (in the aggregate approximately 52% of the EPIC common
stock outstanding on January 8, 1994) in favor of the Acquisition.
In connection with the Acquisition, the Company entered into an Amended and
Restated ESOP Agreement (the "ESOP Agreement") with EPIC Holdings, EPIC
Healthcare Group, Inc. ("EPIC Group"), U.S. Trust Company of California, N.A.,
the trustee of the trust established under the EPIC ESOP (the "EPIC ESOP
Trustee") and the EPIC Committee administering the EPIC ESOP. Pursuant to the
ESOP Agreement, all shares of EPIC common stock held by the EPIC ESOP Trustee
and not allocated or allocable to EPIC ESOP participants as of the closing of
the Acquisition (approximately 10.6 million shares) will be returned to EPIC in
full satisfaction of certain loans granted by EPIC to the EPIC ESOP Trustee, and
contributions to the EPIC ESOP will be terminated. Subject to certain Code
limitations, EPIC has agreed to contribute approximately $27.6 million in cash
to the EPIC ESOP upon consummation of the Acquisition or within one business day
thereafter, which contribution will not be applied to repay EPIC ESOP loans but
will be allocated directly to participants' accounts. In addition, following the
Acquisition, the EPIC ESOP participants who continue to be employed by the
Company will be entitled to participate in the Plan or in a similar plan to be
established by the Company (the Plan or such other plan, the "Healthtrust
Plan"). Subject to Code limitations, EPIC will contribute to the EPIC ESOP an
aggregate dollar amount equivalent to the 4% profit sharing contribution
(described below) to which EPIC ESOP participants would have been entitled had
they participated in the Plan from March 1, 1994 through the Acquisition closing
date. In addition, the Company has agreed to provide certain minimum retirement
benefits in accordance with the terms of the Plan and subject to Code
limitations, including (i) a profit sharing contribution by the Company on
behalf of EPIC ESOP participants who participate in the Healthtrust Plan of 4%
of aggregate compensation from the Acquisition closing date through December 31,
1994 and (ii) a matching contribution by the Company of 100% of participants'
salary deferrals for each EPIC ESOP participant who participates in the
Healthtrust Plan, up to a maximum of 3% of compensation, for the period from the
Acquisition closing date through December 31, 1998. In the event that fewer
shares are so allocated or allocable to EPIC ESOP participants as of the closing
or the full amount of contributions to the Healthtrust Plan are not permitted to
be made due to Code limitations, additional contributions will be made in the
future in lieu of any shares not so allocated or allocable and any contributions
not so permitted to be made. The obligations of the parties under the ESOP
Agreement are conditioned upon, among other things, the consummation of the
Acquisition. The foregoing does not purport to be a complete description of the
ESOP Agreement and reference is hereby made to the ESOP Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
In connection with the Acquisition and the related merger agreement, on
March 15, 1994 EPIC and certain of its subsidiaries commenced offers to purchase
up to 100% of the following outstanding debt securities of EPIC at the following
purchase prices: (i) $250.0 million aggregate principal amount (representing an
aggregate accreted value of approximately $172.2 million as of December 31,
1993) of 12% Senior Deferred Coupon Notes due 2002 of EPIC Holdings (the "EPIC
12% Notes") for 112% of accreted value
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(expected to be approximately $178.8 million at the time of purchase), or an
aggregate purchase price of $200.3 million, (ii) $160 million aggregate
principal amount of 10 7/8% Senior Subordinated Notes due 2003 of EPIC Group
(the "EPIC 10 7/8% Notes") for 116% of principal amount, or an aggregate
purchase price of $185.6 million, (iii) $100.0 million aggregate principal
amount (representing an aggregate accreted value of approximately $99.6 million
as of December 31, 1993) of 11 3/8% Class B-1 First Priority Mortgage Notes due
2001 of EPIC Properties (the "EPIC Class 1 Mortgage Notes") for 118 3/4% of
principal amount, or an aggregate purchase price of $118.8 million, (iv) $83.5
million aggregate principal amount (representing an aggregate accreted value of
approximately $83.1 million as of December 31, 1993) of 11 1/2% Class B-2 First
Priority Mortgage Notes due 2001 of EPIC Properties (the "EPIC Class 2 Mortgage
Notes") for 121 1/8% of principal amount, or an aggregate purchase price of
$101.1 million and (v) $15.0 million aggregate principal amount of Floating Rate
Class B-3 First Priority Mortgage Notes due 1998 (with an interest rate of
6 3/8% at February 1, 1994) of EPIC Properties (the "EPIC Class 3 Mortgage
Notes" and, together with the EPIC Class 1 Mortgage Notes and EPIC Class 2
Mortgage Notes, the "EPIC Mortgage Notes") for 103 1/8% of principal amount, or
an aggregate purchase price of $15.5 million. In connection therewith, the
consent of the holders of the Specified EPIC Debt Securities is being solicited
to eliminate or modify substantially all of the restrictive covenants and
certain event of default provisions relating to any Specified EPIC Debt
Securities which remain outstanding after the offers to purchase are completed.
Consent payments of $20 per $1,000 of principal amount will be made with respect
to the Specified EPIC Debt Securities for which consents have been validly
delivered (and not revoked) on or prior to April 13, 1994, the date on which
such consents were accepted. The obligation to make the consent payments is
subject to certain conditions, including the acceptance for purchase and payment
of the applicable issue of Specified EPIC Debt Securities in the Tender Offers.
The obligation to purchase and pay for the Specified EPIC Debt Securities in the
Tender Offers is conditioned upon, among other things, (i) the consummation of
the Acquisition, the Offering and the Common Stock Offering, (ii) the Company
having entered into the 1994 Credit Agreement and having received sufficient
proceeds of borrowings thereunder to consummate the Tender Offers, (iii) receipt
of validly delivered and unrevoked consents from holders of a majority in
aggregate principal amount of each of the EPIC 12% Notes, EPIC 10 7/8% Notes and
EPIC Mortgage Notes and (iv) there having been validly tendered and not
withdrawn at least a majority in aggregate principal amount of each of the EPIC
12% Notes, EPIC 10 7/8% Notes and EPIC Mortgage Notes. On April 14, 1994, after
receiving tenders and related consents from the holders of 100%, 100% and 95.1%
of the outstanding EPIC 12% Notes, EPIC 10 7/8% Notes and EPIC Mortgage Notes,
respectively (the "Current Tender Amounts"), supplemental indentures giving
effect to the proposed modifications to the Specified EPIC Debt Securities were
executed. Holders of tendered Specified EPIC Debt Securities will no longer be
entitled to withdraw such securities or their related consents (except as
otherwise provided pursuant to the terms of the Tender Offers).
Following the consummation of the Acquisition, it is anticipated that 100%
of the following outstanding indebtedness of EPIC Group will be redeemed or
prepaid in accordance with the provisions thereof: (i) approximately $74.8
million aggregate principal amount (representing an aggregate accreted value of
approximately $72.3 million as of December 31, 1993) of 11 7/8% Senior ESOP
Notes due 1998 (the "EPIC ESOP Notes"), (ii) approximately $96.4 million
aggregate principal amount (representing an aggregate accreted value of
approximately $31.9 million as of December 31, 1993) of Zero Coupon Notes due
2001 (the "EPIC Zero Coupon Notes") (with an effective interest rate of 14.8% at
December 31, 1993), (iii) approximately $30.9 million aggregate principal amount
(representing an aggregate accreted value of approximately $20.0 million as of
December 31, 1993) of 11% Junior Subordinated Pay-In-Kind Notes due 2003 and
(iv) approximately $18.7 million principal amount outstanding under EPIC's
existing bank credit facility. During the first quarter of EPIC's 1993 fiscal
year, a subsidiary of EPIC Group purchased $5.4 million of EPIC ESOP Notes in
the open market.
The Acquisition, the Tender Offers and the Debt Redemption will be financed
through the following:
(i) the Offering;
(ii) the public offering by the Company of 5,200,000 shares of Common
Stock;
(iii) the refinancing of the Company's existing bank credit facility
with a new bank credit facility described below, which will provide for
aggregate commitments of up to $1.2 billion; and
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(iv) cash on hand.
The Company and The Bank of Nova Scotia, as administrative agent (the
"Administrative Agent") on behalf of a syndicate of banks to be formed, have
executed a commitment letter dated March 15, 1994 (the "Commitment Letter")
providing for the Company and such banks to enter into the 1994 Credit
Agreement. Pursuant to the Commitment Letter, the Company will be able to borrow
up to an aggregate of $1.2 billion, consisting of (i) a revolving facility in an
aggregate amount of $400.0 million (the "Revolving Facility"), with the proceeds
thereof being available to pay in part the cash consideration for the
Acquisition, the Financing Plan (as hereinafter defined) and the acquisition of
certain other health care related facilities and assets (the "Other
Transactions"), and financing the Company's ongoing working capital and general
corporate needs, (ii) a term loan facility in an aggregate amount of $415.0
million (the "Term Facility"), with the proceeds thereof being available solely
to pay in part the cash consideration of the Tender Offers and (iii) a declining
delayed term loan facility in an initial aggregate amount of $385.0 million (the
"Delayed Term Facility"), with the proceeds thereof being available solely to
pay in part the cash consideration for the Debt Redemption and the Other
Transactions. Under the 1994 Credit Agreement, and after giving effect to the
Acquisition and the Financing Plan, the Company expects to have available an
aggregate of approximately $487.3 million of unutilized commitments, assuming
100% of each issue of Specified EPIC Debt Securities is purchased in the Tender
Offers.
The loans to be provided under the 1994 Credit Agreement (the "1994 Loans")
will bear interest at fluctuating rates equal, at the Company's option, to
either (a) an alternate base rate (equal to the higher of the Administrative
Agent's base rate for dollar loans or the federal funds rate plus 50 basis
points) plus 50 basis points or (b) the Administrative Agent's reserve-adjusted
LIBOR rate plus 150 basis points, and in each case subject to mutually agreed
upon increases and reductions. The 1994 Loans will be secured by pledges of the
shares of capital stock of, and will be guaranteed by, virtually all of the
Company's direct and indirect subsidiaries. Pursuant to the Commitment Letter,
the Company will be required to deliver pledges of capital stock and guarantees
of certain EPIC entities within a specified period of time after the initial
borrowings. If the Debt Redemption is not consummated, such pledges and
guarantees will result in a default under certain outstanding EPIC indebtedness.
The 1994 Loans provided pursuant to the Term Facility will be subject to
semiannual repayment requirements commencing on the six month anniversary of the
initial borrowings and the 1994 Loans provided pursuant to the Delayed Term
Facility will be subject to semiannual repayment requirements commencing on the
two year anniversary of the initial borrowings. The 1994 Loans must be repaid in
full not later than the seven year anniversary of the initial borrowings. In
addition to the scheduled repayments, the Company also will be required, subject
to certain exceptions, to repay the 1994 Loans with all or a portion of the cash
proceeds from sales of assets, subsidiary stock, or accounts receivable or the
cash proceeds from any refinancing of the 1994 Credit Agreement. The Commitment
Letter provides that the 1994 Credit Agreement will contain a number of
customary covenants, including those restricting the incurrence of indebtedness,
the creation or existence of liens, the declaration or payment of dividends,
certain other investments, the acquisition of debt and equity securities of the
Company, certain corporate transactions such as sales of substantial assets,
mergers or consolidations or other transactions outside of the ordinary course
of business. The Company will also be required to comply with certain financial
maintenance covenants.
The obligations of the Administrative Agent under the Commitment Letter are
conditioned upon, among other things, (i) the execution and delivery of the 1994
Credit Agreement and related documentation; (ii) the Company's receipt of gross
cash proceeds from the Offering of not less than $200.0 million; (iii) the
Company's receipt of gross cash proceeds from the Common Stock Offering of not
less than $140.0 million; (iv) the sum of (w) the gross cash proceeds received
from the Offering, (x) the gross cash proceeds received from the Common Stock
Offering, (y) cash on hand and (z) the amounts available under the 1994 Credit
Agreement being sufficient to consummate the Acquisition, the Tender Offers, the
Debt Redemption and the Other Transactions; (v) the consummation of the Tender
Offers and (vi) the absence of any event of default having occurred as a result
of the Acquisition, the Tender Offer, the Debt Redemption or the Other
Transactions under any of the indentures governing the Specified EPIC Debt
Securities or the EPIC Redeemable Debt. If, for any reason, the conditions to
the Administrative Agent's obligations under the Commitment Letter cannot be
satisfied, the Company anticipates that its existing credit facility will be
15
<PAGE> 17
amended or that a new credit agreement will be entered into in order to permit
the Company to proceed with the Acquisition.
The Tender Offers, the Debt Redemption, the Offering, the Common Stock
Offering and the 1994 Credit Facility are hereinafter referred to as the
"Financing Plan." The Offering is expected to occur substantially
contemporaneously with the Acquisition, the Common Stock Offering, the Debt
Redemption and the 1994 Credit Agreement, and is conditioned upon the
consummation of the Acquisition. It is anticipated that the Tender Offers will
remain open until approximately five business days after the consummation of the
Acquisition.
The following table sets forth the sources of funds to be used to effect
the Acquisition, the Tender Offers and the Debt Redemption, assuming (i) $200.0
million aggregate principal amount of Securities are sold by the Company in the
Offering at a public offering price of 100% of principal amount, (ii) 5,200,000
shares of Common Stock are sold by the Company in the Common Stock Offering at a
public offering price of $30.50 per share (the average of the high and low
prices for the Common Stock reported on the NYSE for March 31, 1994), (iii)
approximately 35,746,000 shares of EPIC common stock (and securities exercisable
therefor) are purchased pursuant to the Acquisition and (iv) 100% of each issue
of the Specified EPIC Debt Securities is purchased in the Tender Offers.
ACQUISITION AND FINANCING PLAN
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
SOURCES OF FUNDS
Cash on hand(1)................................................ $ 186.4
1994 Credit Agreement.......................................... 712.7
The Common Stock Offering...................................... 158.6
The Offering................................................... 200.0
--------
Total................................................ $1,257.7
--------
--------
USE OF FUNDS
Purchase of EPIC equity in Acquisition......................... $ 250.2
Tender Offers(2)............................................... 633.4
Debt Redemption................................................ 157.5
Refinancing of existing bank credit facility................... 150.3
Payment in connection with EPIC ESOP termination............... 27.6
Estimated Fees and Expenses(3)................................. 38.7
--------
Total................................................ $1,257.7
--------
--------
</TABLE>
- ---------------
(1) Cash on hand of $186.4 million consists of as reported Healthtrust cash of
$159.8 million, plus as reported EPIC cash of $55.1 million, less cash used
in connection with EPIC's redemption of its 15% Senior Subordinated Notes of
$8.5 million, less a cash balance to be maintained of $20.0 million.
(2) Represents (a) the principal amount of the EPIC 10 7/8% Notes and the EPIC
Class 3 Mortgage Notes, (b) the accreted value as of December 31, 1993 of
the EPIC 12% Notes, EPIC Class 1 Mortgage Notes and EPIC Class 2 Mortgage
Notes and (c) $103.5 million of aggregate premiums and consent payments.
(3) Includes underwriting discounts and commissions with respect to the Company,
bank fees and legal and accounting expenses.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities in the
Offering are estimated to be approximately $ million. The Company intends to
use the net proceeds of the Offering, together with the net proceeds of the
Common Stock Offering, borrowings under the 1994 Credit Agreement and cash on
hand, to effect the Acquisition, the Tender Offers and the Debt Redemption. The
EPIC 10 7/8% Notes, which are subject to repurchase pursuant to the Tender
Offers, were issued by EPIC Group in June 1993 to refinance certain outstanding
long-term indebtedness. See "The Acquisition and the Financing Plan."
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 28, 1994, of EPIC as of December 31, 1993 and combined as adjusted to
reflect the Acquisition, the Offering, the Common Stock Offering and the other
transactions contemplated by the Financing Plan. This table should be read in
conjunction with "The Acquisition and the Financing Plan," the Unaudited Pro
Forma Condensed Combined Financial Statements of the Company and the historical
financial statements of the Company and EPIC and the notes thereto included or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28, 1994
HEALTHTRUST EPIC COMBINED
ACTUAL ACTUAL AS ADJUSTED
--------------------- ------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
LONG-TERM DEBT:
Bank Indebtedness.................................................... $ 150.3 $ -- $ 712.7
10 3/4% Subordinated Notes due 2002.................................. 500.0 -- 500.0
8 3/4% Subordinated Debentures due 2005.............................. 300.0 -- 300.0
Securities offered hereby............................................ -- -- 200.0
Specified EPIC Debt Securities....................................... -- 529.9 --(1)
EPIC Redeemable Debt................................................. -- 142.6 --
EPIC Group 15% Senior Subordinated Notes(2).......................... -- 40.3 --
Other Debt........................................................... 16.7 20.4 37.1
-------- ------- --------
Less Current Portion............................................. (35.6) (48.0) (43.9)
-------- ------- --------
Total Long-Term Debt......................................... 931.4 685.2 1,705.9
</TABLE>
<TABLE>
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value: 400,000,000 shares authorized,
81,221,108 shares issued and outstanding(3)........................ 0.1 -- 0.1
EPIC common stock, $.01 par value: 100,000,000 shares authorized,
40,167,753 shares issued and outstanding(4)........................ -- 0.4 --
Additional paid-in capital(6)........................................ 828.3 245.8 828.3
Common Stock Offering(5)......................................... -- -- 152.3
Deferred compensation................................................ (0.6) (137.4) (0.6)
Retained deficit..................................................... (83.4) (191.7) (83.4)
-------- ------- --------
Total Stockholders' Equity................................... 744.4 (82.9) 896.7
-------- ------- --------
Total Capitalization......................................... $ 1,675.8 $ 602.3 $ 2,602.6
-------- ------- --------
-------- ------- --------
</TABLE>
- ---------------
(1) Assumes 100% of each issue of Specified EPIC Debt Securities is purchased in
the Tender Offers.
(2) EPIC redeemed such indebtedness in February 1994.
(3) Excludes (i) 7,812,849 shares of Common Stock reserved for issuance under
the Company's stock plans and upon exercise of options granted under the
Company's stock option plans; and (ii) 3,409,219 shares of Common Stock
reserved for issuance upon the exercise of warrants to purchase Common Stock
("Warrants"). Also excludes approximately 900,000 shares of Common Stock to
be issued and contributed by the Company to the Plan on or about May 15,
1994.
(4) As of January 8, 1994. Excludes 6,227,165 shares reserved for issuance upon
exercise of certain options, stock appreciation rights and warrants.
(5) Excludes 3,409,219 shares of Common Stock issuable upon the exercise of
Warrants, of which 1,015,312 shares will be sold in the Common Stock
Offering by the holders thereof. Holders of Warrants that are outstanding
following consummation of the Common Stock Offering remain entitled to
certain demand and incidental registration rights in connection with their
securities.
(6) Additional paid-in capital with respect to the Company equals the total
amount of (i) the net proceeds of the Company's initial public offering of
Common Stock, (ii) the net proceeds of the sales of Common Stock to the
ESOP, (iii) the estimated value of shares of Common Stock awarded under the
Company's stock plans, (iv) the estimated aggregate fair market value of
Warrants that were issued to HCA and certain other investors in connection
with the Formation and the financing thereof and (v) the estimated aggregate
fair market value of the Company's preferred stock surrendered by HCA upon
exercise of Warrants to receive Common Stock, minus (vi) dividends paid and
accrued and accretion of discount on preferred stock. In connection with the
Formation, the Company issued Warrants exercisable for an aggregate of
36,874,551 shares of Common Stock (33,460,240 shares for HCA and 3,414,311
shares of certain other investors). The Company initially recorded its
Warrants at an aggregate fair value of $117.0 million, or $3.18 per Warrant,
as determined by an independent investment banking firm subsequent to the
Formation. HCA recorded the fair value of its investment in the Warrants at
$37.0 million or $1.11 per Warrant, based upon a valuation range determined
by another investment banking firm. These respective values were based upon
a number of assumptions and projections as to financial results, including
estimates by the investment banking firms of the discounted present value of
a share of Common Stock at September 17, 1987 ($3.38 in the case of the
Warrant value recorded by the Company and a range of $.66 to $1.59 in the
case of the Warrant value recorded by HCA). Each such estimate was based
upon, among other things, certain different assumptions in the valuation of
the Warrants as to the investment objectives of a purchaser of such Warrants
(and, accordingly, an annual yield assumption for discounting to the date of
the Formation the estimated value of a share of Common Stock at a future
date) and the number of shares of Common Stock subject to the Warrants.
After further review, the Company decreased the amount recorded for Warrants
to $52.0 million, or $1.41 per Warrant. In addition, EPIC has received
determinations of the fair value of the EPIC common stock from independent
financial advisors that valued such stock at prices lower than the amount
paid therefor by the EPIC ESOP in connection with the EPIC Formation.
18
<PAGE> 20
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables set forth selected historical financial information
for (i) the Company for each of the years in the five-year period ended August
31, 1993 and for the six months ended February 28, 1994 and 1993; and (ii) EPIC
for each of the years in the five-year period ended September 30, 1993 and for
the three months ended December 31, 1993 and 1992. The selected financial
information for the Company and EPIC for each of the years in the five-year
periods ended August 31, 1993 and September 30, 1993, respectively, are derived
from the consolidated financial statements of the Company and EPIC, each of
which have been audited by Ernst & Young, independent auditors. The selected
financial information for the Company for the six months ended February 28, 1994
and 1993 and for EPIC for the three months ended December 31, 1993 and 1992, are
derived from unaudited condensed consolidated financial statements of the
Company and EPIC and reflect all adjustments (consisting of normal recurring
adjustments) that, in the opinion of management, are necessary for a fair
presentation of such information. Operating results for the six months ended
February 28, 1994 and the three months ended December 31, 1993 are not
necessarily indicative of the results that may be expected for the Company's
fiscal year ending August 31, 1994.
All information contained in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the consolidated financial statements and
related notes of the Company and EPIC included or incorporated by reference
herein.
19
<PAGE> 21
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenue......................... $1,274.6 $1,189.7 $2,394.6 $2,265.3 $2,025.7 $1,856.9 $1,769.1
Hospital service costs........................ 1,000.9 926.0 1,888.6 1,796.0 1,615.8 1,488.2 1,429.9
Depreciation and amortization................. 69.7 64.9 132.7 127.5 120.8 119.2 121.5
Interest expense.............................. 42.3 50.9 99.8 119.6 152.6 161.1 189.8
ESOP/pension expense.......................... 20.5 23.1 39.0 38.7 97.0 100.7 138.6
Deferred compensation expense................. 0.6 3.0 4.3 8.1 18.7 31.1 27.2
Other (income) expense, net................... (8.7) (6.3) (7.6) (4.6) (14.5) 23.1 14.8
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interests,
taxes and extraordinary charges........... 149.3 128.1 237.8 180.0 35.3 (66.5) (152.7)
Minority interests............................ 4.1 7.4 11.9 15.3 13.3 8.6 1.7
Income tax expense (benefit).................. 59.0 49.4 90.7 71.4 15.4 (21.9) (53.1)
Extraordinary charges (net of taxes)(1)....... -- -- 13.6 136.4 -- 5.8 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........................... 86.2 71.3 121.6 (43.1) 6.6 (59.0) (101.3)
Redeemable preferred stock dividends.......... -- -- -- 24.6 76.3 65.7 58.6
-------- -------- -------- -------- -------- -------- --------
Net income (loss) to common stockholders.... $ 86.2 $ 71.3 $ 121.6 $ (67.7) $ (69.7) $ (124.7) $ (159.9)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
EARNINGS (LOSS) PER SHARE:
Before extraordinary charges.................. $ 1.02 $ 0.85 $ 1.62 $ 0.90 $ (1.15) $ (2.03) $ (2.78)
Extraordinary charges......................... -- -- 0.16 1.78 -- 0.10 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per common share............ $ 1.02 $ 0.85 $ 1.46 $ (0.88) $ (1.15) $ (2.13) $ (2.78)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Ratio of earnings to fixed charges(2)(3)...... 3.6x 3.0x 2.8x 2.2x 1.1x -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28, AS OF AUGUST 31,
------------ --------------------------------------------------------
1994 1993 1992 1991 1990 1989
------------ -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments..................... $ 159.8 $ 151.3 $ 172.6 $ 302.6 $ 230.7 $ 12.2
Working capital..................................... 291.6 219.1 245.3 390.2 309.8 72.9
Total assets........................................ 2,515.8 2,536.7 2,379.7 2,445.4 2,293.8 2,210.6
Long-term debt...................................... 931.4 948.6 1,033.9 1,150.0 1,155.6 1,151.3
Redeemable preferred stock.......................... -- -- -- 575.9 499.6 433.9
Stockholders' equity................................ 744.4 655.7 530.8 88.0 42.1 34.9
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
----------------- --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Additions to property, plant and equipment........ $ 83.7 $ 85.9 $219.5 $178.1 $170.3 $120.8 $ 98.4
Acquisitions...................................... -- 1.6 101.9 -- -- -- --
Ratio of operating cash flow to interest
expense(4)...................................... 6.5x 5.2x 4.8x 3.9x 2.7x 2.3x 1.8x
</TABLE>
- ---------------
(1) Extraordinary after-tax charges relate to the early extinguishment of debt.
(2) The ratio of earnings to fixed charges was computed by dividing (i) income
from continuing operations before fixed charges and income taxes by (ii)
fixed charges, which consist of interest charges (interest expense plus
interest charged to construction) and the portion of rent expense which is
deemed to be equivalent to interest expense.
(3) The Company's earnings were inadequate to cover fixed charges for the years
ended August 31, 1990 and 1989 by $75.5 million and $154.5 million,
respectively.
(4) Operating cash flow represents net operating revenue less hospital service
costs. For purposes of calculating the ratio of operating cash flow to
interest expense, hospital service costs have been adjusted to include $25.5
million of cash ESOP/pension expense for the year ended August 31, 1993 (the
only period presented which included cash ESOP/pension expense). Operating
cash flow and the ratio of operating cash flow to interest expense do not
take into account certain expenses that are reflected in the calculation of
net income in accordance with GAAP, are not intended to represent any
measure of performance in accordance with GAAP, and should not be considered
in isolation or as a substitute for cash provided by operating activities,
net income or any other consolidated income statement data prepared in
accordance with GAAP. The ratio of operating cash flow to interest expense
is included herein because the Company believes that it may be a useful tool
for investors in measuring a company's ability to service its debt.
20
<PAGE> 22
EPIC HOLDINGS, INC.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
------------------- ---------------------------------------------------------
1993 1992 1993 1992 1991 1990 1989
------- ------- --------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenue.................... $ 272.5 $ 244.4 $ 1,019.1 $ 941.3 $ 802.7 $ 742.4 $ 613.2
Hospital service costs................... 236.2 215.1 873.7 809.9 683.3 631.7 520.1
Depreciation and amortization............ 13.1 13.8 57.9 53.0 49.3 47.5 44.4
Interest expense......................... 23.8 22.0 89.9 79.8 68.3 69.2 76.2
ESOP expense............................. 5.7 5.2 20.7 20.7 23.1 15.4 16.9
Deferred compensation expense............ 0.7 (0.5) 3.8 11.8 8.1 5.8 15.6
Other income, net........................ (0.8) (0.6) (7.2) (2.8) (4.9) (5.1) (8.2)
------- ------- --------- ------- ------- ------- -------
Loss before minority interests, taxes
and extraordinary charges............ (6.2) (10.6) (19.7) (31.1) (24.5) (22.1) (51.8)
Minority interests....................... 1.7 0.6 3.5 2.0 2.1 1.8 0.1
Income tax expense (benefit)............. 0.4 0.2 2.0 (9.3) (7.6) (6.6) (17.0)
Extraordinary charges (net of
taxes)(1).............................. 0.6 21.9 1.3 2.6 -- --
------- ------- --------- ------- ------- ------- -------
Net loss............................... (8.3) (12.0) (47.1) (25.1) (21.6) (17.3) (34.9)
Redeemable preferred stock dividends..... -- -- -- 11.1 22.8 19.0 18.1
------- ------- --------- ------- ------- ------- -------
Net loss to common stockholders........ $ (8.3) $ (12.0) $ (47.1) $ (36.2) $ (44.4) $ (36.3) $ (53.0)
------- ------- --------- ------- ------- ------- -------
------- ------- --------- ------- ------- ------- -------
LOSS PER SHARE:
Before extraordinary charges............. $ (0.21) $ (0.28) $ (0.63) $ (1.07) $ (1.71) $ (1.48) $ (2.16)
Extraordinary charges.................... -- 0.01 0.55 0.04 0.11 -- --
------- ------- --------- ------- ------- ------- -------
Net loss per common share................ $ (0.21) $ (0.29) $ (1.18) $ (1.11) $ (1.82) $ (1.48) $ (2.16)
------- ------- --------- ------- ------- ------- -------
------- ------- --------- ------- ------- ------- -------
Ratio of earnings to fixed
charges(2)(3).......................... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF SEPTEMBER 30,
------------ -------------------------------------------------------
1993 1993 1992 1991 1990 1989
------------ ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments................. $ 89.3 $ 112.5 $ 53.8 $ 84.6 $ 69.1 $ 71.3
Working capital................................. 37.6 35.1 41.3 53.7 8.3 2.8
Total assets.................................... 898.5 875.0 780.8 763.4 758.0 743.2
Long-term debt.................................. 685.2 679.6 619.4 478.3 462.5 481.4
Redeemable preferred stock...................... -- -- -- 186.0 163.2 144.2
Stockholders' deficit........................... (82.9) (85.3) (58.4) (101.7) (79.9) (58.9)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
----------------- ------------------------------------------------------
1993 1992 1993 1992 1991 1990 1989
------ ------ ------- ------- ------- ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Additions to property, plant and equipment.... $ 23.4 $ 7.4 $ 60.8 $ 47.8 $ 25.6 $ 40.2 $ 19.4
Acquisitions.................................. 1.0 4.1 54.5 12.3 -- -- --
Ratio of operating cash flow to interest
expense(4).................................. 1.5x 1.3x 1.6x 1.6x 1.7x 1.6x 1.2x
</TABLE>
- ---------------
(1) Extraordinary after-tax charges relate to the early extinguishment of debt.
(2) The ratio of earnings to fixed charges was computed by dividing (i) income
from continuing operations before fixed charges and income taxes by (ii)
fixed charges, which consist of interest charges (interest expense plus
interest charged to construction) and the portion of rent expense which is
deemed to be equivalent to interest expense.
(3) EPIC's earnings were inadequate to cover fixed charges for the three months
ended December 31, 1993 and 1992 by $7.9 million and $11.5 million,
respectively, and the years ended September 30, 1993, 1992, 1991, 1990 and
1989 by $24.2 million, $34.1 million, $27.7 million, $24.9 million and $51.9
million, respectively.
(4) Operating cash flow represents net operating revenue less hospital service
costs. Operating cash flow and the ratio of operating cash flow to interest
expense do not take into account certain expenses that are reflected in the
calculation of net income in accordance with GAAP, are not intended to
represent any measure of performance in accordance with GAAP, and should not
be considered in isolation or as a substitute for cash provided by operating
activities, net income or any other consolidated income statement data
prepared in accordance with GAAP. The ratio of operating cash flow to
interest expense is included herein because the Company believes that it may
be a useful tool for investors in measuring a company's ability to service
its debt.
21
<PAGE> 23
SELECTED PRO FORMA FINANCIAL INFORMATION
The following selected pro forma financial information is derived from the
Unaudited Pro Forma Condensed Combined Financial Statements included elsewhere
in this Prospectus and is based upon the consolidated financial statements of
each of the Company and EPIC, adjusted to give effect to the Acquisition and the
Financing Plan. The selected pro forma statement of operations data for the year
ended August 31, 1993 and the six months ended February 28, 1994 gives effect to
the Acquisition and the Financing Plan as if they had occurred on September 1,
1992. The pro forma balance sheet data as of February 28, 1994 gives effect to
the Acquisition and the Financing Plan as if they had occurred on February 28,
1994.
All information contained in the following tables should be read in
conjunction with "The Acquisition and the Financing Plan," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Unaudited Pro Forma Condensed Combined Financial Statements of
the Company and the consolidated financial statements and related notes of the
Company and EPIC included or incorporated by reference herein.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1994 1993
------------ -----------
(UNAUDITED)
<S> <C> <C>
(DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net operating revenue...................................................... $1,811.8 $ 3,413.7
Hospital service costs..................................................... 1,463.4 2,762.3
Depreciation and amortization.............................................. 104.3 201.2
Interest expense........................................................... 71.1 158.1
ESOP/pension expense....................................................... 31.3 59.7
Deferred compensation expense.............................................. 0.6 4.3
Other income, net.......................................................... (4.0) (6.9)
------------ -----------
Income before minority interests, taxes and extraordinary charges.......... 145.1 235.0
Minority interests......................................................... 6.9 15.4
Income tax expense......................................................... 57.6 91.9
------------ -----------
Net income before extraordinary charges.................................... $ 80.6 $ 127.7
------------ -----------
------------ -----------
Earnings per share before extraordinary charges............................ $ 0.90 $ 1.44
------------ -----------
------------ -----------
Pro forma ratio of earnings to fixed charges(1)............................ 2.5x 2.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28,
1994
---------------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Cash and short-term investments.......................................... $ 20.0
Working capital.......................................................... 132.9
Total assets............................................................. 3,665.8
Long-term debt........................................................... 1,705.9
Stockholders' equity..................................................... 896.7
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY YEAR ENDED
28, AUGUST 31,
1994 1993
----------- -----------
<S> <C> <C>
OTHER DATA:
Ratio of operating cash flow to interest expense(2)......................... 4.9x 4.0x
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges was computed by dividing (i) income
from continuing operations before fixed charges and income taxes by (ii)
fixed charges, which consist of interest charges (interest expense plus
interest charged to construction) and the portion of rent expense which is
deemed to be equivalent to interest expense.
(2) Operating cash flow represents net operating revenue less hospital service
costs. For purposes of calculating the ratio of operating cash flow to
interest expense, the Company's hospital service costs have been adjusted to
include $25.5 million of cash ESOP/pension expense for the year ended August
31, 1993 (the only period presented which included cash ESOP/pension
expense). Operating cash flow and the ratio of operating cash flow to
interest expense do not take into account certain expenses that are
reflected in the calculation of net income in accordance with GAAP, are not
intended to represent any measure of performance in accordance with GAAP,
and should not be considered in isolation or as a substitute for cash
provided by operating activities, net income or any other consolidated
income statement data prepared in accordance with GAAP. The ratio of
operating cash flow to interest expense is included herein because the
Company believes that it may be a useful tool for investors in measuring a
company's ability to service its debt.
22
<PAGE> 24
SELECTED OPERATING STATISTICS
The following tables set forth certain operating statistics for the
hospitals operated by the Company and EPIC for each of the periods indicated.
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1993 1992 1991
---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
HISTORICAL OPERATING DATA:
Number of hospitals.................................... 81 81 85
Bed capacity(1)........................................ 11,233 11,374 11,607
Gross revenue:(2)
Inpatient............................................ $ 2,594.2 $ 2,439.3 $ 2,148.6
Outpatient........................................... $ 1,181.6 $ 1,021.9 $ 814.2
Net operating revenue(3)............................... $ 2,394.6 $ 2,265.3 $ 2,025.7
Patient days........................................... 1,541,536 1,616,340 1,658,061
Adjusted patient days(4)............................... 2,243,677 2,293,453 2,286,357
Average length of stay (days).......................... 5.4 5.5 5.7
Admissions............................................. 284,606 291,599 293,344
Adjusted admissions(5)................................. 414,239 413,755 404,502
Occupancy rate(6)...................................... 40.5% 40.2% 40.4%
Operating margin(7).................................... 21.1% 20.7% 20.2%
</TABLE>
EPIC HOLDINGS, INC.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
HISTORICAL OPERATING DATA:
Number of hospitals........................................ 34 35 34
Bed capacity(1)............................................ 4,444 4,332 4,296
Net operating revenue:(3)
Acute inpatient net revenue.............................. $ 469.2 $ 489.1 $ 454.4
Outpatient net revenue................................... 317.2 282.1 234.7
Other net revenue(8)..................................... 232.7 170.1 113.6
-------- -------- --------
Net operating revenue...................................... $1,019.1 $ 941.3 $ 802.7
Patient days............................................... 589,283 641,373 643,210
Adjusted patient days(4)................................... 943,355 940,046 906,640
Average length of stay (days).............................. 5.8 6.0 6.0
Admissions................................................. 101,487 106,990 106,534
Adjusted admissions(5)..................................... 162,466 156,813 150,134
Occupancy rate(6).......................................... 39% 40% 41%
Operating margin(7)........................................ 14.3% 14.0% 14.9%
</TABLE>
- ---------------
(1) Average number of licensed beds during the period. "Licensed beds" are those
beds for which a facility has been granted approval to operate from the
appropriate state licensing agency.
(2) Gross revenue represents the hospitals' standard charges for services
performed prior to any contractual adjustments and/or policy discounts.
(3) Net operating revenue represents gross revenue less any contractual
adjustments and/or policy discounts.
(4) Represents actual patient days adjusted to include outpatient and emergency
room services by multiplying actual patient days by the sum of inpatient
revenue and outpatient revenue and dividing the result by inpatient revenue.
(5) Represents actual admissions adjusted to include outpatient and emergency
room services by multiplying actual admissions by the sum of inpatient
revenue and outpatient revenue and dividing the result by inpatient revenue.
(6) Based on the number of licensed beds in service.
(7) Operating margin for each period presented refers to the result obtained by
dividing (i) net operating revenue less hospital service costs by (ii) net
operating revenue.
(8) Other net revenue includes revenue from skilled nursing, rehabilitation and
geropsychiatric units, home health visits and management contract fees.
23
<PAGE> 25
DESCRIPTION OF EPIC
EPIC is a health care services provider that owns and operates acute care
hospitals and related health care businesses. EPIC owns and operates 34 general
acute care hospitals with a total of 4,444 licensed beds, and has approximately
11,200 full time equivalent employees. EPIC's hospitals offer inpatient,
outpatient and other specialty services and are situated primarily in suburban
locations and cities in 10 southern, southwestern and western states. In
addition, EPIC offers, as an extension of its basic health care services,
certain specialty programs and services, including home health care,
rehabilitation services, skilled nursing care, health care management services
and selected mental health services. Twenty-seven of EPIC's hospitals are
located in Texas, California, Oklahoma or Louisiana. EPIC also owns or manages
(i) associated medical office buildings, as well as related health care
businesses, (ii) two long-term care facilities, (iii) certain vacant developed
and undeveloped properties and (iv) a 238,000 square foot office facility in
Dallas, Texas which serves as its administrative support center. EPIC is also
constructing a 125-bed acute care facility in Mandeville, Louisiana which is
expected to be completed in June 1994. As of December 6, 1993, the EPIC ESOP,
which was established to increase incentives to EPIC employees and to finance
the EPIC Formation, owned approximately 60.8% (53% on a fully-diluted basis) of
the EPIC common stock outstanding. Pursuant to the ESOP Agreement and in
connection with the Acquisition, contributions to the EPIC ESOP will be
terminated. See "Properties" and "EPIC Management's Discussion and Analysis of
Financial Condition and Results of Operations."
There is no established trading market for the common stock of EPIC
Holdings. The EPIC Holdings common stock is not listed on any securities
exchange or quoted on the National Association of Securities Dealers Automated
Quotation System. As of December 14, 1993, there were 43 holders of record of
the EPIC Holdings common stock. In addition, there is no established trading
market for the common stock of EPIC Group, and as of December 14, 1993, EPIC
Holdings was the only holder of record thereof. Each share of EPIC Holdings
common stock and EPIC Group common stock has an equal and ratable right to
receive dividends to be paid from EPIC's assets legally available therefor when,
as and if declared by the Board of Directors of EPIC Holdings or EPIC Group, as
the case may be. No dividends have been paid on the EPIC Holdings common stock.
Cash dividends of $1,022,000 were paid on the EPIC Group common stock in
September 1993. The declaration and payment of dividends on the EPIC Holdings
common stock and EPIC Group common stock are restricted by the terms of the
instruments governing certain of EPIC's outstanding long-term indebtedness. It
is anticipated that if the Acquisition and the Financing Plan (including the
Tender Offers or the related consent solicitation) are consummated, such
restrictions will be eliminated.
PROPERTIES
The following table sets forth certain information relating to each of the
hospitals operated by the Company at November 1, 1993 and by EPIC at September
30, 1993, grouped by state. Hospitals operated by EPIC appear in italicized
type. Unless otherwise noted below, all hospitals are wholly-owned by
subsidiaries of the Company or EPIC.
<TABLE>
<CAPTION>
NUMBER OF
STATE NAME LOCATION LICENSED BEDS
- ---------------- ------------------------------------------ ------------------- -------------
<S> <C> <C> <C>
Alabama Andalusia Hospital Andalusia 77
Crestwood Hospital Huntsville 120
Selma Medical Center Selma 214
Arizona El Dorado Hospital & Medical Center Tucson 166
Northwest Hospital Tucson 150
Arkansas DeQueen Regional Medical Center DeQueen 122
*Medical Park Hospital Hope 91
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
NUMBER OF
STATE NAME LOCATION LICENSED BEDS
- ---------------- ------------------------------------------ ------------------- -------------
<S> <C> <C> <C>
California Chino Community Hospital Chino 118
Palm Drive Hospital Sebastopol 56
*Healdsburg General Hospital Healdsburg 49
*Mission Bay Memorial Hospital San Diego 150
*Visalia Community Hospital Visalia 52
Westside Hospital(1) Los Angeles 87
Florida North Okaloosa Medical Center Crestview 110
Palm Beach Regional Hospital Lake Worth 200
East Pointe Hospital Lehigh Acres 88
Palms West Hospital Loxahatchee 117
Santa Rosa Medical Center(2) Milton 129
Plantation General Hospital(3) Plantation 264
Edward White Hospital St. Petersburg 167
South Bay Hospital Sun City Center 112
*Clearwater Community Hospital(4) Clearwater 133
*Lake City Medical Center Lake City 75
Georgia Doctors Hospital(5) Columbus 248
Lanier Park Regional Hospital Gainesville 124
*Barrow Medical Center Winder 60
Idaho West Valley Medical Center Caldwell 150
Eastern Idaho Regional Medical Center Idaho Falls 286
Indiana Terre Haute Regional Hospital Terre Haute 284
Kentucky Scott General Hospital Georgetown 75
Spring View Hospital Lebanon 113
PineLake Medical Center Mayfield 116
Meadowview Regional Hospital Maysville 111
Bourbon General Hospital Paris 60
Logan Memorial Hospital Russellville 100
Louisiana Medical Center of Baton Rouge Baton Rouge 225
Medical Center of SW Louisiana Lafayette 166
Women's and Children's Hospital(6) Lafayette 93
Lakeside Hospital Metairie 186
Dauterive Hospital New Iberia 113
Doctor's Hospital of Opelousas(7)(8) Opelousas 133
*Highland Park Hospital Covington 104
*Riverview Medical Center Gonzales 104
Mississippi Vicksburg Medical Center Vicksburg 144
*Garden Park Community Hospital(9) Gulfport 120
Missouri Springfield Community Hospital Springfield 200
North Carolina Davis Community Hospital Statesville 149
The Brunswick Hospital(10) Supply 60
Heritage Hospital Tarboro 127
Oklahoma Edmond Regional Medical Center Edmond 139
Wagoner Community Hospital(11) Wagoner 100
*Claremore Hospital Claremore 89
*Doctor's Medical Center Tulsa 211
*Southwestern Medical Center Lawton 108
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
NUMBER OF
STATE NAME LOCATION LICENSED BEDS
- ---------------- ------------------------------------------ ------------------- -------------
<S> <C> <C> <C>
Oregon McMinnville Community Hospital McMinnville 80
Douglas Community Hospital Roseburg 118
South Carolina Marlboro Park Hospital Bennettsville 111
Chesterfield General Hospital Cheraw 72
Colleton Regional Hospital Walterboro 131
Doctor's Memorial Hospital(8)(12) Spartanburg 108
Tennessee Smith County Memorial Hospital Carthage 66
Sycamore Shoals Hospital Elizabethton 100
Trinity Hospital Erin 40
Hendersonville Hospital(13) Hendersonville 120
Johnson City Specialty Hospital(14) Johnson City 39
North Side Hospital(15) Johnson City 154
Crockett Hospital Lawrenceburg 106
Livingston Regional Hospital Livingston 106
River Park Hospital(16) McMinnville 89
South Pittsburg Municipal Hospital(17) South Pittsburg 107
Southern Tennessee Medical Center(18) Winchester 212
Stones River Hospital Woodbury 85
Texas Northeast Community Hospital Bedford 200
Valley Regional Medical Center Brownsville 158
Brownwood Regional Hospital(19) Brownwood 218
Doctors Hospital(20) Conroe 135
Medical Center Hospital Conroe 182
El Campo Memorial Hospital El Campo 41
Gilmer Medical Center Gilmer 46
Sun Belt Regional Medical Center(21) Houston 273
Midway Park Medical Center Lancaster 90
Longview Regional Hospital Longview 80
Woodland Heights Medical Center Lufkin 117
Coronado Hospital Pampa 115
Bayshore Medical Center Pasadena 469
Detar Hospital Victoria 303
Gulf Coast Medical Center Wharton 161
*Alice Physicians & Surgeons Hospital Alice 131
*Alvin Community Hospital Alvin 86
*Coastal Bend Hospital Aransas Pass 75
*Denton Regional Medical Center Denton 297
Doctor's Hospital of Laredo(22) Laredo 91
*Fort Bend Community Hospital Missouri City 80
*Katy Medical Center Katy 103
Mainland Regional Healthcare System(23) Texas City 430
Medical Arts Hospital(8) Dallas 72
Medical Arts Hospital(8) Texarkana 110
*Medical Plaza Hospital Sherman 164
North Texas Medical Center McKinney 270
*Parkway Hospital Houston 262
*Riverside Hospital Corpus Christi 89
*Round Rock Community Hospital Round Rock 75
Terrell Community Hospital(23) Terrell 101
*Westbury Hospital Houston 134
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
NUMBER OF
STATE NAME LOCATION LICENSED BEDS
- ---------------- ------------------------------------------ ------------------- -------------
<S> <C> <C> <C>
Utah Lakeview Hospital Bountiful 128
Brigham City Community Hospital Brigham City 50
Mountain View Hospital Payson 118
Castleview Hospital Price 88
Ashley Valley Medical Center Vernal 39
Pioneer Valley Hospital West Valley City 139
Virginia Northern Virginia Doctors Hospital Arlington 267
Montgomery Regional Hospital Blacksburg 146
Pulaski Community Hospital Pulaski 153
Washington Capital Medical Center Olympia 110
Wyoming Riverton Memorial Hospital Riverton 70
</TABLE>
- ------------------------
* The land, building, and improvements are owned by EPIC Properties, are
subject to the Mortgages (as hereinafter defined), and are leased to EPIC
Master Leasing, Inc. ("Master Leasing") pursuant to a lease.
(1) Owned by a limited partnership of which 28.7% of the interest is held by
non-EPIC limited partners. The limited partnership has leased the hospital
to a joint venture of which approximately 23.7% is held by non-EPIC
minority owners.
(2) Lease expires in 2005, unless landlord exercises option to purchase
facility for book value in 1995.
(3) Operated by a partnership of which the Company is the general partner
owning 53% and certain physicians are limited partners owning 47%.
(4) Operated by a limited partnership of which approximately 18% of the
interest is held by non-EPIC limited partners.
(5) Owned by the Company as a tenancy in common with physicians having a
minority interest of 40.5%.
(6) Ground lease expires in 2011; there are two ten-year optional renewal
terms.
(7) Operated by a limited partnership of which approximately 23% of the
interest is held by non-EPIC limited partners.
(8) The facility is leased from a third party other than EPIC Properties.
(9) Operated by a limited partnership in which investors other than EPIC
receive the first $2 million earned by the partnership after payment of the
lease payments due to EPIC ($3 million per year, increasing by 15% per
year), and EPIC is entitled to 60% of all additional earnings.
(10) Lease expires in 2024.
(11) Lease expires in 2007.
(12) Operated by a limited partnership of which approximately 15% of the
interest is held by non-EPIC limited partners. With the consent of the
Company, EPIC has not renewed the lease for this facility. Such lease will
expire in July 1994.
(13) Owned by a partnership of which the Company is the general partner owning
83% and certain physicians are limited partners owning 17%.
(14) Owned by a partnership of which the Company is the general partner owning
87% and certain physicians are limited partners owning 13%.
(15) Owned by the Company as a tenancy in common with physicians having a
minority interest of 30.25%.
(16) Owned by a partnership of which the Company is the general partner owning
78% and certain physicians are limited partners owning 22%.
(17) Managed by the Company for profits and losses attributable thereto with an
option to buy for $50,000 and the provision for full payment of all
outstanding indebtedness issued in connection with the construction of the
hospital. The Company's management contract for this facility expires in
1999.
(18) Includes a leased (lease expires in 2020) hospital campus located in
Sewanee, Tennessee with 50 licensed beds.
(19) Lease expires in 2000; there are two optional renewal terms of ten years
each.
(20) Initial term of lease expires in 2006; there are three optional renewal
terms of ten years each. The Company has an option to buy this facility for
an amount determined in accordance with a specified formula.
(21) Includes a hospital campus located at Channelview, Texas with 96 licensed
beds.
(22) Operated by a limited partnership of which approximately 22.125% of the
interest is held by non-EPIC limited partners.
(23) The hospital consists of two facilities, one of which is leased from a
third party.
The Company is engaged from time to time in discussions relating to
proposed sales of certain of its hospitals and of minority interests in, or
joint ventures with medical staff physicians or others with respect to, certain
other facilities. However, except as noted in the table above, as of November 1,
1993, no definitive arrangements with respect to any sales or joint ventures had
been agreed upon by the Company.
The Company also owns (i) a 50% interest in a general partnership with
Orlando Regional Medical Center, Inc., which partnership owns South Seminole
Community Hospital (126 beds) in Longwood, Florida; (ii) a 50% interest in a
general partnership with Presbyterian Hospital of Charlotte, which partnership
owns
27
<PAGE> 29
Orthopaedic Hospital of Charlotte (166 beds) in Charlotte, North Carolina; and
(iii) a 25% interest in a general partnership with AMI, which partnership owns
Encino Hospital (188 beds) in Encino, California and Tarzana Medical Center (177
beds) in Tarzana, California. The Company has also formed a joint venture with
Austin Diagnostic Clinic, P.A. for the purpose of constructing and operating an
integrated healthcare facility in Austin, Texas. This facility, currently under
construction, will consist of a 180-bed hospital, a diagnostic and treatment
center and a medical office building. Following completion of construction the
Company will manage the hospital. In addition, the Company, through its
subsidiaries or joint venture arrangements, owns, leases or manages
approximately 120 medical office buildings with physicians' office space and
various parcels of undeveloped land, substantially all of which are adjacent to
its hospitals. The Company also occupies approximately 65,000 square feet of
corporate office space in Nashville, Tennessee.
Twenty-four of the 34 EPIC hospitals are owned by EPIC Properties, a
wholly-owned subsidiary of EPIC, and are subject to mortgages (the "Mortgages")
granted in connection with the issuance of the EPIC Mortgage Notes. EPIC
Properties leases these 24 hospitals to Master Leasing, a wholly-owned
subsidiary of EPIC. With respect to these 24 hospitals, EPIC has agreed to
indemnify EPIC Properties, the trustee under the indenture governing the EPIC
Mortgage Notes (the "Mortgage Notes Trustee"), all holders of the EPIC Mortgage
Notes and each of their respective subsidiaries, directors, officers, agents,
successors and assigns from liabilities relating to the presence of hazardous
wastes, any medical or infectious wastes, or substances in the soil or ground
water of any real property on which such hospitals are located in concentrations
that the applicable federal or state environmental agency would require remedial
action to correct (the "Environmental Indemnity"). Pursuant to the Environmental
Indemnity, EPIC is obligated to remediate or to cause to be remediated any
spill, leak, disposal, discharge or release of certain materials on or beneath
any property occurring during the period that the EPIC Mortgage Notes remain
outstanding. EPIC Properties has collaterally assigned the Environmental
Indemnity to the Mortgage Notes Trustee.
28
<PAGE> 30
EPIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion has been taken from the Annual Report on Form 10-K
for the fiscal year ended September 30, 1993 and the Quarterly Report on Form
10-Q for the quarter ended December 31, 1993 of EPIC Holdings and EPIC Group.
Such discussion should be read in conjunction with the historical financial
statements of EPIC Holdings and EPIC Group appearing elsewhere in this
Prospectus.
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
The following table summarizes certain operating results and statistics of
EPIC Group for the years ended September 30, 1993, 1992 and 1991 (dollars in
thousands).
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1993 1992 1991
---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operating Result(s)
Net operating revenue........................ $1,019,149 100% $941,266 100% $802,689 100%
Costs and expenses:
Salaries and wages......................... 354,326 35 319,868 34 271,007 34
Employee benefits.......................... 84,615 8 81,365 9 68,434 9
ESOP expense............................... 20,715 2 20,714 2 23,076 3
Supplies................................... 121,986 12 116,145 12 99,882 12
Uncompensated care......................... 80,643 8 69,308 7 59,425 7
Professional liability insurance........... 13,570 1 13,268 2 14,878 2
Other...................................... 222,200 22 221,611 24 177,755 22
Depreciation and amortization.............. 57,917 6 53,013 6 49,354 6
Interest expense........................... 70,934 7 71,000 7 68,266 9
Interest income.............................. (3,627) -- (3,822) (1) (5,405) (1)
(Gain) loss on sale of assets................ (3,521) -- 1,123 -- 543 --
---------- --- -------- --- -------- ---
Loss before income tax benefit, minority
interests and extraordinary item........... $ (609) -- $(22,327) (2)% $(24,526) (3)%
---------- --- -------- --- -------- ---
---------- --- -------- --- -------- ---
Other Data:
EBDAIT(1)(2)................................. $ 145,058 14% $129,383 14% $117,902 15%
Operating Statistics
Equivalent admissions(3)..................... 162,466 156,813 150,134
Admissions(4)
Medicare and Medicaid...................... 65,867 65% 65,659 61% 60,701 57%
Private and other.......................... 35,620 35 41,331 39 45,833 43
---------- --- -------- --- -------- ---
Total.............................. 101,487 100% 106,990 100% 106,534 100%
---------- --- -------- --- -------- ---
---------- --- -------- --- -------- ---
Outpatient:
Visits..................................... 1,002,547 918,187 789,244
Surgeries.................................. 69,153 66,965 62,892
Home health visits........................... 1,094,842 502,998 202,946
Equivalent patient days(5)................... 943,355 940,046 906,640
Patient days................................. 589,293 641,373 643,210
Licensed beds occupancy rate................. 39% 40% 41%
Licensed beds at end of period............... 4,444 4,332 4,296
Net revenues by payor:
Medicare................................... 48% 44% 39%
Medicaid................................... 7 7 7
Private and other.......................... 45 49 54
---------- -------- --------
Total.............................. 100% 100% 100%
---------- -------- --------
---------- -------- --------
</TABLE>
29
<PAGE> 31
- ---------------
(1) Percentages are expressed as percentages of net operating revenue.
(2) This item represents earnings before depreciation, amortization, interest
expense, interest income, income tax benefit, ESOP expense, non-cash SAR
expense, minority interests, gain on sale of assets and extraordinary item.
It is not intended to represent cash flow or any other measure of
performance in accordance with generally accepted accounting principles.
EBDAIT is included herein because EPIC management believes that certain
investors find it to be a useful tool for measuring the ability to service
debt.
(3) Represents actual admissions as adjusted to include outpatient services by
adding to actual admissions an amount derived by dividing outpatient revenue
by inpatient revenue per admission. EPIC Group believes that this statistic
is frequently used as a benchmark to analyze the volume of total services
provided to patients and has become more meaningful than occupancy rates and
patient days as a result of industry trends toward increased use of
outpatient services.
(4) Percentages are expressed as percentage of total admissions.
(5) Represents actual patient days as adjusted to include outpatient services by
adding to actual patient days an amount derived by dividing outpatient
revenue by inpatient revenue per patient day.
RESULTS OF OPERATIONS -- EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NET OPERATING REVENUE
EPIC Group recorded net operating revenue of $1,019.1 million for the year
ended September 30, 1993. Net operating revenue increased $77.9 million (8%) in
1993 and $138.6 million (17%) in 1992.
Acute inpatient net revenue, which totalled $469.2 million for the year
ended September 30, 1993, decreased $19.9 million (4%) in 1993, and increased
$34.7 million (8%) in 1992. Approximately 50% of the decrease in 1993 was due to
the sale of two hospitals during the second quarter of fiscal 1993. This
decrease was offset by additional Medicare and Medicaid payments during 1993.
The increase during 1992 was due to additional Medicare and Medicaid payments
and price increases of up to 10% in selected markets and services. Acute
inpatient admissions, which totalled 89,247 in 1993, decreased 7% in 1993 and 1%
in 1992, and acute patient days, which totalled 408,216 in 1993, decreased 8% in
1993 and 3% in 1992, as the direction of healthcare services shifted toward
outpatient services, inpatient specialty units, and home health services.
Outpatient net revenue, which totalled $317.2 million for the year ended
September 30, 1993, increased $35.1 million (12%) in 1993 and $47.4 million
(20%) in 1992. The number of outpatient surgeries, which totalled 69,153 in
1993, increased 3% in 1993 and 6% in 1992, respectively, and selected price
increases were implemented in 1992. Other outpatient visits, which totalled
1,002,547 in 1993, increased 9% in 1993 and 16% in 1992.
Inpatient specialty unit net revenue, which totalled $111.3 million for the
year ended September 30, 1993, and for which EPIC Group generally receives
payment on a cost reimbursement basis, increased $.7 million (1%) in 1993 and
$12.6 million (13%) in 1992. Specially unit admissions increased 13% in 1993 and
15% in 1992. The number of specialty care units, which include skilled nursing,
rehabilitation, and geriatric psychiatric units, were 56, 57 and 52 at September
30, 1993, 1992 and 1991, respectively.
Net revenue from home health visits, which totalled $85.7 million for the
year ended September 30, 1993, increased $47.9 million (127%) in 1993 and $24.8
million (191%) in 1992. Home health visits increased 118% in 1993 and 148% in
1992. Approximately 34% and 19% of the increases in home health visits in 1993
and 1992, respectively, resulted from the purchase of existing home health
businesses in EPIC Group's current markets.
Other revenue which totaled $36.0 million for the year ended September 30,
1993, increased $14.3 million (66%) in 1993 and $9.5 million (78%) in 1992. Of
this revenue, total geriatric psychiatric, rehabilitation and home healthcare
management contract fees increased $9.7 million and $4.4 million during 1993 and
1992, respectively.
Net patient revenue attributable to patients covered under the Medicare,
Medicaid and other government programs as a percentage of total net patient
revenue was 55%, 51% and 46% for 1993, 1992 and 1991, respectively. Net revenue
attributable to patients covered under various contracted discount programs
totaled 18%, 18% and 20% of total net revenue for 1993, 1992 and 1991,
respectively. The increase in net revenue was due, in part, to increased
admissions of Medicare and Medicaid patients, including the continued increase
in
30
<PAGE> 32
utilization of specialty care units and home health services for which EPIC is
paid on a cost reimbursement basis, and the increase in rates paid by
governmental entities under Medicare and Medicaid programs.
COSTS AND EXPENSES
Costs and expenses, as a percentage of net operating revenue decreased 2%
in 1993 and 1% in 1992.
Salaries and wages increased 1% as a percentage of net operating revenue in
1993 compared to 1992 due to the increase in home health net revenue, which is
more labor intensive than inpatient care. Salaries and wages remained constant
as a percentage of net operating revenue in 1992 compared to 1991. EPIC ESOP
expense remained constant as a percentage of net operating revenue in 1993
compared to 1992 and decreased 1% as a percentage of net operating revenue in
1992 compared to 1991 due to increased contributions in 1991 to the EPIC ESOP.
Other expenses decreased 2% as a percentage of net operating revenue in
1993 compared to 1992 and increased 2% as a percentage of net operating revenue
in 1992 compared to 1991 due primarily to $2.9 million in expenditures to
upgrade various computer software applications during 1992 not incurred in 1993,
and a $6.6 million increase during 1992 in costs relating to programs to recruit
new physicians. There were no significant fluctuations in employee benefits,
supplies, uncompensated care and professional liability insurance as a
percentage of net operating revenue from 1991 to 1993.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $4.9 million in 1993 compared to
1992 and $3.6 million in 1992 compared to 1991. The increases resulted from
property and equipment additions, net of asset sales and retirements. Fiscal
1993 and 1992 also include depreciation on $9.8 million of property and
equipment relating to Colonial Hospital, which was purchased October 1, 1991.
INTEREST EXPENSE AND INTEREST INCOME AND GAIN ON SALE OF ASSETS
Interest expense decreased $.1 million in 1993 compared to 1992 and
increased $2.7 million in 1992 compared to 1991. The 1993 change was due to an
increase in the amount of debt outstanding beginning in the third quarter offset
by a decrease in interest rates. The 1992 increase was due to accretion of
non-cash interest on certain notes and termination of an interest rate cap
agreement in 1992. Interest income did not fluctuate significantly over the
three-year period. During the second quarter of fiscal 1993, EPIC Group sold
Valley Medical Center ("Valley") in El Cajon, California, which resulted in a
gain on sale of $4.6 million. Other dispositions during fiscal 1993, including
Westpark Community Hospital in Hammond, Louisiana ("Westpark"), resulted in
losses on sale of $1.1 million.
LOSS BEFORE INCOME TAX BENEFIT, MINORITY INTERESTS AND EXTRAORDINARY ITEM
EPIC Group incurred a loss before income tax benefit, minority interests,
and extraordinary item of $.6 million, $22.3 million and $24.5 million for the
years ended September 30, 1993, 1992 and 1991, respectively. The following
non-cash charges are included in the loss before income tax benefit, minority
interests and extraordinary item:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and amortization....................... $ 57,917 $ 53,013 $ 49,354
Non-cash portion of SAR Plan compensation expense... 3,249 10,805 7,137
Non-cash portion of interest expense................ 18,286 18,417 13,975
Non-cash portion of professional liability risks.... 2,641 4,131 11,291
ESOP expense........................................ 20,715 20,714 23,076
-------- -------- --------
Total.......................................... $102,808 $107,080 $104,833
-------- -------- --------
-------- -------- --------
</TABLE>
31
<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1993, EPIC Group had working capital of $30.0 million
(current assets of $210.1 million less current liabilities of $180.1 million),
which included approximately $107.9 million of cash, cash equivalents and
marketable securities. EPIC's existing bank credit facility requires $42.7
million in cash and marketable securities be restricted for the redemption of
the remaining outstanding Senior Subordinated Notes. EPIC Group has available
$30 million in loan commitments under the bank credit facility. EPIC Properties
has a revolving line of credit of the lesser of $22.0 million or the annual
interest accrual on the EPIC Mortgage Notes for the purpose of paying the EPIC
Mortgage Notes interest and principal.
Because AMI assumes all liability for professional liability incidents
occurring prior to October 1, 1988 at EPIC Group's facilities acquired from AMI,
EPIC Group continues to experience lower cash payments for its professional
liability losses than has historically been the case for these hospitals. That
fact, coupled with the relatively long lag time for settlement of professional
liability claims, has led EPIC Group to expect that professional liability
payments for which EPIC Group is self-insured, will be comparable to or less
than the related expense in the next several years.
On June 18, 1993, EPIC Group implemented a refinancing plan designated to
improve its operating and financial flexibility by reducing its future interest
expense (the "Refinancing"). The Refinancing included the following components:
(i) the issuance and sale in a public offering of approximately $160 million
aggregate principal amount of 10 7/8% Notes; (ii) redemption of $74.7 million of
EPIC Group's 15% Senior Subordinated Notes; and (iii) the redemption of $53.7
million principal amount of EPIC Group's 11% Junior Subordinated Pay-in-Kind
Notes with $20 million of the proceeds from the offering and $10 million of
working capital. EPIC Group was required to call $40.3 million of the 15% Senior
Subordinated Notes on February 1, 1994, with the remaining proceeds as required
by EPIC Group's existing bank credit facility. As a result of the refinancing,
EPIC Group incurred an extraordinary loss before tax of $21.4 million from the
write-off of loan issue costs and unamortized discount on the 15% Senior
Subordinated Notes and the redeemed 11% Pay-in-Kind Notes, payments to the
holders of the 15% Senior Subordinated Notes and the 11 7/8% Senior ESOP Notes
for waivers of certain provisions of the respective indentures and the accrual
of the call premium to be paid on redemption of $40.3 million of the 15% Senior
Subordinated Notes.
Cash provided by operating activities totalled $119.2 million and $57.9
million for the years ended September 30, 1993 and 1992, respectively. The
increase in operating cash in fiscal 1993 was due to a decrease in the loss
before income tax benefit (expense), minority interests and extraordinary item
of $21.7 million in fiscal 1993. Also, accounts receivable increased $35.2
million in fiscal 1992, which was attributable primarily to an increase of $41.8
million in net operating revenue in the fourth quarter of fiscal 1992.
Cash used in investing activities totalled $123.5 million and $61.0 million
for the years ended September 30, 1993 and 1992, respectively. EPIC Group added
other property and equipment totalling $60.8 million and $47.9 million during
fiscal 1993 and 1992, respectively. EPIC Group's investments in marketable
securities increased $36.7 million during fiscal 1993 and decreased $5.2 million
during fiscal 1992.
The County of Galveston, Texas, entered into an agreement with EPIC
providing for the lease for 20 years of Mainland Center Hospital ("Mainland"),
the County's 310-bed facility, and the purchase of certain of the hospital's net
current assets and equipment. The lease payments, which were paid in full upon
execution of the lease, and purchase price of the net assets and equipment
acquired totaled $46 million, a portion of which was offset by the cash included
in Mainland's current assets (approximately $5 million). The lease also provides
EPIC with two additional ten year options to extend the lease and the right to
purchase the facility on the first anniversary of the lease for approximately
$.5 million.
During fiscal 1993, EPIC purchased two imaging centers for $7.8 million and
two home health agencies for $4.0 million. On October 1, 1991, EPIC Group
purchased Colonial Hospital, a 49-bed hospital in Terrell, Texas, for $10.4
million.
EPIC sold Westpark in January 1993 for $6.2 million in cash and recorded a
net loss on the sale of $.6 million in 1993 and $.8 million in fiscal 1992 in
anticipation of the sale. EPIC sold Valley in March 1993
32
<PAGE> 34
for $17 million in cash and recorded a gain on sale of $4.6 million. EPIC
retained ownership of Westpark's and Valley's accounts receivable and other
current assets.
Cash provided by financing activities totalled $28.4 million for the year
ended September 30, 1993 and cash used in financing activities totalled $33.1
million for the year ended September 30, 1992. The Refinancing provided $44.8
million of net proceeds in 1993. A subsidiary of EPIC Group purchased $5.4
million and $19.9 million of the 11 7/8% Senior ESOP Notes on the open market
for $5.6 million and $20.3 million plus accrued interest in fiscal 1993 and
1992, respectively. During fiscal 1993, EPIC paid $5.5 million in debt issue
costs relating to the Refinancing. On August 31, 1993, EPIC purchased
Healthtrust's 40% interest in the North Texas Medical Center Joint Venture in
McKinney, Texas, which owns and operates North Texas Medical Center, for $15.7
million.
EPIC management believes EPIC Group's hospitals are well maintained and
equipped and permitted expenditures will be sufficient to meet EPIC Group's
ongoing capital requirements at its operating facilities. Capital expenditures
totalling approximately $75 million are planned for fiscal 1994, including
completion of construction of a new hospital near Covington, Louisiana, which
commenced in June 1992, and continuation of construction of a new hospital in
Denton, Texas, which commenced in June, 1993.
The Internal Revenue Service (the "IRS") has audited EPIC's federal income
tax return for the year ended September 30, 1989. As a result of the audit, the
IRS had proposed the permanent capitalization of approximately $24 million of
debt issuance costs. EPIC has fully protested its position with the IRS. EPIC
was required to capitalize and amortize certain loan costs which were previously
expensed. This adjustment resulted in the reduction of EPIC Holdings' current
net operating loss by approximately $7 million.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which supersedes SFAS No. 96. Implementation of SFAS No. 109 for EPIC
Group is required as of October 1, 1993. SFAS No. 109 requires that differences
between the tax and financial statement bases of assets and liabilities
("temporary differences") be reflected in the same balance sheet category as the
items that caused the temporary differences. Deferred tax assets, which would
include tax net operating loss carryforwards, would require the determination of
a related valuation allowance, based on the assets' expected realization. EPIC
has completed the analysis necessary to determine the impact of adoption of SFAS
No. 109 and it is not expected to have a material impact on its financial
position or results of operations and will not impact cash flows.
EPIC has reviewed its benefit programs and has determined it offers no post
employment benefits that require accrual in accordance with SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
Total scheduled debt maturities are $47.9, $9.5 and $43.5 million in fiscal
1994, 1995 and 1996, respectively, and expected annual cash interest payments
are approximately $58 million through fiscal 1996. See Note 5 of the Notes to
EPIC Group's Consolidated Financial Statements for information regarding EPIC's
indebtedness. In addition to the indebtedness of EPIC, EPIC Holdings, the parent
corporation of EPIC, has outstanding $250 million principal amount ($167.2
million value at September 30, 1993) of the EPIC 12% Notes, which require cash
interest payments commencing in March 1997. Such interest payments, as well as
the principal payment upon maturity in 2002, are expected to be funded out of
dividends from EPIC Group to EPIC Holdings. Although EPIC Group's indebtedness
is substantial, EPIC management believes that cash, cash equivalents and
marketable securities on hand, cash flow from operations, and the availability
of funds under revolving bank credit facilities will provide sufficient
liquidity to meet all cash requirements for the next several years.
RESULTS OF OPERATIONS -- EPIC HOLDINGS, INC. AND SUBSIDIARIES
GENERAL
Net operating revenue, operating expenses, depreciation and amortization,
and interest income of EPIC Holdings were substantially the same as those of
EPIC Group for fiscal years 1993, 1992 and 1991 and reference is made to the
discussion of EPIC Group's "-- Results of Operations," and "-- Liquidity and
Capital Resources" above.
33
<PAGE> 35
Following is additional information relating to EPIC Holdings.
INTEREST EXPENSE
Interest expense increased $10.1 million and $11.5 million in 1993 and
1992, respectively, due to the issuance of the EPIC 12% Notes during fiscal
1992.
LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST
EPIC Holdings incurred losses before income tax benefit, minority interest,
and extraordinary item of $19.7 million, $31.1 million and $24.5 million for the
years ended September 30, 1993, 1992 and 1991, respectively. The following
non-cash charges are included in the loss before income tax benefit and minority
interests for the years ended September 30, 1993, 1992 and 1991 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Depreciation and amortization.......................... $ 57,917 $ 53,013 $ 49,354
Non-cash portion of SAR Plan compensation expense...... 3,249 10,805 7,137
Non-cash portion of interest expense................... 36,855 27,190 13,975
Non-cash portion of professional liability risks....... 2,641 4,131 11,291
ESOP expense........................................... 20,715 20,714 23,076
-------- -------- --------
Total........................................ $121,377 $115,853 $104,833
-------- -------- --------
-------- -------- --------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1993 EPIC Holdings had working capital of $35.1 million
(current assets of $215.2 million less current liabilities of $180.1 million),
which included approximately $112.5 million of cash, cash equivalents and
marketable securities. EPIC's existing bank credit facility requires $42.7
million in cash and marketable securities be restricted for the redemption of
the remaining outstanding 15% Senior Subordinated Notes. EPIC Group has
available $30 million in loan commitments under EPIC's existing bank credit
facility. EPIC Properties has a revolving line of credit of the lesser of $22.0
million or the annual interest accrual on the EPIC Mortgage Notes for the
purpose of paying the EPIC Mortgage Notes interest and principal.
EPIC expects to continue to incur federal income tax loss in the near term
primarily as a result of the deductibility of contributions to the EPIC ESOP,
higher depreciation for tax purposes than for financial reporting purposes, and
high interest expense.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which supersedes SFAS No. 96. Implementation of SFAS No. 109 for EPIC is
required on October 1, 1993. SFAS No. 109 requires that differences between the
tax and financial statement bases of asset and liabilities ("temporary
differences") be reflected in the same balance sheet category as the items that
caused the temporary differences. Deferred tax assets, which would include tax
net operating loss carryforwards, would require the determination of a related
valuation allowance, based on the assets' expected realization. EPIC has
completed the analysis necessary to determine the impact of adoption of SFAS No.
109 and it is not expected to have a material impact on EPIC Holdings' financial
position or results of operations and will not impact cash flows.
EPIC has reviewed its benefit programs and has determined that it offers no
post employment benefits that require accrual in accordance with SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
See "-- Liquidity and Capital Resources" of EPIC Group for further
discussion of matters relating to liquidity and capital resources of EPIC
Holdings.
34
<PAGE> 36
Although EPIC Holdings' indebtedness, including EPIC Group's indebtedness,
is substantial, EPIC management believes cash, cash equivalents and marketable
securities on hand, cash flow from operations, and the availability of funds
under revolving bank credit facilities will provide sufficient liquidity to meet
all cash requirements for the next several years.
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS -- THREE MONTHS ENDED DECEMBER 31, 1993 COMPARED
TO THREE MONTHS ENDED DECEMBER 31, 1992
NET OPERATING REVENUE
EPIC Group recorded net operating revenue of $272.5 million for the
three-month period ended December 31, 1993, an increase of $28.1 million (12%)
compared to the three-month period ended December 31, 1992.
Acute inpatient net revenue, which totalled $118.3 million for the
three-month period ended December 31, 1993, increased $2.9 million (2%) compared
to the three-month period ended December 31, 1992, due primarily to increased
reimbursement recognized from Medicare and Medicaid programs. Acute inpatient
admissions remained constant and acute inpatient patient days decreased 4% in
the three-month period, respectively, as the direction of healthcare services
continues to shift toward outpatient services, inpatient specialty units and
home health services.
Outpatient net revenue, which totalled $87.3 million for the three-month
period ended December 31, 1993, increased $9.4 million (12%) compared to the
three-month period ended December 31, 1992 as a result of a 9% increase in
clinic and other outpatient visits.
Inpatient specialty unit net revenue, which totalled $27.8 million for the
three-month period ended December 31, 1993, increased $0.8 million (3%) compared
to the three-month period ended December 31, 1992.
Net revenue from home health visits, which totalled $25.9 million for the
three-month period ended December 31, 1993, increased $8.8 million (52%)
compared to the three-month period ended December 31, 1992. Home health visits
increased 46% in the three-month period. Approximately 31% of the increase in
home health visits resulted from the purchase of existing home health
businesses.
Other revenue, which totalled $13.2 million for the three-month period
ended December 31, 1993, increased $6.2 million compared to the three-month
period ended December 31, 1992. Geriatric psychiatric, rehabilitation and home
healthcare management contract fees increased $3.3 million in the three-month
period.
Net patient revenue attributable to Medicare and Medicaid patients as a
percentage of total net revenue was 58% and 53% for the three-month periods
ended December 31, 1993 and 1992, respectively. Net patient revenue attributable
to patients covered under various managed care programs as a percentage of total
net revenue was 19% and 20% for the three-month periods ended December 31, 1993
and 1992, respectively.
COSTS AND EXPENSES
Costs and expenses decreased 2% as a percentage of net operating revenue
for the three-month period ended December 31, 1993 compared to the three-month
period ended December 31, 1992.
Salaries and wages increased 2% as a percentage of net operating revenue
for the three-month period ended December 31, 1993 compared to the three-month
period ended December 31, 1992 due to the increase in home health services,
which is more labor intensive than inpatient care. Employee benefits decreased
2% as a percentage of net operating revenue for the three-month period ended
December 31, 1993 compared to the three-month period ended December 31, 1992
primarily due to a decrease in the costs of providing medical benefits. EPIC
Group made changes to its medical benefit plan effective January 1, 1993 to
reduce these costs. These changes included increased utilization review,
implementation of a managed care referral program. and increased deductibles and
out-of-pocket maximums. EPIC ESOP expense remained constant as a percentage
35
<PAGE> 37
of net operating revenue for the three-month period ended December 31, 1993
compared to the three-month period ended December 31, 1992.
Depreciation and amortization decreased 1% as a percentage of net operating
revenue for the three-month period ended December 31, 1993 compared to the
three-month period ended December 31, 1992 due to the increase in net revenue.
Supplies, uncompensated care, other operating expenses, and interest expense
remained constant as a percentage of net operating revenue for the three-month
period ended December 31, 1993 compared to the three-month period ended December
31, 1992.
LOSS BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY
ITEM
EPIC Group incurred a loss before income tax benefit (expense), minority
interests and extraordinary item of $1.1 million, for the three-month period
ended December 31, 1993, compared to a loss of $6.0 million for the three-month
period ended December 31, 1992.
Earnings before depreciation and amortization, interest expense, interest
income, income tax benefit (expense), ESOP expense, non-cash SAR expense,
minority interests and extraordinary items (EBDAIT) as a percentage of net
operating revenue increased from 11.57% for the three-month period ended
December 31, 1992 to 12.96% for the three-month period ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, EPIC Group had working capital of $32.6 million
(current assets of $222.8 million less current liabilities of $190.2 million),
which included $84.6 million in cash, cash equivalents and marketable
securities. The revolving credit agreement requires $42.7 million in cash and
marketable securities be restricted for the redemption of the remaining 15%
Senior Subordinated Notes by February 28, 1994. EPIC Group has available an
additional $30 million in loan commitments from a group of banks under a
revolving line of credit agreement. EPIC Properties has available a revolving
line of credit of the lesser of $22 million or the annual interest accrual on
the EPIC Mortgage Notes for the purpose of paying the EPIC Mortgage Notes
interest and principal.
Cash used in operating activities totalled $1.1 million and cash provided
by operating activities totalled $15.0 million for the three-month periods ended
December 31, 1993 and 1992, respectively. Accounts receivable increased $22.4
million during the first quarter of fiscal 1994 primarily due to an increase in
net operating revenue.
Cash used in investing activities totalled $11.8 million and $5.9 million
for the three-month periods ended December 31, 1993 and 1992, respectively.
EPIC Group made capital additions of approximately $23.4 million and $7.4
million during the three months ended December 31, 1993 and 1992, respectively.
EPIC management believes that EPIC Group's hospitals are well maintained and
equipped and that planned and permitted expenditures will be sufficient to meet
EPIC Group's ongoing capital requirements at its operating facilities. Capital
expenditures totalling approximately $52 million are planned for the remainder
of fiscal 1994 including completion of construction of a new hospital near
Covington, Louisiana and continuation of construction of a new hospital in
Denton, Texas. On December 31, 1992, EPIC Group purchased an imaging center for
$4.1 million.
Cash used in financing activities totalled $2.9 million and $7.3 million
for the three-month periods ended December 31, 1993 and 1992, respectively.
During the first quarter of fiscal 1993, a subsidiary of EPIC Group purchased
$5.4 million of the 11 7/8% Senior ESOP Notes on the open market for $5.6
million plus accrued interest.
Total scheduled debt maturities are $47.9, $9.5 and $43.5 million in fiscal
1994, 1995 and 1996, respectively. EPIC is expected to make cash interest
payments of approximately $58 million per year through fiscal 1996. See Note 5
of the Notes to EPIC Group's Consolidated Financial Statements for the year
ended September 30, 1993, for information regarding EPIC Group's indebtedness.
In addition to the indebtedness of EPIC Group, EPIC Holdings, the parent
corporation of EPIC Group, has outstanding $250 million principal
36
<PAGE> 38
amount ($172.2 million accreted value at December 31, 1993) of the EPIC Holdings
Notes, which require cash interest payments commencing in March 1997. Such
interest payments, as well as the principal payment upon maturity in 2002, are
expected to be funded out of dividends to EPIC Holdings. Although EPIC's
indebtedness is substantial, EPIC management believes that cash, cash
equivalents and marketable securities on hand, cash flow from operations, and
the availability of funds under revolving bank credit facilities will provide
sufficient liquidity to meet all cash requirements for the next several years.
EPIC HOLDINGS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS -- THREE MONTHS ENDED DECEMBER 31, 1993 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1992
Operations of EPIC Holdings were substantially the same as those of EPIC
Group for the three-month periods ended December 31, 1993 and 1992 with the
exception of interest expense. EPIC Holdings' interest expense remained constant
as a percentage of net operating revenue for the three-month period ended
December 31, 1993, compared to the three-month period ended December 31, 1992.
EPIC Holdings incurred a loss before income tax, minority interests and
extraordinary item of $6.2 million for the three-month period ended December 31,
1993, compared to a loss of $10.6 million for the three-month period ended
December 31, 1992.
Earnings before depreciation and amortization, interest expense, interest
income, income tax benefit (expense), EPIC ESOP expense, non-cash SAR expense,
minority interests and extraordinary items (EBDAIT) as a percentage of net
operating revenue increased from 11.56% for the three-month period ended
December 31, 1992 to 12.94% for the three-month period ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, EPIC Holdings had working capital of $37.6 million
(current assets of $227.9 million less current liabilities of $190.3 million),
which included $89.3 million of cash, cash equivalents and marketable
securities. The revolving credit agreement requires $42.7 million in cash and
marketable securities be restricted for the redemption of the remaining
outstanding 15% Senior Subordinated Notes by February 28, 1994. EPIC Group has
available $30 million in loan commitments from a group of banks under a
revolving credit agreement. EPIC Properties has available a revolving line of
credit of the lesser of $22 million or the annual interest accrual on the EPIC
Mortgage Notes for the purpose of paying the EPIC Mortgage Notes interest and
principal.
Although EPIC Holdings' indebtedness, including EPIC Group's indebtedness,
is substantial, EPIC management believes cash, cash equivalents and marketable
securities on hand, cash flow from operations, and the availability of funds
under revolving bank credit facilities will provide sufficient liquidity to meet
all cash requirements for the next several years.
37
<PAGE> 39
DESCRIPTION OF THE SECURITIES
The Securities will be issued under an Indenture dated as of March 30, 1993
(the "Indenture") between the Company and The First National Bank of Boston as
trustee (the "Trustee"). The Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Indenture is
subject to and is governed by the Trust Indenture Act of 1939, as amended. The
following statements relating to the Securities and the Indenture are summaries
and do not purport to be complete. Such summaries may make use of certain terms
defined in the Indenture and are qualified in their entirety by express
reference to the Indenture. In addition, certain defined terms are set forth
below under " -- Certain Definitions." Section references used in this
Prospectus refer to the sections of the Indenture.
GENERAL
The Securities will be limited to $200,000,000 aggregate principal amount
and will mature on , 2004. The Securities will be unsecured
subordinated obligations of the Company. The Securities will bear interest from
, 1994 or from the most recent interest payment date to which
interest has been paid at the rate set forth on the cover page hereof. Interest
will be payable semi-annually on and of each year commencing
, 1994 to the persons in whose names the Securities (or any
predecessor Securities) are registered at the close of business on the
or next preceding such interest payment date.
The Securities will be issued only in registered form without coupons, in
denominations of $1,000 and integral multiples thereof. Principal of and
premium, if any, and interest on the Securities will be payable, and the
Securities will be exchangeable and transferable, at the office or agency of the
Company in the City of New York (which initially will be BancBoston Trust
Company, New York, New York); provided, however, that at the option of the
Company, interest may be paid by check mailed to the person entitled thereto as
shown on the Security Register. No service charge will be made for any
registration of transfer or exchange of Securities, except for any tax or other
governmental charge that may be imposed in connection therewith.
OPTIONAL REDEMPTION
The Securities are redeemable at any time on or after , 1999, at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' prior notice at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning of the years indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------------------------------------ ----------------
<S> <C>
1999.............................................................. %
2000.............................................................. %
2001.............................................................. %
</TABLE>
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest to the redemption date (subject to the right of
holders of record on relevant record dates to receive interest due on an
interest payment date). If fewer than all of the Securities are to be redeemed,
the Trustee shall select the Securities or portions thereof to be redeemed by a
method the Trustee considers fair and appropriate. There will be no mandatory
sinking fund payments for the Securities.
SUBORDINATION
The indebtedness represented by the Securities and the payment of the
Subordinated Obligations are subordinated in right of payment to the prior
payment in full in cash or cash equivalents of all Senior Indebtedness. (Section
13.01) The Securities will rank pari passu with the 10 3/4% Notes and the 8 3/4%
Debentures. The Securities are also effectively subordinated to all existing and
future indebtedness of the Company's subsidiaries. The ability of the Company
and its subsidiaries to incur indebtedness, including Senior Indebtedness, is
limited by the instruments governing the Company's existing bank credit facility
and certain of the Company's other long-term indebtedness, and the Company
anticipates that similar restrictions
38
<PAGE> 40
will be included in the 1994 Credit Agreement and the Indenture. See "-- Certain
Covenants of the Company."
No payment or distribution of any assets of the Company of any kind or
character will be made on account of Subordinated Obligations or on account of
the purchase, redemption or other acquisition of, the Securities upon the
occurrence of any default in the payment of any Senior Indebtedness beyond any
applicable grace period, unless and until such default is cured or waived or
ceases to exist or such Senior Indebtedness is discharged. (Section 13.03)
During the continuance of any non-payment event of default with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated, no payment or distribution of any assets of the Company of any kind
or character may be made by the Company on account of Subordinated Obligations
or on account of the purchase, redemption or other acquisition of, the
Securities for the period specified below (the "Payment Blockage Period"). The
Payment Blockage Period shall commence upon the receipt of notice by the Company
or the Trustee from the agent for the Banks or other representative of a holder
of Designated Senior Indebtedness and shall end on the earlier of (i) 179 days
thereafter, (ii) the date on which such event is cured, waived or ceased to
exist or on which such Designated Senior Indebtedness is discharged or (iii)
such Payment Blockage Period shall have been terminated by notice to the Company
or the Trustee from the agent for the Banks or other representative of holders
of the Designated Senior Indebtedness initiating such Payment Blockage Period,
after which the Company shall resume making any and all required payments in
respect of the Securities, including any missed payments. Only one Payment
Blockage Period may be commenced during any period of 365 consecutive days. No
event of default with respect to Designated Senior Indebtedness that existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period whether or not within a period of 365 consecutive
days, unless such event of default has been cured or waived for a period of not
less than 90 consecutive days. In no event will a Payment Blockage Period extend
beyond 179 days. (Section 13.03)
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Company or
to its creditors, as such, or to its assets, or any liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary, or any
assignment for the benefit of creditors or other marshalling of assets or
liabilities of the Company, all Senior Indebtedness must be paid in full in cash
or cash equivalents before any payment or distribution (excluding certain
permitted equity or subordinated securities) is made on account of Subordinated
Obligations. (Section 13.02) By reason of such subordination, in the event of
liquidation or insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Securities. In
addition, the Securities will be effectively subordinated to all existing and
future liabilities of the Subsidiaries.
As of February 28, 1994, the amount of Senior Indebtedness and obligations
of the Subsidiaries (excluding intercompany indebtedness) that effectively
ranked senior to the Securities was approximately $167.0 million. After giving
effect to the Offering, the Acquisition and the other transactions contemplated
by the Financing Plan as though they had occurred on February 28, 1994, the
amount of Senior Indebtedness and obligations of the Company's subsidiaries
(excluding intercompany indebtedness) that effectively ranked senior to the
Securities would have been approximately $749.8 million, assuming 100% of the
Specified EPIC Debt Securities is purchased in the Tender Offers. As of February
28, 1994, there were $500.0 million of 10 3/4% Notes outstanding and $300.0
million of 8 3/4% Debentures outstanding.
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Indenture provides that the Company will
not, and will not permit any Subsidiary to, directly or indirectly, incur,
create, issue, assume, guarantee or otherwise become liable for, contingently or
otherwise, or become responsible for (any such incurrence or other such action
being an
39
<PAGE> 41
"incurrence") the payment of, contingently or otherwise, any Indebtedness
unless, after giving effect thereto, the Company's Fixed Charge Coverage Ratio
on a pro forma basis for its last four completed fiscal quarters, taken as a
whole and calculated on the assumptions that (i) such Indebtedness and the
application of the proceeds thereof and (ii) any other Indebtedness incurred,
modified or repaid by the Company or any Subsidiary and the application of the
proceeds thereof and (iii) any acquisition or disposition by the Company or any
Subsidiary of assets in excess of $25.0 million, in each case since the end of
such last four completed fiscal quarters, had been incurred, modified, repaid,
consummated or applied, as the case may be, on the first day of such
four-quarter period, would have been greater than 2.25 to 1; provided, however,
that the foregoing provision shall not be effective in any way to restrict the
incurrence of Permitted Indebtedness.
For purposes of determining any particular amounts of Indebtedness of the
Company or any Subsidiary under this covenant, guarantees of (or obligations
with respect to letters of credit supporting) Indebtedness otherwise included in
the determination of such amount shall not also be included. For the purpose of
determining compliance with this covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the Indenture, the Company, in its sole discretion, shall classify
such item of Indebtedness and only be required to include the amount and type of
such Indebtedness in one of such clauses. (Section 5.06)
Limitation on Restricted Payments. The Company will not, directly or
indirectly, declare or pay any dividend or make any distribution in respect of
its Capital Stock, or make or permit any Subsidiary to make any payment on
account of the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company or any Affiliate, or any warrants, rights or
options to purchase such Capital Stock, or make or permit any Subsidiary to make
any Investment (all such declarations, dividends, distributions, payments,
purchases, redemptions, other acquisitions, retirements and Investments other
than any such action that is a Permitted Payment, being collectively referred to
as "Restricted Payments"), unless (a) at the time of and after giving effect to
the proposed Restricted Payment, no Default or Event of Default shall have
occurred and be continuing and (b) at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such payment, if other than cash,
to be determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), the aggregate amount of all
Restricted Payments made on or after March 1, 1992 shall not exceed the sum of
(i) 50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from and including March 1, 1992 to the last day of the
fiscal quarter preceding the date of the proposed Restricted Payment, plus (ii)
the aggregate net proceeds, including the fair market value of property other
than cash (as determined by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), received by the Company from
the issuance or sale (other than to a Subsidiary) on or after March 1, 1992, of
shares of its Capital Stock (other than Redeemable Stock) or warrants, options
or rights to purchase such Capital Stock (other than Redeemable Stock), plus
(iii) the aggregate net proceeds received by the Company from the issue or sale
(other than to a Subsidiary) on or after March 1, 1992, of any debt securities
evidencing Indebtedness or Redeemable Stock, which thereafter have been
converted into or exchanged for Capital Stock (other than Redeemable Stock) of
the Company.
None of the foregoing provisions shall be deemed to prohibit the following
Restricted Payments: (i) the payment of any dividend within 60 days after the
date of declaration thereof, if such declaration complied with the provisions of
the Indenture on the date of such declaration, (ii) the redemption, repurchase
or other acquisition or retirement of any shares of any class of Capital Stock
of the Company or any Subsidiary in exchange for (including any such exchange
pursuant to the exercise of a conversion right or privilege in connection with
which cash is paid in lieu of the issuance of fractional shares), or out of the
proceeds of a substantially concurrent issue and sale (other than to a
Subsidiary) of, shares of Capital Stock of the Company, (iii) the payment of
dividends on the Company's Capital Stock, of up to 6% per annum of the aggregate
net proceeds received by the Company in the initial public offering of Common
Stock in December 1991 and any public offerings of Capital Stock subsequent to
such initial public offering, and (iv) the purchase or redemption of shares of
Capital Stock, options to purchase shares of Capital Stock, or stock
appreciation rights of the Company or any Subsidiary (A) issued pursuant to a
Company or Subsidiary compensation, incentive or benefit plan from any officer,
director or employee of the Company or its Subsidiaries (x) to meet
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the tax obligations of any such officer, director or employee participating in
any such plan or (y) for any other purpose so long as the aggregate amount of
payments for all repurchases or redemptions contemplated by this clause (y) do
not in any fiscal year exceed $10 million or (B) in satisfaction of the
Company's purchase obligations under any nonqualified benefit plan established
by the Company for members of senior management of the Company. The Restricted
Payments described in this paragraph shall reduce the amount that would
otherwise be available for Restricted Payments under the test described in the
immediately foregoing paragraph. Nothing set forth in the Limitation on
Restricted Payments covenants shall limit or restrict the Company from making a
Permitted Payment and a Permitted Payment shall not be treated as a Restricted
Payment. (Section 5.07)
Limitation on Certain Other Subordinated Indebtedness. The Indenture
provides that the Company shall not create, incur, assume or suffer to exist any
Indebtedness that is subordinate in right of payment to any Senior Indebtedness
unless such Indebtedness by its terms or the terms of the instrument creating or
evidencing such Indebtedness is subordinate in right of payment to, or ranks
pari passu with, the Securities; provided that this provision shall not prohibit
the Company from incurring Indebtedness which is subordinate in right of payment
to any Senior Indebtedness and which is not subordinate in right of payment to,
or which does not rank pari passu with, the Securities, if such Indebtedness is
assumed in connection with any permitted transaction described under
"Consolidation, Merger and Sale of Assets" below. (Section 5.05)
Purchase of Securities upon Change of Control Triggering Event. (i) Upon
the occurrence of both a Change of Control (as hereinafter defined) and a Rating
Decline (as hereinafter defined) (a "Change of Control Triggering Event")
(including a Change of Control Triggering Event involving a transaction led or
approved by Company management or in connection with a recapitalization of the
Company) each Holder shall have the right to require that the Company repurchase
such Holder's Securities in whole or in part in integral multiples of $1,000 at
a purchase price (the "Purchase Price") in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase, in accordance with the procedures set forth in this covenant.
Prior to the mailing of the notice to Holders provided for in this covenant, but
in any event within 30 days following the date upon which the Change of Control
Triggering Event occurred (the "Change of Control Date"), the Company shall (a)
repay in full all Indebtedness of the Company and its Subsidiaries under the
Bank Credit Agreement or offer to repay in full all such Indebtedness and repay
the Indebtedness of each Bank who has accepted such offer or (b) obtain the
requisite consent under the Bank Credit Agreement to permit the repurchase of
the Securities as provided for in this covenant. In general, any other
indebtedness of the Company which is senior to the Securities and would by its
terms be accelerated upon the purchase of the Securities by the Company after
the occurrence of a Change of Control Triggering Event would also have to be
repaid prior to the repurchase of the Securities. Consequently, in the event of
a Change of Control Triggering Event, the Company may be required to repay the
entire indebtedness outstanding under the Bank Credit Agreement and any other
Senior Indebtedness outstanding at the time prior to repurchasing the
Securities. In order to repay such indebtedness and repurchase the Securities,
it may be necessary for the Company to recapitalize and/or refinance some or all
of its outstanding indebtedness. There can be no assurance that such
recapitalization or refinancing, if required, could be accomplished on favorable
terms, in a timely manner or at all. Within 10 days after any Change in Control
Date requiring the Company to make an offer pursuant to this covenant, the
Company shall so notify the Trustee.
(ii) Within 30 days following any Change of Control Triggering Event, the
Company will forward a notice to each Holder stating (a) that a Change of
Control Triggering Event has occurred and that such Holder has the right to
require the Company to repurchase such Holder's Securities at the Purchase
Price; (b) the date of purchase (which shall be no earlier than 30 days nor
later than 90 days from the date such notice is mailed); (c) the circumstances
and relevant facts regarding such Change of Control Triggering Event; and (d)
the instructions a Holder must follow in order to have its Securities
repurchased. (Section 5.08)
There can be no assurance that the Company will have sufficient funds to
repurchase the Securities in accordance with the foregoing provisions following
a Change of Control Triggering Event. Pursuant to the terms of the Indenture,
the Company's failure to so repurchase any Securities would become an Event of
Default (as defined in the Indenture) with respect to the Securities following
the continuation of such failure
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for 90 days after written notice thereof from the Trustee or the holders of a
majority or more in aggregate principal amount of the Securities. See
" -- Default and Certain Rights on Default." Offers by the Company to repurchase
the Securities pursuant to the provisions described above will be made in
compliance with any applicable regulations under the federal securities laws,
including Rule 14e-1 promulgated under the Exchange Act.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
without the consent of or notice to the holders of the Securities, to enter into
supplemental Indentures to, among other things, (i) add to the covenants and
agreements of the Company for the benefit of Holders of the Securities, (ii)
provide for security for the Securities, (iii) cure any ambiguity, effect or
inconsistency, (iv) provide for a successor Trustee or (v) make any change that
does not adversely affect the interests of Holders of the Securities in any
material respect. No supplemental indenture shall adversely affect the rights of
the Banks or other holders of Designated Senior Indebtedness under the
"Subordination" provisions described above (including the definitions of
capitalized terms used therein or an amendment to this sentence) unless the
Agent or the representative of such other Designated Senior Indebtedness
consents to such change. (Section 9.01)
The Company and the Trustee may, with the consent of the holders of not
less than a majority of the aggregate principal amount of the Securities at the
time outstanding, execute supplemental Indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental indenture with respect to the Securities or modifying in any
manner the rights of the holders of the Securities, provided, however, that no
such supplemental indenture shall (i) extend the fixed maturity, or the earlier
optional date of maturity, if any, of any Security or reduce the principal
amount thereof or the premium thereon, if any, or reduce the rate or extend the
time of payment of interest, if any, thereon, or make the principal thereof or
premium, if any, or interest, if any, thereon payable in any currency or
currency unit other than as provided pursuant to the Indenture or in the
Securities, (ii) reduce the aforesaid percentage of Securities, the holders of
which are required to consent to any such supplemental indenture, (iii) reduce
the percentage of Securities, the holders of which are required to consent to a
waiver of any past default under the Indenture, or (iv) modify any of the
provisions of the Indenture relating to the subordination of the Securities in a
manner adverse to the holders thereof, without in each such case the consent of
the holder of each Security so affected. An amendment pursuant to the provisions
of this paragraph may not make any change that adversely affects the rights of
the Banks or other holders of Designated Senior Indebtedness under the Indenture
unless the Agent or the representative of such other Designated Senior
Indebtedness consents to such change. (Section 9.02)
DEFAULT AND CERTAIN RIGHTS ON DEFAULT
The following are Events of Default with respect to the Securities under
the Indenture: (i) failure to pay interest when due on the Securities, continued
for 30 days; (ii) failure to pay principal or premium, if any, when due (whether
at maturity, declaration or otherwise) on the Securities; (iii) default in the
performance, or breach, of any covenant or a material breach of any warranty of
the Company in the Indenture or the Securities (other than a covenant or
warranty a default in whose performance or whose breach is specifically dealt
with elsewhere in this section or included in the Indenture or the Securities
solely for the benefit of a series of securities other than the Securities),
continued for 90 days after written notice from the Trustee or the holders of a
majority or more in aggregate principal amount of the Securities outstanding;
(iv) any acceleration of the maturity of any Indebtedness of the Company which
is outstanding in a principal amount of at least $50.0 million individually,
shall occur and be continuing; or any failure of the Company to pay any such
Indebtedness at final maturity; and (v) certain events of bankruptcy, insolvency
or reorganization. (Section 6.01)
Following the occurrence and continuation of an Event of Default, the
Trustee or the holders of a majority or more in aggregate principal amount of
the Securities outstanding may declare the principal amount of all Securities to
be due and payable immediately; provided that, so long as the Bank Credit
Agreement shall be in full force and effect, if an Event of Default shall have
occurred and be continuing
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(other than an Event of Default described in clause (v) above), any acceleration
pursuant to this section may not be effective until the earlier of (a) five
Business Days following a notice of acceleration given to the Company (which
notice shall be given only after an Event of Default has occurred) and only if
upon such fifth Business Day such Event of Default shall be continuing or (b)
the acceleration of any Indebtedness under the Bank Credit Agreement. No action
on the part of the Trustee or any Holder is required for such acceleration if an
Event of Default specified in clause (v) above occurs and is continuing. If all
defaults with respect to the Securities (other than non-payment of accelerated
principal) are cured or waived and there has been no sale of property under any
judgment or decree for the payment of moneys due which shall have been obtained
or entered, the holders of a majority in aggregate principal amount of the
outstanding Securities may waive the default and rescind the declaration and its
consequences. A declaration of acceleration because of an Event of Default
specified in clause (iv) above would be automatically annulled if the
Indebtedness referred to therein was paid or otherwise discharged, or the
holders thereof rescinded their declaration of acceleration referred to therein,
within 90 days after such declaration or acceleration and no other Event of
Default had not been cured or waived during such period. (Section 6.01)
The Indenture provides that the holders of a majority in aggregate
principal amount of the Securities outstanding may, subject to certain
exceptions, direct the time, method and place of conducting any proceeding for
early remedy available to, or exercising any power or trust conferred upon, the
Trustee with respect to Securities and may on behalf of all holders of the
Securities waive any past default and its consequences with respect to the
Securities, except a default in the payment of the principal of, premium, if
any, or interest, if any, on any of the Securities. (Section 6.06) Holders of
any Security may not institute any proceeding to enforce the Indenture unless
the Trustee shall have refused or neglected to act for 60 days after a request
and offer of satisfactory indemnity by the holders of not less than a majority
in aggregate principal amount of the Securities outstanding. (Section 6.04)
The Company is required to deliver to the Trustee each year an annual
statement as to whether the Company is in compliance with all covenants and
conditions with which it must comply under the Indenture. (Section 5.09)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of its assets substantially as an
entirety to, any Person, unless: (i) either (a) the Company shall be the
continuing corporation or (b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person that
acquires by conveyance, transfer or lease the properties and assets of the
Company substantially as an entirety shall be a corporation, partnership or
trust organized and validly existing under the laws of the United States or any
State thereof or the District of Columbia, and shall expressly assume, by a
supplemental indenture, the due and punctual payment of the principal of, and
premium, if any, and interest on all the Notes and the performance and
observance of every covenant of the Indenture on the part of the Company to be
performed or observed; (ii) immediately thereafter, the Company or such Person
(a) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(b) could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under "Limitation on Indebtedness" described above; (iii)
immediately thereafter, no Event of Default (and no event which, after notice or
lapse of time, or both, would become an Event of Default) shall have occurred
and be continuing; and (iv) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture, comply with
this covenant and that all conditions precedent in the Indenture relating to
such transaction have been satisfied. (Section 10.01)
DEFEASANCE
The Company at its option (a) will be Discharged (as such term is defined
in the Indenture) from any and all obligations in respect of the Securities
(except for certain obligations to register the transfer and exchange of
Securities, replace stolen, lost or mutilated Securities and coupons, maintain
paying agencies and
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hold moneys for payment in trust) or (b) need not comply with certain
restrictive covenants of the Indenture, in each case after the Company deposits
with the Trustee thereunder, in trust, money, and U.S. Government Obligations
(as defined in the Indenture), which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money or a
combination of money, and U.S. Government Obligations in an amount sufficient to
pay in the currency, currencies or currency unit or units in which the
Securities are payable all the principal of, and interest on, the Securities on
the dates such payments are due in accordance with the terms of the Securities.
Among the conditions to the Company's exercising any such option, (i) the
Company is required to deliver to the Trustee an opinion of independent counsel
of recognized standing to the effect that the deposit and related defeasance
would not cause the Holders of the Securities to recognize income, gain or loss
for United States federal income tax purposes and that the Holders will be
subject to United States federal income tax in the same amounts, in the same
manner and at the same time as would have been the case if such deposit and
related defeasance had not occurred and (ii) no event or condition shall exist
that, pursuant to certain provisions described under "Subordination" above,
would prevent the Company from making payments of principal of (and premium, if
any) or interest on the Securities on the date of the deposit referred to above
or within 90 days after the date of such deposit. (Sections 11.01 and 11.02)
CONCERNING THE TRUSTEE
The 8 3/4% Debentures were issued pursuant to the Indenture and the Trustee
serves as trustee with respect thereto. In addition, the Trustee serves as
trustee under the Indenture relating to the 10 3/4% Notes.
CERTAIN DEFINITIONS
Certain Definitions. Set forth below is a summary of certain defined terms
used in the Indenture. Reference is made to the Indenture for the full
definition of all such terms.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For the purposes of
this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Bank Credit Agreement" means the Credit Agreement, as such agreement
may be amended, amended and restated, supplemented or otherwise modified or
renewed, extended, substituted, refinanced or replaced from time to time
(including, without limitation, any amendment which increases the amount of
Indebtedness which may be outstanding thereunder), and includes any
agreement extending the maturity of, refinancing or otherwise restructuring
(including, but not limited to, the inclusion of additional borrowers
thereunder that are Subsidiaries of the Company or new or additional
lenders) all or any portion of the Indebtedness under such agreement or any
successor agreement.
"Capitalized Lease Obligation" means any obligation of a Person to pay
rent or other amounts under a lease with respect to any property (whether
real, personal or mixed) acquired or leased by such Person and used in its
business that is required to be accounted for as a capital lease on the
balance sheet of such Person in accordance with generally accepted
accounting principles and the amount of such Capitalized Lease Obligation
shall be the amount so required to be accounted for as a capital lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than the Company's employee stock ownership plan or other employee
benefit plan, (A) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 50% of the total voting rights
attaching to the then outstanding voting stock of the Company or (B) have
the right or the ability by voting right, contract or otherwise to elect or
designate for election a majority of the entire Board of Directors (other
than any such right or ability which arises solely from a revocable proxy
or consent, whether given in response to a proxy or consent solicitation or
otherwise); or (ii) (A) the Company consolidates with or merges into any
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other Person or conveys, transfers or leases all or substantially all of
its assets to any Person or (B) any Person merges into the Company, in
either event pursuant to a transaction in which voting stock of the Company
representing more than 50% of the total voting rights of the Company
outstanding immediately prior to the effectiveness thereof is reclassified
or changed into or exchanged for cash, securities or other property;
provided that any consolidation, merger, conveyance, transfer or lease
between the Company and any of its Subsidiaries (including, without
limitation, the reincorporation of the Company in another jurisdiction)
shall be excluded from the operation of this clause (ii). The definition of
"all or substantially all" assets is generally determined based upon the
facts and circumstances of a particular transaction and the condition of
the selling entity upon consummation of the transaction. Consequently, a
holder of Securities may be required to establish that a conveyance,
transfer or lease of all or substantially all of the Company's assets has
occurred before being entitled to compel the repurchase of its Securities
in connection with a Change of Control Triggering Event.
"Change of Control Triggering Event" means the occurrence of both a
Change of Control and a Rating Decline.
"Consolidated Capital Expenditure Indebtedness" means (i) any
Indebtedness of the Company and its Subsidiaries issued to finance the
purchase or construction of any assets acquired (other than from an
Affiliate) or constructed after the date of the Indenture to the extent the
purchase or construction prices for such assets are or should be included,
in accordance with generally accepted accounting principles, in "property,
plant or equipment" in the consolidated financial statements of the Company
and its Subsidiaries and (ii) to the extent not covered by clause (i), any
Indebtedness of the Company and its Subsidiaries issued to finance the
acquisition (by purchase or otherwise) of the business, property or fixed
assets of, or other evidence of beneficial ownership of, any Person.
"Consolidated Interest Expense" means for any period, without
duplication, the sum of (a) the aggregate of the interest expense of the
Company and its consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with generally accepted
accounting principles plus (b) net payments in respect of Interest Rate
Contracts (if any such payment applies to a period in excess of one year it
shall be amortized accordingly).
"Consolidated Net Income" means for any period the consolidated net
income (or loss) of the Company and its consolidated Subsidiaries
(excluding any income (or loss) from any Person not controlled by the
Company or any Subsidiary other than cash dividends or distributions
received from such Person) for such period as determined in accordance with
generally accepted accounting principles adjusted by excluding (a) any gain
(or loss) realized upon the termination of any employee pension plan, (b)
net extraordinary gains or net extraordinary losses (in either case net of
related taxes that are not included in determining Consolidated Tax
Expense), as the case may be (including, any gain or loss from the
purchase, redemption, acquisition or other retirement of Indebtedness), (c)
net gains or losses in respect of dispositions of assets other than in the
ordinary course of business, (d) expenses incurred in or relating to
periods prior to March 1, 1992, relating to the Company's Employee Stock
Ownership Plan, as amended from time to time, and (e) any deferred
compensation or other charge relating to or arising out of the Company's
recapitalization completed on December 19, 1991.
"Consolidated Net Worth" means for any date of determination the sum
of the Capital Stock and additional paid-in-capital plus retained earnings
(or minus accumulated deficit) of the Company and its consolidated
Subsidiaries, less amounts attributable to Redeemable Stock, each item as
determined in accordance with generally accepted accounting principles
(excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement No. 52).
"Consolidated Non-cash Charges" means for any period, the aggregate
depreciation, amortization and other non-cash charges (other than reserves
or expenses established in anticipation of future cash requirements such as
reserves for taxes and uncollectible accounts) of the Company and its
consolidated Subsidiaries, on a consolidated basis, for such period, as
determined in accordance with generally accepted accounting principles,
provided, that (i) any charges which are not included for the purpose of
determining Consolidated Net Income shall be excluded from Consolidated
Non-cash Charges and
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(ii) any charges which are included for the purpose of determining
Consolidated Interest Expense or Consolidated Tax Expense shall be excluded
from Consolidated Non-cash Charges.
"Consolidated Tax Expense" of the Company means for any period the
aggregate of the tax expense of the Company and its consolidated
Subsidiaries for such period, determined in accordance with generally
accepted accounting principles.
"Credit Agreement" means the credit agreement dated as of September
29, 1992, among the Company and the financial institutions described
therein.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under the Bank Credit Agreement and (ii) any other Senior Indebtedness
which, at the time of determination, has an aggregate principal amount
outstanding of at least $50 million and is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"Fixed Charge Coverage Ratio" means for any period the ratio of (a)
the sum of (without duplication) Consolidated Net Income plus Consolidated
Interest Expense, Consolidated Tax Expense and Consolidated Non-cash
Charges for such period, to (b) Consolidated Interest Expense for such
period; provided that, in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness computed on a
pro forma basis and bearing a floating interest rate shall be computed as
if the rate in effect on the date of computation had been the applicable
rate for the entire period, unless the borrower is a party to any Interest
Rate Contract which has the effect of reducing the interest rate below the
rate applicable on the date of computation, in which case such lower rate
shall apply.
"Healthcare Venture" means a Person at least a majority of whose
revenues result from healthcare related business or facilities (including,
without limitation, a physician).
"Indebtedness" means, without duplication, (a) any liability of any
Person (1) for borrowed money, or under any reimbursement obligation
relating to a letter of credit, or (2) evidenced by a bond, note, debenture
or similar instrument (including a purchase money obligation) given in
connection with the acquisition of any businesses, properties or assets of
any kind (other than a trade payable or a current liability arising in the
ordinary course of business), or (3) for the payment of money relating to a
Capitalized Lease Obligation; (b) all Redeemable Stock valued at the
greater of its voluntary or involuntary liquidation preference plus accrued
and unpaid dividends; and (c) any liability of others described in the
preceding clauses (a) or (b) that the Person has guaranteed or that is
otherwise its legal liability.
"Intercompany Debt Obligations" means any Indebtedness of the Company
or any Subsidiary of the Company which, in the case of the Company, is
owing to any Subsidiary and which, in the case of any Subsidiary, is owing
to the Company or any other Subsidiary of the Company.
"Investment" means (other than accrued and unpaid interest in respect
of any advance, loan or other extension of credit) any advance, loan,
account receivable or other extension of credit (other than an advance,
loan, extension of credit or account receivable arising in the ordinary
course of business) or any capital contribution (by means of transfers of
property (tangible or intangible) to others, or payments for property or
services for the account or use of others, or otherwise) to, any purchase
or ownership of any stocks, bonds, notes, debentures or other securities
(including, without limitation, any interests in any partnership or joint
venture) of, or any bank accounts with or guarantee of any Indebtedness or
other obligations of, any Person. Notwithstanding the foregoing,
"Investment" shall not include the repayment or the purchase, repurchase,
retirement, redemption or other acquisition by the Company or any
Subsidiary of any Indebtedness of the Company or any Subsidiary.
"Investment Grade" means a rating of BBB-or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such ratings by S&P or Moody's. In
the event that the Company shall select any other Rating Agency, the
equivalent of such ratings by such Rating Agency shall be used.
"Moody's" means Moody's Investors Service, Inc. and its successors.
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"Payment Event of Default" means any default in the payment of
principal of (or premium, if any) or interest on Designated Senior
Indebtedness beyond any applicable grace period with respect thereto.
"Permitted Indebtedness" means, without duplication, (a) Indebtedness
of the Company or any Subsidiary outstanding on the date of the Indenture
and any contractual obligation existing on the date of the Indenture of the
Company or any Subsidiary to, directly or indirectly, incur, create, issue,
assume or otherwise become liable, contingently or otherwise, or
responsible for any Indebtedness, (b) Indebtedness of the Company pursuant
to the Securities, (c) Indebtedness of the Company or any Subsidiary
(including unpaid interest thereon, including any interest accruing after
the filing of a petition initiating any bankruptcy, insolvency or
reorganization proceeding) in an aggregate principal amount at any time
outstanding not to exceed the aggregate commitment under the 1991 Credit
Agreement on the date of its execution, (d) obligations pursuant to
Interest Rate Contracts and Currency Agreements, to the extent that the
notional principal amount of such obligations does not exceed the amount of
Indebtedness permitted under the "Limitation of Indebtedness" covenant
described above and outstanding on the date such Interest Rate Contracts
and Currency Agreements are entered into, (e) any renewals, extensions,
substitutions, refinancings or replacements of any Indebtedness described
in clauses (a), (b), (c) and (d) of this definition of "Permitted
Indebtedness", including replacements with creditors other than the Banks
(or successive extensions, renewals, substitutions, refinancings or
replacements) so long as (i) except as otherwise permitted hereby, the
aggregate principal amount of Indebtedness represented thereby is not
increased by such renewal, extension, substitution, refinancing or
replacement and (ii) except in the case any Senior Indebtedness, the
Average Life and the date such Permitted Indebtedness is scheduled to
mature is not shortened and (iii) except in the case of the Senior
Subordinated Debentures, the new indebtedness shall not be senior in right
of payment to the Indebtedness that is being extended, renewed,
substituted, refinanced or replaced, (f) Intercompany Debt Obligations, (g)
Consolidated Capital Expenditure Indebtedness in an amount not to exceed
$100.0 million during the fiscal year ending August 31, 1993 and $50.0
million during any fiscal year thereafter, provided that any amounts not
used in any fiscal year may be used in a subsequent year; provided,
however, that Consolidated Capital Expenditure Indebtedness permitted to be
incurred under this clause (g) shall not exceed $250 million in the
aggregate during the term of the Indenture, (h) Physician Support
Obligations, (i) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any Subsidiary incurred or
assumed in connection with the disposition of any stock, business or assets
of the Company, a Subsidiary or any Healthcare Venture, other than
guarantees or similar credit support by the Company of Indebtedness
incurred by any Person acquiring all or any portion of such business,
assets, Subsidiary or Healthcare Venture for the purpose of financing such
acquisition; provided that the maximum aggregate liability in respect of
all such Indebtedness in the nature of such guarantees shall at no time
exceed the gross proceeds actually received from the sale of such business,
assets, Subsidiary or Healthcare Venture, (j) Indebtedness consisting of
deferred payment obligations resulting from the adjudication or settlement
of any claim or litigation in an amount not to exceed $50 million in the
aggregate during the term of the Indenture, (k) Indebtedness evidenced by
(i) standby letters of credit which are issued for the purpose of
supporting the Company's, Subsidiaries' and any Healthcare Ventures'
insurance and self-insurance obligations (including to secure workers'
compensation and similar insurance coverages) and (ii) other standby
letters of credit not to exceed $50 million in the aggregate at any time,
(l) Indebtedness evidenced by trade letters of credit incurred in the
ordinary course of business which are to be repaid in full not more than
one year after the date on which such Indebtedness is originally incurred
to finance the purchase of goods and supplies by the Company or a
Subsidiary not to exceed $50 million in the aggregate at any time, (m)
Indebtedness owed to a Healthcare Venture incurred in the ordinary course
of business consistent with the Company's cash management practices, (n)
Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided that such Indebtedness is
extinguished within three Business Days of incurrence, (o) any guaranty by
the Company or any Subsidiary of Indebtedness under the Bank Credit
Agreement
47
<PAGE> 49
and (p) Indebtedness of the Company, in addition to that described in
clauses (a) through (o) of this definition of "Permitted Indebtedness", not
in excess of $250 million aggregate principal amount outstanding at any
time, which additional amount may be under the Bank Credit Agreement.
"Permitted Investments" means purchases of (i) readily marketable
obligations of or obligations guaranteed by the United States of America or
issued by any agency thereof and backed by the full faith and credit of the
United States of America, (ii) readily marketable direct obligations issued
by any state of the United States of America or any political subdivision
or public instrumentality thereof having the highest rating obtainable from
either Moody's or S&P, (iii) commercial paper or privately placed unsecured
general obligations of a corporation, whether redeemable at the Company's
demand for next day settlement or otherwise; provided that the issuing
corporation's commercial paper has, at the time of purchase by the Company
of such commercial paper or other obligation, a rating in one of the two
highest rating categories of Moody's or S&P, (iv) certificates of deposit
issued by, bankers' acceptances and deposit accounts of, and time deposits
(A) in the ordinary course of business or (B) with commercial banks of
recognized standing chartered in the United States of America or Canada
with capital, surplus and undivided profits aggregating in excess of
$125,000,000 or foreign commercial banks with capital, surplus and
undivided profits aggregating in excess of $250,000,000 or (v) shares of
money market funds that invest solely in Permitted Investments of the kind
described in clause (i) through (iv) above.
"Permitted Payments" means (i) Restricted Payments, other than
Restricted Payments permitted by Section 5.07(b) of the Indenture, made
after the date of the Indenture in an aggregate amount not to exceed $100
million; provided that, at the time of and after giving effect to the
proposed Restricted Payment, the Company could incur at least $1.00 of
additional Indebtedness pursuant to the "Limitation on Indebtedness"
covenant described above, (ii) Restricted Payments in the form of dividends
or distributions on shares of Capital Stock of the Company, in each cases
solely in shares of Capital Stock of the Company or in warrants, rights or
options to purchase such Capital Stock, (iii) any dividend or other
distribution payable to the Company or a Subsidiary (and, if a Subsidiary
has minority stockholders, pro rata to such stockholders), (iv) any
contractual obligation of the Company or any Subsidiary, existing on the
date of the Indenture, to make a Restricted Payment and such Restricted
Payment when made, (v) Investments existing on the date of the Indenture
and any renewal or reclassification of any such Investment, (vi) guarantees
by the Company or a Subsidiary resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business, (vii) the
making of any Permitted Investment by the Company or any Subsidiary, (viii)
Investments by any qualified or nonqualified benefit plan established by
the Company made in accordance with the terms of such plan or applicable
law, (ix) in the event the Company shall establish a Subsidiary for the
purpose of insuring the healthcare businesses or facilities owned or
operated by the Company, any Subsidiary, any Healthcare Venture or any
physician employed by or on the medical staff of any such business or
facility (the "Insurance Subsidiary"), Investments in an amount which do
not exceed the minimum amount of capital required under the laws of the
jurisdiction in which the Insurance Subsidiary is formed, and any
Investment by such Insurance Subsidiary which is a legal investment for an
insurance company under the laws of the jurisdiction in which the Insurance
Subsidiary is formed, (x) any Investment made by the Company in any
Subsidiary (other than a Healthcare Venture) or by any Subsidiary in the
Company or any other Subsidiary not otherwise permitted by Section 5.07(b)
of the Indenture other than (A) the purchase of shares of Capital Stock of
the Company by a Subsidiary and (B) any guaranty by a Subsidiary of any
Indebtedness or other obligation of the Company, except for Senior
Indebtedness, (xi) Investments in an aggregate amount not exceeding $25
million at any time, (xii) any purchase or repurchase of Capital Stock or
obligations of a Healthcare Venture, (xiii) the repurchase or redemption by
a Subsidiary of its Capital Stock (other than Redeemable Stock), (xiv)
purchases of fractional shares of Capital Stock in connection with the
Company's employee benefit plans, (xv) purchases of fractional shares of
Capital Stock (or options or warrants therefor), which fractional shares
exist as the result of any stock split, (xvi) market purchases of Capital
Stock by the Company or its Subsidiaries for the purpose of contributing
such Capital Stock to the retirement plans of the Company and its
Subsidiaries in lieu of making contributions to such plans in treasury
stock or Capital Stock issued for such purpose, (xvii) the
48
<PAGE> 50
making of any Investment in a Healthcare Venture by the Company or any
Subsidiary, (xviii) loans or advances to employees in the ordinary course
of business, and (xix) Physician Support Obligations.
"Physician Support Obligations" means any obligation or guarantee
incurred in connection with any advance, loan or payment to, or on behalf
of or for the benefit of any physician, pharmacist or other allied
healthcare professional for the purpose of recruiting, redirecting or
retaining the physician, pharmacist or other allied healthcare professional
to provide service to patients in the service area of any healthcare
facility owned or operated by the Company, any of its Subsidiaries or any
Healthcare Venture; excluding, however, compensation for services provided
by physicians, pharmacists or other allied healthcare professionals to any
healthcare facility owned or operated by the Company, any of its
Subsidiaries or any Healthcare Venture.
"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or
Moody's or both shall not make a rating of the Notes publicly available, a
nationally recognized securities rating agency or agencies, as the case may
be, selected by the Company, which shall be substituted for S&P or Moody's
or both, as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, C and D (or equivalent successor categories);
(ii) with respect to Moody's, any of the following categories: Ba, B, Caa,
Ca, C and D (or equivalent successor categories); and (iii) the equivalent
of any such category of S&P or Moody's used by another Rating Agency. In
determining whether the rating of the Notes has decreased by one or more
gradations, gradations within Rating Categories (+ and - for S&P; 1, 2 and
3 for Moody's; or the equivalent gradations for another Rating Agency)
shall be taken into account (e.g., with respect to S&P, a decline in a
rating from BB+ to BB, as well as from BB- to B+, will constitute a
decrease of one gradation).
"Rating Date" means the date which is 90 days prior to the earlier of
(i) a Change of Control and (ii) public notice of the occurrence of a
Change of Control or of the intention by the Company to effect a Change of
Control.
"Rating Decline" means the occurrence on or within 90 days after the
date of public notice of the occurrence of a Change of Control or of the
intention by the Company to effect a Change of Control (which period shall
be extended so long as the rating of the Securities is under publicly
announced consideration for possible downgrade by any of the Rating
Agencies) of: (a) in the event the Securities are rated by either Moody's
or S&P on the Rating Date as Investment Grade, the rating of the Securities
by both Rating Agencies shall be below Investment Grade, or (b) in the
event the Securities are rated below Investment Grade by both Rating
Agencies on the Rating Date, the rating of the Securities by either Rating
Agency shall be decreased by one or more gradations (including gradations
within Rating Categories as well as between Rating Categories).
"S&P" means Standard & Poor's Corporation and its successors.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on (such interest on Senior Indebtedness, wherever referred to in
the Indenture, is deemed to include interest accruing after the filing of a
petition initiating any proceeding pursuant to any bankruptcy law in
accordance with and at the rate (including any rate applicable upon any
default or event of default, to the extent lawful) specified in any
document evidencing the Senior Indebtedness, whether or not the claim for
such interest is allowed as a claim after such filing in any proceeding
under such bankruptcy law) and other amounts due on or in connection with
any Indebtedness of the Company permitted under the "Limitation on
Indebtedness" covenant described above, whether outstanding on the date of
the Indenture or thereafter created, incurred or assumed, unless, in the
case of any particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly provides
that such Indebtedness shall not be senior in right of payment to the
Securities. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall include the principal of and premium, if any, and
interest (including interest accruing after the occurrence of an Event of
Default) on all obligations of every nature of the Company from time to
time owed to the Banks under the Bank Credit Agreement or guaranties by
49
<PAGE> 51
the Company of Indebtedness of a Subsidiary under the Bank Credit
Agreement, including, without limitation, principal of and interest on, and
all fees related to, the revolving loans or terms loans (or any combination
thereof) made pursuant to the Bank Credit Agreement, reimbursement and
other obligations owed by the Company to the Banks with respect to any
letters of credit and any obligations owed to the Banks with respect to
interest rate protection incurred to satisfy the requirements of the Bank
Credit Agreement or otherwise. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include the Securities, the 10 3/4% Notes, the
8 3/4% Debentures, Indebtedness of the Company to Subsidiaries and all
Redeemable Stock and guarantees of all Redeemable Stock.
"Subordinated Obligations" means any principal of, premium, if any,
and interest on the Securities payable pursuant to the terms of the
Securities or upon acceleration, including any amounts received upon the
exercise of rights of rescission or other rights of action (including
claims for damages) or otherwise, to the extent relating to the purchase
price of the Securities or amounts corresponding to such principal,
premium, if any, or interest on the Securities.
"Subsidiary" means (i) a corporation a majority of the voting stock of
which is at the time owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries or (ii) any partnership or joint venture at least a majority
of the total equity ownership of which is at the time owned, directly or
indirectly, by the Company and which the Company controls.
50
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and the Underwriters, the Company has
agreed to sell to each of the Underwriters, and each of the Underwriters
severally has agreed to purchase from the Company, the principal amount of
Securities set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITERS PRINCIPAL AMOUNT
--------------------------------------------------------------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.................. $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
Total........................................................... $
----------------
----------------
</TABLE>
The Purchase Agreement provides that, subject to the terms and conditions
set forth therein, the Underwriters will be obligated to purchase the entire
principal amount of the Securities if any are purchased.
The Underwriters propose to offer the Securities to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of % of the
principal amount thereof. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of % of the principal amount thereof to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
Prior to the Offering, there has been no public market for the Securities.
The Company may or may not list the Securities on a securities exchange. The
Company has been advised by the Underwriters that each Underwriter presently
intends to make a market in the Securities, although the Underwriters are under
no obligation to do so and may discontinue any market making at any time. No
assurance, therefore, can be given as to the liquidity of the trading market for
the Securities or that an active trading market for the Securities will develop.
If an active public market does not develop, the market price and liquidity of
the Securities may be adversely affected.
The Company and the several Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
Each of the Underwriters, from time to time, has performed and may in the
future perform investment banking and other financial services for the Company.
Merrill Lynch and DLJ are acting as financial advisors to the Company in
connection with the Acquisition. In addition, the Company has retained Merrill
Lynch and DLJ as Dealer Managers for the Tender Offers and as managing
underwriters for the Common Stock Offering.
LEGAL MATTERS
The validity of the Securities offered hereby and certain other legal
matters relating to the Offering will be passed upon for the Company by Dewey
Ballantine, New York, New York. Certain legal matters will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York. Morton A. Pierce
and Robert M. Smith, both members of Dewey Ballantine, are Assistant Secretaries
of the Company. In addition, certain members of Dewey Ballantine and certain
associates of the firm beneficially own shares of Common Stock.
EXPERTS
The consolidated financial statements of Healthtrust, Inc. - The Hospital
Company, EPIC Holdings, Inc., and EPIC Healthcare Group, Inc. appearing or
incorporated by reference in this Prospectus and Registration Statement have
been audited by Ernst & Young, independent auditors, to the extent indicated in
their reports thereon also appearing elsewhere herein and in the Registration
Statement or incorporated by reference. Such consolidated financial statements
have been included herein or incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
51
<PAGE> 53
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of the Securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Securities, reference is made to the Registration
Statement, including the exhibits thereto, and the financial statements and
notes filed as a part thereof. Statements made in this Prospectus concerning the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed with the Commission as an exhibit, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; at the Commission's New York Regional Office, 7 World Trade Center,
New York, New York 10048; and at its Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549 at prescribed rates. Such reports, proxy statements and
other information concerning the Company also can be inspected at the office of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
---------------------
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1993, Current Report on Form 8-K dated January 10, 1994, Quarterly Report on
Form 10-Q for the quarter ended November 30, 1993 and Quarterly Report on Form
10-Q for the quarter ended February 28, 1994, which have been filed by the
Company with the Commission pursuant to the Exchange Act, are incorporated
herein by reference.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
of the Securities, shall be deemed to be incorporated in this Prospectus by
reference and to be a part hereof from the respective date of filing of each
such document. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement herein or in any
other subsequently filed document which also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the documents incorporated by reference herein, other than exhibits to such
documents. Requests should be directed to Philip D. Wheeler, Esq., Senior Vice
President, General Counsel and Secretary, Healthtrust, Inc. - The Hospital
Company, 4525 Harding Road, Nashville, Tennessee 37205, telephone number (615)
383-4444.
52
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Condensed Combined Financial Statements......... P-1
Unaudited Pro Forma Condensed Combined Balance Sheet................................ P-2
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet....................... P-3
Unaudited Pro Forma Condensed Combined Statements of Operations..................... P-4
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations............ P-6
EPIC HOLDINGS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED DECEMBER 31, 1993:
Condensed Consolidated Balance Sheets............................................... F-1
Condensed Consolidated Statements of Operations..................................... F-2
Condensed Consolidated Statements of Cash Flows..................................... F-3
Notes to Condensed Consolidated Financial Statements................................ F-4
EPIC HOLDINGS, INC. AND SUBSIDIARIES
THREE YEARS ENDED SEPTEMBER 30, 1993:
Report of Independent Auditors...................................................... F-7
Consolidated Balance Sheets......................................................... F-8
Consolidated Statements of Operations............................................... F-9
Consolidated Statements of Stockholders' Equity (Deficit)........................... F-10
Consolidated Statements of Cash Flows............................................... F-11
Notes to Consolidated Financial Statements.......................................... F-12
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
THREE MONTHS ENDED DECEMBER 31, 1993:
Condensed Consolidated Balance Sheets............................................... F-25
Condensed Consolidated Statements of Operations..................................... F-26
Condensed Consolidated Statements of Cash Flows..................................... F-27
Notes to Condensed Consolidated Financial Statements................................ F-28
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
THREE YEARS ENDED SEPTEMBER 30, 1993:
Report of Independent Auditors...................................................... F-37
Consolidated Balance Sheets......................................................... F-38
Consolidated Statements of Operations............................................... F-39
Consolidated Statements of Stockholders' Equity (Deficit)........................... F-40
Consolidated Statements of Cash Flows............................................... F-41
Notes to Consolidated Financial Statements.......................................... F-42
</TABLE>
53
<PAGE> 55
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
are based on the consolidated financial statements of the Company and EPIC
included or incorporated by reference in this Prospectus, combined and adjusted
to give effect to the Company's Acquisition of EPIC, using the purchase method
of accounting, and the related Financing Plan.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of February 28,
1994 gives effect to the Acquisition and Financing Plan as if they had occurred
as of February 28, 1994. The Unaudited Pro Forma Condensed Combined Statements
of Operations for the six months ended February 28, 1994 and year ended August
31, 1993, give effect to the Acquisition and Financing Plan as if they had
occurred on September 1, 1992. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The Unaudited Pro Forma Condensed Combined Financial Statements do
not purport to represent what the combined financial position or results of
operations would actually have been if the transactions had occurred on February
28, 1994 or September 1, 1992 or to project the combined financial position or
combined results of operations for any future period.
The Company will continue to report its financial information on the basis
of an August 31 fiscal year. EPIC reports its financial information using a
September 30 fiscal year. The Unaudited Pro Forma Condensed Combined Balance
Sheet combines the Company's February 28, 1994 balance sheet and EPIC's December
31, 1993 balance sheet. The Unaudited Pro Forma Condensed Combined Statements of
Operations combine the Company's statements of operations for the six months
ended February 28, 1994 and fiscal year ended August 31, 1993 with EPIC's
statements of operations for the six months ended December 31, 1993 and fiscal
year ended September 30, 1993, respectively.
The Unaudited Pro Forma Condensed Combined Financial Statements should be
read in conjunction with "The Acquisition and the Financing Plan,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes of the Company and EPIC included or incorporated by reference in this
Prospectus.
P-1
<PAGE> 56
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FEBRUARY 28, 1994
------------------------------------------------------------
AS REPORTED AS REPORTED PRO FORMA COMBINED
HEALTHTRUST EPIC ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents..................... $ 159.8 $ 55.1 $ 152.3 (1) $ 20.0
195.0 (2)
(157.5)(3)
(633.4)(4)
(250.2)(5)
(27.6)(6)
(8.5)(7)
(27.4)(8)
562.4 (9)
Marketable securities......................... 34.1 (34.1)(7) 0.0
Accounts receivable........................... 392.1 99.4 491.5
Supplies...................................... 54.5 21.0 75.5
Other current assets.......................... 30.1 18.3 48.4
----------- ----------- ------------ ---------
TOTAL CURRENT ASSETS................... 636.5 227.9 (229.0) 635.4
PROPERTY, PLANT AND EQUIPMENT................... 2,243.7 810.0 (231.2)(10) 2,822.5
Less accumulated depreciation................. 660.2 231.2 (231.2)(10) 660.2
----------- ----------- ------------ ---------
1,583.5 578.8 0.0 2,162.3
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED...................................... 177.5 52.5 17.3 (3) 634.0
120.4 (4)
292.9 (5)
27.6 (6)
25.8 (8)
(80.0)(11)
OTHER ASSETS.................................... 118.3 39.3 5.0 (2) 234.1
(2.4)(3)
(16.9)(4)
10.8 (8)
80.0 (11)
----------- ----------- ------------ ---------
TOTAL ASSETS........................... $ 2,515.8 $ 898.5 $ 251.5 $3,665.8
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
CURRENT LIABILITIES
Accounts payable.............................. $ 77.7 $ 45.6 $ 9.2 (8) $ 132.5
Other current liabilities..................... 267.2 144.8 (42.6)(7) 370.0
0.6 (9)
----------- ----------- ------------ ---------
TOTAL CURRENT LIABILITIES.............. 344.9 190.4 (32.8) 502.5
LONG-TERM DEBT.................................. 931.4 685.2 200.0 (2) 1,705.9
(142.6)(3)
(529.9)(4)
561.8 (9)
DEFERRED INCOME TAXES........................... 133.6 11.4 145.0
DEFERRED PROFESSIONAL LIABILITIES............... 148.9 46.5 195.4
OTHER LIABILITIES............................... 212.6 47.9 (40.2)(5) 220.3
STOCKHOLDERS' EQUITY
Common stock(12).............................. 0.1 0.4 (0.4)(5) 0.1
Paid-in capital............................... 828.3 245.8 152.3 (1) 980.6
(245.8)(5)
Deferred compensation......................... (0.6) (137.4) 137.4 (5) (0.6)
Retained deficit.............................. (83.4) (191.7) 191.7 (5) (83.4)
----------- ----------- ------------ ---------
STOCKHOLDERS' EQUITY................... 744.4 (82.9) 235.2 896.7
----------- ----------- ------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $ 2,515.8 $ 898.5 $ 251.5 $3,665.8
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
</TABLE>
See notes to unaudited pro forma condensed combined balance sheet.
P-2
<PAGE> 57
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
1. To record the net proceeds from the completion of the offering of 5.2
million shares of Healthtrust Common Stock at $30.50 per share, the average
of the high and low prices for the Common Stock reported on the NYSE for
March 31, 1994. Gross proceeds of $158.6 million, less estimated issuance
costs of $6.3 million, provides net proceeds of $152.3 million.
2. To record the net proceeds from the completion of the $200 million
Subordinated Debt Offering. Gross proceeds of $200.0 million, less estimated
issuance costs of $5.0 million, provides net proceeds of $195.0 million.
Maturities of pro forma long-term debt for the 12-month periods ending
subsequent to February 28, 1994 are as follows: 1994 -- $43.9 million;
1995 -- $67.4 million; 1996 -- $100.4 million; 1997 -- $118.2 million;
1998 -- $124.2 million; and thereafter -- $1,295.7 million.
3. To record the Debt Redemption. The $157.5 million payment retires $142.6
million recorded value of EPIC indebtedness, the related deferred loan costs
of $2.4 million are written off and the net payment excess of $17.3 million
is recorded in excess of purchase price over net assets acquired.
4. To record the completion of the Tender Offers for the Specified EPIC Debt
Securities (100% tender amount assumed). Assuming either the Current Tender
Amount or 0% of each issue of the Specified EPIC Debt Securities is
purchased in the Tender Offers, there would be no material effect on
long-term indebtedness.
The $633.4 million payment retires $529.9 million recorded value of
Specified EPIC Debt Securities, the related deferred loan costs of $16.9
million are written off and the net payment excess of $120.4 million is
recorded in excess of purchase price over net assets acquired.
5. To record the payment of $7 per share for 35,746,000 shares of EPIC common
stock ($250.2 million).
EPIC recorded a noncurrent liability of approximately $40.2 million related
to the 5.9 million shares of EPIC Common Stock issued pursuant to the EPIC
Stock Appreciation Rights Plan, which shares are included in the total
number of shares of EPIC common stock to be purchased by the Company
pursuant to the Acquisition.
6. To record the payment of $27.6 million in connection with the termination of
contributions to the EPIC ESOP pursuant to the ESOP Agreement.
7. To record EPIC's required call of the outstanding 15% Senior Subordinated
Notes of EPIC Group and pay the related call premium and accrued interest
payable.
8. To record certain severance agreement liabilities and transaction costs
(including estimated legal, accounting and valuation costs).
9. To record borrowings under the 1994 Credit Agreement of $712.7 million to
complete the Acquisition and Financing Plan transactions ($150.3 million to
refinance the existing bank credit facility and $562.4 million of additional
borrowings) and maintain a $20.0 million cash balance.
10. To record EPIC's property, plant and equipment at historical net book value.
No estimate of any purchase accounting adjustments to record such property,
plant and equipment at fair value has been made at this time. The Company
expects to obtain and record a valuation of EPIC's land and buildings within
six months following the Acquisition. It is not expected that the
reclassification between excess of purchase price over net assets acquired
and property, plant and equipment will be significant to the combined
balance sheet.
11. To record the deferred tax asset for the temporary differences related to
the above transactions (assumes a 39% statutory combined federal and state
tax rate).
12. No assumption has been made as to the exercise of all or a portion of the
Warrants to purchase 3,409,219 shares of Common Stock. If all Warrants were
exercised at a price of $3.18 per share, net proceeds to the Company would
be approximately $10.8 million.
P-3
<PAGE> 58
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED AS REPORTED PRO FORMA COMBINED PRO
HEALTHTRUST EPIC ADJUSTMENTS FORMA(1)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net operating revenue................... $ 1,274.6 $ 537.2 $ 1,811.8
Costs and expenses:
Hospital service costs:
Salaries and benefits.............. 468.4 227.4 695.8
Supplies........................... 179.0 64.4 243.4
Fees............................... 133.1 40.9 174.0
Other expenses..................... 131.7 87.0 218.7
Bad debt expense................... 88.7 42.8 131.5
----------- ----------- ------------ ------------
1,000.9 462.5 1,463.4
Depreciation and amortization........... 69.7 29.4 $ 5.2 (2) 104.3
Interest................................ 42.3 46.7 (17.9)(3) 71.1
ESOP/pension expense.................... 20.5 10.8 31.3
Deferred compensation expense........... 0.6 2.3 (2.3)(4) 0.6
Other income (net)...................... (8.7) (1.5) 6.2 (5) (4.0)
----------- ----------- ------------ ------------
1,125.3 550.2 (8.8) 1,666.7
----------- ----------- ------------ ------------
Income (Loss) before minority interests,
income taxes and extraordinary
charges............................... 149.3 (13.0) 8.8 145.1
Minority interests...................... 4.1 2.8 6.9
----------- ----------- ------------ ------------
Income (Loss) before income taxes and
extraordinary charges................. 145.2 (15.8) 8.8 138.2
Income tax expense (benefit)............ 59.0 0.8 (2.2)(6) 57.6
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
CHARGES............................... $ 86.2 $ (16.6) $ 11.0 $ 80.6
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
(40,030,743)(7)
Weighted average common shares.......... 84,639,121 40,030,743 5,200,000 (7) 89,839,121
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Income (loss) per share before
extraordinary charges................. $ 1.02 $ (0.41) $ 0.90
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See notes to unaudited pro forma condensed combined statements of operations.
P-4
<PAGE> 59
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED
AS REPORTED AS REPORTED PRO FORMA PRO
HEALTHTRUST EPIC ADJUSTMENTS FORMA(1)
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net operating revenue.................... $ 2,394.6 $ 1,019.1 $ 3,413.7
Costs and expenses:
Hospital service costs:
Salaries and benefits............... 886.7 432.5 1,319.2
Supplies............................ 347.0 122.0 469.0
Fees................................ 270.1 75.7 345.8
Other expenses...................... 239.3 162.9 402.2
Bad debt expense.................... 145.5 80.6 226.1
----------- ----------- ------------ -----------
1,888.6 873.7 2,762.3
Depreciation and amortization............ 132.7 57.9 $ 10.6 (2) 201.2
Interest................................. 99.8 89.9 (31.6)(3) 158.1
ESOP/pension expense..................... 39.0 20.7 59.7
Deferred compensation expense............ 4.3 3.8 (3.8)(4) 4.3
Other income (net)....................... (7.6) (7.2) 7.9 (5) (6.9)
----------- ----------- ------------ -----------
2,156.8 1,038.8 (16.9) 3,178.7
----------- ----------- ------------ -----------
Income (Loss) before minority interests,
income taxes and extraordinary
charges................................ 237.8 (19.7) 16.9 235.0
Minority interests....................... 11.9 3.5 15.4
----------- ----------- ------------ -----------
Income (Loss) before income taxes and
extraordinary charges.................. 225.9 (23.2) 16.9 219.6
Income tax expense....................... 90.7 2.0 (0.8)(6) 91.9
----------- ----------- ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
CHARGES................................ $ 135.2 $ (25.2) $ 17.7 $ 127.7
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
(40,146,915)(7)
Weighted average common shares........... 83,540,815 40,146,915 5,200,000 (7) 88,740,815
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Income (Loss) per share before
extraordinary
charges................................ $ 1.62 $ (0.63) $ 1.44
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma condensed combined statements of operations.
P-5
<PAGE> 60
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
1. The pro forma condensed combined statements of operations do not give effect
to any overhead reductions or cost savings, if any, which may be realized
after the consummation of the Acquisition. Pension expense for EPIC employees
has been assumed to be equivalent to historical EPIC ESOP expense
(approximately 5.5% of salaries).
2. To adjust amortization as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 1994 AUGUST 31, 1993
----------------- ---------------
<S> <C> <C>
To record amortization related to the $456.5 million
increase in the excess of purchase price over net assets
acquired................................................. $ 6.5 $12.9
To eliminate the EPIC historical amortization of the
excess of purchase price over net assets acquired........ (1.3) (2.3)
----- ------
$ 5.2 $10.6
----- ------
----- ------
</TABLE>
The excess of purchase price over net assets acquired related to the EPIC
acquisition will be amortized over 40 years using the straight-line method
(for the purpose of the pro forma computations of amortization, $60.0 million
of the excess of purchase price over net assets acquired has been amortized
over 20 years using the straight-line method to provide an estimated effect
for recording the acquired property, plant and equipment at fair value).
3. To adjust interest expense as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 1994 AUGUST 31, 1993
----------------- ---------------
<S> <C> <C>
To record interest expense on borrowings of $712.7
million related to the 1994 Credit Agreement (assumes
average interest rate of 5.34% and 5.43%, respectively)
and includes the amortization of deferred loan costs of
$1.1 million and $2.2 million, respectively.............. $ 20.2 $ 40.9
To record interest expense related to the $200 million
Subordinated Notes (assumes a 9.25% interest rate) and
includes the amortization of deferred financing costs of
$.3 million and $.7 million, respectively................ 9.6 19.2
To eliminate historical interest expense (including the
amortization of the related deferred loan costs) on the
tendered Specified EPIC Debt Securities, the called EPIC
Redeemable Debt and the refinanced Company bank debt..... (47.7) (91.7)
------- -------
$ (17.9) $ (31.6)
------- -------
------- -------
</TABLE>
An increase or decrease of one-eighth of one percent (0.125%) in the interest
rate assumption used to calculate interest expense on the proceeds of the
Subordinated Debt Offering would increase or decrease interest expense and
income before income taxes by approximately $0.1 million and $0.3 million,
respectively.
Assuming the Current Tender Amount or 0% of each issue of the Specified EPIC
Debt Securities are purchased in the Tender Offers, pro forma interest expense
would not increase by any material amount as the nonpurchased securities would
be recorded at a current market interest rate using the purchase accounting
method.
4. To eliminate the compensation expense related to EPIC'S SAR Plan.
5. To eliminate interest income on excess cash.
6. To record the pro forma provision for income taxes by applying the estimated
statutory rates (39.0% and 38.6% for the six months ended February 28, 1994
and year ended August 31, 1993, respectively) to pro forma income before
income taxes, adjusted for any nondeductible expenses.
7. To reflect the Company's purchase of EPIC's outstanding equity and completion
of the offering of 5.2 million shares of Common Stock by the Company.
P-6
<PAGE> 61
EPIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993
DECEMBER 31, -------------
1993
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ 45,563 $ 61,362
Cash restricted for interest payment............................ 9,573 3,820
Marketable securities........................................... 34,132 47,347
Accounts receivable, net of reserves for uncompensated care of
$31,187 and $29,286.......................................... 99,392 76,957
Supply inventories.............................................. 20,973 20,687
Prepaid expenses and other...................................... 12,898 5,074
Deferred income taxes........................................... 5,384 --
------------ -------------
TOTAL CURRENT ASSETS.............................................. 227,915 215,247
PROPERTY AND EQUIPMENT............................................ 810,055 786,798
ACCUMULATED DEPRECIATION AND AMORTIZATION......................... (231,239) (218,746)
------------ -------------
578,816 568,052
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of
accumulated amortization........................................ 52,461 52,965
OTHER ASSETS, net of accumulated amortization..................... 39,330 38,696
------------ -------------
TOTAL ASSETS...................................................... $ 898,522 $ 874,960
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt............................ $ 48,049 $ 47,914
Accounts payable................................................ 45,557 44,610
Accrued liabilities............................................. 96,746 87,604
------------ -------------
TOTAL CURRENT LIABILITIES......................................... 190,352 180,128
LONG-TERM DEBT.................................................... 685,187 679,605
DEFERRED INCOME TAXES............................................. 11,378 5,994
RESERVE FOR PROFESSIONAL LIABILITY RISKS.......................... 46,557 46,612
OTHER DEFERRED LIABILITIES........................................ 42,013 42,450
COMMITMENTS AND CONTINGENT LIABILITIES............................
MINORITY INTERESTS................................................ 5,909 5,472
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value.................................... 399 401
Paid-in capital................................................. 245,759 245,757
Notes receivable from EPIC ESOP................................. (137,381) (148,214)
Retained earnings (deficit)..................................... (191,651) (183,245)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT).............................. (82,874) (85,301)
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).............. $ 898,522 $ 874,960
------------ -------------
------------ -------------
</TABLE>
See notes to condensed consolidated financial statements.
F-1
<PAGE> 62
EPIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
NET OPERATING REVENUE............................................. $ 272,451 $ 244,352
COSTS AND EXPENSES:
Salaries and wages.............................................. 99,526 84,634
Employee benefits............................................... 21,094 22,997
ESOP expense.................................................... 5,635 5,182
Supplies........................................................ 32,025 30,041
Uncompensated care.............................................. 19,618 19,048
Other........................................................... 64,653 57,909
Depreciation and amortization................................... 13,130 13,791
Interest expense................................................ 23,834 21,954
----------- -----------
TOTAL COSTS AND EXPENSES.......................................... 279,515 255,556
INTEREST INCOME................................................... 819 612
----------- -----------
LOSS BEFORE INCOME TAX EXPENSE, MINORITY INTERESTS AND
EXTRAORDINARY ITEM.............................................. (6,245) (10,592)
INCOME TAX EXPENSE, net........................................... (375) (176)
MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES, net of
income tax expense.............................................. (1,667) (631)
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM.................................... (8,287) (11,399)
EXTRAORDINARY ITEM, net of income tax expense..................... -- (570)
----------- -----------
NET LOSS.......................................................... $ (8,287) $ (11,969)
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING....................................... 39,943,524 40,156,780
LOSS PER COMMON SHARE:
Before extraordinary item....................................... $ (.21) $ (.28)
Extraordinary item.............................................. -- (.01)
----------- -----------
Net loss........................................................ $ (.21) $ (.29)
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE> 63
EPIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................. $ (8,287) $(11,969)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization..................................... 13,130 13,791
Non-cash provision for professional liability risks............... (1,111) 437
ESOP expense...................................................... 5,635 5,182
Deferred SAR Plan compensation.................................... (274) (1,496)
Minority interests in income of consolidated subsidiaries......... 1,667 631
Non-cash interest................................................. 8,995 9,227
Extraordinary item................................................ -- 570
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable............................................... (22,435) 342
Supply inventories and other assets............................... (8,399) (10,549)
Accounts payable and other liabilities............................ 9,991 8,785
-------- --------
Net cash provided by (used in) operating activities.......... (1,088) 14,951
INVESTING ACTIVITIES
Investments in marketable securities, net............................ 13,215 6,395
Cash paid for acquisitions........................................... (960) (4,100)
Additions to property and equipment.................................. (23,431) (7,410)
Other................................................................ (661) (811)
-------- --------
Net cash used in investing activities........................ (11,837) (5,926)
FINANCING ACTIVITIES
Payments on debt obligations......................................... (1,415) (76)
Line of credit borrowings, net....................................... -- 800
Purchase of Senior ESOP Notes........................................ -- (5,616)
Purchase of treasury stock........................................... (119) (11)
Distributions and dividends to minority interests.................... (1,132) (2,340)
Payments of debt issue costs and other, net.......................... (208) (59)
-------- --------
Net cash used in financing activities........................ (2,874) (7,302)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (15,799) 1,723
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 61,362 37,419
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 45,563 $ 39,142
-------- --------
-------- --------
SUPPLEMENTARY INFORMATION
Cash paid for interest............................................... $ 8,513 $ 1,598
Cash paid for income taxes........................................... $ 199 $ 176
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE> 64
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
EPIC Holdings, Inc. and Subsidiaries ("Holdings") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included and are of a normal recurring nature.
Operating results for the three month period ended December 31, 1993 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1994. These financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
thereto included in Holdings' annual report on Form 10-K for the year ended
September 30, 1993.
Certain prior period amounts have been reclassified to conform with the
fiscal 1994 presentation.
2. SUBSEQUENT EVENT
On January 9, 1994, Holdings entered into an Agreement and Plan of Merger
(the "Merger Agreement") with HealthTrust, Inc. -- The Hospital Company, a
Delaware corporation ("HTI"), and Odyssey Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of HTI ("HTI Sub"), providing for the
merger (the "Merger") of HTI Sub with and into Holdings following which Holdings
would become a wholly-owned subsidiary of HTI. The Merger is expected to result
in a termination of the EPIC ESOP. Under the terms of the Merger Agreement,
which was unanimously approved by the Boards of Directors of both HTI and
Holdings, shareholders of Holdings will receive $7.00 per share of Holdings'
common stock.
HTI intends to offer to purchase the 12% Senior Deferred Coupon Notes due
2002, the 11.375% Class B-1 First Priority Mortgage Notes due 2001, the 11.5%
Class B-2 First Priority Mortgage Notes due 2001, the Class B-3 First Priority
Mortgage Notes, and the 10.875% Senior Subordinated Notes due 2003 and to redeem
other outstanding EPIC indebtedness in accordance with their terms. HTI also
plans to seek the consent of the holders of Holdings' indebtedness to amend
certain restrictive provisions.
Consummation of the Merger is subject to a number of conditions, including
the approval of Holdings' shareholders and the consummation of certain debt
consent solicitations. American Medical International, Inc. and the trustee of
the EPIC ESOP (who controls the unallocated shares of the EPIC ESOP) have
agreed, subject to the fulfillment of certain conditions, to vote their shares
of Holdings common stock (approximately 52% combined) in favor of the Merger.
The transaction is expected to close by May of 1994.
3. INCOME TAXES
Effective October 1, 1993, Holdings changed its method of accounting for
income taxes to the liability method as required by Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which
superseded SFAS No. 96. As permitted under the rules of SFAS No. 109, prior
years' financial statements have not been restated.
Adopting SFAS No. 109 had no effect on current period operations. Due to
the uncertainty of the realization of the net deferred federal tax liability,
Holdings established a valuation allowance against the deferred federal tax
assets so that deferred federal tax assets equalled deferred federal tax
liabilities. The net deferred tax liability reported relates primarily to state
taxes.
F-4
<PAGE> 65
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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
Holdings' deferred tax assets and liabilities as of October 1, 1993 are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities
Property and equipment basis difference.......................... $42,908
ESOP plan fees................................................... 1,547
ESOP contribution................................................ 3,455
State taxes and other............................................ 5,994
-------
Total deferred tax liabilities................................... 53,904
-------
Deferred tax assets
Bad debt reserve differences..................................... 6,593
Professional liability reserves.................................. 15,670
SAR compensation................................................. 14,034
Health plan and workers' compensation reserves................... 3,652
Paid time off reserve............................................ 1,788
Net operating losses............................................. 24,312
Other............................................................ 700
-------
Total deferred tax assets........................................ 66,749
Valuation allowance.............................................. (18,839)
-------
Net deferred tax assets.......................................... 47,910
-------
Net deferred tax liability....................................... $ 5,994
-------
-------
</TABLE>
No tax benefit was recorded for the current net operating loss and no
federal taxes are anticipated for fiscal 1994. Current income tax expense of
$375,000 relates to state income taxes.
4. LOSS PER COMMON SHARE
Loss per common share has been computed by dividing the net loss applicable
to common shares by the weighted average number of common shares outstanding
during the period. The exercise of the outstanding common stock warrants and
other common stock equivalents has not been assumed as the effect would be
antidilutive.
5. CHANGES IN STOCKHOLDER'S EQUITY
During the three-month period ended December 31, 1993, Holdings purchased
treasury stock for $119,000 and received a principal payment on the Notes
receivable from the EPIC ESOP of $10,833,000 which was recorded as a reduction
of the Notes receivable from EPIC ESOP.
6. GUARANTOR SUBSIDIARIES
Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the
loans under the Amended Credit Agreement, the Zero Coupon Notes, the Additional
Zero Coupon Notes, the Senior ESOP Notes, the 10.875% Senior Subordinated Notes,
the 15% Senior Subordinated Notes and the 11% Junior Subordinated
F-5
<PAGE> 66
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Pay-In-Kind Notes. Certain other subsidiaries, including EPIC Properties, Inc.
("EPIC Properties") are not Guarantor Subsidiaries (the "Nonguarantor
Subsidiaries"). All equity interests in the Nonguarantor Subsidiaries, other
than those held by minority interests, are held by EPIC.
Condensed consolidating financial information of EPIC Healthcare Group,
Inc. ("EPIC"), the Guarantor Subsidiaries, EPIC Properties and the other
Nonguarantor Subsidiaries are included in the footnotes to the unaudited
condensed consolidated financial statements of EPIC included elsewhere herein.
F-6
<PAGE> 67
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors
EPIC Holdings, Inc.
We have audited the accompanying consolidated balance sheets of EPIC
Holdings, Inc. and subsidiaries as of September 30, 1993 and 1992, and the
related consolidated statements of operations, stockholder's equity (deficit),
and cash flows for each of the three years in the period ended September 30,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EPIC Holdings, Inc. and subsidiaries at September 30, 1993, and 1992, and the
results of its consolidated operations and its consolidated cash flows for each
of the three years in the period ended September 30, 1993, in conformity with
generally accepted accounting principles.
ERNST & YOUNG
Dallas, Texas
December 3, 1993
F-7
<PAGE> 68
EPIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................................. $ 61,362 $ 37,419
Cash restricted for interest payments...................................................... 3,820 5,768
Marketable securities...................................................................... 47,347 10,607
Accounts receivable, net of reserves for uncompensated care of $29,286 and $25,837,
respectively............................................................................. 76,957 73,398
Supply inventories......................................................................... 20,687 20,000
Prepaid expenses and other................................................................. 5,074 5,222
-------- --------
TOTAL CURRENT ASSETS......................................................................... 215,247 152,414
PROPERTY AND EQUIPMENT
Land....................................................................................... 53,030 57,492
Buildings and improvements................................................................. 476,570 451,292
Equipment.................................................................................. 234,656 192,367
Construction in progress................................................................... 22,542 9,333
-------- --------
786,798 710,484
Accumulated depreciation and amortization.................................................. (218,746) (173,789)
-------- --------
568,052 536,695
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED,
net of accumulated amortization............................................................ 52,965 48,140
OTHER ASSETS, net of accumulated amortization................................................ 38,696 43,502
-------- --------
TOTAL ASSETS................................................................................. $874,960 $780,751
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt....................................................... $ 47,914 $ 2,330
Accounts payable........................................................................... 44,610 34,809
Accrued liabilities:
Salaries and wages....................................................................... 36,475 33,031
Taxes other than on income............................................................... 7,946 7,589
Interest................................................................................. 11,027 7,658
Group health insurance................................................................... 4,902 5,656
Current reserve for professional liability risks......................................... 11,000 11,000
Other.................................................................................... 16,254 9,011
-------- --------
TOTAL CURRENT LIABILITIES.................................................................... 180,128 111,084
LONG-TERM DEBT............................................................................... 679,605 619,363
DEFERRED INCOME TAXES........................................................................ 5,994 5,994
RESERVE FOR PROFESSIONAL LIABILITY RISKS..................................................... 46,612 39,640
OTHER DEFERRED LIABILITIES................................................................... 42,450 39,607
COMMITMENTS AND CONTINGENT LIABILITIES.......................................................
MINORITY INTERESTS........................................................................... 5,472 23,494
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value -- Authorized: 100,000,000 shares; Issued: 40,319,245 shares;
Outstanding: 40,099,441 and 40,154,545 shares, respectively.............................. 401 401
Paid-in capital............................................................................ 245,757 245,757
Notes receivable from EPIC ESOP............................................................ (148,214) (168,929)
Retained earnings (deficit)................................................................ (183,245) (135,660)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)......................................................... (85,301) (58,431)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)......................................... $874,960 $780,751
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 69
EPIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------
1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
NET OPERATING REVENUE................................ $ 1,019,149 $ 941,266 $ 802,689
COSTS AND EXPENSES:
Salaries and wages................................. 354,326 319,868 271,007
Employee benefits.................................. 84,615 81,365 68,434
ESOP expense....................................... 20,715 20,714 23,076
Supplies........................................... 121,986 116,145 99,882
Uncompensated care................................. 80,643 69,308 59,425
Other.............................................. 235,924 235,009 192,633
Depreciation and amortization...................... 57,917 53,013 49,354
Interest expense................................... 89,872 79,790 68,266
----------- ----------- ----------
TOTAL COSTS AND EXPENSES............................. 1,045,998 975,212 832,077
INTEREST INCOME...................................... 3,648 3,936 5,405
GAIN (LOSS) ON SALE OF ASSETS........................ 3,521 (1,123) (543)
----------- ----------- ----------
LOSS BEFORE INCOME TAX BENEFIT
(EXPENSE), MINORITY INTERESTS AND
EXTRAORDINARY ITEM................................. (19,680) (31,133) (24,526)
INCOME TAX BENEFIT (EXPENSE), net.................... (1,984) 9,252 7,603
MINORITY INTERESTS IN INCOME OF CONSOLIDATED
SUBSIDIARIES (net of income
tax benefit of $1,008, and $1,063 in 1992 and
1991, respectively)................................ (3,499) (1,958) (2,064)
----------- ----------- ----------
LOSS BEFORE EXTRAORDINARY ITEM....................... (25,163) (23,839) (18,987)
EXTRAORDINARY ITEM (net of income tax benefit of $652
and $1,330 in 1992 and 1991, respectively)......... (21,960) (1,265) (2,581)
----------- ----------- ----------
NET LOSS............................................. (47,123) (25,104) (21,568)
REDEEMABLE PREFERRED STOCK DIVIDEND OF PREDECESSOR
COMPANY............................................ -- (11,048) (22,873)
----------- ----------- ----------
NET LOSS APPLICABLE TO COMMON SHARES................. $ (47,123) $ (36,152) $ (44,441)
----------- ----------- ----------
----------- ----------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING........................................ 40,146,915 32,576,161 24,482,803
LOSS PER COMMON SHARE:
Before extraordinary item.......................... $ (.63) $ (1.07) $ (1.71)
Extraordinary item................................. (.55) (.04) (.11)
----------- ----------- ----------
Net loss........................................... $ (1.18) $ (1.11) $ (1.82)
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 70
EPIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES RETAINED TOTAL
COMMON PAID-IN RECEIVABLE EARNINGS STOCKHOLDERS'
STOCK CAPITAL FROM EPIC ESOP (DEFICIT) EQUITY (DEFICIT)
------ -------- -------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1990.......... $245 $219,808 $ (212,738) $ (87,241) $(79,926)
Dividends accrued and accretion of
discount on redeemable preferred
stock............................. -- (22,873) -- -- (22,873)
Principal payments received on notes
receivable from EPIC ESOP......... -- -- 23,095 -- 23,095
Treasury stock purchased............ (1) -- -- (468) (469)
Net loss............................ -- -- -- (21,568) (21,568)
------ -------- ------------ --------- ------------
Balance at September 30, 1991....... 244 196,935 (189,643) (109,277) (101,741)
Dividends accrued and accretion of
discount on redeemable preferred
stock............................. -- (11,048) -- -- (11,048)
Principal payments received on notes
receivable from EPIC ESOP......... -- -- 20,714 -- 20,714
Treasury stock purchased............ (2) -- -- (1,279) (1,281)
Warrant conversion.................. 65 (44) -- -- 21
Preferred stock transaction costs... -- (7,063) -- -- (7,063)
Conversion of Class C Preferred
Stock............................. 94 63,842 -- -- 63,936
Net book value of Class A and Class
B Preferred Stock over cash
paid.............................. -- 3,135 -- -- 3,135
Net loss............................ -- -- -- (25,104) (25,104)
------ -------- ------------ --------- ------------
Balance at September 30, 1992....... 401 245,757 (168,929) (135,660) (58,431)
Principal payments received on notes
receivable from EPIC ESOP......... -- -- 20,715 -- 20,715
Treasury stock purchased............ -- -- -- (462) (462)
Net loss............................ -- -- -- (47,123) (47,123)
------ -------- ------------ --------- ------------
Balance at September 30, 1993....... $401 $245,757 $ (148,214) $(183,245) $(85,301)
------ -------- ------------ --------- ------------
------ -------- ------------ --------- ------------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 71
EPIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(47,123) $(25,104) $(21,568)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 57,917 53,013 49,354
Non-cash provision for professional liability risks.... 2,641 4,131 11,291
ESOP expense........................................... 20,715 20,714 23,076
Deferred SAR Plan compensation......................... 3,249 10,805 7,137
Minority interests in income of consolidated
subsidiaries......................................... 3,499 2,966 3,127
(Gain) loss on sale of assets.......................... (3,521) 1,123 543
Non-cash interest...................................... 36,855 27,190 13,975
Extraordinary item..................................... 21,960 1,917 3,911
Deferred income tax benefit............................ -- (11,800) (9,996)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. 6,054 (35,196) (3,043)
Supply inventories and other assets.................. 4,083 (3,162) (5,291)
Accounts payable and other liabilities............... 12,172 11,395 6,444
-------- -------- --------
Net cash provided by operating activities......... 118,501 57,992 78,960
INVESTING ACTIVITIES
Investments in marketable securities, net................. (36,740) 5,167 (12,091)
Cash paid for acquisitions................................ (54,536) (12,269) --
Additions to property and equipment....................... (60,784) (47,850) (25,646)
Purchase of investment securities......................... -- (4,180) --
Proceeds from sales of assets............................. 25,148 190 361
Collection on note receivable............................. 9,349 -- --
Other..................................................... (5,925) (2,046) (48)
-------- -------- --------
Net cash used in investing activities............. (123,488) (60,988) (37,424)
FINANCING ACTIVITIES
Payments on debt obligations.............................. (117,765) (1,603) (250,647)
Proceeds from long-term borrowings........................ 180,853 140,052 227,868
Purchase of Senior ESOP Notes............................. (5,616) (20,293) --
Purchase of treasury stock................................ (462) (1,281) (469)
Purchase of Class A and B Preferred Stock................. -- (130,000) --
Preferred stock transaction costs......................... -- (7,063) --
Proceeds on warrant conversion............................ -- 21 --
Contributions from minority interests..................... 520 1,884 556
Distributions and dividends to minority interests......... (21,110) (4,065) (4,122)
Payments of debt issue costs and other, net............... (7,490) (6,056) (11,294)
-------- -------- --------
Net cash provided by (used in) financing
activities...................................... 28,930 (28,404) (38,108)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 23,943 (31,400) 3,428
Cash and cash equivalents at beginning of year............ 37,419 68,819 65,391
-------- -------- --------
Cash and cash equivalents at end of year.................. $ 61,362 $ 37,419 $ 68,819
-------- -------- --------
-------- -------- --------
SUPPLEMENTARY INFORMATION
Cash paid during the year for interest.................... $ 52,370 $ 53,343 $ 52,987
Cash paid for income taxes................................ $ 657 $ 888 $ 666
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 72
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
EPIC Healthcare Group, Inc. ("EPIC" or, either alone or together with its
subsidiaries, the "Company") was acquired by EPIC Holdings, Inc. ("Holdings") on
March 25, 1992, in a merger transaction (the "Merger") in which each outstanding
share of common stock of EPIC was converted into one share of Holdings common
stock. The merger was between companies under common control (i.e., a pooling of
interests for accounting purposes) and accordingly, the recorded assets and
liabilities of EPIC on an historical basis are combined with the assets and
liabilities of Holdings. Holdings had no operations prior to the merger. Results
of operations for the period prior to March 25, 1992, consist of the operations
of EPIC.
Principles of Consolidation
The consolidated financial statements include the accounts of Holdings and
its subsidiaries. Intercompany accounts and transactions have been eliminated.
Minority interests represent the minority stockholders' proportionate shares of
the equity in the income (loss) of certain consolidated subsidiaries.
Cash Equivalents, Cash Restricted for Interest Payments, and Marketable
Securities
Holdings considers all highly liquid investments with initial maturities of
three months or less from date of purchase to be cash equivalents. Cash
restricted for interest payments is cash deposited into a trust to pay principal
and interest required by the Class B-1, Class B-2 and Class B-3 First Priority
Mortgage Notes (the "Mortgage Notes"). Investments in marketable
interest-bearing securities are stated at cost which approximates market.
Holdings has $42,694,000 in cash and marketable securities restricted for the
purpose of redeeming the remaining 15% Senior Subordinated Notes (See Note 5).
Cash equivalents, cash restricted for interest payments, and marketable
securities are subject to potential concentrations of credit risk. Holdings
attempts to lessen that risk by investing only in United States Government
securities, commercial paper having at least a rating of A-1 or the equivalent,
time deposits and certificates of deposit of banks having a debt rating of at
least A, or money market funds comprised of such securities. Holdings invests in
securities with maturities no longer than 180 days and limits the amount of
credit exposure to any one commercial issuer.
Accounts Receivable
Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors and the
geographic dispersion of Holdings' hospitals. Accounts receivable (gross)
consists of amounts due from government programs (e.g., Medicare and Medicaid)
(53%) commercial insurance companies (16%), private pay patients (18%) and other
(including health maintenance organizations and other group insurance programs)
(13%). Holdings' hospitals are located throughout the southern United States,
with the largest concentration in Texas, Oklahoma, Louisiana and California.
Holdings maintains an allowance for losses (i.e., uncompensated care or bad debt
expense) based on the expected collectibility of accounts receivable.
Supply Inventories
Supply inventories are stated at the lower of cost (first-in, first-out
method) or market.
F-12
<PAGE> 73
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are recorded at cost (or fair value at the date of
acquisition as a result of the original purchase from American Medical
International, Inc. and its subsidiaries ("AMI")). Depreciation and amortization
is computed using the straight-line method over estimated useful lives or term
of the lease generally ranging from 25 to 30 years for buildings and
improvements, and 3 to 10 years for equipment. Maintenance costs and repairs are
expensed as incurred.
Joint Ventures
EPIC, in the ordinary course of business, enters into joint ventures with
physicians and other companies. EPIC is the majority owner and general partner
of substantially all of the joint ventures and follows the principles of
consolidation for all majority-owned joint ventures. Minority shareholders'
investments and earnings in the joint ventures are recorded as minority
interests and minority interests in income of consolidated subsidiaries,
respectively. Any interest held by the Company in non-majority owned
partnerships with at least 20% ownership is accounted for using the equity
method. Any interest held by the Company in partnerships with less than 20%
ownership is accounted for using the cost method.
On February 1, 1990, EPIC entered into a joint venture with Healthtrust,
Inc. -- The Hospital Company ("Healthtrust") for the purpose of operating
certain hospital assets in McKinney, Texas. EPIC contributed, at net book value,
a 168 bed facility to the venture and is the managing co-general partner with a
60% equity interest in the venture. Healthtrust contributed a 99 bed facility to
the venture and was the co-general partner with a 40% interest in the venture.
The assets contributed by Healthtrust to the joint venture, including property
and equipment of $15,328,000, were recorded at fair market value which
approximated net book value. Goodwill of $2,470,000 is being amortized over 40
years. On August 31, 1993, EPIC purchased Healthtrust's interest in the joint
venture for $15,656,000 which approximated Healthtrust's interest in the net
assets of the joint venture and was recorded as a reduction to minority
interests.
Intangible Assets
The excess of the purchase price over the fair value of net asset acquired
is being amortized on a straight-line basis over periods ranging from nine to 40
years. Accumulated amortization was $9,244,000 and $6,920,000 at September 30,
1993 and 1992, respectively.
Costs incurred in obtaining long term financing are deferred and are
included in other assets. Deferred financing costs are amortized using the
effective interest method over the term of the related debt, and such
amortization is included in interest expense. Accumulated amortization of
deferred financing costs was $16,993,000 and $14,401,000 at September 30, 1993
and 1992, respectively.
EPIC has purchased licenses to use various software applications. These
costs are included in other assets and have been amortized over two or five year
periods. Accumulated amortization of the software costs was $5,750,000 and
$4,750,000 at September 30, 1993 and 1992, respectively.
Income Taxes
Holdings files a consolidated federal income tax return which includes all
of its eligible subsidiaries.
Holdings accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 96, "Accounting for Income Taxes."
Under the liability method specified by SFAS No. 96, deferred tax assets and/or
liabilities are determined by multiplying the difference between the financial
reporting and tax reporting bases of assets and liabilities (collectively, the
"temporary differences," see Note 6) by tax rates (determined in accordance with
enacted tax laws) that are expected to be effective when such temporary
differences reverse. Holdings' deferred tax liabilities originated from the
accounting for the
F-13
<PAGE> 74
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition from AMI (the "Acquisitions"), and reflect the estimated tax effect
of differences between book and tax bases of assets acquired and liabilities
assumed.
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes," which supersedes SFAS No. 96. Implementation
of SFAS No. 109 for Holdings was required October 1, 1993. SFAS No. 109 requires
that temporary differences be reflected in the same balance sheet category as
the assets and liabilities that caused the temporary differences. Deferred tax
assets, which would include tax net operating loss carryforwards, would require
the determination of a related valuation allowance, based on the assets'
expected realization. The Company has completed the analysis necessary to
determine the impact of adoption of SFAS No. 109 and it is not expected to have
a material impact on Holdings' financial position or results of operations and
will not impact cash flows.
Net Operating Revenue
Net operating revenue is recorded based on established billing rates net of
allowances and discounts for patients covered by Medicare, Medicaid and other
contractual programs. Payments received under these programs, which are based on
either the costs of services or predetermined rates, are generally less than the
established billing rates of EPIC's hospitals, and the differences are recorded
as contractual allowances and/or contracted discounts. Reserves provided have
been deducted from accounts receivable pending final audit and appeal
settlement. Contractual adjustments, contracted discounts and other discounts
amounted to $627,757,000, $576,572,000, and $482,158,000 for fiscal 1993, 1992
and 1991, respectively.
It is generally EPIC's policy to attempt to collect compensation for all
services performed.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
fiscal 1993 presentation.
2. ACQUISITION AND DIVESTITURES
On August 24, 1993 the Company entered into a 20-year lease agreement with
two ten-year renewal options with the County of Galveston, Texas for Mainland
Center Hospital, a 310-bed hospital in Texas City, Texas. The lease payments of
$27,535,000 were paid in full upon the execution of the lease, which has been
accounted for as a capital lease. The Company also purchased certain net current
assets and equipment of the hospital, which included $5,639,000 in cash, for
$17,965,000 which has been accounted for by the purchase method of accounting.
The Company also has a commitment for $20,000,000 in capital improvements over
the term of the lease. The Company has a purchase option beginning after the
first year of the lease. The option price ranges from $500,000 to $851,000 over
the term of the lease.
On January 6, 1993, the Company sold Westpark Community Hospital in
Hammond, Louisiana for $6,200,000. A loss of $624,000 was recorded as gain
(loss) on sale of assets in fiscal 1993. A charge of $800,000 to reflect the
anticipated loss on the sale was recorded as gain (loss) on sale of assets in
fiscal 1992. The net book value of the assets sold before the fiscal 1992
charge, less liabilities assumed by the buyer, was $7,624,000.
On March 15, 1993, the Company sold Valley Medical Center in El Cajon,
California for $16,950,000. A gain of $4,632,000 was recorded as gain (loss) on
sale of assets in fiscal 1993. The net book value of the assets sold, less
liabilities assumed by the buyer, was $12,318,000.
On October 1, 1991, the Company purchased Colonial Hospital, a 49-bed
hospital in Terrell, Texas for $10,403,000 in cash. The acquisition has been
accounted for by the purchase method of accounting. The excess of purchase price
over net assets acquired will be amortized over 40 years.
F-14
<PAGE> 75
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
Employee-owners of EPIC have beneficial ownership of approximately 60% of
the Holdings Common Stock through their participation in the EPIC ESOP.
At EPIC's inception, the EPIC ESOP purchased 24,500,000 shares of EPIC
Common Stock with the proceeds obtained from the issuance of loans aggregating
$245 million payable to EPIC. The terms of the original ESOP loan agreement
segregated the EPIC ESOP's obligation to EPIC into two components, the terms of
the first of which mirrored the terms of the Senior ESOP Bank Debt (the "First
ESOP Loan") and the second of which mirrored the terms of the Senior ESOP Notes
(see Note 5). Concurrent with the issuance of the Mortgage Notes (see Note 5),
the First ESOP Loan was replaced by a loan agreement which provides for
mandatory principal payments in amounts that are substantially in conformance
with the remaining mandatory principal payments of the Senior ESOP Bank Debt as
if the issuance of the Mortgage Notes had not occurred (the "New ESOP Loan").
The interest rate on the New ESOP Loan is determined quarterly based on .85
times the sum of the London InterBank Offered Rates plus 2.5% (5.1% at September
30, 1993). The EPIC ESOP has pledged all of its shares of the Holdings Common
Stock as collateral for the ESOP-related borrowings. These shares are released
from the pledge as the loans are paid. The EPIC ESOP receives contributions from
EPIC to service and extinguish the loans.
The EPIC ESOP is an individual account, defined contribution plan. Nonunion
employee-owners who work a specified number of hours are eligible to participate
in the EPIC ESOP if they have attained age 21 and completed one year of service.
No employee-owner contributions are required or permitted to be made to the EPIC
ESOP. No rollover contributions are permitted to be made to the EPIC ESOP.
Allocations are made to participants' accounts in an amount which reflects each
participant's proportionate share of the contributions made by EPIC to the EPIC
ESOP, as determined on the basis of each participant's compensation.
Contributions made to the EPIC ESOP and the value of shares of common stock
allocated to the account of a participant as a result of such contributions are
intended to be treated as tax-deferred contributions. Such contributions, and
earnings thereon, generally are includable in a participant's compensation for
federal income tax purposes when distributed.
As of the plan year ended December 31, 1992, cumulative allocations of
10,650,517 shares of Holdings Common Stock at a market value of $8.00 per share
based on an independent valuation, or $85,204,136 in total have been made to
10,183 participants. Shares of Holdings Common Stock relating to the plan year
ending December 31, 1993 will be allocated during fiscal 1994.
Subject to limitations contained in the Internal Revenue Code of 1986, as
amended (the "Code"), Holdings is entitled to claim an income tax deduction for
contributions to the EPIC ESOP. Holdings has received a favorable determination
from the Internal Revenue Service that the EPIC ESOP is qualified as an
"employee stock ownership plan" within the meaning of Section 4975(e)(7) of the
Code. Contributions to the EPIC ESOP are used by the EPIC ESOP to pay interest
and principal on the loans owed to EPIC. These payments are used by EPIC to pay
interest and principal on the Class B-1 First Priority Mortgage Notes and the
Senior ESOP Notes.
EPIC recorded net ESOP expense, using the cash method, and corresponding
reductions in the EPIC ESOP notes receivable, of $20,715,000, $20,714,000, and
$23,076,000 for fiscal 1993, 1992 and 1991, respectively. Interest income
recognized on the EPIC ESOP notes receivable totaled $14,984,000, $16,885,000,
and $20,483,000 for fiscal 1993, 1992 and 1991, respectively, which in turn was
contributed to the EPIC ESOP to pay interest expense incurred on the
ESOP-related debt. Interest expense incurred on ESOP-related debt totaled
$20,856,000, $21,734,000, and $21,731,000, which included discount amortization
of $559,000, $551,000, and $511,000 for fiscal 1993, 1992 and 1991,
respectively.
F-15
<PAGE> 76
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OPERATING LEASES
Holdings leases office space, office equipment and medical equipment.
Generally, real estate leases are for primary terms of from one to 12 years with
options to renew for additional periods, and equipment leases are for terms of
from one to seven years. Future minimum lease payments for all operating leases
having initial or remaining noncancellable lease terms in excess of one year as
of September 30, 1993 are as follows (dollars in thousands):
<TABLE>
<S> <C>
1994............................................................... $ 4,560
1995............................................................... 4,225
1996............................................................... 3,337
1997............................................................... 2,693
1998............................................................... 1,835
1999 and thereafter................................................ 3,485
-------
20,135
Sublease income.................................................... (1,116)
-------
$19,019
-------
-------
</TABLE>
Rent expense under operating leases was as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
-------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Minimum rent.................................. $18,496 $16,107 $13,609
Sublease income............................... (795) (609) (317)
------- ------- -------
$17,701 $15,498 $13,292
------- ------- -------
------- ------- -------
</TABLE>
F-16
<PAGE> 77
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holdings' long-term debt, net of discounts, is summarized below (dollars in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1993 1992
-------- --------
<S> <C> <C>
12% Senior Deferred Coupon Notes, principal of $250,000 due
2002........................................................... $167,197 $148,628
11.375% Class B-1 First Priority Mortgage Notes payable in
semi-annual payments of $9,000 commencing in July 1996 with a
final payment of $10,000 in July 2001.......................... 99,579 99,500
11.5% Class B-2 First Priority Mortgage Notes payable in
semi-annual payments of $500 through July 1994, increasing to
$750 in January 1995, to $1,500 in January 1997, to $8,000 in
January 1998, to $9,000 in January 1999, with a final payment
of $15,500 in July 2001........................................ 83,112 84,046
Class B-3 First Priority Mortgage Notes payable in semi-annual
payments of $750 commencing in January 1995, increasing to
$3,000 in January 1997 through July 1998, with a fluctuating
interest rate (6.5% at September 30, 1993)..................... 15,000 15,000
Other mortgage debt and capital lease obligations with varying
maturities and interest rates ranging from 4.75% to 12.9%...... 20,651 20,351
Acquisition loan payable in quarterly installments of $1,250
commencing in October 1993 with a fluctuating interest rate
(8.0% at
September, 1993)............................................... 19,542 --
Zero Coupon Notes, principal of $89,313 due 2001 with an
effective interest rate of 14.8%............................... 28,564 24,770
Additional Zero Coupon Notes, principal of $7,079 due 2001 with
an effective interest rate of 14.8%............................ 2,265 1,964
11.875% Senior ESOP Notes payable in three equal annual payments
commencing in September 1996 with an effective interest
rate of 13.03%................................................. 72,141 76,840
10.875% Senior Subordinated Notes due 2003....................... 160,000 --
15% Senior Subordinated Notes payable in three equal annual
payments commencing in 1999.................................... 40,320 104,852
11% Junior Subordinated Pay-In-Kind Notes payable in three equal
annual payments commencing in September 2001................... 19,148 45,742
-------- --------
727,519 621,693
Current maturities............................................... (47,914) (2,330)
-------- --------
$679,605 $619,363
-------- --------
-------- --------
</TABLE>
The 12% Senior Deferred Coupon Notes are reflected at their fair value of
$140,053,000 at March 25, 1992, plus accretion of discount through September 30,
1993. Interest is payable semi-annually beginning March 16, 1997.
The Mortgage Notes are the indebtedness of EPIC Properties, Inc. ("EPIC
Properties"), an indirect wholly-owned subsidiary of EPIC. The Mortgage Notes
are secured by mortgages on 24 acute care hospital complexes ("the Mortgaged
Hospitals") and the land on which such buildings are located, and by a first
priority security interest in certain furnishings and equipment located at each
of the Mortgaged Hospitals. The Mortgage Notes are fully and unconditionally
guaranteed by EPIC (see Note 18).
The interest rate on the Class B-1 First Priority Mortgage Notes (the
"Class B-1 Notes") will increase to 11.5% after September 30, 1995. If the
Internal Revenue Service determines that interest on the Class B-1 Notes does
not qualify for a 50% exclusion from federal taxable income, the interest rate
on the Class B-1 Notes will increase to 11.5% for all periods through September
30, 1995 during which such interest exclusion is not available.
EPIC incurred losses on refinancing concurrent with the issuance of the
Mortgage Notes, due primarily to the write-off of loan issue costs. These
losses, totalling $3,911,000, are recorded as an extraordinary item (net of
income tax benefit of $1,330,000) in the consolidated statement of operations
for the fiscal year ended September 30, 1991.
F-17
<PAGE> 78
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Zero Coupon Notes are reflected at their fair value of $14,008,000, as
estimated by EPIC at September 30, 1988, plus accretion of discount through
September 30, 1993. No interest or principal is payable until maturity.
Additional Zero Coupon Notes were issued under an interest rate cap
agreement with AMI (see Note 13) and are reflected at their original fair value
plus accretion of discount through September 30, 1993. No interest or principal
is payable until maturity.
A subsidiary of EPIC purchased $5,400,000 and $19,850,000 face value of the
11.875% Senior ESOP Notes on the open market for $5,616,000 and $20,293,000 plus
accrued interest in fiscal 1993 and 1992, respectively (the "Senior ESOP Note
Purchases"). Losses of $570,000 and $1,917,000 due to the write-off of debt
issue costs and unamortized discounts and the payment of a premium on the Senior
ESOP Note Purchase are recorded as extraordinary items (net of income tax
benefit of $652,000 in 1992) in the consolidated statements of operations for
the fiscal years ended September 30, 1993 and 1992.
The 11.875% Senior ESOP Notes, which carry detached stock purchase warrants
(see Note 9), have a stated principal amount of $100,000,000 and are reflected
at their fair value of $93,988,000, as estimated by EPIC at September 30, 1988,
less the Senior ESOP Note Purchases, plus accretion of discount through
September 30, 1993.
On June 18, 1993, EPIC refinanced $74,680,000 in principal of the 15%
Senior Subordinated Notes and $53,697,000 in principal of the 11% Junior
Subordinated Pay-In-Kind Notes (the "Refinancing") through the issuance of the
10.875% Senior Subordinated Notes. The 10.875% Senior Subordinated Notes are
guaranteed by certain subsidiaries of EPIC (see Note 18).
Under the terms of the Second Amended and Restated Credit Agreement dated
as of September 30, 1988, and amended and restated as of July 30, 1991, and
September 1, 1993 (the "Amended Credit Agreement"), EPIC is required to call the
remaining $40,320,000 in principal of the 15% Senior Subordinated Notes by
February 28, 1994, with the remaining proceeds of the Refinancing. The remaining
principal of the 15% Senior Subordinated Notes at September 30, 1993, has been
recorded as current maturities of long term debt in the consolidated balance
sheets.
EPIC incurred a loss before taxes of $21,390,000 on the Refinancing, which
resulted from the write-off of loan issue costs and unamortized discount on the
15% Senior Subordinated Notes and the redeemed portion of the 11% Junior
Subordinated Pay-In-Kind Notes, payments to the holders of the 15% Senior
Subordinated Notes and the 11.875% Senior ESOP Notes for waivers of certain
provisions of the respective indentures and the accrual of the call premium to
be paid on redeeming the remaining principal on the 15% Senior Subordinated
Notes. These losses are recorded as an extraordinary item in the consolidated
statements of operations.
The 15% Senior Subordinated Notes are guaranteed by certain wholly-owned
subsidiaries of EPIC (see Note 18) and are secured by a fourth pledge of the
common stock of such subsidiaries.
Interest on the 11% Junior Subordinated Pay-in-Kind Notes is payable
semiannually by the issuance of additional 11% Junior Subordinated Pay-in-Kind
Notes through September 30, 1995, and thereafter, if Holdings is prohibited from
making cash interest payments by the terms of any senior debt existing on
September 30, 1988 less the amount retired in the Refinancing. The notes, which
have a stated principal amount of $50,000,000, have been recorded at their fair
value estimated by EPIC at September 30, 1988, of $22,900,000 plus accretion of
discount through September 30, 1993, less the amount retired as a result of the
Refinancing. The effective interest rate for these notes is 18.07%.
The Amended Credit Agreement provides EPIC with revolving loan commitments
and an acquisition loan to be used for working capital and acquisition funds for
EPIC. As of September 30, 1993, revolving loan commitments aggregated $30
million. Any revolving loan commitments outstanding are due July 31, 1997.
F-18
<PAGE> 79
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest is generally payable monthly at the following rates per annum, at
EPIC's option: (i) 1.5% in excess of the higher of the prime rate in effect from
time to time or the annual yield on ninety-day commercial paper or (ii) 2.5% in
excess of the LIBOR rate. There were no revolving loans outstanding as of
September 30, 1993, and 1992, respectively. The acquisition term loan principal
amount outstanding is payable in quarterly installments commencing on October
31, 1993 through July 31, 1997. Interest is generally payable quarterly at the
following rates per annum, at EPIC's option: (i) 2.0% in excess of the higher of
the prime rate in effect from time to time or the annual yield on ninety-day
commercial paper or (ii) 3.0% in excess of the LIBOR rate.
In connection with the issuance of the Mortgage Notes, EPIC Properties
obtained a revolving line of credit. The line of credit can only be used for the
purpose of paying interest or principal on the Mortgage Notes. The maximum loan
amount available is the lesser of $22 million or the annual interest accrual of
the Mortgage Notes. The line of credit would bear an interest rate of the Prime
Lending Rate of AmSouth Bank plus 2%. There were no loans outstanding under the
line of credit as of September 30, 1993 and 1992, respectively.
The Amended Credit Agreement and other long-term debt agreements contain a
number of restrictive covenants, including restrictions on incurrence of debt,
sales of assets, payment of cash dividends, requirements to maintain certain
financial ratios and a specified level of net worth, as defined, and other
limitations, including limitations on the use of funds from the sale of certain
assets.
As of September 30, 1993, the maturities of long-term debt were as follows
(dollars in thousands):
<TABLE>
<S> <C>
1994.............................................................. $ 47,914
1995.............................................................. 9,498
1996.............................................................. 43,545
1997.............................................................. 58,546
1998.............................................................. 67,207
1999 and thereafter............................................... 671,160
---------
897,870
Unamortized discounts and unaccreted interest..................... (170,351)
---------
$ 727,519
---------
---------
</TABLE>
6. INCOME TAXES
The income tax benefit for fiscal 1992 and 1991 was comprised of deferred
federal benefits of $11,800,000 and $9,996,000 respectively, arising from
reported financial losses and state income tax expense of $1,984,000 and
$888,000 in fiscal 1993 and 1992, respectively. For financial reporting
purposes, Holdings has utilized all of its deferred federal tax liability and
has not recognized a benefit for the current net operating loss pursuant to the
provisions of SFAS No. 96. Taxes paid during 1993 and 1992 primarily relate to
state income taxes and estimated federal tax payments.
F-19
<PAGE> 80
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holdings' consolidated effective federal tax rate differed from the federal
statutory rate as set forth in the following table:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
--------------------------------
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Tax benefit computed at federal statutory rate
(34%)............................................... $ 16,022 $12,547 $10,732
Amortization of excess purchase price over net assets
acquired............................................ (790) (614) (601)
Losses not subject to benefit......................... (15,089) -- --
Other, net............................................ (143) (133) (135)
-------- ------- -------
Income tax benefit.................................... $ -- $11,800 $ 9,996
-------- ------- -------
-------- ------- -------
</TABLE>
The deferred income tax benefit results from the following temporary
differences in reporting for financial and income tax purposes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
-------------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Book/tax difference on sale of assets................. $ 3,835 $ -- $ --
Book/tax depreciation differences..................... 475 221 (3,392)
Net operating loss recognized currently for financial
reporting........................................... 2,976 1,412 6,134
SAR compensation not currently deductible............. 968 3,673 2,426
Professional liability reserves not currently
deductible.......................................... 383 1,013 4,345
Other reserves for estimated losses and contingencies
not currently deductible............................ 1,348 2,217 508
Paid time off accrued for financial reporting, not
currently deductible................................ 339 719 89
Difference arising from ESOP loan fees initially
expensed for tax purposes but capitalized and
amortized for financial reporting purposes.......... 197 427 (480)
Difference in methods used to reserve for bad debts... 802 1,014 55
Difference in ESOP contribution deduction............. (162) 207 (1,317)
Difference in methods for reporting interest.......... 1,553 562 694
Losses not subject to benefit......................... (15,089) -- --
Other................................................. 2,375 335 934
------- ------- -------
Deferred income tax benefit........................... $ -- $11,800 $ 9,996
------- ------- -------
------- ------- -------
</TABLE>
Net operating loss carryforwards of approximately $72,106,000 (expiring in
the years 2004, 2005, 2006, 2007 and 2008) are available to offset future income
for federal and state tax purposes. The utilization of these net operating loss
carryforwards is dependent upon future taxable income. Net operating loss
carryforwards of $47,123,000 are available for financial reporting purposes.
7. DEFERRED COMPENSATION
Holdings has adopted a deferred compensation plan (the "SAR Plan") as part
of its overall executive compensation program to attract, motivate and retain
key employee-owners. As of September 30, 1993, 5,873,582 SAR Plan units, each
exchangeable for one share of Holdings Common Stock or redeemable for cash or
other property under certain circumstances, were held by certain key
employee-owners and former employee-owners. During fiscal 1993, 1992 and 1991,
309,500, 1,481,065 and 1,002,000 SAR Plan units were granted and 427,800,
218,000, and 243,000 SAR Plan units were cancelled, respectively. The
outstanding SAR Plan units vest in varying amounts at varying periods not
exceeding five years beginning on each respective grant date. A maximum of
6,587,565 SAR Plan units, reduced by all units redeemed may be
F-20
<PAGE> 81
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding at any time. During fiscal 1993, 1992, and 1991, Holdings accrued
SAR Plan compensation expense of $3,848,000, $11,805,000, and $8,135,000,
respectively.
During fiscal 1993, 123,417 SAR Plan units were redeemed for $974,994 in
cash ($7.90 per unit) and 3,125 units were redeemed for $25,000 in cash ($8.00
per unit); in October 1993, 121,874 SAR Plan units were redeemed for $974,996 in
cash ($8.00 per unit).
During fiscal 1992, 129,998 SAR Plan units were redeemed for $974,985 in
cash ($7.50 per unit) and 3,164 SAR Plan units were redeemed for $24,996 in cash
($7.90 per unit).
8. REDEEMABLE PREFERRED STOCK
Pursuant to the Merger, the EPIC Class A and Class B Preferred Stock was
converted to Holdings Preferred Stock and the EPIC Class C Preferred Stock was
converted to Holdings Common Stock. The EPIC Class A and Class B Preferred
Stock, which had a book value of $66,360,000 and $66,776,000, respectively, was
repurchased from AMI for $130,000,000. The EPIC Class C Preferred Stock, which
had a book value of $63,935,000 was converted into 9,423,075 shares of Holdings
Common Stock.
At September 30, 1988, redeemable preferred stock of EPIC was recorded at
fair value estimated by EPIC, based on an independent valuation. The recorded
amounts were less than the mandatory redemption amounts for the EPIC Class A and
Class B Preferred Stock and were increased by the recording of dividends at the
stated rate and by accretion of the discount, and reduced by the discount
recorded on declared and accrued dividends, so that the carrying amounts would
equal the mandatory redemption amounts at the mandatory redemption dates.
Dividends on the EPIC Class A and Class B Preferred Stock were cumulative
and payable quarterly at annual rates of $10.00 and $10.50 per share,
respectively, out of funds legally available. EPIC declared and paid such
dividends in like stock three quarters in arrears, however, such dividends were
accrued quarterly. For the dividend periods after September 30, 1988, to
conversion, dividends were paid in additional shares of the same class of stock
at the rate of 0.025 and 0.02625, respectively, of a share of stock. During
fiscal 1992, EPIC declared dividends of 26,144 shares of EPIC Class A Preferred
Stock and 28,182 shares of EPIC Class B Preferred Stock.
Holders of shares of EPIC Class C Preferred Stock were entitled to receive
cumulative dividends out of funds legally available at the annual rate of $8.00
per share. No dividends were declared on the EPIC Class C Preferred Stock;
however, EPIC had recorded accruals of $1,935,000 during fiscal year 1992 and
$4,000,000 during fiscal year 1991 for undeclared dividends.
9. COMMON STOCK WARRANTS AND OPTIONS
The Senior ESOP Notes and 15% Senior Subordinated Notes carried detachable
stock purchase warrants to purchase 1,884,615 and 3,795,000 shares of EPIC
Common Stock for $.01 and $.001 per share, subject to anti-dilution adjustments.
The aggregate fair values of these warrants estimated by EPIC, based on an
independent valuation, at date of issuance were $6,012,000 and $12,103,000,
respectively. In addition, EPIC agreed to issue to AMI certain warrants to
purchase 925,129 shares of EPIC Common Stock at an exercise price of $.001 per
share. Immediately prior to the Merger, 6,306,395 of the warrants outstanding
were exercised for 63,064 shares of EPIC Common Stock. In conjunction with the
Merger, all of the remaining warrants outstanding became warrants to acquire the
same number of shares of Holdings Common Stock. During fiscal 1992, after the
Merger, 152,692 of the warrants outstanding were exercised for Holdings Common
Stock. During fiscal 1993, 3,300 of the warrants outstanding were exercised.
Warrants to purchase 142,357 shares of Holdings Common Stock were outstanding at
September 30, 1993.
F-21
<PAGE> 82
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 14, 1988, EPIC adopted the EPIC Healthcare Group, Inc. Stock
Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, the Board of
Directors is authorized to grant options to EPIC directors, officers and
salaried employee-owners to purchase up to 500,000 shares of Holdings Common
Stock. Options granted vest in five equal annual installments. No options were
granted during fiscal 1993, 1992 or 1991. At September 30, 1993, options for
32,000 shares were exercisable.
10. COMMON STOCK
Prior to the Merger, warrants were exercised for 63,064 shares of EPIC
Common Stock and 1,452 shares were repurchased by EPIC from participants of the
EPIC ESOP. Pursuant to the Merger, 30,739,378 shares of EPIC Common Stock were
converted to Holdings Common Stock and the EPIC Class C Preferred Stock was
converted to 9,423,075 shares of Holdings Common Stock. Since the Merger,
warrants have been exercised for 155,992 shares of Holdings Common Stock.
Additionally, 219,004 shares have been distributed to participants of the EPIC
ESOP, which were repurchased by Holdings.
Holdings has reserved 142,357 shares of Holdings Common Stock for issuance
upon the exercise of outstanding warrants to purchase Holdings Common Stock and
5,902,116 shares have been reserved for future issuance under the SAR Plan.
11. LOSS PER COMMON SHARE
Loss per common share has been computed by dividing the net loss to common
stockholders by the average number of common shares outstanding during the
period. The exercise of the outstanding common stock warrants and other common
stock equivalents has not been assumed as the effect would be antidilutive.
Assuming conversion of the EPIC redeemable preferred stock as of October 1,
1991, the net loss per common share of Holdings would have been $32,645,000 as a
result of the elimination of the redeemable preferred stock dividend of
$11,048,000 and additional interest expense of $8,806,000 on the Holdings Notes
(from the period from October 1, 1991, to March 24, 1992). The weighted average
number of common shares outstanding would have been 40,183,036 shares. As a
result, the net loss per common share in fiscal 1992 would have been $0.84.
12. PROFESSIONAL AND GENERAL LIABILITY RISKS
Holdings is self-insured for its professional and general liability risks.
As of September 30, 1993, the unfunded reserve for this self insurance was
$45,130,000 of which $11,000,000 was included in current liabilities. EPIC has
funded $12,482,000 of the reserves through a wholly-owned captive insurance
company at September 30, 1993. The reserves for losses and related expenses are
discounted to their present value based on expected loss reporting patterns
determined by independent actuaries using a rate of 9%. AMI has retained the
liability for all professional liability claims with a date of occurrence prior
to October 1, 1988.
13. RELATED PARTY TRANSACTIONS
EPIC and AMI entered into an interest rate cap agreement (the "Senior
Interest Cap Agreement") whereby AMI agreed to pay to EPIC the amounts by which
EPIC's interest costs under certain tranches of indebtedness exceeded, during
each of the three fiscal years after September 30, 1988, certain specified
rates, net of the effect of any reimbursement to EPIC by Medicare, Medicaid, or
Blue Cross for any interest expense incurred by EPIC in excess of such rates in
connection with such loans.
On August 28, 1991, EPIC and AMI agreed that it was mutually in their best
interest to terminate the Senior Interest Cap Agreement prior to its scheduled
expiration of October 1, 1991. EPIC and AMI further agreed that each party had
fully performed all of its obligations under the Senior Interest Cap Agreement
and each party released the other from future obligations thereunder.
F-22
<PAGE> 83
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the terms of the Senior Interest Cap Agreement, EPIC issued
Additional Zero Coupon Notes to AMI in the principal amounts of $1,612,000 and
$2,844,000 during fiscal 1990 and 1989, respectively, in exchange for cash of a
like amount paid to EPIC by AMI during such years. In fiscal 1991, EPIC paid to
AMI $2,864,000 and issued Additional Zero Coupon Notes to AMI with a present
value of $626,000 in exchange for the cancellation of the zero coupon notes
issued in 1989. AMI has sold their interest in the Additional Zero Coupon Notes.
Net interest expense of $839,000 was recognized during fiscal 1991 relating to
this agreement.
EPIC and AMI have entered into certain other agreements, including a
registration rights agreement pursuant to which EPIC has agreed to register the
securities issued to AMI under the Securities Act of 1933. AMI has also agreed
to indemnify EPIC against certain liabilities associated with the breach of
representations and warrants made by AMI, certain tax liabilities that may
arise, certain reimbursements still pending related to the Acquisitions and
certain fees, costs, and expenses.
During fiscal 1993, AMI reimbursed $1,621,000 relating to AMI's
indemnifications of EPIC for certain intermediary adjustments to reimburse costs
relating to cost report years that preceded the formation of EPIC.
EPIC entered into a three year group purchasing agreement, effective
September 1, 1993, with a subsidiary of AMI, which allows the Company to
purchase supplies at lower group rates. The Company expects to purchase more
than $30,000,000 per year of supplies under terms of the agreement. The Company
will pay $180,000 per year to participate in this program.
David R. Belle-Isle, a former officer of EPIC, borrowed $181,000 from EPIC
in December 1988 in connection with his relocation to Texas. The loan was
interest free until it was restructured in October 1990. Effective as of the
30th day of September 1991, this debt, totalling $160,000, was forgiven. The
Company reimbursed Mr. Belle-Isle for the tax liability associated with the
forgiveness of the loan.
EPIC has a consulting agreement with The Elder Group, of which Thomas H.
Elder, who formerly served as EPIC's Management Services Officer, is the
Managing Principal. EPIC paid The Elder Group approximately $1,300,000 and
$1,000,000 in fiscal 1992 and 1991, respectively.
EPIC has an investment in the preferred stock of the Compucare Company
("Compucare"), who is developing and installing one of EPIC's new information
systems. The chief executive officer of EPIC is on the board of directors of
Compucare. Payments to Compucare for fiscal 1993 totalled $5,651,000.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in any cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excluded certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of Holdings. The following methods and assumptions were used by
Holdings in estimating its fair value disclosures for financial instruments.
Cash Equivalents, Cash Restricted for Interest Payments, and Marketable
Securities
The carrying amounts reported in the consolidated balance sheets for cash
equivalents, cash restricted for interest payments, and marketable interest
bearing securities approximates their fair values.
F-23
<PAGE> 84
EPIC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Debt (Including Current Maturities)
The fair values of Holdings' long-term debt, except the Class B-1 and Class
B-2 First Priority Mortgage Notes, are estimated using quoted market prices or
the call price. The fair value of the Class B-1 and Class B-2 First Priority
Mortgage Notes are estimated using discounted cash flow analysis based on
Holdings' incremental borrowing rate for similar types of borrowing
arrangements.
The carrying amounts and estimated fair values of Holdings' financial
instruments at September 30, 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Cash equivalents, cash restricted for interest payments, and
marketable securities.......................................... $112,529 $112,529
Long-term debt................................................... $727,519 $772,006
</TABLE>
15. EXTRAORDINARY ITEMS
Extraordinary items of $21,960,000 in 1993, $1,265,000 ($1,917,000, net of
income tax benefit of $652,000) in 1992 and $2,581,000 ($3,911,000, net of
income tax benefit of $1,330,000) in 1991 were primarily due to the write-offs
of loan issue costs and unamortized discounts on retirements of long-term debt
(see Note 5).
16. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance and repair expense was $17,101,000, $17,564,000, and
$16,159,000 for fiscal 1993, 1992, and 1991, respectively.
17. CONTINGENCIES
Final determination of amounts earned under prospective payment and
cost-reimbursement programs is subject to review by appropriate governmental
authorities or their agents. In the opinion of management, adequate provision
has been made for any adjustments that could result from such reviews.
Holdings is currently, and from time to time is expected to be, subject to
claims and suits arising in the ordinary course of business. In the opinion of
management, the ultimate resolution of such matters will not have a material
effect on Holding's results of operations, financial position, or liquidity.
Pursuant to the terms of the Acquisitions, claims relating to litigation,
medical benefits, and workers' compensation occurring prior to October 1, 1988,
remain the obligation of AMI.
18. GUARANTOR SUBSIDIARIES
Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the
loans under the Bank Credit Agreement, AMI Zero Coupon Notes, Additional AMI
Zero Coupon Notes, 11.875% Senior ESOP Notes, 10.875% Senior Subordinated Notes,
15% Senior Subordinated Notes and 11% Junior Subordinated Pay-In-Kind Notes.
Certain other subsidiaries, including EPIC Properties, are not Guarantor
Subsidiaries (the Nonguarantor Subsidiaries) (see Note 5). All equity interests
in the Nonguarantor Subsidiaries, other than those held by minority interests,
are held by EPIC.
Condensed consolidating financial information of EPIC, the Guarantor
Subsidiaries, EPIC Properties and the other Nonguarantor Subsidiaries are
included in the footnotes to the consolidated financial statements of EPIC
included elsewhere herein.
F-24
<PAGE> 85
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1993 1993
------------ -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................................... $ 40,940 $ 56,756
Cash restricted for interest payment.............................. 9,573 3,820
Marketable securities............................................. 34,132 47,347
Accounts receivable, net of reserves for uncompensated care of
$31,187 and $29,286............................................ 99,392 76,957
Supply inventories................................................ 20,973 20,687
Prepaid expenses and other........................................ 12,398 4,574
Deferred income taxes............................................. 5,384 --
TOTAL CURRENT ASSETS................................................ 222,792 210,141
PROPERTY AND EQUIPMENT.............................................. 810,055 786,798
ACCUMULATED DEPRECIATION AND AMORTIZATION........................... (231,239) (218,746)
------------ -------------
578,816 568,052
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of
accumulated amortization.......................................... 52,461 52,965
OTHER ASSETS, net of accumulated amortization....................... 34,551 33,818
------------ -------------
TOTAL ASSETS........................................................ $ 888,620 $ 864,976
------------ -------------
------------ -------------
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt.............................. $ 48,049 $ 47,914
Accounts payable.................................................. 45,551 44,610
Accrued liabilities............................................... 96,636 87,531
------------ -------------
TOTAL CURRENT LIABILITIES........................................... 190,236 180,055
LONG-TERM DEBT...................................................... 512,999 512,408
DEFERRED INCOME TAXES............................................... 11,378 5,994
RESERVE FOR PROFESSIONAL LIABILITY RISKS............................ 46,557 46,612
OTHER DEFERRED LIABILITIES.......................................... 42,013 42,450
COMMITMENTS AND CONTINGENT LIABILITIES..............................
MINORITY INTERESTS.................................................. 5,909 5,472
STOCKHOLDER'S EQUITY
Common stock, $.01 par value...................................... -- --
Paid-in capital................................................... 373,719 373,838
Notes receivable from EPIC ESOP................................... (137,381) (148,214)
Retained earnings (deficit)....................................... (156,810) (153,639)
------------ -------------
TOTAL STOCKHOLDER'S EQUITY.......................................... 79,528 71,985
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.......................... $ 888,620 $ 864,976
------------ -------------
------------ -------------
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE> 86
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
NET OPERATING REVENUE................................................ $272,451 $244,352
COSTS AND EXPENSES:
Salaries and wages................................................. 99,526 84,634
Employee benefits.................................................. 21,094 22,997
ESOP expense....................................................... 5,635 5,182
Supplies........................................................... 32,025 30,041
Uncompensated care................................................. 19,618 19,048
Other.............................................................. 64,613 57,871
Depreciation and amortization...................................... 13,130 13,791
Interest expense................................................... 18,745 17,426
-------- --------
TOTAL COSTS AND EXPENSES............................................. 274,386 250,990
INTEREST INCOME...................................................... 806 636
-------- --------
LOSS BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND
EXTRAORDINARY ITEM................................................. (1,129) (6,002)
INCOME TAX BENEFIT (EXPENSE)......................................... (375) 431
MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES, net of
income tax benefit (expense)....................................... (1,667) (556)
-------- --------
LOSS BEFORE EXTRAORDINARY ITEM....................................... (3,171) (6,127)
EXTRAORDINARY ITEM, net of income tax benefit........................ -- (503)
-------- --------
NET LOSS............................................................. $ (3,171) $ (6,630)
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
F-26
<PAGE> 87
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
DECEMBER 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................... $ (3,171) $ (6,630)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization................................... 13,130 13,791
Non-cash provision for professional liability risks............. (1,111) 437
ESOP expense.................................................... 5,635 5,182
Deferred SAR Plan compensation.................................. (274) (1,496)
Minority interests in income of consolidated subsidiaries....... 1,667 631
Non-cash interest............................................... 3,906 4,698
Deferred income tax benefit..................................... -- (749)
Extraordinary item.............................................. -- 570
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable............................................. (22,435) 342
Supply inventories and other assets............................. (8,390) (10,549)
Accounts payable and other liabilities.......................... 9,938 8,747
-------- --------
Net cash provided by (used in) operating activities........ (1,105) 14,974
INVESTING ACTIVITIES
Investments in marketable securities, net.......................... 13,215 6,395
Cash paid for acquisitions......................................... (960) (4,100)
Additions to property and equipment................................ (23,431) (7,410)
Other.............................................................. (661) (811)
-------- --------
Net cash used in investing activities...................... (11,837) (5,926)
FINANCING ACTIVITIES
Payments on debt obligations....................................... (1,415) (76)
Line of credit borrowings, net..................................... -- 800
Purchase of Senior ESOP Notes...................................... -- (5,616)
Dividends paid to EPIC Holdings.................................... (119) (11)
Distributions and dividends to minority interests.................. (1,132) (2,340)
Payments of debt issue costs and other, net........................ (208) (59)
-------- --------
Net cash used in financing activities...................... (2,874) (7,302)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (15,816) 1,746
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 56,756 32,641
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 40,940 $ 34,387
-------- --------
-------- --------
SUPPLEMENTARY INFORMATION
Cash paid for interest............................................. $ 8,513 $ 1,598
Cash paid for income taxes......................................... $ 199 $ 176
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE> 88
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
EPIC Healthcare Group, Inc. and Subsidiaries (the "Company" or "EPIC"), a
wholly-owned subsidiary of EPIC Holdings, Inc. ("Holdings"), have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and are of a normal
recurring nature. Operating results for the three month period ended December
31, 1993 are not necessarily indicative of the results that may be expected for
the fiscal year ending September 30, 1994. These financial statements should be
read in conjunction with the audited consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended September 30, 1993.
Certain prior period amounts have been reclassified to conform with the
fiscal 1994 presentation.
2) SUBSEQUENT EVENT
On January 9, 1994, Holdings entered into an Agreement and Plan of Merger
(the "Merger Agreement") with HealthTrust, Inc. -- The Hospital Company, a
Delaware corporation ("HTI"), and Odyssey Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of HTI ("HTI Sub"), providing for the
merger (the "Merger") of HTI Sub with and into Holdings following which Holdings
would become a wholly-owned subsidiary of HTI. The Merger is expected to result
in a termination of the EPIC ESOP. Under the terms of the Merger Agreement,
which was unanimously approved by the Boards of Directors of both HTI and
Holdings, shareholders of Holdings will receive $7.00 per share of Holdings'
common stock.
HTI intends to offer to purchase Holdings' 12% Senior Deferred Coupon Notes
due 2002, and EPIC's 11.375% Class B-1 First Priority Mortgage Notes due 2001,
11.5% Class B-2 First Priority Mortgage Notes due 2001, Class B-3 First Priority
Mortgage Notes, and 10.875% Senior Subordinated Notes due 2003 and to redeem
other outstanding EPIC indebtedness in accordance with their terms. HTI also
plans to seek the consent of the holders of Holdings' and EPIC's indebtedness to
amend certain restrictive provisions.
Consummation of the Merger is subject to a number of conditions, including
the approval of Holdings' shareholders and the consummation of certain debt
consent solicitations. American Medical International, Inc. and the trustee of
the EPIC ESOP (who controls the unallocated shares of the EPIC ESOP) have
agreed, subject to the fulfillment of certain conditions, to vote their shares
of Holdings common stock (approximately 52% combined) in favor of the Merger.
The transaction is expected to close by May of 1994.
3) INCOME TAXES
Effective October 1, 1993, the Company changed its method of accounting for
income taxes to the liability method as required by Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which
superseded SFAS No. 96. As permitted under the rules of SFAS No. 109, prior
years' financial statements have not been restated.
Adoption of SFAS No. 109 had no effect on current period operations. Due to
the uncertainty of the realization of the net deferred federal tax liability,
the Company established a valuation allowance against the deferred federal tax
assets so that deferred federal tax assets equalled deferred federal tax
liabilities. The net deferred tax liability reported relates primarily to state
taxes.
F-28
<PAGE> 89
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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 as of October 1, 1993 are as
follows (in thousands):
<TABLE>
<S> <C>
DEFERRED TAX LIABILITIES
Property and equipment basis difference....................... $ 42,908
Loan fees.................................................... 1,547
ESOP contribution............................................ 3,455
State taxes and other........................................ 5,994
--------
Total deferred tax liabilities............................... 53,904
--------
DEFERRED TAX ASSETS
Bad debt reserve differences.................................. 6,593
Professional liability reserves.............................. 15,670
SAR compensation............................................. 14,034
Health plan and workers' compensation reserve................ 3,652
Paid time off reserve........................................ 1,788
Net operating losses......................................... 24,312
Other........................................................ 700
--------
Total deferred tax assets.................................... 66,749
Valuation allowance.......................................... (18,839)
--------
--------
Net deferred tax assets...................................... 47,910
--------
Net deferred tax liability................................... $ 5,994
--------
</TABLE>
No tax benefit was recorded for the current net operating loss and no
federal taxes are anticipated for fiscal 1994. Current income tax expense of
$375,000 relates to state income taxes.
4) CHANGES IN STOCKHOLDER'S EQUITY
During the three-month period ended December 31, 1993, the Company paid
dividends of $119,000 to Holdings, which were recorded as a reduction in paid-in
capital, and received a principal payment on the Notes receivable from the EPIC
ESOP of $10,833,000, which was recorded as a reduction of the Notes receivable
from EPIC ESOP.
5) GUARANTOR SUBSIDIARIES
Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the
loans under the Amended Credit Agreement, the Zero Coupon Notes, the Additional
Zero Coupon Notes, the 11.875% Senior ESOP Notes, the 10.875% Senior
Subordinated Notes, the 15% Senior Subordinated Notes and the 11% Junior
Subordinated Pay-In-Kind Notes. Certain other subsidiaries, including EPIC
Properties, Inc. ("EPIC Properties") are not Guarantor Subsidiaries (the
"Nonguarantor Subsidiaries"). All equity interests in the Nonguarantor
Subsidiaries, other than those held by minority interests, are held by EPIC.
F-29
<PAGE> 90
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Following is condensed consolidating financial information of EPIC, the
Guarantor Subsidiaries, EPIC Properties and the other Nonguarantor Subsidiaries:
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
EPIC
HEALTHCARE
EPIC OTHER GROUP, INC.
HEALTHCARE GUARANTOR EPIC NONGUARANTOR AND
GROUP, INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.............. $ 4,948 $ 29,826 $ 1,918 $ 4,248 $ -- $ 40,940
Cash restricted for interest payment... -- -- 9,573 -- -- 9,573
Marketable securities.................. -- 22,672 -- 11,460 -- 34,132
Accounts receivable, net............... 558 72,307 470 31,320 (5,263) 99,392
Supply inventories..................... -- 16,820 -- 4,153 -- 20,973
Prepaid expenses and other............. 5,931 5,044 237 1,186 -- 12,398
Deferred income taxes.................. 5,384 -- -- -- -- 5,384
Receivables from affiliates............ 160,997 34,140 -- 5,930 (201,067) --
----------- ------------ ----------- ------------ ------------ -------------
TOTAL CURRENT ASSETS............. 177,818 180,809 12,198 58,297 (206,330) 222,792
PROPERTY AND EQUIPMENT................... -- 283,970 444,673 81,412 -- 810,055
ACCUMULATED DEPRECIATION AND
AMORTIZATION........................... -- (55,974) (146,387) (28,878) -- (231,239)
----------- ------------ ----------- ------------ ------------ -------------
-- 227,996 298,286 52,534 -- 578,816
INVESTMENTS IN SUBSIDIARIES.............. 64,684 89,641 -- -- (154,325) --
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net.......................... -- 38,107 -- 14,354 -- 52,461
OTHER ASSETS, net........................ 11,844 89,786 895 3,427 (71,401) 34,551
RECEIVABLES FROM AFFILIATES.............. 297,673 4,117 -- -- (301,790) --
----------- ------------ ----------- ------------ ------------ -------------
TOTAL ASSETS..................... $ 552,019 $630,456 $ 311,379 $128,612 $ (733,846) $ 888,620
----------- ------------ ----------- ------------ ------------ -------------
----------- ------------ ----------- ------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt... $ 45,332 $ 686 $ 1,020 $ 1,011 $ -- $ 48,049
Accounts payable....................... 235 41,308 (71) 6,301 (2,222) 45,551
Accrued liabilities.................... 9,602 69,137 12,417 8,521 (3,041) 96,636
Payables to affiliates................. -- 166,927 -- 34,140 (201,067) --
----------- ------------ ----------- ------------ ------------ -------------
TOTAL CURRENT LIABILITIES........ 55,169 278,058 13,366 49,973 (206,330) 190,236
LONG-TERM DEBT........................... 322,906 8,879 241,964 10,651 (71,401) 512,999
DEFERRED INCOME TAXES.................... 11,378 -- -- -- -- 11,378
RESERVE FOR PROFESSIONAL LIABILITY
RISKS.................................. -- 32,011 -- 13,054 1,492 46,557
OTHER DEFERRED LIABILITIES............... -- 40,786 -- 1,227 -- 42,013
MINORITY INTERESTS....................... -- 5,226 -- 683 -- 5,909
PAYABLES TO AFFILIATES................... 1,363 297,673 564 1,330 (300,930) --
STOCKHOLDERS' EQUITY
Common stock......................... -- -- 1 -- (1) --
Paid-in capital...................... 373,719 61,855 92,865 5,434 (160,154) 373,719
Notes receivable from EPIC ESOP...... (100,000) -- (37,381) -- -- (137,381)
Retained earnings (deficit).......... (112,516) (94,032) -- 46,260 3,478 (156,810)
----------- ------------ ----------- ------------ ------------ -------------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT)...................... 161,203 (32,177) 55,485 51,694 (156,677) 79,528
----------- ------------ ----------- ------------ ------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)...................... $ 552,019 $630,456 $ 311,379 $128,612 $ (733,846) $ 888,620
----------- ------------ ----------- ------------ ------------ -------------
----------- ------------ ----------- ------------ ------------ -------------
</TABLE>
F-30
<PAGE> 91
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1993
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............. $ 8,944 $ 40,846 $ 2,062 $ 4,904 $ -- $ 56,756
Cash restricted for interest
payment............................. -- -- 3,820 -- -- 3,820
Marketable securities................. -- 35,972 -- 11,375 -- 47,347
Accounts receivable, net.............. 474 56,000 1,071 21,321 (1,909) 76,957
Supply inventories.................... -- 16,589 -- 4,098 -- 20,687
Prepaid expenses and other............ 777 2,714 -- 1,083 -- 4,574
Receivables from affiliates........... 156,437 29,013 -- 13,663 (199,113) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL CURRENT ASSETS.................... 166,632 181,134 6,953 56,444 (201,023) 210,141
PROPERTY AND EQUIPMENT.................. -- 264,044 444,673 78,081 -- 786,798
ACCUMULATED DEPRECIATION AND
AMORTIZATION.......................... -- (50,548) (140,665) (27,533) -- (218,746)
---------- ------------ ---------- ------------ ------------ ------------
-- 213,496 304,008 50,548 -- 568,052
INVESTMENTS IN SUBSIDIARIES............. 64,684 109,474 -- -- (174,158) --
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net......................... -- 38,577 -- 14,388 -- 52,965
OTHER ASSETS, net....................... 12,440 89,314 936 2,529 (71,401) 33,818
RECEIVABLES FROM AFFILIATES............. 297,673 -- -- -- (297,673) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL ASSETS............................ $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $864,976
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
debt................................ $ 45,333 $ 643 $ 1,020 $ 918 $ -- $ 47,914
Accounts payable...................... 236 39,225 (65) 5,450 (236) 44,610
Accrued liabilities................... 9,294 64,070 5,624 10,216 (1,673) 87,531
Payables to affiliates................ -- 164,963 -- 34,150 (199,113) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL CURRENT LIABILITIES............... 54,863 268,901 6,579 50,734 (201,022) 180,055
LONG-TERM DEBT.......................... 321,895 8,948 241,927 11,039 (71,401) 512,408
DEFERRED INCOME TAXES................... 5,994 -- -- -- -- 5,994
RESERVE FOR PROFESSIONAL LIABILITY
RISKS................................. -- 34,053 -- 11,206 1,353 46,612
OTHER DEFERRED LIABILITIES.............. -- 41,258 -- 1,192 -- 42,450
MINORITY INTERESTS...................... -- 4,947 -- 525 -- 5,472
PAYABLES TO AFFILIATES.................. -- 297,673 -- -- (297,673) --
STOCKHOLDERS' EQUITY
Common stock.......................... -- -- 1 -- (1) --
Paid-in capital....................... 373,838 61,855 111,604 5,434 (178,893) 373,838
Notes receivable from EPIC ESOP....... (100,000) -- (48,214) -- -- (148,214)
Retained earnings (deficit)........... (115,161) (85,640) -- 43,779 3,383 (153,639)
---------- ------------ ---------- ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT).... 158,677 (23,785) 63,391 49,213 (175,511) 71,985
---------- ------------ ---------- ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)...................... $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $864,976
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-31
<PAGE> 92
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EPIC
HEALTHCARE
EPIC GROUP,
HEALTHCARE OTHER INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUE............... $ -- $212,740 $ 13,649 $ 62,212 $(16,150) $272,451
COSTS AND EXPENSES:
Operating expenses................ 11 203,002 11 55,420 (15,933) 242,511
Depreciation and amortization..... -- 5,935 5,669 1,603 (77) 13,130
Interest expense.................. 12,617 17,454 6,962 840 (19,128) 18,745
---------- ------------ ---------- ------------ ------------ ----------
TOTAL COSTS AND EXPENSES............ 12,628 226,391 12,642 57,863 (35,138) 274,386
INTEREST INCOME..................... 16,636 2,536 652 110 (19,128) 806
---------- ------------ ---------- ------------ ------------ ----------
INCOME (LOSS) BEFORE INCOME TAX
BENEFIT (EXPENSE), MINORITY
INTERESTS AND EXTRAORDINARY
ITEM.............................. 4,008 (11,115) 1,659 4,459 (140) (1,129)
INCOME TAX BENEFIT (EXPENSE)........ (1,363) 3,503 (564) (1,657) (294) (375)
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES, net of
income tax benefit (expense)...... -- (780) -- (321) (566) (1,667)
---------- ------------ ---------- ------------ ------------ ----------
NET INCOME (LOSS)................... $ 2,645 $ (8,392) $ 1,095 $ 2,481 $ (1,000) $ (3,171)
---------- ------------ ---------- ------------ ------------ ----------
---------- ------------ ---------- ------------ ------------ ----------
</TABLE>
F-32
<PAGE> 93
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARATOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUE.......... $ -- $178,988 $ 13,649 $ 69,156 $(17,441) $ 244,352
COST AND EXPENSES:
Operating expenses........... 50 172,362 40 64,553 (17,232) 219,773
Depreciation and
amortization............... 407 4,463 7,281 1,747 (107) 13,791
Interest expense............. 11,911 12,520 6,961 1,504 (15,470) 17,426
---------- ------------ ---------- ------------ ------------ -----------
TOTAL COSTS AND EXPENSES....... 12,368 189,345 14,282 67,804 (32,809) 250,990
INTEREST INCOME................ 12,500 2,480 1,025 101 (15,470) 636
---------- ------------ ---------- ------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAX
BENEFIT (EXPENSE), MINORITY
INTERESTS AND EXTRAORDINARY
ITEM......................... 132 (7,877) 392 1,453 (102) (6,002)
INCOME TAX BENEFIT (EXPENSE)... 607 (122) -- (54) -- 431
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES,
net of income tax benefit
(expense).................... 75 (552) -- (79) -- (556)
---------- ------------ ---------- ------------ ------------ -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM........... 814 (8,551) 392 1,320 (102) (6,127)
EXTRAORDINARY ITEM,
net of income tax benefit
(expense).................. (503) -- -- -- -- (503)
---------- ------------ ---------- ------------ ------------ -----------
NET INCOME (LOSS).............. $ 311 $ (8,551) $ 392 $ 1,320 $ (102) $ (6,630)
---------- ------------ ---------- ------------ ------------ -----------
---------- ------------ ---------- ------------ ------------ -----------
</TABLE>
F-33
<PAGE> 94
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EPIC
HEALTHCARE
EPIC OTHER GROUP, INC.
HEALTHCARE GUARANTOR EPIC NONGUARANTOR AND
GROUP, INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............. $(2,627) $(11,483) $ 8,856 $ 4,149 $ -- $ (1,105)
INVESTING ACTIVITIES:
Investments in marketable
securities, net................ -- 13,300 -- (85) -- 13,215
Cash paid for acquisitions....... -- -- -- (960) -- (960)
Additions to property and
equipment...................... -- (20,100) -- (3,331) -- (23,431)
Principal collected on note
receivable from EPIC ESOP...... -- -- 10,833 -- (10,833) --
Other............................ -- (601) -- (60) -- (661)
----------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
investing activities............. -- (7,401) 10,833 (4,436) (10,833) (11,837)
FINANCING ACTIVITIES
Payments on debt obligations..... (1,250) (26) -- (139) -- (1,415)
Contributions to EPIC ESOP....... -- (10,833) -- -- 10,833 --
Dividends paid to EPIC
Holdings....................... (119) -- -- -- -- (119)
Dividends and capital
distributions received from
EPIC Properties................ -- 19,833 -- -- (19,833) --
Dividends and capital
distributions paid by EPIC
Properties..................... -- -- (19,833) -- 19,833 --
Distributions and dividends to
minority interests............. -- (902) -- (230) -- (1,132)
Payments of debt issue costs and
other, net..................... -- (208) -- -- -- (208)
----------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities............. (1,369) 7,864 (19,833) (369) 10,833 (2,874)
DECREASE IN CASH AND CASH
EQUIVALENTS...................... (3,996) (11,020) (144) (656) -- (15,816)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. 8,944 40,846 2,062 4,904 -- 56,756
----------- ------------ ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD........................... $ 4,948 $ 29,826 $ 1,918 $ 4,248 $ -- $ 40,940
----------- ------------ ---------- ------------ ------------ ------------
----------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-34
<PAGE> 95
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EPIC
HEALTHCARE
EPIC OTHER GROUP, INC.
HEALTHCARE GUARANTOR EPIC NONGUARANTOR AND
GROUP, INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............. $(771) $ 11,646 $ 7,269 $ (3,170) $ -- $ 14,974
INVESTING ACTIVITIES:
Investments in marketable
securities, net................ -- 256 -- 6,139 -- 6,395
Cash paid for acquisitions....... -- (4,100) -- -- -- (4,100)
Additions to property and
equipment...................... -- (7,410) -- -- -- (7,410)
Principal collected on note
receivable from EPIC ESOP...... -- -- 10,357 -- (10,357) --
Other............................ (103) (708) -- -- -- (811)
----------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
investing activities............. (103) (11,962) 10,357 6,139 (10,357) (5,926)
FINANCING ACTIVITIES
Payments on debt obligations..... -- (20) -- (56) -- (76)
Line of credit borrowings, net... 800 -- -- -- -- 800
Purchase of Senior ESOP notes.... -- (5,616) -- -- -- (5,616)
Contributions to EPIC ESOP....... -- (10,357) -- -- 10,357 --
Dividends paid to EPIC
Holdings....................... (11) -- -- -- -- (11)
Dividends and capital
distributions received from
EPIC Properties................ -- 17,012 -- 888 (17,900) --
Dividends and capital
distributions paid by EPIC
Properties..................... -- -- (17,900) -- 17,900 --
Distributions and dividends to
minority interests............. -- (680) -- (1,660) -- (2,340)
Payment of debt issue costs and
other, net..................... -- (59) -- -- -- (59)
----------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities............. 789 280 (17,900) (828) 10,357 (7,302)
----------- ------------ ---------- ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. (85) (36) (274) 2,141 -- 1,746
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. 86 22,381 4,506 5,668 -- 32,641
----------- ------------ ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD........................... $ 1 $ 22,345 $ 4,232 $ 7,809 $ -- $ 34,387
----------- ------------ ---------- ------------ ------------ ------------
----------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-35
<PAGE> 96
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTES TO CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The subsidiaries comprising the Guarantor Subsidiaries change from year to
year due to new and/or revised agreements relating to the various subsidiaries
of the Company. As a result, the investment in subsidiaries is presented on the
cost basis.
Receivables from (payables to) affiliates include cash transfers between
entities on collection of accounts receivable and payment of accounts payable
and are included in cash flows provided by (used in) operating activities. Cash
flows from operating, financing and investing activities for each subsidiary are
presented in the consolidating statements of cash flows based on that
subsidiary's designation as a guarantor or nonguarantor subsidiary at the end of
the period.
Deferred income taxes and deferred income tax benefit (expense) were
recorded in the accounts of EPIC Healthcare Group, Inc. and were not allocated
to the subsidiaries in fiscal 1993. SFAS No. 109, "Accounting for Income Taxes"
requires that the consolidated amount of current and deferred tax expense for a
group that files a consolidated tax return shall be allocated among the members
of the group when those members issue separate financial statements on a basis
consistent with SFAS No. 109. The Company adopted SFAS No. 109, including
allocation of taxes within the consolidating financial statements, effective
October 1, 1993. For fiscal 1994, deferred income tax benefit (expense) is
allocated to the subsidiaries using the effective tax rate applicable and
deferred income taxes for the subsidiaries are included in receivables from
(payables to) affiliates.
F-36
<PAGE> 97
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors
EPIC Holdings, Inc.
We have audited the accompanying consolidated balance sheets of EPIC
Healthcare Group, Inc. and subsidiaries (a wholly-owned subsidiary of EPIC
Holdings, Inc.) as of September 30, 1993 and 1992, and the related consolidated
statements of operations, stockholder's equity (deficit), and cash flows for
each of the three years in the period ended September 30, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EPIC Healthcare Group, Inc. and subsidiaries at September 30, 1993, and 1992,
and the results of its consolidated operations and its consolidated cash flows
for each of the three years in the period ended September 30, 1993, in
conformity with generally accepted accounting principles.
ERNST & YOUNG
Dallas, Texas
December 3, 1993
F-37
<PAGE> 98
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1993 1992
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $ 56,756 $ 32,641
Cash restricted for interest payment................................. 3,820 5,768
Marketable securities................................................ 47,347 10,607
Accounts receivable, net of reserves for uncompensated care of
$29,286 and $25,837............................................... 76,957 73,398
Supply inventories................................................... 20,687 20,000
Prepaid expenses and other........................................... 4,574 5,222
--------- ---------
TOTAL CURRENT ASSETS......................................... 210,141 147,636
PROPERTY AND EQUIPMENT
Land................................................................. 53,030 57,492
Buildings and improvements........................................... 476,570 451,292
Equipment............................................................ 234,656 192,367
Construction in progress............................................. 22,542 9,333
--------- ---------
786,798 710,484
Accumulated depreciation and amortization............................ (218,746) (173,789)
--------- ---------
568,052 536,695
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated
amortization......................................................... 52,965 48,140
OTHER ASSETS, net of accumulated amortization.......................... 33,818 38,315
--------- ---------
TOTAL ASSETS................................................. $ 864,976 $ 770,786
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt................................. $ 47,914 $ 2,330
Accounts payable..................................................... 44,610 34,809
Accrued liabilities:
Salaries and wages................................................ 36,475 33,031
Taxes other than on income........................................ 7,874 7,476
Interest.......................................................... 11,027 7,658
Group health insurance............................................ 4,902 5,656
Current reserve for professional liability risks.................. 11,000 11,000
Other............................................................. 16,253 9,011
--------- ---------
TOTAL CURRENT LIABILITIES.............................................. 180,055 110,971
LONG-TERM DEBT......................................................... 512,408 470,735
DEFERRED INCOME TAXES.................................................. 5,994 8,988
RESERVE FOR PROFESSIONAL LIABILITY RISKS............................... 46,612 39,640
OTHER DEFERRED LIABILITIES............................................. 42,450 39,607
COMMITMENTS AND CONTINGENT LIABILITIES.................................
MINORITY INTERESTS..................................................... 5,472 23,494
STOCKHOLDER'S EQUITY
Common stock, $.01 par value -- Authorized: 100,000,000 shares;
Issued and outstanding: 1,000 shares.............................. -- --
Paid-in capital...................................................... 373,838 374,860
Notes receivable from EPIC ESOP...................................... (148,214) (168,929)
Retained earnings (deficit).......................................... (153,639) (128,580)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY............................................. 71,985 77,351
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............................. $ 864,976 $ 770,786
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE> 99
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
NET OPERATING REVENUE................................... $ 1,019,149 $ 941,266 $ 802,689
COSTS AND EXPENSES:
Salaries and wages.................................... 354,326 319,868 271,007
Employee benefits..................................... 84,615 81,365 68,434
ESOP expense.......................................... 20,715 20,714 23,076
Supplies.............................................. 121,986 116,145 99,882
Uncompensated care.................................... 80,643 69,308 59,425
Other................................................. 235,770 234,879 192,633
Depreciation and amortization......................... 57,917 53,013 49,354
Interest expense...................................... 70,934 71,000 68,266
----------- ----------- -----------
TOTAL COSTS AND EXPENSES...................... 1,026,906 966,292 832,077
INTEREST INCOME......................................... 3,627 3,822 5,405
GAIN (LOSS) ON SALE OF ASSETS........................... 3,521 (1,123) (543)
----------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT, MINORITY INTERESTS AND
EXTRAORDINARY ITEM.................................... (609) (22,327) (24,526)
INCOME TAX BENEFIT, net................................. 243 6,258 7,603
MINORITY INTERESTS IN INCOME OF CONSOLIDATED
SUBSIDIARIES (net of income tax benefit of $106,
$1,008 and $1,063, respectively)...................... (3,394) (1,958) (2,064)
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM.......................... (3,760) (18,027) (18,987)
EXTRAORDINARY ITEM (net of income tax benefit of $661,
$652 and $1,330, respectively......................... (21,299) (1,265) (2,581)
----------- ----------- -----------
NET LOSS...................................... $ (25,059) $ (19,292) $ (21,568)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE> 100
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES RETAINED TOTAL
COMMON PAID-IN RECEIVABLE EARNINGS STOCKHOLDERS'
STOCK CAPITAL FROM EPIC ESOP (DEFICIT) EQUITY (DEFICIT)
------ -------- -------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1990......... $ 245 $219,808 $ (212,738) $ (87,241) $ (79,926)
Dividends accrued and accretion of
discount on redeemable preferred
stock............................ -- (22,873) -- -- (22,873)
Principal payments received on
notes receivable from EPIC
ESOP............................. -- -- 23,095 -- 23,095
Treasury stock purchased........... (1 ) -- -- (468) (469)
Net loss........................... -- -- -- (21,568) (21,568)
------ -------- -------------- --------- ----------------
Balance at September 30, 1991...... 244 196,935 (189,643) (109,277) (101,741)
Dividends accrued and accretion of
discount on redeemable preferred
stock............................ -- (11,048) -- -- (11,048)
Principal payments received on
notes receivable from EPIC
ESOP............................. -- -- 20,714 -- 20,714
Treasury stock purchased........... -- -- -- (11) (11)
Warrant conversion................. 63 (42) -- -- 21
Contribution of redeemable
preferred stock, net of
expenses......................... -- 190,008 -- -- 190,008
Exchange of common stock in
connection with merger........... (307 ) 307 -- -- --
Dividends paid to EPIC Holdings.... -- (1,300) -- -- (1,300)
Net loss........................... -- -- -- (19,292) (19,292)
------ -------- -------------- --------- ----------------
Balance at September 30, 1992...... -- 374,860 (168,929) (128,580) 77,351
Principal payments received on
notes receivable from EPIC
ESOP............................. -- -- 20,715 -- 20,715
Dividends paid to EPIC Holdings.... -- (1,022) -- -- (1,022)
Net loss........................... -- -- -- (25,059) (25,059)
------ -------- -------------- --------- ----------------
Balance at September 30, 1993...... $ -- $373,838 $ (148,214) $(153,639) $ 71,985
------ -------- -------------- --------- ----------------
------ -------- -------------- --------- ----------------
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE> 101
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
---------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $ (25,059) $ (19,292) $ (21,568)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 57,917 53,013 49,354
Non-cash provision for professional liability risks.... 2,641 4,131 11,291
ESOP expense........................................... 20,715 20,714 23,076
Deferred SAR Plan compensation......................... 3,249 10,805 7,137
Minority interests in income of consolidated
subsidiaries......................................... 3,499 2,966 3,127
(Gain) loss on sale of assets.......................... (3,521) 1,123 543
Non-cash interest...................................... 18,286 18,417 13,975
Extraordinary item..................................... 21,960 1,917 3,911
Deferred federal income tax benefit.................... (2,994) (8,806) (9,996)
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. 6,054 (35,196) (3,043)
Supply inventories and other assets.................. 4,284 (3,162) (5,291)
Accounts payable and other liabilities............... 12,202 11,282 6,444
--------- --------- ---------
Net cash provided by operating activities......... 119,233 57,912 78,960
INVESTING ACTIVITIES
Investments in marketable securities, net................. (36,740) 5,167 (12,091)
Cash paid for acquisitions................................ (54,536) (12,269) --
Additions to property and equipment....................... (60,784) (47,850) (25,646)
Purchase of investment securities......................... -- (4,180) --
Proceeds from sales of assets............................. 25,148 190 361
Collection on note receivable............................. 9,349 -- --
Other..................................................... (5,925) (2,046) (48)
--------- --------- ---------
Net cash used in investing activities............. (123,488) (60,988) (37,424)
FINANCING ACTIVITIES
Payments on debt obligations.............................. (117,765) (1,603) (250,647)
Proceeds from long-term borrowings........................ 180,853 -- 227,868
Purchase of Senior ESOP Notes............................. (5,616) (20,293) --
Purchase of treasury stock................................ -- (11) (469)
Dividends paid to EPIC Holdings........................... (1,022) (1,300) --
Preferred stock transaction costs......................... -- (7,063) --
Proceeds of warrant conversion............................ -- 21 --
Contributions from minority interests..................... 520 1,884 556
Distributions and dividends to minority interests......... (21,110) (4,065) (4,122)
Payments of debt issue costs and other, net............... (7,490) (672) (11,294)
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... 28,370 (33,102) (38,108)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 24,115 (36,178) 3,428
Cash and cash equivalents at beginning of year............ 32,641 68,819 65,391
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 56,756 $ 32,641 $ 68,819
SUPPLEMENTARY INFORMATION
Cash paid during the year for interest.................... $ 52,370 $ 53,343 $ 52,987
Cash paid for income taxes................................ $ 657 $ 888 $ 666
</TABLE>
See notes to consolidated financial statements
F-41
<PAGE> 102
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
EPIC Healthcare Group, Inc. ("EPIC" or, either alone or together with its
subsidiaries, the "Company") was acquired by EPIC Holdings, Inc. ("Holdings") on
March 25, 1992, in a merger transaction (the "Merger") in which each outstanding
share of common stock of EPIC was converted into one share of Holdings common
stock. Because the Merger was between companies under common ownership, and as
EPIC is a wholly-owned subsidiary of Holdings, the recorded assets and
liabilities of EPIC have retained their historical cost basis.
Principles of Consolidation
The consolidated financial statements include the accounts of EPIC and its
subsidiaries. Intercompany accounts and transactions have been eliminated.
Minority interests represent the minority stockholders' proportionate shares of
the equity in the income (loss) of certain consolidated subsidiaries.
Cash Equivalents, Cash Restricted for Interest Payments, and Marketable
Securities
The Company considers all highly liquid investments with initial maturities
of three months or less from date of purchase to be cash equivalents. Cash
restricted for interest payments is cash deposited into a trust to pay principal
and interest required by the Class B-1, Class B-2 and Class B-3 First Priority
Mortgage Notes (the "Mortgage Notes"). Investments in marketable
interest-bearing securities are stated at cost which approximates market. The
Company has $42,694,000 in cash and marketable securities restricted for the
purpose of redeeming the remaining 15% Senior Subordinated Notes (See Note 5).
Cash equivalents, cash restricted for interest payments, and marketable
securities are subject to potential concentrations of credit risk. The Company
attempts to lessen that risk by investing only in United States Government
securities, commercial paper having at least a rating of A-1 or the equivalent,
time deposits and certificates of deposit of banks having a debt rating of at
least A, or money market funds comprised of such securities. The Company invests
in securities with maturities no longer than 180 days and limits the amount of
credit exposure to any one commercial issuer.
Accounts Receivable
Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors and the
geographic dispersion of the Company's hospitals. Accounts receivable (gross)
consists of amounts due from government programs (e.g., Medicare and Medicaid)
(53%), commercial insurance companies (16%), private pay patients (18%) and
other (including health maintenance organizations and other group insurance
programs) (13%). The Company's hospitals are located throughout the southern
United States, with the largest concentration in Texas, Oklahoma, Louisiana and
California. The Company maintains an allowance for losses (i.e., uncompensated
care or bad debt expense) based on the expected collectibility of accounts
receivable.
Supply Inventories
Supply inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment
Property and equipment are recorded at cost (or fair value at the date of
acquisition as a result of the original purchase from American Medical
International, Inc. and its subsidiaries ("AMI")). Depreciation
F-42
<PAGE> 103
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and amortization is computed using the straight-line method over estimated
useful lives or the term of the lease generally ranging from 25 to 30 years for
buildings and improvements, and 3 to 10 years for equipment. Maintenance costs
and repairs are expensed as incurred.
Joint Ventures
The Company, in the ordinary course of business, enters into joint ventures
with physicians and other companies. The Company is the majority owner and
general partner of substantially all of the joint ventures and follows the
principles of consolidation for all majority-owned joint ventures. Minority
shareholders' investments and earnings in the joint ventures are recorded as
minority interests and minority interests in income of consolidated
subsidiaries, respectively. Any interest held by the Company in non-majority
owned partnerships with at least 20% ownership is accounted for using the equity
method. Any interest held by the Company in partnerships with less than 20%
ownership is accounted for using the cost method.
On February 1, 1990, the Company entered into a joint venture with
Healthtrust, Inc. - The Hospital Company ("Healthtrust") for the purpose of
operating certain hospital assets in McKinney, Texas. The Company contributed,
at net book value, a 168 bed facility to the venture and was the managing
co-general partner with a 60% equity interest in the venture. Healthtrust
contributed a 99 bed facility to the venture and was the co-general partner with
a 40% interest in the venture. The assets contributed by Healthtrust to the
joint venture, including property and equipment of $15,328,000, were recorded at
fair market value which approximated net book value. Goodwill of $2,470,000, is
being amortized over 40 years. On August 31, 1993, the Company purchased
Healthtrust's interest in the joint venture for $15,656,000, which approximated
Healthtrust's interest in the net assets of the joint venture and was recorded
as a reduction to minority interests.
Intangible Assets
The excess of the purchase price over the fair value of net assets acquired
is being amortized on a straight-line basis over periods ranging from nine to 40
years. Accumulated amortization was $9,244,000 and $6,920,000 at September 30,
1993 and 1992, respectively.
Costs incurred in obtaining long term financing are deferred and are
included in other assets. Deferred financing costs are amortized using the
effective interest method over the term of the related debt, and such
amortization is included in interest expense. Accumulated amortization of
deferred financing costs was $16,427,000 and $14,203,000 at September 30, 1993
and 1992, respectively.
The Company has purchased licenses to use various software applications.
These costs are recorded as other assets and have been amortized over two or
five year periods. Accumulated amortization of the software costs was $5,750,000
and $4,750,000 at September 30, 1993 and 1992, respectively.
Income Taxes
The Company is included in the consolidated federal income tax return of
Holdings. The Company's tax provision is determined as if the Company, along
with its subsidiaries, prepared its tax return on a separate return basis.
EPIC accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 96, "Accounting for Income Taxes."
Under the liability method specified by SFAS No. 96, deferred tax assets and/or
liabilities are determined by multiplying the difference between the financial
reporting and tax reporting bases of assets and liabilities (collectively, the
"temporary differences," see Note 6) by tax rates (determined in accordance with
enacted tax laws) that are expected to be effective when such temporary
differences reverse. EPIC's deferred tax liabilities originated from the
accounting for the
F-43
<PAGE> 104
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition from AMI (the "Acquisitions"), and reflect the estimated tax effect
of differences between book and tax bases of assets acquired and liabilities
assumed.
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes," which supersedes SFAS No. 96. Implementation
of SFAS No. 109 for the Company was required October 1, 1993. SFAS No. 109
requires that temporary differences be reflected in the same balance sheet
category as the assets and liabilities that caused the temporary differences.
Deferred tax assets, which would include tax net operating loss carryforwards,
would require the determination of a related valuation allowance, based on the
assets' expected realization. The Company has completed the analysis necessary
to determine the impact of adoption of SFAS No. 109 and it is not expected to
have a material impact on the Company's financial position or results of
operations and will not impact cash flows.
Net operating revenue
Net operating revenue is recorded based on established billing rates net of
allowances and discounts for patients covered by Medicare, Medicaid and other
contractual programs. Payments received under these programs, which are based on
either the costs of services or predetermined rates, are generally less than the
established billing rates of the Company's hospitals, and the differences are
recorded as contractual allowances and/or contracted discounts. Reserves
provided have been deducted from accounts receivable pending final audit and
appeal settlement. Contractual adjustments, contracted discounts and other
discounts amounted to $627,757,000, $576,572,000, and $482,158,000 for fiscal
1993, 1992 and 1991, respectively.
It is generally the Company's policy to attempt to collect compensation for
all services performed.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
fiscal 1993 presentation.
2. ACQUISITIONS AND DIVESTITURES
On August 24, 1993, the Company entered into a 20-year lease agreement with
two ten year renewal options, with the County of Galveston, Texas for Mainland
Center Hospital, a 310-bed hospital in Texas City, Texas. The lease payment of
$27,535,000 was paid in full upon the execution of the lease, which has been
accounted for as a capital lease. The Company also purchased certain net current
assets and equipment of the hospital, which included $5,639,000 in cash, for
$17,965,000 which has been accounted for by the purchase method of accounting.
The Company also has a commitment to carry out $20,000,000 of capital
improvements over the term of the lease. The lease agreement contains a purchase
option which becomes effective on August 24, 1994. The option price ranges from
$500,000 to $851,000 over the term of the lease.
On January 6, 1993, the Company sold Westpark Community Hospital in
Hammond, Louisiana for $6,200,000. A charge of $624,000 to reflect the loss on
the sale was recorded in fiscal 1993. A charge of $800,000 to reflect the
anticipated loss on the sale was recorded in fiscal 1992. The net book value of
the assets sold before the fiscal 1992 charge, less liabilities assumed by the
buyer, was $7,624,000.
On March 15, 1993, the Company sold Valley Medical Center in El Cajon,
California for $16,950,000. A gain on the sale of $4,632,000 was recorded in
fiscal 1993. The net book value of the assets sold, less liabilities assumed by
the buyer, was $12,318,000.
On October 1, 1991, the Company purchased Colonial Hospital, a 49-bed
hospital in Terrell, Texas for $10,403,000 in cash. The acquisition has been
accounted for by the purchase method of accounting. The excess of purchase price
over net assets acquired is being amortized over 40 years.
3. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
Employee-owners of EPIC have beneficial ownership of approximately 60% of
the Holdings Common Stock through their participation in the EPIC ESOP.
F-44
<PAGE> 105
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the Company's inception, the EPIC ESOP purchased 24,500,000 shares of
the EPIC Common Stock with the proceeds obtained from the issuance of loans
aggregating $245 million payable to the Company. The terms of the original ESOP
loan agreement segregated the EPIC ESOP's obligation to the Company into two
components, the terms of the first of which mirrored the terms of the Senior
ESOP Bank Debt (the "First ESOP Loan") and the second of which mirrored the
terms of the Senior ESOP Notes (see Note 5). Concurrent with the issuance of the
Mortgage Notes (see Note 5), the First ESOP Loan was replaced by a loan
agreement which provides for mandatory principal payments in amounts that are
substantially in conformance with the remaining mandatory principal payments of
the Senior ESOP Bank Debt as if the issuance of the Mortgage Notes had not
occurred (the "New ESOP Loan"). The interest rate on the New ESOP Loan is
determined quarterly based on .85 times the sum of the London InterBank Offered
Rates plus 2.5% (5.1% at September 30, 1993). The EPIC ESOP has pledged all of
its shares of the Holdings Common Stock as collateral for the ESOP-related
borrowings. These shares are released from the pledge as the loans are paid. The
EPIC ESOP receives contributions from the Company to service and extinguish the
loans.
The EPIC ESOP is an individual account, defined contribution plan. Nonunion
employee-owners who work a specified number of hours are eligible to participate
in the EPIC ESOP if they have attained age 21 and completed one year of service.
No employee-owner contributions are required or permitted to be made to the EPIC
ESOP. No rollover contributions are permitted to be made to the EPIC ESOP.
Allocations are made to participants' accounts in an amount which reflects each
participant's proportionate share of the contributions made by the Company to
the EPIC ESOP, as determined on the basis of each participant's compensation.
Contributions made to the EPIC ESOP and the value of shares of common stock
allocated to the account of a participant as a result of such contributions are
intended to be treated as tax-deferred contributions. Such contributions, and
earnings thereon, generally are includable in a participant's compensation for
federal income tax purposes when distributed.
As of the plan year ended December 31, 1992, cumulative allocations of
10,650,517 shares of Holdings Common Stock at a market value of $8.00 per share
based on an independent valuation, or $85,204,136 in total have been made to
10,183 participants. Shares of Holdings Common Stock relating to the plan year
ending December 31, 1993 will be allocated during fiscal 1994.
Subject to limitations contained in the Internal Revenue Code of 1986, as
amended (the "Code"), Holdings is entitled to claim an income tax deduction for
contributions to the EPIC ESOP. The Company has received a favorable
determination from the Internal Revenue Service that the EPIC ESOP is qualified
as an "employee stock ownership plan" within the meaning of Section 4975(e)(7)
of the Code. Contributions to the EPIC ESOP are used by the EPIC ESOP to pay
interest and principal on the loans owed to the Company. The Company uses
payments from the EPIC ESOP to pay interest and principal on the Class B-1 First
Priority Mortgage Notes and the Senior ESOP Notes.
The Company recorded net ESOP expense, using the cash method, and
corresponding reductions in the EPIC ESOP notes receivable, of $20,715,000,
$20,714,000, and $23,076,000 for fiscal 1993, 1992 and 1991, respectively.
Interest income recognized on the EPIC ESOP notes receivable totaled
$14,984,000, $16,885,000, and $20,483,000 for fiscal 1993, 1992 and 1991,
respectively, which in turn was contributed to the EPIC ESOP to pay interest
expense incurred on the ESOP-related debt. Interest expense incurred on ESOP-
related debt totaled $20,856,000, $21,734,000, and $21,731,000 which included
discount amortization of $559,000, $551,000, and $511,000 for fiscal 1993, 1992
and 1991, respectively.
F-45
<PAGE> 106
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OPERATING LEASES
The Company leases office space, office equipment and medical equipment.
Generally, real estate leases are for primary terms of from one to 12 years with
options to renew for additional periods, and equipment leases are for terms of
from one to seven years. Future minimum lease payments for all operating leases
having initial or remaining noncancellable lease terms in excess of one year as
of September 30, 1993 are as follows (dollars in thousands):
<TABLE>
<S> <C>
1994....................................................................... $ 4,560
1995....................................................................... 4,225
1996....................................................................... 3,337
1997....................................................................... 2,693
1998....................................................................... 1,835
1999 and thereafter........................................................ 3,485
-------
20,135
Sublease income............................................................ (1,116)
-------
$19,019
-------
-------
</TABLE>
Rent expense under operating leases was as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
---------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Minimum rent.............................................. $18,496 $16,107 $13,609
Sublease income........................................... (795) (609) (317)
------- ------- -------
$17,701 $15,498 $13,292
------- ------- -------
------- ------- -------
</TABLE>
F-46
<PAGE> 107
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
The Company's long-term debt, net of discounts, is summarized below
(dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1993 1992
--------- ---------
<S> <C> <C>
11.375% Class B-1 First Priority Mortgage Notes payable in
semi-annual payments of $9,000 commencing in July 1996 with
a final payment of $10,000 in July 2001.................... $ 99,579 $ 99,500
11.5% Class B-2 First Priority Mortgage Notes payable in
semi-annual payments of $500 through July 1994, increasing
to $750 in January 1995, to $1,500 in January 1997, to
$8,000 in January 1998, to $9,000 in January 1999, with a
final payment of $15,500 in July 2001...................... 83,112 84,046
Class B-3 First Priority Mortgage Notes payable in
semi-annual payments of $750 commencing in January 1995,
increasing to $3,000 in January 1997 through July 1998,
with a fluctuating interest rate (6.5% at September 30,
1993)...................................................... 15,000 15,000
Other mortgage debt and capital lease obligations with
varying maturities and interest rates ranging from 4.75% to
12.9%...................................................... 20,651 20,351
Acquisition Loan, payable in quarterly installments of $1,250
commencing in October, 1993 with a fluctuating interest
rate (8.0% at September 30, 1993).......................... 19,542 --
Zero Coupon Notes, principal of $89,313 due 2001 with an
effective interest rate of 14.8%........................... 28,564 24,770
Additional Zero Coupon Notes, principal of $7,079 due 2001
with an effective interest rate of 14.8%................... 2,265 1,964
11.875% Senior ESOP Notes payable in three equal annual
payments commencing in September 1996 with an effective
interest rate of 13.03%.................................... 72,141 76,840
10.875% Senior Subordinated Notes due 2003................... 160,000 --
15% Senior Subordinated Notes payable in three equal annual
payments commencing in 1999................................ 40,320 104,852
11% Junior Subordinated Pay-In-Kind Notes payable in three
equal annual payments commencing in September 2001......... 19,148 45,742
--------- ---------
560,322 473,065
Current maturities........................................... (47,914) (2,330)
--------- ---------
$ 512,408 $ 470,735
--------- ---------
--------- ---------
</TABLE>
The Mortgage Notes are the indebtedness of EPIC Properties, Inc. ("EPIC
Properties"), an indirect wholly-owned subsidiary of EPIC. The Mortgage Notes
are secured by mortgages on 24 acute care hospital complexes (the "Mortgaged
Hospitals") and the land on which such buildings are located, and by a first
priority security interest in certain furnishings and equipment located at each
of the Mortgaged Hospitals. The Mortgage Notes are fully and unconditionally
guaranteed by EPIC (see Note 17).
The interest rate on the Class B-1 First Priority Mortgage Notes (the
"Class B-1 Notes") will increase to 11.5% after September 30, 1995. If the
Internal Revenue Service determines that interest on the Class B-1 Notes does
not qualify for a 50% exclusion from federal taxable income, the interest rate
on the Class B-1 Notes will increase to 11.5% for all periods through September
30, 1995 during which such interest exclusion is not available.
F-47
<PAGE> 108
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company incurred losses on refinancing concurrent with the issuance of
the Mortgage Notes due primarily to the write-off of loan issue costs. These
losses, totalling $3,911,000, are recorded as an extraordinary item (net of
income tax benefit of $1,330,000) in the consolidated statement of operations
for the fiscal year ended September 30, 1991.
The Zero Coupon Notes are reflected at their fair value of $14,008,000, as
estimated by the Company at September 30, 1988, plus accretion of discount
through September 30, 1993. No interest or principal is payable until maturity.
Additional Zero Coupon Notes were issued under an interest rate cap
agreement with AMI (see Note 12) and are reflected at their original fair value
plus accretion of discount through September 30, 1993. No interest or principal
is payable until maturity.
A subsidiary of EPIC purchased $5,400,000 and $19,850,000 face value of the
11.875% Senior ESOP Notes on the open market for $5,616,000 and $20,293,000 plus
accrued interest in fiscal 1993 and 1992, respectively (the "Senior ESOP Note
Purchases"). Losses of $570,000 and $1,917,000 due to the write-off of debt
issue costs and unamortized discounts and the payment of a premium on the Senior
ESOP Note Purchases are recorded as extraordinary items (net of income tax
benefit of $17,000 and $652,000, respectively) in the consolidated statements of
operations for the fiscal years ended September 30, 1993 and 1992, respectively.
The 11.875% Senior ESOP Notes, which carry detachable stock purchase
warrants (see Note 9), have a stated principal amount of $100,000,000 and are
reflected at their fair value of $93,988,000, as estimated by the Company at
September 30, 1988, less the Senior ESOP Note Purchases, plus accretion of
discount through September 30, 1993.
On June 18, 1993, the Company refinanced $74,680,000 in principal of the
15% Senior Subordinated Notes and $53,697,000 in principal of the 11% Junior
Subordinated Pay-In-Kind Notes (the "Refinancing") through the issuance of the
10.875% Senior Subordinated Notes. The 10.875% Senior Subordinated Notes are
guaranteed by certain subsidiaries of the Company (see Note 17).
Under the terms of the Second Amended and Restated Credit Agreement dated
as of September 30, 1988, and amended and restated as of July 30, 1991, and
September 1, 1993 (the "Amended Credit Agreement"), the Company is required to
call the remaining $40,320,000 in principal of the 15% Senior Subordinated Notes
by February 28, 1994, with the remaining proceeds of the Refinancing. The
remaining principal of the 15% Senior Subordinated Notes at September 30, 1993,
has been recorded as current maturities of long term debt in the consolidated
balance sheets.
The Company incurred a loss before taxes of $21,390,000 on the Refinancing,
which resulted from the write-off of loan issue costs and unamortized discount
on the 15% Senior Subordinated Notes and the redeemed portion of the 11% Junior
Subordinated Pay-In-Kind Notes, payments to the holders of the 15% Senior
Subordinated Notes and the 11.875% Senior ESOP Notes for waivers of certain
provisions of the respective indentures and the accrual of the call premium to
be paid on redeeming the remaining principal on the 15% Senior Subordinated
Notes. These losses are recorded as an extraordinary item (net of income tax
benefit of $644,000) in the consolidated statements of operations.
The 15% Senior Subordinated Notes are guaranteed by certain wholly-owned
subsidiaries of the Company (see Note 17) and are secured by a fourth pledge of
the common stock of such subsidiaries.
Interest on the 11% Junior Subordinated Pay-in-Kind Notes is payable
semi-annually by the issuance of additional 11% Junior Subordinated Pay-in-Kind
Notes through September 30, 1995, and thereafter, if the Company is prohibited
from making cash interest payments by the terms of any senior debt existing on
September 30, 1988, less the amount retired in the Refinancing. The notes, which
have a stated principal amount of $50,000,000, have been recorded at their fair
value estimated by the Company at September 30,
F-48
<PAGE> 109
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1988, of $22,900,000 plus accretion of discount through September 30, 1993, less
the amount retired as a result of the Refinancing. The effective interest rate
for these notes is 18.07%.
The Amended Credit Agreement provides the Company with revolving loan
commitments and an acquisition loan to be used for working capital and
acquisition funds for the Company. As of September 30, 1993, revolving loan
commitments aggregated $30 million. Any revolving loan commitments outstanding
are due July 31, 1997. Interest is generally payable monthly at the following
rates per annum, at the Company's option: (i) 1.5% in excess of the higher of
the prime rate in effect from time to time or the annual yield on ninety-day
commercial paper or (ii) 2.5% in excess of the LIBOR rate. There were no
revolving loans outstanding as of September 30, 1993, and 1992, respectively.
The acquisition term loan principal amount outstanding is payable in quarterly
installments commencing on October 31, 1993 through July 31, 1997. Interest is
generally payable quarterly at the following rates per annum, at the Company's
option: (i) 2.0% in excess of the higher of the prime rate in effect from time
to time or the annual yield on ninety-day commercial paper or (ii) 3.0% in
excess of the LIBOR rate.
In connection with the issuance of the Mortgage Notes, EPIC Properties
obtained a revolving line of credit. The line of credit can only be used for the
purpose of paying interest or principal on the Mortgage Notes. The maximum loan
amount available is the lesser of $22 million or the annual interest accrual of
the Mortgage Notes. The line of credit bears an interest rate of the Prime
Lending Rate of AmSouth Bank plus 2%. There were no loans outstanding under the
line of credit as of September 30, 1993, and 1992, respectively.
The Amended Credit Agreement and other long-term debt agreements contain a
number of restrictive covenants, including restrictions on incurrence of debt,
sales of assets, payment of cash dividends, requirements to maintain certain
financial ratios and a specified level of net worth, as defined, and other
limitations, including limitations on the use of funds from the sale of certain
assets.
As of September 30, 1993, the maturities of long-term debt were as follows
(dollars in thousands):
<TABLE>
<S> <C>
1994..................................................................... $ 47,914
1995..................................................................... 9,498
1996..................................................................... 43,545
1997..................................................................... 58,546
1998..................................................................... 67,207
1999 and thereafter...................................................... 421,160
---------
647,870
Unamortized discounts and unaccreted interest............................ (87,548)
---------
$ 560,322
---------
---------
</TABLE>
6. INCOME TAXES
Subsequent to the Merger, the Company files a consolidated federal income
tax return with Holdings. The Company's income tax benefit for fiscal 1993, 1992
and 1991 was comprised of deferred federal benefits of $2,994,000, $8,806,000
and $9,996,000, respectively, arising from reported financial losses and state
income tax expense of $1,984,000 and $888,000 in fiscal 1993 and 1992,
respectively. For financial reporting purposes, Holdings has utilized
substantially all of its deferred federal tax liability and has limited the
benefit recognized for the current net operating loss pursuant to the provisions
of SFAS No. 96. Taxes paid during 1993 and 1992 primarily relate to state income
taxes and estimated federal tax payments.
F-49
<PAGE> 110
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's consolidated effective federal tax rate differed from the
federal statutory rate as set forth in the following table:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30
---------------------------
1993 1992 1991
-------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit computed at federal statutory rate (34%)...... $ 9,538 $9,553 $10,732
Amortization of excess purchase price over net assets
acquired................................................ (790) (614) (601)
Losses not subject to benefit............................. (5,611) -- --
Other, net................................................ (143) (133) (135)
-------- ------ -------
Deferred income tax benefit............................... $ 2,994 $8,806 $ 9,996
-------- ------ -------
-------- ------ -------
</TABLE>
The deferred income tax benefit results from the following temporary
differences in reporting for financial and income tax purposes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------------
1993 1992 1991
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book/tax difference on sale of assets.................. $ 3,835 $ -- $ --
Book/tax depreciation differences...................... 475 221 (3,392)
Net operating (benefit) loss recognized currently for
financial reporting.................................. (3,508) (1,582) 6,134
SAR compensation not currently deductible.............. 968 3,673 2,426
Professional liability reserves not currently
deductible........................................... 383 1,013 4,345
Other reserves for estimated losses and contingencies
not currently deductible............................. 1,348 2,217 508
Paid time off accrued for financial reporting, not
currently deductible................................. 339 719 89
Difference arising from ESOP loan fees initially
expensed for tax purposes but capitalized and
amortized for financial reporting purposes........... 197 427 (480)
Difference in methods used to reserve for bad debts.... 802 1,014 55
Difference in ESOP contribution deduction.............. (162) 207 (1,317)
Difference in methods for reporting interest........... 1,553 562 694
Losses not subject to benefit.......................... (5,611) -- --
Other.................................................. 2,375 335 934
-------- ------- -------
Deferred income tax benefit............................ $ 2,994 $ 8,806 $ 9,996
-------- ------- -------
-------- ------- -------
</TABLE>
7. DEFERRED COMPENSATION
The Company has adopted a deferred compensation plan (the "SAR Plan") as
part of its overall executive compensation program to attract, motivate and
retain key employee-owners. As of September 30, 1993, 5,873,582 SAR Plan units,
each exchangeable for one share of Holdings Common Stock or redeemable for cash
or other property under certain circumstances, were held by certain key
employee-owners and former employee-owners. During fiscal 1993, 1992 and 1991,
309,500, 1,481,065, and 1,002,000 SAR Plan units were granted and 427,800,
218,000, and 243,000 SAR Plan units were cancelled, respectively. The
outstanding SAR Plan units vest in varying amounts at varying periods not
exceeding five years beginning on each respective grant date. A maximum of
6,587,565 SAR Plan units, reduced by all units redeemed, may be
F-50
<PAGE> 111
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding at any time. During fiscal 1993, 1992 and 1991, the Company accrued
SAR Plan compensation expense of $4,249,000, $11,805,000, and $8,135,000,
respectively.
During fiscal 1993, 123,417 SAR Plan units were redeemed for $974,994 in
cash ($7.90 per unit) and 3,125 units were redeemed for $25,000 in cash ($8.00
per unit); in October 1993, 121,874 SAR Plan units were redeemed for $974,996 in
cash ($8.00 per unit).
During fiscal 1992, 129,998 SAR Plan units were redeemed for $974,985 in
cash ($7.50 per unit) and 3,164 SAR Plan units were redeemed for $24,996 in cash
($7.90 per unit).
8. COMMON STOCK OPTIONS
On December 14, 1988, the Company adopted the EPIC Healthcare Group, Inc.
Stock Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, the
Board of Directors is authorized to grant options to EPIC directors, officers
and salaried employee-owners to purchase up to 500,000 shares of Holdings Common
Stock. Options granted vest in five equal annual installments. No options were
granted during fiscal 1993, 1992 or 1991. At September 30, 1993, options for
32,000 shares were exercisable.
9. COMMON STOCK AND COMMON STOCK WARRANTS
The Company sold 24,500,000 shares of EPIC Common Stock to the EPIC ESOP on
September 30, 1988. Since that time through the Merger, 69,445 shares were
distributed to participants in the EPIC ESOP, of which 66,684 shares were
repurchased by the Company. In addition, immediately prior to the Merger,
6,306,395 of warrants outstanding were exercised for 63,064 shares of EPIC
Common Stock. Pursuant to the Merger, each share of EPIC Common Stock was
converted to Holdings Common Stock and the Company issued 1,000 shares of EPIC
Common Stock to Holdings.
10. LOSS PER COMMON SHARE
Because EPIC is a wholly-owned subsidiary of Holdings, loss per common
share is not meaningful and, therefore, is not presented.
11. PROFESSIONAL AND GENERAL LIABILITY RISKS
The Company is self-insured for its professional and general liability
risks. As of September 30, 1993, the unfunded reserve for this self insurance
was $45,130,000 of which $11,000,000 was included in current liabilities. The
Company has funded $12,482,000 of the reserves through a wholly-owned captive
insurance company at September 30, 1993. The reserves for losses and related
expenses are discounted to their present value based on expected loss reporting
patterns determined by independent actuaries using a rate of 9%. AMI has
retained the liability for all professional liability claims with a date of
occurrence prior to October 1, 1988.
12. RELATED PARTY TRANSACTIONS
EPIC and AMI entered into an interest rate cap agreement (the "Senior
Interest Cap Agreement") whereby AMI agreed to pay to EPIC the amounts by which
EPIC's interest costs under certain tranches of indebtedness exceeded, during
each of the three fiscal years after September 30, 1988, certain specified
rates, net of the effect of any reimbursement to EPIC by Medicare, Medicaid, or
Blue Cross for any interest expense incurred by EPIC in excess of such rates in
connection with such loans.
On August 28, 1991, EPIC and AMI agreed that it was mutually in their best
interest to terminate the Senior Interest Cap Agreement prior to its scheduled
expiration of October 1, 1991. EPIC and AMI further agreed that each party had
fully performed all of its obligations under the Senior Interest Cap Agreement
and each party released the other from future obligations thereunder.
F-51
<PAGE> 112
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the terms of the Senior Interest Cap Agreement, EPIC issued
Additional Zero Coupon Notes to AMI in the principal amounts of $1,612,000 and
$2,844,000 during fiscal 1990 and 1989, respectively, in exchange for cash of a
like amount paid to EPIC by AMI during such years. In fiscal 1991, EPIC paid to
AMI $2,864,000 and issued Additional Zero Coupon Notes to AMI with a present
value of $626,000 in exchange for the cancellation of the Zero Coupon Notes
issued in 1989. AMI has sold their interest in the Additional Zero Coupon Notes.
Net interest expense of $839,000 was recognized during fiscal 1991 relating to
this agreement.
The Company and AMI have entered into certain other agreements, including a
registration rights agreement pursuant to which EPIC has agreed to register the
securities issued to AMI under the Securities Act of 1933. AMI has also agreed
to indemnify the Company against certain liabilities associated with the breach
of representations and warrants made by AMI, certain tax liabilities that may
arise, certain reimbursements still pending related to the Acquisitions, and
certain fees, costs, and expenses.
During fiscal 1993, AMI reimbursed $1,621,000 relating to AMI's
indemnifications of EPIC for certain intermediary adjustments to reimburse costs
relating to cost report years that preceded the formation of EPIC.
The Company entered into a three year group purchasing agreement, effective
September 1, 1993, with a subsidiary of AMI, which allows the Company to
purchase supplies at lower group rates. The Company expects to purchase more
than $30,000,000 per year of supplies under the terms of the agreement. The
Company will pay $180,000 per year to participate in this program.
David R. Belle-Isle, a former officer of EPIC, borrowed $181,000 from EPIC
in December 1988 in connection with his relocation to Texas. The loan was
interest free until it was restructured in October 1990. Effective as of the
30th day of September 1991, this debt, totalling $160,000, was forgiven. The
Company reimbursed Mr. Belle-Isle for the tax liability associated with the
forgiveness of the loan.
The Company has a consulting agreement with The Elder Group, of which
Thomas H. Elder, who formerly served as the Company's Management Services
Officer, is the Managing Principal. The Company paid The Elder Group
approximately $1,300,000 and $1,000,000 in fiscal 1992 and 1991, respectively.
The Company has an investment in the preferred stock of the Compucare
Company ("Compucare"), who is developing and installing one of the Company's new
information systems. The chief executive officer of the Company is on the board
of directors of Compucare. Payments to Compucare for fiscal 1993 totalled
$5,651,000.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excluded certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company. The following methods and assumptions were used
by the Company in estimating its fair value disclosures for financial
instruments.
F-52
<PAGE> 113
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents, Cash Restricted for Interest Payments, and Marketable
Securities
The carrying amounts reported in the consolidated balance sheets for cash
equivalents, cash restricted for interest payments, and marketable interest
bearing securities approximates their fair values.
Long-Term Debt (Including Current Maturities)
The fair values of the Company's long-term debt, except the Class B-1 and
B-2 First Priority Mortgage Notes, are estimated using quoted market prices or
the call price. The fair values of the Class B-1 and B-2 First Priority Mortgage
Notes are estimated using discounted cash flow analysis, based on the Company's
incremental borrowing rate for similar types of borrowing arrangements.
The carrying amounts and estimated fair values of the Company's financial
instruments at September 30, 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Cash equivalents, cash restricted for interest payments, and
marketable securities.......................................... $107,923 $107,923
Long-term debt................................................... 560,322 605,131
</TABLE>
14. EXTRAORDINARY ITEMS
Extraordinary items of $21,299,000 ($21,960,000, net of income tax benefit
of $661,000) in 1993, $1,265,000 ($1,917,000, net of income tax benefit of
$652,000) in 1992 and $2,581,000 ($3,911,000, net of income tax benefit of
$1,330,000) in 1991 were primarily due to the write-offs of loan issue costs and
unamortized discounts on retirements of long-term debt (see Note 5).
15. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance and repair expense was $17,101,000, $17,564,000, and
$16,159,000 for fiscal 1993, 1992 and 1991, respectively.
16. CONTINGENCIES
Final determination of amounts earned under prospective payment and
cost-reimbursement programs is subject to review by appropriate governmental
authorities or their agents. In the opinion of management, adequate provision
has been made for any adjustments that could result from such reviews.
The Company is currently, and from time to time expects to be, subject to
claims and suits arising in the ordinary course of business. In the opinion of
management, the ultimate resolution of such matters will not have a material
effect on the Company's results of operations, financial position, or liquidity.
Pursuant to the terms of the Acquisitions, claims relating to litigation,
medical benefits, and workers' compensation occurring prior to October 1, 1988,
remain the obligation of AMI.
17. GUARANTOR SUBSIDIARIES
Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the
loans under the Amended Credit Agreement, Zero Coupon Notes, Additional Zero
Coupon Notes, 11.875% Senior ESOP Notes, 10.875% Senior Subordinated Notes, 15%
Senior Subordinated Notes and 11% Junior Subordinated Pay-In-Kind Notes. Certain
other subsidiaries, including EPIC Properties, are not Guarantor Subsidiaries
(the "Nonguarantor Subsidiaries") (see Note 5). All equity interests in the
Nonguarantor Subsidiaries, other than those held by minority interests, are held
by EPIC.
F-53
<PAGE> 114
Following is condensed consolidating financial information of EPIC, the
Guarantor Subsidiaries, EPIC Properties and the other Nonguarantor Subsidiaries:
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1993
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ASSETS
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............... $ 8,944 $ 40,846 $ 2,062 $ 4,904 $ -- $ 56,756
Cash restricted for interest payment.... -- -- 3,820 -- -- 3,820
Marketable securities................... -- 35,972 -- 11,375 -- 47,347
Accounts receivable, net................ 474 56,000 1,071 21,321 (1,909) 76,957
Supply inventories...................... -- 16,589 -- 4,098 -- 20,687
Prepaid expenses and other.............. 777 2,714 -- 1,083 -- 4,574
Receivables from affiliates............. 156,437 29,013 -- 13,663 (199,113) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL CURRENT ASSETS.............. 166,632 181,134 6,953 56,444 (201,022) 210,141
---------- ------------ ---------- ------------ ------------ ------------
PROPERTY AND EQUIPMENT.................... -- 264,044 444,673 78,081 -- 786,798
ACCUMULATED DEPRECIATION AND
AMORTIZATION............................ -- (50,548) (140,665) (27,533) -- (218,746)
---------- ------------ ---------- ------------ ------------ ------------
-- 213,496 304,008 50,548 -- 568,052
---------- ------------ ---------- ------------ ------------ ------------
INVESTMENTS IN SUBSIDIARIES............... 64,684 109,474 -- -- (174,158) --
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net........................... -- 38,577 -- 14,388 -- 52,965
OTHER ASSETS, net......................... 12,440 89,314 936 2,529 (71,401) 33,818
RECEIVABLES FROM AFFILIATES............... 297,673 -- -- -- (297,673) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL ASSETS...................... $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $ 864,976
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt.... $ 45,333 $ 643 $ 1,020 $ 918 $ -- $ 47,914
Accounts payable........................ 236 39,225 (65) 5,450 (236) 44,610
Accrued liabilities..................... 9,294 64,070 5,624 10,216 (1,673) 87,531
Payables to affiliates.................. -- 164,963 -- 34,150 (199,113) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL CURRENT LIABILITIES......... 54,863 268,901 6,579 50,734 (201,022) 180,055
---------- ------------ ---------- ------------ ------------ ------------
LONG-TERM DEBT............................ 321,895 8,948 241,927 11,039 (71,401) 512,408
DEFERRED INCOME TAXES..................... 5,994 -- -- -- -- 5,994
RESERVE FOR PROFESSIONAL LIABILITY
RISKS................................... -- 34,053 -- 11,206 1,353 46,612
OTHER DEFERRED LIABILITIES................ -- 41,258 -- 1,192 -- 42,450
MINORITY INTERESTS........................ -- 4,947 -- 525 -- 5,472
PAYABLES TO AFFILIATES.................... -- 297,673 -- -- (297,673) --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock............................ -- -- 1 -- (1) --
Paid-in capital......................... 373,838 61,855 111,604 5,434 (178,893) 373,838
Notes receivable from EPIC ESOP......... (100,000 ) -- (48,214) -- -- (148,214)
Retained earnings (deficit)............. (115,161 ) (85,640) -- 43,779 3,383 (153,639)
---------- ------------ ---------- ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT)....................... 158,677 (23,785) 63,391 49,213 (175,511) 71,985
---------- ------------ ---------- ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)....................... $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $ 864,976
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-54
<PAGE> 115
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1992
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ASSETS
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.............. $ 86 $ 22,381 $ 4,506 $ 5,668 $ -- $ 32,641
Cash restricted for interest payment... -- -- 5,768 -- -- 5,768
Marketable securities.................. -- 4,468 -- 6,139 -- 10,607
Accounts receivable, net............... 352 35,530 1,455 38,601 (2,540) 73,398
Supply inventories..................... -- 15,345 -- 4,655 -- 20,000
Prepaid expenses and other............. 240 8,447 259 826 (4,550) 5,222
Receivables from affiliates............ 132,015 26,543 -- 12,023 (170,581) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL CURRENT ASSETS............. 132,693 112,714 11,988 67,912 (177,671) 147,636
---------- ------------ ---------- ------------ ------------ ------------
PROPERTY AND EQUIPMENT................... -- 185,431 450,259 74,794 -- 710,484
ACCUMULATED DEPRECIATION AND
AMORTIZATION........................... -- (34,377) (116,355 ) (23,057) -- (173,789)
---------- ------------ ---------- ------------ ------------ ------------
-- 151,054 333,904 51,737 -- 536,695
---------- ------------ ---------- ------------ ------------ ------------
INVESTMENTS IN SUBSIDIARIES.............. 66,219 146,521 -- 11,502 (224,242) --
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net.......................... -- 35,576 -- 12,564 -- 48,140
OTHER ASSETS, net........................ 21,387 77,466 1,102 4,362 (66,002) 38,315
RECEIVABLES FROM AFFILIATES.............. 229,544 12,113 -- -- (241,657) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL ASSETS..................... $ 449,843 $535,444 $ 346,994 $148,077 $ (709,572) $ 770,786
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt... $ -- $ 597 $ 1,018 $ 715 $ -- $ 2,330
Accounts payable....................... -- 29,440 260 5,350 (241) 34,809
Accrued liabilities.................... 4,323 53,190 10,016 13,152 (6,849) 73,832
Payables to affiliates................. -- 140,007 -- 30,574 (170,581) --
---------- ------------ ---------- ------------ ------------ ------------
TOTAL CURRENT LIABILITIES........ 4,323 223,234 11,294 49,791 (177,671) 110,971
---------- ------------ ---------- ------------ ------------ ------------
LONG-TERM DEBT........................... 274,018 9,363 242,803 10,553 (66,002) 470,735
DEFERRED INCOME TAXES.................... 8,988 -- -- -- -- 8,988
RESERVE FOR PROFESSIONAL LIABILITY
RISKS.................................. -- 32,095 -- 6,749 796 39,640
OTHER DEFERRED LIABILITIES............... -- 37,492 -- 2,115 -- 39,607
MINORITY INTERESTS....................... -- 3,847 -- 19,647 23,494 --
PAYABLES TO AFFILIATES................... -- 199,942 -- 41,715 (241,657) --
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock........................... -- -- 1 -- (1) --
Paid-in capital........................ 374,860 51,853 159,351 13,037 (224,241) 374,860
Notes receivable from EPIC ESOP........ (100,000 ) -- (68,929 ) -- -- (168,929)
Retained earnings (deficit)............ (112,346 ) (22,382) 2,474 4,470 (796) (128,580)
---------- ------------ ---------- ------------ ------------ ------------
TOTAL STOCKHOLDER'S EQUITY
(DEFICIT)...................... 162,514 29,471 92,897 17,507 (225,038) 77,351
---------- ------------ ---------- ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)...................... $ 449,843 $535,444 $ 346,994 $148,077 $ (709,572) $ 770,786
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-55
<PAGE> 116
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1993
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUE.................... $ -- $792,442 $ 54,596 $237,072 $ (64,961) $1,019,149
COSTS AND EXPENSES:
Operating expenses..................... 269 747,344 482 214,040 (64,080) 898,055
Depreciation and amortization.......... 1,618 21,289 27,602 7,733 (325) 57,917
Interest expense....................... 48,089 68,744 27,778 3,230 (76,907) 70,934
---------- ------------ ---------- ------------ ------------ ------------
TOTAL COSTS AND EXPENSES......... 49,976 837,377 55,862 225,003 (141,312) 1,026,906
INTEREST INCOME.......................... 66,148 10,165 3,528 693 (76,907) 3,627
GAIN (LOSS) ON SALE OF ASSETS............ -- 3,524 1 (4) -- 3,521
---------- ------------ ---------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT
(EXPENSE), MINORITY INTERESTS AND
EXTRAORDINARY ITEM..................... 16,172 (31,246) 2,263 12,758 (556) (609)
INCOME TAX BENEFIT (EXPENSE), net........ 2,207 (1,910) -- (54) -- 243
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES (net of
income tax benefit).................... 105 (2,659) -- (840) -- (3,394)
---------- ------------ ---------- ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM................................... 18,484 (35,815) 2,263 11,864 (556) (3,760)
EXTRAORDINARY ITEM (net of income tax
benefit)............................... (21,299) -- -- -- -- (21,299)
---------- ------------ ---------- ------------ ------------ ------------
NET INCOME (LOSS)........................ $ (2,815) $(35,815) $ 2,263 $ 11,864 $ (556) $ (25,059)
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-56
<PAGE> 117
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1992
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUE.................... $ -- $700,752 $ 54,596 $254,183 $ (68,265) $941,266
COSTS AND EXPENSES:
Operating expenses..................... 557 675,277 425 233,876 (67,856) 842,279
Depreciation and amortization.......... 1,627 15,021 30,132 6,233 -- 53,013
Interest expense....................... 47,501 62,796 27,864 10,124 (77,285) 71,000
---------- ------------ ---------- ------------ ------------ ------------
TOTAL COSTS AND EXPENSES......... 49,685 753,094 58,421 250,233 (145,141) 966,292
INTEREST INCOME.......................... 65,453 9,815 5,609 617 (77,672) 3,822
GAIN (LOSS) ON SALE OF ASSETS............ -- (972) (151) -- -- (1,123)
---------- ------------ ---------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT
(EXPENSE), MINORITY INTERESTS AND
EXTRAORDINARY ITEM..................... 15,768 (43,499) 1,633 4,567 (796) (22,327)
INCOME TAX BENEFIT (EXPENSE), net........ 7,146 (888) -- -- -- 6,258
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES (net of
income tax benefit).................... 1,008 (473) -- (2,493) -- (1,958)
---------- ------------ ---------- ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM................................... 23,922 (44,860) 1,633 2,074 (796) (18,027)
EXTRAORDINARY ITEM (net of income tax
benefit)............................... (1,265) -- -- -- -- (1,265)
---------- ------------ ---------- ------------ ------------ ------------
NET INCOME (LOSS)........................ $ 22,657 $(44,860) $ 1,633 $ 2,074 $ (796) $(19,292)
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-57
<PAGE> 118
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1991
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET OPERATING REVENUE.................... $ -- $633,401 $ 9,394 $173,480 $(13,586) $802,689
COSTS AND EXPENSES:
Operating expenses..................... 146 570,706 -- 157,191 (13,586) 714,457
Depreciation and amortization.......... 1,627 36,272 4,953 6,502 -- 49,354
Interest expense....................... 59,387 63,096 4,860 5,942 (65,019) 68,266
---------- ------------ ---------- ------------ ------------ ------------
TOTAL COSTS AND EXPENSES......... 61,160 670,074 9,813 169,635 (78,605) 832,077
INTEREST INCOME.......................... 64,014 4,931 1,260 219 (65,019) 5,405
GAIN (LOSS) ON SALE OF ASSETS............ -- 105 1 (649) -- (543)
---------- ------------ ---------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT,
MINORITY INTERESTS AND EXTRAORDINARY
ITEM................................... 2,854 (31,637) 842 3,415 -- (24,526)
INCOME TAX BENEFIT....................... 7,603 -- -- -- -- 7,603
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES (net of
income tax benefit).................... 1,069 (1,366) -- (1,767) -- (2,064)
---------- ------------ ---------- ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM................................... 11,526 (33,003) 842 1,648 -- (18,987)
EXTRAORDINARY ITEM (net of income tax
benefit)............................... (2,581) -- -- -- -- (2,581)
---------- ------------ ---------- ------------ ------------ ------------
NET INCOME (LOSS)........................ $ 8,945 $(33,003) $ 842 $ 1,648 $ -- $(21,568)
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-58
<PAGE> 119
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1993
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $ (46,950 ) $125,482 $ 28,428 $ 12,273 $ -- $119,233
INVESTING ACTIVITIES
Investments in marketable securities,
net.................................. -- (31,504) -- (5,236) -- (36,740)
Cash paid for acquisitions............. -- (50,835) -- (3,701) -- (54,536)
Additions to property and equipment.... -- (57,957) (6,432) (2,827) 6,432 (60,784)
Proceeds from sale of assets........... -- 31,580 -- -- (6,432) 25,148
Collection on note receivable.......... -- 9,349 -- -- -- 9,349
Principal collected on note receivable
from EPIC ESOP....................... -- -- 20,715 -- (20,715) --
Other.................................. -- (5,925) -- -- -- (5,925)
---------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
investing activities................. -- (105,292) 14,283 (11,764) (20,715) (123,488)
FINANCING ACTIVITIES
Payments on debt obligations........... (115,180 ) (498) (1,018) (1,069) -- (117,765)
Proceeds from long-term borrowings..... 179,500 1,353 -- -- -- 180,853
Purchase of Senior ESOP Notes.......... -- (5,616) -- -- -- (5,616)
Dividends paid to EPIC Holdings........ (1,022 ) -- -- -- -- (1,022)
Contribution to EPIC ESOP.............. -- (20,715) -- -- 20,715 --
Dividends and capital distributions
received from EPIC Properties........ -- 44,137 -- -- (44,137) --
Dividends and capital distributions
paid by EPIC Properties.............. -- -- (44,137) -- 44,137 --
Contributions from minority
interests............................ -- 520 -- -- -- 520
Distributions and dividends to minority
interests............................ -- (20,906) -- (204) -- (21,110)
Payment of debt issue costs and other,
net.................................. (7,490 ) -- -- -- -- (7,490)
---------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities................. 55,808 (1,725) (45,155) (1,273) 20,715 28,370
---------- ------------ ---------- ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 8,858 18,465 (2,444) (764) -- 24,115
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR................................... 86 22,381 4,506 5,668 -- 32,641
---------- ------------ ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $ 8,944 $ 40,846 $ 2,062 $ 4,904 $ -- $ 56,756
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-59
<PAGE> 120
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1992
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $ 9,427 $ (3,682) $ 34,846 $ 17,321 $ -- $ 57,912
INVESTING ACTIVITIES
Investments in marketable securities,
net.................................. -- 11,306 -- (6,139) -- 5,167
Cash paid for acquisitions............. -- (9,903) -- (2,366) -- (12,269)
Additions to property and equipment.... -- (31,503) (9,764) (6,583) -- (47,850)
Purchase of investment securities...... (4,180) -- -- -- -- (4,180)
Principal collected on note receivable
from EPIC ESOP....................... -- -- 20,714 -- (20,714) --
Other.................................. 612 (2,704) 236 -- -- (1,856)
---------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
investing activities................. (3,568) (32,804) 11,186 (15,088) (20,714) (60,988)
FINANCING ACTIVITIES
Payments on debt obligations........... -- (76) (516) (1,011) -- (1,603)
Purchase of Senior ESOP Notes.......... -- (20,293) -- -- -- (20,293)
Contribution to EPIC ESOP.............. -- (20,714) -- -- 20,714 --
Dividends paid to EPIC Holdings........ (1,300) -- -- -- -- (1,300)
Dividends and capital distributions
received from EPIC Properties........ -- 54,519 -- 2,844 (57,363) --
Dividends and capital distributions
paid by EPIC Properties.............. -- -- (57,363) -- 57,363 --
Preferred stock transaction costs...... (7,063) -- -- -- -- (7,063)
Contributions from minority
interests............................ -- -- -- 1,884 -- 1,884
Distributions and dividends to minority
interests............................ -- (335) -- (3,730) -- (4,065)
Contribution to subsidiary............. (1,500) -- -- -- 1,500 --
Issuance of capital stock by
subsidiary........................... -- -- -- 1,500 (1,500) --
Payment of debt issue costs and other,
net.................................. (294) (236) (132) -- -- (662)
---------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities................. (10,157) 12,865 (58,011) 1,487 20,714 (33,102)
---------- ------------ ---------- ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (4,298) (23,621) (11,979) 3,720 -- (36,178)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR................................... 4,384 46,002 16,485 1,948 -- 68,819
---------- ------------ ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $ 86 $ 22,381 $ 4,506 $ 5,668 $ -- $ 32,641
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-60
<PAGE> 121
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1991
(DOLLARS IN THOUSANDS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EPIC
EPIC HEALTHCARE
HEALTHCARE OTHER GROUP, INC.
GROUP, GUARANTOR EPIC NONGUARANTOR AND
INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
---------- ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $ (3,274) $ 68,299 $ 6,128 $ 7,807 $ -- $ 78,960
INVESTING ACTIVITIES
Investments in marketable securities,
net.................................. -- (12,091) -- -- -- (12,091)
Additions to property and equipment.... -- (23,002) (198,868 ) (2,644) 198,868 (25,646)
Proceeds from sales of assets.......... -- 199,190 -- 39 (198,868) 361
Principal collected on note receivable
from EPIC ESOP....................... 12,717 -- 10,357 -- (23,074) --
Principal collected on intercompany
note receivable...................... 41,041 -- -- -- (41,041) --
Other.................................. (48) -- -- -- -- (48)
---------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
investing activities................. 53,710 164,097 (188,511 ) (2,605) (64,115) (37,424)
FINANCING ACTIVITIES
Payments on debt obligations........... (244,761) (4,550) -- (1,336) -- (250,647)
Principal payments on intercompany
notes payable........................ -- (41,041) -- -- 41,041 --
Proceeds from long-term borrowings..... 29,000 -- 198,868 -- -- 227,868
Contribution to EPIC ESOP.............. -- (23,074) -- -- 23,074 --
Intercompany dividends................. 153,308 (153,308) -- -- -- --
Contributions from minority
interests............................ -- -- -- 556 -- 556
Distributions and dividends to minority
interests............................ -- -- -- (4,122) -- (4,122)
Payment of debt issue costs and other,
net.................................. (10,473) -- -- (1,290) -- (11,763)
---------- ------------ ---------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities................. (72,926) (221,973) 198,868 (6,192) 64,115 (38,108)
---------- ------------ ---------- ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (22,490) 10,423 16,485 (990) -- 3,428
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR................................... 26,874 35,579 -- 2,938 -- 65,391
---------- ------------ ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $ 4,384 $ 46,002 $ 16,485 $ 1,948 $ -- $ 68,819
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------
</TABLE>
F-61
<PAGE> 122
EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The subsidiaries comprising the Guarantor Subsidiaries change from year to
year due to new and/or revised agreements relating to the various subsidiaries
of the Company. As a result, the investment in subsidiaries is presented on the
cost basis.
Intercompany receivables/payables relate to cash transfers between entities
on collection of accounts receivable and payment of accounts payable and are
included in cash flows provided by (used in) operating activities. Cash flows
from operating, financing, and investing activities for each subsidiary are
presented in the consolidating statement of cash flows based on that
subsidiary's designation as a guarantor or nonguarantor subsidiary at the end of
the period.
Deferred income taxes and deferred income tax benefit are recorded in the
accounts of EPIC Healthcare Group, Inc. and are not allocated to the
subsidiaries. SFAS No. 109, "Accounting for Income Taxes," requires that the
consolidated amount of current and deferred tax expense for a group that files a
consolidated tax return shall be allocated among the members of the group when
those members issue separate financial statements on a basis consistent with
SFAS No. 109. The Company will adopt SFAS No. 109, including allocation of taxes
within the consolidating financial statements, effective October 1, 1993.
Certain prior period amounts have been reclassified or restated for
intercompany transactions to conform with the fiscal 1993 presentation. In
addition, certain amounts have been reclassified for a change made in the fourth
quarter of 1992 in the method of allocating interest income from the EPIC ESOP
for intercompany purposes.
F-62
<PAGE> 123
- ---------------------------------------------------------
- ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY HEALTHTRUST, INC. - THE HOSPITAL COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF HEALTHTRUST, INC. - THE HOSPITAL COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company.............................. 3
The Offering............................. 5
Investment Considerations................ 6
The Acquisition and the Financing Plan... 13
Use of Proceeds.......................... 17
Capitalization........................... 18
Selected Historical Financial
Information............................ 19
Selected Pro Forma Financial
Information............................ 22
Selected Operating Statistics............ 23
Description of EPIC...................... 24
Properties............................... 24
EPIC Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................. 29
Description of the Securities............ 38
Underwriting............................. 51
Legal Matters............................ 51
Experts.................................. 51
Available Information.................... 52
Information Incorporated by Reference.... 52
Index to Financial Statements............ 53
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
$200,000,000
HEALTHTRUST INC.
The Hospital Company
% SUBORDINATED
NOTES DUE 2004
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
, 1994
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............................. $ 68,966
National Association of Securities Dealers fee................................... 20,500
Printing and engraving........................................................... 200,000*
Accounting services.............................................................. 100,000*
Legal services................................................................... 300,000*
Fees and expenses of Trustee..................................................... 7,000*
Expenses of qualification under state blue sky laws.............................. 20,000*
Miscellaneous.................................................................... 283,534*
----------
Total.................................................................. 1,000,000
----------
----------
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for the indemnification of officers and directors under certain circumstances
against expenses (including attorneys' fees, judgments, fines and amounts paid
in settlement) actually and reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceedings in which
he is involved by reason of the fact that he is or was a director or officer of
the Company if he acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, in
respect to the criminal actions or proceedings, if he had no reasonable cause to
believe that his conduct was unlawful. Pursuant to Section 102(b)(7) of the
DGCL, the Company's Certificate of Incorporation (the "Certificate") provides
that the directors of the Company, individually or collectively, shall not be
held personally liable to the Company or its stockholders for monetary damages
for breaches of fiduciary duty as directors, except that any director shall
remain liable (i) for any breach of the director's fiduciary duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law, (iii) for
liability under Section 174 of the DGCL or (iv) for any transaction from which
the director derived an improper personal benefit. The Certificate and By-laws
of the Company provide for indemnification of its officers and directors to the
full extent authorized by law.
The Company maintains officers' and directors' liability insurance which
insures against liabilities that the officers and directors of the Company may
incur in such capacities.
ITEM 16. LIST OF EXHIBITS.
<TABLE>
<C> <S> <C>
*1.1 -- Form of Purchase Agreement.
2.1 -- Agreement and Plan of Merger, dated as of January 9, 1994, among the Registrant,
Odyssey Acquisition Corp. and EPIC Holdings, Inc. Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated January 10, 1994.
**2.2 -- Amended and Restated ESOP Agreement, dated as of March 17, 1994, among the
Registrant, Odyssey Acquisition Corp., EPIC Holdings, Inc., EPIC Healthcare Group,
Inc., U.S. Trust Company of California, N.A. and the ESOP Committee.
*2.3 -- Form of U.S. Purchase Agreement among the Registrant, certain selling stockholders
named therein and Merrill Lynch & Co. and Donaldson, Lufkin & Jenrette Securities
Corporation, as representatives of the U.S. underwriters.
</TABLE>
II-1
<PAGE> 125
<TABLE>
<C> <S> <C>
*2.4 -- Form of International Purchase Agreement among the Registrant, certain selling
stockholders named therein and Merrill Lynch International Limited and Donaldson,
Lufkin & Jenrette Securities Corporation, as representatives of the international
underwriters.
4.1 -- Indenture, dated as of March 30, 1993, between the Registrant and The First
National Bank of Boston, as Trustee. Incorporated by reference to Exhibit 2 to the
Registrant's Registration Statement on Form 8-A dated April 22, 1993.
*5.1 -- Opinion of Dewey Ballantine as to legality of the securities being registered,
including consent.
**12.1 -- Computation of Ratio of Earnings to Fixed Charges.
*12.2 -- Computation of Pro Forma Ratio of Earnings to Fixed Charges.
**12.3 -- EPIC Holdings, Inc. Computation of Amounts by which Earnings were Inadequate to
cover Fixed Charges.
*23.1 -- Consent of Ernst & Young with respect to the financial statements of the
Registrant.
*23.2 -- Consent of Ernst & Young with respect to the financial statements of EPIC Holdings,
Inc. and EPIC Healthcare Group, Inc.
**24.1 -- Powers of Attorney.
*26.1 -- Form T-1 Statement of Eligibility and Qualification of Trustee under the Trust
Indenture Act of 1939 (bound separately).
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 126
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO ITS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF NASHVILLE, STATE OF TENNESSEE, ON APRIL 22,
1994.
HEALTHTRUST, INC. - THE HOSPITAL
COMPANY
By: /s/ MICHAEL A. KOBAN, JR.
------------------------------------
Michael A. Koban, Jr.
Senior Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO ITS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- ---------------
<C> <S> <C>
* Chairman of the Board, Chief April 22, 1994
- ------------------------------------------ Executive Officer and President;
R. Clayton McWhorter Director (Principal Executive
Officer)
* Senior Vice President and Chief April 22, 1994
- ------------------------------------------ Operating Officer; Director
W. Hudson Connery, Jr.
/s/ MICHAEL A. KOBAN, JR. Senior Vice President; Director April 22, 1994
- ------------------------------------------ (Principal Financial Officer)
Michael A. Koban, Jr.
* Director April 22, 1994
- ------------------------------------------
Donald S. MacNaughton
* Director April 22, 1994
- ------------------------------------------
Richard W. Hanselman
* Director April 22, 1994
- ------------------------------------------
Robert F. Dee
* Director April 22, 1994
- ------------------------------------------
Alethea O. Caldwell
* Director April 22, 1994
- ------------------------------------------
William T. Hjorth
* Director April 22, 1994
- ------------------------------------------
Harry N. Beaty, M.D.
* Senior Vice President and April 22, 1994
- ------------------------------------------ Controller (Principal Accounting
Kenneth C. Donahey Officer)
*By: /s/ MICHAEL A. KOBAN, JR.
- ------------------------------------------
Michael A. Koban, Jr.
(Attorney-in-Fact)
</TABLE>
II-3
<PAGE> 1
EXHIBIT 1.1
============================================================
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(a Delaware corporation)
$200,000,000
______% Subordinated Notes due 2004
PURCHASE AGREEMENT
Dated: April __, 1994
============================================================
<PAGE> 2
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(a Delaware corporation)
$200,000,000
______% Subordinated Notes due 2004
PURCHASE AGREEMENT
April __, 1994
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
As Representatives of the several Underwriters
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Ladies and Gentlemen:
Healthtrust, Inc. - The Hospital Company, a Delaware
corporation (the "Company"), proposes to issue and sell to the underwriters
named in Schedule A (collectively, the "Underwriters"), for whom you are acting
representatives (the "Representatives"), $___________ aggregate principal
amount of its ___% Subordinated Notes due 2004 (the "Securities"). Such
Securities are to be sold to each Underwriter, acting severally and not
jointly, in such amounts as are set forth in Schedule A opposite the name of
such Underwriter. The Securities are to be issued pursuant to an indenture to
be dated as of ________, 1994 (the "Indenture") between the Company and [The
First National Bank of Boston], as trustee (the "Trustee"). The Securities and
the Indenture are more fully described in the Prospectus referred to below.
The principal amount and certain terms of the Securities, and
the purchase price of the Securities to be paid by the Underwriters, shall be
agreed upon by the Company and the Underwriters, and such agreement shall be
set forth in a separate written instrument substantially in the form of Exhibit
A hereto (the "Price Determination Agreement"). The Price Determination
Agreement may take the form of an exchange of any standard form of written
telecommunication between the Company and the Underwriters and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering
of the
<PAGE> 3
Securities will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date of the execution and delivery
of the Price Determination Agreement, this Agreement shall be deemed to
incorporate, and all references herein to "this Agreement" or "herein" shall be
deemed to include, the Price Determination Agreement.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(File No. 33-_____) covering the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses, and either (A) has prepared and
proposes to file, prior to the effective date of such registration statement,
an amendment to such registration statement, including a final prospectus, or
(B) if the Company has elected to rely upon Rule 430A ("Rule 430A") of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), will prepare and file a prospectus, in accordance with the
provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act
Regulations, promptly after execution and delivery of the Price Determination
Agreement. The information, if any, included in such prospectus that was
omitted from the prospectus included in such registration statement at the time
it becomes effective but that is deemed, pursuant to Rule 430A(b), to be part
of such registration statement at the time it becomes effective is referred to
herein as the "Rule 430A Information". Each prospectus used before the time
such registration statement becomes effective and any prospectus that omits the
Rule 430A Information that is used after such effectiveness and prior to the
execution and delivery of the Price Determination Agreement, is herein called a
"preliminary prospectus". Such registration statement, including the exhibits
thereto, as amended at the time it becomes effective and including, if
applicable, the Rule 430A Information, is herein called the "Registration
Statement", and the prospectus included in the Registration Statement at the
time it becomes effective is herein called the "Prospectus", except that, if
the final prospectus first furnished to the Underwriters after the execution of
the Price Determination Agreement for use in connection with the offering of
the Securities differs from the prospectus included in the Registration
Statement at the time it becomes effective (whether or not such prospectus is
required to be filed pursuant to Rule 424(b)), the term "Prospectus" shall
refer to the final prospectus first furnished to the Underwriters for such use.
2
<PAGE> 4
The Company understands that the Underwriters propose to make
a public offering of the Securities as soon as you deem advisable after the
Registration Statement becomes effective, the Price Determination Agreement has
been executed and delivered and the Indenture has been qualified under the
Trust Indenture Act of 1939, as amended (the "1939 Act").
Section 1. Representations and Warranties. (a) The
Company represents and warrants to and agrees with each of the Underwriters
that:
(i) When the Registration Statement shall become
effective, if the Company has elected to rely upon Rule 430A, on the
date of the Price Determination Agreement, on the effective or issue
date of each amendment or supplement to the Registration Statement or
the Prospectus, and at the Closing Time referred to below, (A) the
Registration Statement and any amendments and supplements thereto will
comply in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations; (B) neither the Registration Statement
nor any amendment or supplement thereto will contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and (C) neither the Prospectus nor any amendment or
supplement thereto will include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, this
representation and warranty does not apply to statements or omissions
from the Registration Statement or the Prospectus made in reliance
upon and in conformity with information furnished or confirmed in
writing to the Company by or on behalf of any Underwriter expressly
for use in the Registration Statement or the Prospectus or to the
Statement of Eligibility of the Trustee on form T-1 filed with the
Commission as part of the Registration Statement.
(ii) This Agreement has been duly authorized, executed and
delivered by the Company.
(iii) The consolidated financial statements included in the
Registration Statement present fairly the consolidated financial
position of the Company and the Company's Subsidiaries (as hereinafter
defined) as of the dates indicated and the consolidated statements of
operations, stockholders' equity and cash flows of
3
<PAGE> 5
the Company and the Company's Subsidiaries for the periods specified.
Except as otherwise stated in the Registration Statement, such
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved. The financial statement schedules,
if any, included in the Registration Statement present fairly the
information required to be stated therein. The pro forma financial
statements and other pro forma financial information included in the
Prospectus present fairly the information shown therein, have been
prepared in all material respects in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements,
have been properly compiled on the pro forma bases described therein,
and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances
referred to therein.
(iv) The consolidated financial statements included in the
Registration Statement present fairly the consolidated financial
position of EPIC and EPIC's Subsidiaries (as hereinafter defined) as
of the dates indicated and the consolidated statements of operations,
stockholders' equity and cash flows of EPIC and EPIC's Subsidiaries
for the periods specified. Except as otherwise stated in the
Registration Statement, such financial statements have been prepared
in conformity with generally accepted accounting principles applied on
a consistent basis throughout the periods involved, and the financial
statement schedules, if any, included in the Registration Statement
present fairly the information required to be stated therein.
(v) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware
with corporate power under such laws to own, lease and operate its
properties and conduct its business as described in the Prospectus;
and the Company is duly qualified to transact business as a foreign
corporation and is in good standing in each other jurisdiction in
which it owns or leases property of a nature, or transacts business of
a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and the Company's
Subsidiaries, considered as one enterprise.
4
<PAGE> 6
(vi) EPIC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware
with corporate power under such laws to own, lease and operate its
properties and conduct its business as described in the Prospectus;
and EPIC is duly qualified to transact business as a foreign
corporation and is in good standing in each other jurisdiction in
which it owns or leases property of a nature, or transacts business of
a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing would not
have a material adverse effect on EPIC and EPIC's Subsidiaries,
considered as one enterprise.
(vii) Each of the Company's subsidiaries (collectively, the
"Company's Subsidiaries") is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation with corporate power under such laws to own, lease
and operate its properties and conduct its business as described in
the Prospectus; and each of the Company's Subsidiaries is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse
effect on the Company and the Company's Subsidiaries, considered as
one enterprise. Except as set forth in the Registration Statement,
all of the outstanding shares of capital stock of each of the
Company's Subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
directly or through one or more Subsidiaries, free and clear of any
pledge, lien, perfected security interest, claim or encumbrance of any
kind or, to the knowledge of the Company, any unperfected security
interest.
(viii) Each of EPIC's subsidiaries (collectively, "EPIC's
Subsidiaries") is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation with corporate power under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectus; and each of EPIC's Subsidiaries is duly qualified to
transact business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property
5
<PAGE> 7
of a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse
effect on EPIC and EPIC's Subsidiaries, considered as one enterprise.
Except as set forth in the Registration Statement, all of the
outstanding shares of capital stock of each of EPIC's Subsidiaries
have been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by EPIC, directly or through one or more
Subsidiaries, free and clear of any pledge, lien, perfected security
interest, claim or encumbrance of any kind or, to the knowledge of the
Company, any unperfected security interest.
[(ix) The Company had at the date indicated a duly authorized
and outstanding capitalization as set forth in the Prospectus in the
column entitled "Healthtrust Actual" under the caption
"Capitalization."]
(x) The Indenture has been duly authorized by the Company,
will be substantially in the form heretofore delivered to you and,
when duly executed and delivered by the Company and, assuming due
authentication by the Trustee, will constitute a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization or other similar
laws affecting enforcement of creditors' rights generally and except
as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law); and the Indenture conforms in all material respects
to the description thereof contained in the Prospectus.
(xi) The Securities have been duly authorized by the Company.
When executed, authenticated, issued and delivered in the manner
provided for in the Indenture and sold and paid for as provided in
this Agreement, the Securities will constitute valid and binding
obligations of the Company entitled to the benefits of the Indenture
and enforceable against the Company in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting enforcement
of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or law); and the
6
<PAGE> 8
Securities conform in all material respect to the description thereof
contained in the Prospectus.
(xii) All of the outstanding shares of capital stock of the
Company [other than the Offered Shares (as defined in the U.S.
Purchase Agreement dated April __, 1994)] have been duly authorized
and validly issued and are fully paid and non- assessable; [and none
of the outstanding shares of Common Stock of the Company was issued in
violation of the preemptive or other similar rights of any stockholder
of the Company arising by operation of law, under the charter and
bylaws of the Company or under any agreement to which the Company or
any of the Company's Subsidiaries is a party.]
(xiii) The Offered Shares to be sold by the Company pursuant
to the U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized and, when issued and delivered by
the Company upon receipt of the payment therefor in accordance with
the U.S. Purchase Agreement and the International Purchase Agreement,
will be validly issued, fully paid and non-assessable, such Offered
Shares are not subject to the preemptive or other similar rights of
any stockholder of the Company arising by operation of law, under the
charter and bylaws of the Company or under any agreement to which the
Company or any of the Company's Subsidiaries is a party.
(xiv) All of the outstanding shares of capital stock of EPIC
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of Common Stock of
EPIC issued in violation of the preemptive or other similar rights of
any stockholder of EPIC arising by operation of law, under the charter
and bylaws of EPIC or under any agreement to which EPIC or any of
EPIC's Subsidiaries is a party.
(xv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein or contemplated thereby, there has not been
(A) any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
otherwise), earnings or business affairs of the Company and the
Company's Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, [(B) any transaction
entered into by the Company or any of the Company's
7
<PAGE> 9
Subsidiaries, other than in the ordinary course of business, that is
material to the Company and the Company's Subsidiaries, considered as
one enterprise, or (C) any dividend or distribution of any kind
declared paid or made by the Company on its capital stock.]
(xvi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein or contemplated thereby, there has not been
(A) any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
otherwise), earnings or business affairs of the EPIC and EPIC's
Subsidiaries, considered as one enterprise, whether or not arising in
the ordinary course of business, [(B) any transaction entered into by
the EPIC or any of EPIC's Subsidiaries, other than in the ordinary
course of business, that is material to the EPIC and EPIC's
Subsidiaries, considered as one enterprise, or (C) any dividend or
distribution of any kind declared, paid or made by EPIC on its capital
stock.]
(xvii) [Neither the Company nor any of the Company's
Subsidiaries is in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it is bound
or to which any of its properties is subject, except as disclosed in
the Prospectus and except for such defaults that would not have a
material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise.] The execution and
delivery of this Agreement and the Indenture by the Company, the
issuance and delivery of the Securities, the consummation by the
Company of the transactions contemplated in this Agreement and in the
Registration Statement (including the transactions described under the
captions "The Acquisition and the Financing Plan", "Use of Proceeds"
and "Capitalization" in the Registration Statement) and compliance by
the Company with the terms of this Agreement and the Indenture have
been duly authorized by all necessary corporate action on the part of
the Company and do not and will not result in any violation of the
charter or by-laws of the Company or any of the Company's
Subsidiaries, and
8
<PAGE> 10
do not and will not conflict with, or result in a breach of any of the
terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien or encumbrance upon any
property or assets of the Company or any of the Company's Subsidiaries
under (A) any indenture, mortgage, loan agreement, note, lease or
other agreement or instrument to which the Company or any of the
Company's Subsidiaries is a party or by which it is bound or to which
any of its properties is subject, or (B) any existing applicable law
(including any environmental law), rule, regulation, judgment, order
or decree of any government, governmental instrumentality or court
having jurisdiction over the Company or any of the Company's
Subsidiaries or any of their respective properties, in each case,
except as disclosed in the Prospectus and except for such conflicts,
breaches or defaults or liens or encumbrances that would not have a
material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise.
(xviii) [Neither EPIC nor any of EPIC's Subsidiaries is in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument to which
it is a party or by which it is bound or to which any of its
properties is subject, except as disclosed in the Prospectus and
except for such defaults that would not have a material adverse effect
on the condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one
enterprise.] The consummation by EPIC of the transactions
contemplated in this Agreement and in the Registration Statement
(including the transactions described under the captions "The
Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization" in the Registration Statement) have been duly
authorized by all necessary corporate action on the part of EPIC and
do not and will not result in any violation of the charter or by-laws
of EPIC or any of EPIC's Subsidiaries, and do not and will not
conflict with, or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation or
imposition of any lien or encumbrance upon any property or assets of
EPIC or any of EPIC's Subsidiaries under (A) any indenture, mortgage,
loan agreement, note, lease or other agreement or instrument
9
<PAGE> 11
to which EPIC or any of EPIC's Subsidiaries is a party or by which it
is bound or to which any of its properties is subject, or (B) any
existing applicable law (including any environmental law), rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over EPIC or any of
EPIC's Subsidiaries or any of their respective properties, in each
case, except as disclosed in the Prospectus and except for such
conflicts, breaches or defaults or liens or encumbrances that would
not have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of EPIC and EPIC's
Subsidiaries, considered as one enterprise.
(xix) No authorization, approval, consent or license of any
government, governmental instrumentality or court (other than under
the 1933 Act and the 1933 Act Regulations, the 1939 Act and the rules
and regulations of the Commission under the 1939 Act (the "1939 Act
Regulations") and the securities or blue sky laws of the various
states) is required for the valid issuance, sale and delivery of the
Securities, for the execution, delivery or performance of the
Indenture by the Company [or for the consummation by the Company of
the transactions contemplated in this Agreement and in the
Registration Statement (including the transactions described under the
captions "The Acquisition and the Financing Plan", "Use of Proceeds"
and "Capitalization" in the Registration Statement).]
(xx) Except as disclosed in the Prospectus, there is no
action, suit or proceeding before or by any government, governmental
instrumentality or court, now pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of the
Company's Subsidiaries that is required to be disclosed in the
Prospectus or that could reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise, or that could reasonably
be expected to materially and adversely affect the properties or
assets of the Company and the Company's Subsidiaries, considered as
one enterprise, [or that could reasonably be expected to materially
and adversely affect the consummation of the transactions contemplated
in this Agreement and in the Registration Statement (including the
transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization"
10
<PAGE> 12
in the Registration Statement); the aggregate of all pending legal or
governmental proceedings to which the Company or any of the Company's
Subsidiaries is a party or which affect any of its properties that are
not described or referred to in the Prospectus would not have a
material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise.]
(xxi) Except as disclosed in the Prospectus, there is no
action, suit or proceeding before or by any government, governmental
instrumentality or court, now pending or, to the knowledge of the
Company, threatened against or affecting EPIC or any of EPIC's
Subsidiaries that is required to be disclosed in the Prospectus or
that could reasonably be expected to result in any material adverse
change in the condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise,
or that could reasonably be expected to materially and adversely
affect the properties or assets of EPIC and EPIC's Subsidiaries,
considered as one enterprise, [or that could reasonably be expected to
materially and adversely affect the consummation of the transactions
contemplated in this Agreement and in the Registration Statement
(including the transactions described under the captions "The
Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization" in the Registration Statement). The Company has no
reason to believe that the aggregate of all pending legal or
governmental proceedings to which EPIC or any of EPIC's Subsidiaries
is a party or which affect any of its properties that are not
described or referred to in the Prospectus would have a material
adverse effect on the condition (financial or otherwise), earnings or
business affairs of EPIC and EPIC's Subsidiaries, considered as one
enterprise.]
(xxii) In the Company's judgment, there are no contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described and filed as required.
(xxiii) Each of the Company and the Company's Subsidiaries
own or possess all governmental licenses, permits, certificates
(including, without limitation, certificate of need approvals),
consents, orders, approvals and other authorizations (collectively,
11
<PAGE> 13
"Governmental Licenses") necessary to own or lease, as the case may
be, and to operate its properties and to carry on its business as
presently conducted, except where the failure to possess such
Governmental Licenses could reasonably be expected to not have a
material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise, [and neither the Company
nor any of the Company's Subsidiaries has received any notice of
proceedings relating to revocation or modification of any such
Governmental Licenses that, in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and the
Company's Subsidiaries, considered as one enterprise.]
(xxiv) Each of EPIC and EPIC's Subsidiaries own or possess
all governmental licenses, permits, certificates (including, without
limitation, certificate of need approvals), consents, orders,
approvals and other authorizations (collectively, "Governmental
Licenses") necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as presently
conducted, except where the failure to possess such Governmental
Licenses could reasonably be expected to not have a material adverse
effect on the condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise,
[and neither EPIC nor any of EPIC's Subsidiaries has received any
notice of proceedings relating to revocation or modification of any
such Governmental Licenses that, in the aggregate, if the subject of
an unfavorable decision, ruling or finding, could reasonably be
expected to have a material adverse effect on the condition (financial
or otherwise), earnings or business affairs of EPIC and EPIC's
Subsidiaries, considered as one enterprise.]
[(xxv) Each approval, consent, license, order,
authorization, designation, declaration or filing by or with any
regulatory, administrative or other governmental body necessary in
connection with the execution, delivery and performance of this
Agreement, the compliance by the Company with all of the provisions
hereof, the consummation of the transactions herein contemplated and
the consummation by the Company of the transactions contemplated in
the Registration
12
<PAGE> 14
Statement (including the transactions described under the captions
"The Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization" in the Registration Statement) (except such
additional steps as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or may be necessary to qualify
the Securities for public offering by the Underwriters under State
securities or Blue Sky laws) has been obtained or made and is in full
force and effect.]
[(xxvi) The Company has not taken and will not take, directly
or indirectly, any action designed to cause or result in stabilization
or manipulation of the price of the Securities; and the Company has
not distributed and will not distribute any prospectus (as such term
is defined in the 1933 Act and the 1933 Act Regulations) in connection
with the offering and sale of the Securities other than any
preliminary prospectus filed with the Commission or the Prospectus or
other material permitted by the 1933 Act or the 1933 Act Regulations.]
[(xxvii) Except as disclosed in the Prospectus, all United
States federal income tax returns of the Company and the Company's
Subsidiaries required by law to be filed have been filed and all taxes
shown by such returns or otherwise assessed, which are due and
payable, have been paid, except tax assessments, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. Except as disclosed in the Prospectus, all other franchise
and income tax returns of the Company and the Company's Subsidiaries
required to be filed pursuant to applicable foreign, state or local
law have been filed, except insofar as the failure to file such
returns would not have a material adverse effect on the condition
(financial or otherwise), earnings or business affairs of the Company
and the Company's Subsidiaries, considered as one enterprise, and all
taxes shown on such returns or otherwise assessed which are due and
payable have been paid, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. To the best of the Company's knowledge, the charges,
accruals and reserves on the books of the Company and the Company's
Subsidiaries in respect of any income and corporate franchise tax
liability for any years not finally determined are adequate to meet
any assessments or re-assessments for additional income or corporate
franchise tax for any years not finally determined,
13
<PAGE> 15
except as disclosed in the Prospectus and except to the extent of any
inadequacy that would not have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of
the Company and the Company's Subsidiaries, considered as one
enterprise.]
[(xxviii) Except as disclosed in the Prospectus, all United
States federal income tax returns of EPIC and EPIC's Subsidiaries
required by law to be filed have been filed and all taxes shown by
such returns or otherwise assessed, which are due and payable, have
been paid, except tax assessments, if any, as are being contested in
good faith and as to which adequate reserves have been provided.
Except as disclosed in the Prospectus, all other franchise and income
tax returns of EPIC and EPIC's Subsidiaries required to be filed
pursuant to applicable foreign, state or local law have been filed,
except insofar as the failure to file such returns would not have a
material adverse effect on the condition (financial or otherwise),
earnings or business affairs of EPIC and EPIC's Subsidiaries,
considered as one enterprise, and all taxes shown on such returns or
otherwise assessed which are due and payable have been paid, except
for such taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided. To the best of the
Company's knowledge, the charges, accruals and reserves on the books
of EPIC and EPIC's Subsidiaries in respect of any income and corporate
franchise tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional
income or corporate franchise tax for any years not finally
determined, except as disclosed in the Prospectus and except to the
extent of any inadequacy that would not have a material adverse effect
on the condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one
enterprise.]
(xxix) [intentionally left blank]
14
<PAGE> 16
(xxx) Except as disclosed in the Registration Statement, no
holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the
Company.
[(xxxi) EPIC's Employee Stock Ownership Plan (the "EPIC
ESOP") and the trust created pursuant to the Trust Agreement for the
EPIC ESOP between EPIC and [ ], as trustee
under the EPIC ESOP (the "EPIC Trustee"), dated as of [ ]
(the "EPIC ESOP Trust"), meet in all material respects all applicable
requirements of qualification and exemption from taxation under
Sections 401(a) and 501(a), respectively, of the Internal Revenue Code
of 1986, as amended (the "Code").]
[(xxxii) The EPIC ESOP constitutes an "employee stock
ownership plan," as defined in Section 4975(e)(7) of the Code and the
Treasury Regulations promulgated thereunder, and as defined in Section
407(d)(6) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").]
[(xxxiii) Each of the loans to the EPIC ESOP Trust pursuant
to the EPIC ESOP Loan A Agreement and the EPIC ESOP Loan B Agreement,
each between EPIC and the EPIC ESOP Trust and dated as of [ ]
(collectively, the "ESOP Loan Agreements"), and each of the pledges
of shares of EPIC's Common Stock, par value $.___ per share (the "EPIC
Common Stock"), by the EPIC ESOP Trust pursuant to the Pledge
Agreement A and the Pledge Agreement B, each between EPIC and the EPIC
ESOP Trust and dated as of [ ] (collectively,
15
<PAGE> 17
the "EPIC ESOP Pledge Agreements"), satisfies in all material respects
the requirements of Section 4975(d)(3) of the Code and Section
408(b)(3) of ERISA, and will not subject EPIC to a tax imposed under
Section 4975 of the Code or a civil penalty assessed under Section
502(i) of ERISA.]
[(xxxiv) The EPIC Common Stock is a "qualifying employer
security," within the meaning of Section 4975(e)(8) of the Code and
Section 407(d)(5) of ERISA.]
[(xxxv) Each of the sales of shares of EPIC Common Stock to
the EPIC ESOP Trust pursuant to the [ ] Stock Purchase
Agreement between [ ] and the EPIC ESOP Trust and
the Common Stock Purchase Agreement between EPIC and the EPIC ESOP
Trust, each dated as of [ ] (collectively, the "EPIC
ESOP Stock Purchase Agreements"), satisfies in all material respects
the requirements of Section 4975(d)(13) of the Code and Section 408(e)
of ERISA, and will not subject EPIC to a tax imposed under Section 4975
of the Code or a civil penalty assessed under Section 502(i) of
ERISA.]
[(xxxvi) Except as disclosed in the Prospectuses, to the
knowledge of the Company, no opinion, correspondence or other
communication, whether written or otherwise, has been received by
American Medical International, Inc. ("AMI"), EPIC or any of their
respective agents, affiliates, associates, officers or directors, or
any fiduciary of the EPIC ESOP, from the United States Department of
Labor, the Internal Revenue Service or any other Federal or state
governmental or regulatory agency, body or authority, to the effect
that either of the loans to the EPIC ESOP Trust pursuant to the EPIC
ESOP Loan Agreements, either of the pledges of shares of EPIC Common
Stock by the EPIC ESOP Trust pursuant to the EPIC ESOP Pledge
Agreements or either of the sales of shares of EPIC Common Stock to
the EPIC ESOP Trust pursuant to the EPIC ESOP Stock Purchase
Agreements may or will constitute a violation of or result in any
liability under ERISA or the Code.]
[(xxxvii) None of (i) the termination by EPIC of future
contributions to the EPIC ESOP, (ii) the discharge of that portion of
the principal amount of EPIC's loans to the EPIC ESOP Trust that
exceeds the fair market value of the shares of EPIC Common Stock
transferred by the EPIC Trustee to EPIC or (iii) the transfer by the
EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under
the EPIC ESOP in
16
<PAGE> 18
satisfaction of EPIC's loans to the EPIC ESOP Trust, each as
contemplated by the Registration Statement, should constitute a
material violation of or result in any material liability under ERISA
or the Code (including, without limitation, any tax under Section
4978B of the Code).]
(b) Any certificate signed by any officer of the Company and
delivered to you or to Davis Polk & Wardwell as counsel for the Underwriters
pursuant to this Agreement or at the Closing contemplated hereby shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
Section 2. Sale and Delivery to the Underwriters; Closing.
(a) On the basis of the representations and warranties herein contained, and
subject to the terms and conditions herein set forth, the Company agrees to
sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company, at the purchase price to be agreed upon
by the Underwriters and the Company in accordance with Section 2(b) or 2(c) and
set forth in the Price Determination Agreement, the principal amount of
Securities set forth opposite the name of such Underwriter in Schedule A. If
the Company elects to rely on Rule 430A, Schedule A may be attached to the
Price Determination Agreement.
(b) If the Company has elected not to rely upon Rule
430A, the initial public offering price of the Securities, the purchase price
of the Securities to be paid by the several Underwriters and certain other
principal terms of the Securities shall be agreed upon and set forth in the
Price Determination Agreement, dated the date hereof, and an amendment to the
Registration Statement containing such per share price information will be
filed before the Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A,
the initial public offering price of the Securities, the purchase price of the
Securities to be paid by the several Underwriters and certain other principal
terms of the Securities shall be agreed upon and set forth in the Price
Determination Agreement. In the event that the Price Determination Agreement
has not been executed by the close of business on the fourth business day
following the date on which the Registration Statement becomes effective, this
Agreement shall terminate forthwith, without liability of any party to any
other party except that Sections 6 and 7 shall remain in effect.
17
<PAGE> 19
(d) Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the offices of Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017, or at such other
place as shall be agreed upon by the Company and you, at 10:00 A.M. either (i)
on the fifth full business day after the effective date of the Registration
Statement, or (ii) if the Company has elected to rely upon Rule 430A, the fifth
full business day after execution of the Price Determination Agreement (unless,
in either case, postponed pursuant to Section 10), or at such other time not
more than ten full business days thereafter as you and the Company shall
determine (such date and time of payment and delivery being herein called the
"Closing Time"). Payment shall be made to the Company by certified or official
bank check or checks in New York Clearing House funds payable to the order of
the Company against delivery to the respective accounts of the several
Underwriters of certificates for the Securities.
(e) Certificates for the Securities shall be in such
denominations ($1,000 or an integral multiple thereof) and registered in such
names as you may request in writing at least two full business days before the
Closing Time. The certificates for the Securities, which may be in temporary
form, will be made available in New York City for examination and packaging by
you not later than 10:00 A.M. on the business day prior to the Closing Time.
Section 3. Certain Covenants of the Company. The Company
covenants with each Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company elects
to rely upon Rule 430A and subject to Section 3(b), will comply in all
material respects with the requirements of Rule 430A and will notify
you promptly, (i) when the Registration Statement, or any
post-effective amendment to the Registration Statement, shall have
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission to amend
the Registration Statement or amend or supplement the Prospectus or
for additional information and (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the
institution or threatening
18
<PAGE> 20
of any proceeding for any of such purposes. The Company will make
every reasonable effort to prevent the issuance of any such stop order
or of any order preventing or suspending such use and, if any such
order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) The Company will not at any time file or make any
amendment to the Registration Statement, or any amendment or
supplement (i) if the Company has not elected to rely upon Rule 430A,
to the Prospectus or (ii) if the Company has elected to rely upon Rule
430A, to either the prospectus included in the Registration Statement
at the time it becomes effective or to the Prospectus, of which you
shall not have previously been advised and furnished a copy or to
which you or Davis Polk & Wardwell as counsel for the Underwriters
shall have promptly and reasonably objected in writing.
(c) The Company has furnished or will furnish to you and
Davis Polk & Wardwell as counsel for the Underwriters, without charge,
as many signed copies (as reasonably requested) of the Registration
Statement as originally filed and of all amendments thereto, whether
filed before or after the Registration Statement becomes effective,
copies of all exhibits and documents filed therewith and signed copies
of all consents and certificates of experts, as you may reasonably
request and has furnished or will furnish to you, for each other
Underwriter, one conformed copy of the Registration Statement as
originally filed and each amendment thereto (without exhibits).
(d) The Company will deliver to each Underwriter, without
charge, from time to time until the effective date of the Registration
Statement (or, if the Company has elected to rely upon Rule 430A,
until the time the Price Determination Agreement is executed and
delivered) as many copies of each preliminary prospectus as such
Underwriter may reasonably request, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The
Company will deliver to each Underwriter, without charge, as soon as
the Registration Statement shall have become effective (or, if the
Company has elected to rely upon Rule 430A, as soon as practicable
after the Price Determination Agreement has been executed and
delivered) and thereafter from time to time as requested during the
period when the Prospectus is required to be delivered under the 1933
Act, such
19
<PAGE> 21
number of copies of the Prospectus (as supplemented or amended) as
such Underwriter may reasonably request.
(e) The Company will comply in all material respects to
the best of its ability with the 1933 Act and the 1933 Act
Regulations, the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder and the 1939 Act
and the 1939 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and
in the Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the
Securities any event shall occur or condition exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters
or counsel for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it
is delivered to a purchaser, or if it shall be necessary, in the
opinion of either such counsel, at any such time to amend the
Registration Statement or amend or supplement the Prospectus in order
to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such untrue statement or omission or to
make the Registration Statement or the Prospectus comply with such
requirements.
(f) The Company will use its best efforts, in cooperation
with the Underwriters, to qualify the Securities for offering and sale
under the applicable securities laws of such states and other
jurisdictions as the Company and you may mutually agree upon and to
maintain such qualifications in effect for a period of not less than
one year from the effective date of the Registration Statement;
provided, however, that neither the Company nor any of the Company's
Subsidiaries shall be obligated to file any general consent to service
of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company
will file such statements and reports as may be required by the laws
of each such jurisdiction to maintain the qualification of the
Securities as above provided.
20
<PAGE> 22
(g) The Company will make generally available to its
security holders as soon as practicable, but not later than 60 days
after the close of the period covered thereby, an earnings statement
of the Company (in form complying with the provisions of Rule 158 of
the 1933 Act Regulations), covering a period of 12 months beginning
after the effective date of the Registration Statement but not later
than the first day of the Company's fiscal quarter next following such
effective date.
(h) The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the
Prospectus under the caption "Use of Proceeds", and will provide you
with any report on Form SR filed under Rule 463 of the 1933 Act
Regulations by the Company in connection with the sale of the Offered
Shares promptly after filing such report.
(i) If the Company has elected to rely upon Rule 430A, it
will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus.
(j) The Company, with respect to the offering of the
Securities, has complied and will comply with all of the provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida
Statutes, and all regulations promulgated thereunder relating to
issuers doing business with Cuba.
Section 4. Payment of Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (a) the printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectus or prospectuses and the Prospectus and any amendments or
supplements thereto, and the cost of furnishing copies thereof to the
Underwriters, (b) the printing and distribution of this Agreement (including
the Price Determination Agreement), the Indenture, the certificates for the
Securities and the Blue Sky Survey, (c) the delivery of the certificates for
the Securities to the Underwriters, (d) the fees and disbursements of the
Company's counsel and accountants, (e) the qualification of the Securities
under the applicable securities laws in accordance with Section 3(f) and any
filing for review of the offering with the National
21
<PAGE> 23
Association of Securities Dealers, Inc., including filing fees and reasonable
fees and disbursements of Davis Polk & Wardwell as counsel for the
Underwriters, in connection with such qualification of the Securities and the
Blue Sky Survey, (f) any fees charged by the rating agencies for rating the
Securities, and (g) the fees and expenses of the Trustee, including the fees
and disbursements of counsel for the Trustee, in connection with the Indenture
and the Securities.
If this Agreement is terminated by you in accordance with the
provisions of Section 5, 9(a)(i) or 11, the Company shall reimburse the
Underwriters for all their reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the
Underwriters.
Section 5. Conditions of Underwriters' Obligations. In
addition to the execution and delivery of the Price Determination Agreement,
the obligations of the several Underwriters to purchase and pay for the
Securities that they have respectively agreed to purchase hereunder are subject
to the accuracy of the representations and warranties of the Company contained
herein (including those contained in the Price Determination Agreement) or in
certificates of the Company's officers delivered pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date of this Agreement or,
with your consent, at a later time and date not later, however, than
5:30 P.M. on the first business day following the date hereof, or at
such later time or on such later date as you may agree to in writing;
and at the Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act
and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or the knowledge of the
Company, shall have been threatened by the Commission, and any request
on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Davis Polk &
Wardwell as counsel for the Underwriters. If the Company has elected
to rely upon Rule 430A, a prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance
with Rule 424(b) (or a post-effective amendment providing such
information shall have been
22
<PAGE> 24
filed and declared effective in accordance with the requirements of
Rule 430A).
(b) At the Closing Time, you shall have received a signed
opinion of Dewey Ballantine, counsel for the Company, dated as of the
Closing Time, in form and substance reasonably satisfactory to Davis
Polk & Wardwell as counsel for the Underwriters, to the effect that:
(i) This Agreement has been duly authorized,
executed and delivered by the Company.
(ii) The Company is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Delaware with corporate power under such
laws to own, lease and operate its properties and conduct its
business as described in the Prospectus; and the Company is
duly qualified to transact business as a foreign corporation
and is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business of
a type, that would make such qualification necessary, except
to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the
Company and the Company's Subsidiaries, considered as one
enterprise.
(iii) The Indenture has been duly authorized,
executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Trustee,
constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting
enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a
proceeding in equity or at law).
(iv) The Securities sold by the Company pursuant
to this Agreement have been duly authorized by the Company and,
assuming that the Securities have been duly authenticated by
the Trustee in the manner described in its certificate
delivered to you today (which fact such counsel need not
determine by an inspection of the
23
<PAGE> 25
Securities), the Securities have been duly executed, issued and
delivered by the Company and constitute valid and binding
obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance
with their terms, except as enforcement thereof may be limited
by bankruptcy, insolvency, reorganization or other similar
laws affecting enforcement of creditors' rights generally and
except as enforcement thereof is subject to general principles
of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
(v) The Indenture has been duly qualified under the
1939 Act.
(vi) The Securities and the Indenture conform in
all material respects as to legal matters to the descriptions
thereof contained in the Prospectus.
(vii) The Offered Shares to be sold by the Company
pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement have been duly authorized and, when issued
and delivered by the Company upon receipt of the payment
therefor in accordance with the U.S. Purchase Agreement and
the International Purchase Agreement, will be validly issued,
fully paid and non-assessable; such Offered Shares are not
subject to the preemptive or other similar rights of any
stockholder of the Company arising by operation of law, under
the charter and bylaws of the Company or under any agreement
to which the Company or any of the Company's Subsidiaries is a
party.
(viii) All of the outstanding shares of capital
stock of the Company other than the Offered Shares have been
duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of Common
Stock of the Company was issued in violation of the preemptive
or other similar rights of any stockholder of the Company
arising by operation of law, under the charter and bylaws of
the Company or under any agreement to which the Company or any
of the Company's Subsidiaries is a party.
24
<PAGE> 26
(ix) To the knowledge of such counsel, no
authorization, approval, consent or license of any government,
governmental instrumentality or court (other than under the
1933 Act and the 1933 Act Regulations, the 1939 Act and 1939
Act Regulations, the Trust Indenture Act and the securities or
blue sky laws of the various states), is required for the
valid issuance, sale and delivery of the Securities for the
execution, delivery or performance of the Indenture by the
Company or for the consummation by the Company of the
transactions contemplated in this Agreement and in the
Registration Statement under the caption "The Acquisition and
the Financing Plan", "Use of Proceeds" and "Capitalization".
(x) The execution and delivery by the Company of
this Agreement and the Indenture, the issuance and delivery of
the Securities, the consummation by the Company of the
transactions contemplated in this Agreement and in the
Registration Statement and compliance by the Company with the
terms of this Agreement and the Indenture have been duly
authorized by all necessary corporate action on the part of
the Company and do not and will not result in any violation of
the charter or by-laws of the Company or any of the Company's
Subsidiaries, and, to the knowledge of such counsel, do not
and will not conflict with, or constitute a breach of any of
the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien or
encumbrance upon any property or assets of the Company or any
of the Company's Subsidiaries under (A) any indenture,
mortgage or loan agreement, or any other agreement or
instrument, to which the Company is a party or by which it may
be bound or to which any of its properties may be subject, (B)
any existing applicable law, rule or regulation (other than
securities or blue sky laws of the various states, as to which
such counsel need express no opinion), or (C) any judgment,
order or decree of any government, governmental
instrumentality or court, having jurisdiction over the Company
or any of its properties, in each case, except as disclosed in
the Prospectus, and except for such conflicts, breaches or
defaults or liens or encumbrances that would not have a
material adverse effect on the Company and the Company's
Subsidiaries, considered as one enterprise. Such counsel need
express no
25
<PAGE> 27
opinion, however, as to whether the execution, delivery and
performance by the Company of this Agreement will constitute a
violation of, or default under, any financial covenant or
financial ratios contained in any of the agreements referred
to in the preceding sentence.
(xi) Such counsel has been informed by the
Commission that the Registration Statement is effective under
the 1933 Act; any required filing of the Prospectus or any
supplement thereto pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been
instituted or are pending or have been threatened by the
Commission under the 1933 Act.
(xii) The Registration Statement (including the
Rule 430A Information, if applicable), the Prospectus and each
amendment or supplement to the Registration Statement and the
Prospectus, as of their respective effective or issue dates
(in each case, except for the financial statements, supporting
schedules and other financial or statistical data included
therein or omitted therefrom and the Statement of Eligibility
of the Trustee on Form T-1 as to which such counsel need
express no opinion), comply as to form in all material
respects to the requirements of the 1933 Act and the 1933 Act
Regulations.
(xiii) The Company is not an investment company
under the Investment Company Act of 1940.
(xiv) The transactions contemplated in the Pros-
pectuses under the heading "The Acquisition and the Financing
Plan", "Use of Proceeds" and "Capitalization", to the extent
described therein, have been duly authorized by the Company;
all of the necessary consents to consummate such transactions,
including, to the knowledge of such counsel, all the necessary
consents from holders of the Company's debt securities, have
been obtained, except where the failure to obtain such
consents would not have a material adverse effect on the
consummation of the Acquisition or the Financing Plan; to the
knowledge of such counsel,
26
<PAGE> 28
there has not been any violation on the part of the
Company of any of the terms of such consents which
violation would materially and adversely affect the
consummation of the Acquisition or the Financing Plan; and
there is no pending or, to the knowledge of such counsel,
threatened legal or governmental proceedings with respect to
any of the consents or the transactions contemplated in the
Prospectuses (including the transactions described under the
captions "The Acquisition and the Financing Plan", "Use of
Proceeds" and "Capitalization" in the Prospectuses) that, if
the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the consummation of
the Acquisition or the Financing Plan.
In addition, such opinion shall state that such counsel
has participated in the preparation of the Registration Statement and
Prospectus and in conferences with officers and other representatives
of the Company, and your representatives and your counsel at which the
contents of the Registration Statement, the Prospectus and related
matters were discussed and, although such counsel need not undertake to
determine independently nor pass upon or assume any responsibility,
explicitly or implicitly, for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectus on the basis of and subject to the foregoing, no facts have
come to the attention of such counsel to lead such counsel to believe
(A) that the Registration Statement (including the Rule 430A
Information, if applicable) or any amendment thereto (except for the
financial statements, supporting schedules and other financial or
statistical data included therein or omitted therefrom and the
Statement of Eligibility of the Trustee on Form T-1, as to which such
counsel need express no opinion), as of the date the Registration
Statement or any such amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (B) that the Prospectus or any amendment or
supplement thereto (except for the financial statements, supporting
schedules and other financial or statistical data included therein or
omitted therefrom, as to which such counsel need express no opinion),
at the time the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, contained
27
<PAGE> 29
or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and the Company's Subsidiaries and
certificates of public officials.
(c) At the Closing Time, you shall have received a signed
opinion of Philip D. Wheeler, General Counsel for the Company, dated as of the
Closing Time, in form or substance reasonably satisfactory to Davis Polk &
Wardwell as counsel to the Underwriters, to the effect that:
(i) The Company is duly qualified to transact
business as a foreign corporation and is in good standing in
each jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure
to so qualify or be in good standing would not have a material
adverse effect on the Company and the Company's Subsidiaries,
considered as one enterprise.
(ii) Each of the Company's Subsidiaries is a
corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation with corporate power under such laws to own,
lease and operate its properties and conduct its business as
described in the Prospectus, or except to the extent that the
failure to be in good standing would not have a material
adverse effect on the Company and the Company's Subsidiaries,
considered as one enterprise.
(iii) Each of the Company's Subsidiaries is duly
qualified to transact business as a foreign corporation and is
in good standing in each other jurisdiction in which it owns
or leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except to
the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the
Company and the Company's Subsidiaries, considered as one
enterprise.
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<PAGE> 30
(iv) The Securities sold by the Company pursuant
to this Agreement have been duly authorized by the Company
assuming that the Securities have been authenticated by the
Trustee in the manner described in its certificate delivered
to you today (which fact such counsel need not determine by an
inspection of the Securities), the Securities have been duly
executed, issued and delivered by the Company and constitute
valid and binding obligations of the Company entitled to the
benefits of the Indenture and enforceable against the Company
in accordance with their terms, except as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at
law).
(v) All of the outstanding shares of capital
stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued
in violation of the preemptive or other similar rights of any
stockholder of the Company arising by operation of law, under
the charter or bylaws of the Company or under any agreements
known to such counsel to which the Company or any of the
Company's Subsidiaries is a party.
(vi) The authorized, issued and outstanding
capital stock of the Company as of November 30, 1993 was as
set forth in the Prospectus in the column entitled
"Healthtrust Actual" under the heading "Capitalization".
(vii) Based solely on an examination of relevant
minute books and stock records, except as disclosed in the
Prospectus, all of the outstanding shares of capital stock of
each of the Company's Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable; and,
except as disclosed in the Registration Statement, all of such
shares are owned by the Company, directly or through one or
more of the Company's Subsidiaries, free and clear of any
pledge, lien, perfected security interest, claim or
encumbrance of any kind or, to the
29
<PAGE> 31
knowledge of such counsel, any unperfected security interest.
(viii) To the best of such counsel's knowledge,
after due inquiry, all leases to which the Company or any of
the Company's subsidiaries is a party are valid and binding
and no default has occurred or is continuing thereunder, which
might result in any material adverse change in the business,
prospects, financial condition or results of operation of the
Company and the Company's subsidiaries taken as a whole, and
the Company and the Company's subsidiaries enjoy peaceful and
undisturbed possession under all such leases to which any of
them is a party as lessee with such exceptions as do not
materially interfere with the use made by the Company or such
subsidiary.
(ix) The Company and each of the Company's
subsidiaries has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities
("permits"), including, without limitation, under any
Environmental Laws, as are necessary to own, lease and
operate its respective properties and to conduct its business
in the manner described in the Prospectus; to the best of
such counsel's knowledge, after due inquiry, the Company and
each of the Company's subsidiaries has fulfilled and performed
all of its material obligations with respect to such permits
and no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination thereof
or results in any other material impairment of the rights of
the holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectus; and,
except as described in the Prospectus, such permits contain
no restrictions that are materially burdensome to the Company
or any of the Company's subsidiaries.
(x) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in the
Prospectus that are not described as required, nor of any
contracts or documents of a character required to be described
or referred to in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that
are not described, referred to or filed as required.
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<PAGE> 32
(xi) The statements made in the Prospectus under
"Health Care Reform", "Reimbursement and Regulation", "Legal
Proceedings", "Acquisition-Related Considerations" and "ERISA
Matters", to the extent that they constitute matters of law or
legal conclusions, have been reviewed by such counsel and
fairly present the information disclosed therein in all
material respects.
(xii) To the knowledge of such counsel, no default
exists in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the
Registration Statement or the Prospectus or filed as an
exhibit to the Registration Statement, except as disclosed in
the Registration Statement or the Prospectus and except for
such defaults that would not have a material adverse effect on
the Company and the Company's Subsidiaries, considered as one
enterprise.
(xiii) The execution and delivery by the Company of
this Agreement and the Indenture, the issuance and delivery of
the Securities, the consummation by the Company of the
transactions contemplated in this Agreement and in the
Registration Statement under the captions "The Acquisition and
the Financing Plan", "Use of Proceeds" and "Capitalization"
and compliance by the Company with the terms of this Agreement
and the Indenture have been duly authorized by all necessary
corporate action on the part of the Company and do not and
will not result in any violation of the charter or by-laws of
the Company or any of the Company's Subsidiaries, and, to the
knowledge of such counsel, do not and will not conflict with,
or constitute a breach of any of the terms or provisions of,
or constitute a default under, or result in the creation or
imposition of any lien or encumbrance upon any property or
assets of the Company or any of the Company's Subsidiaries
under (A) any indenture, mortgage or loan agreement or any
other agreement or instrument to which the Company or any of
the Company's Subsidiaries is a party or by which it may be
bound or to which any of their respective properties may be
subject, (B) any existing applicable law, rule or regulation
(other than the securities or blue sky laws of the various
states,
31
<PAGE> 33
as to which such counsel need express no opinion), or (C) any
judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over the Company
or any of the Company's Subsidiaries or any of their
respective properties, in each case, except as disclosed in
the Prospectus, and except for such conflicts, breaches or
defaults or liens or encumbrances that would not have a
material adverse effect on the Company and the Company's
Subsidiaries, considered as one enterprise. Such counsel need
express no opinion, however, as to whether the execution,
delivery and performance by the Company of this Agreement will
constitute a violation of, or default under, any financial
covenant or financial ratios contained in any of the
agreements referred to in the preceding sentence.
(xiv) All of the hospitals operated by the Company
and the Company's Subsidiaries are licensed under appropriate
state laws for the conduct of the business described in the
Registration Statement and are certified under the Medicare
program and are "providers of services" as defined in the
Social Security Act and the regulations promulgated
thereunder, and are eligible to participate, in the Medicare
program.
(xv) To the knowledge of such counsel, there has
not been any violation on the part of any of the Company's
Subsidiaries of any of the terms of the necessary consents to
consummate the transactions contemplated in the Prospectuses
under the headings "The Acquisition and the Financing Plan",
"Use of Proceeds" and "Capitalization", including all the
necessary consents from holders of the Company's and EPIC's
debt securities, which violation would materially and
adversely affect the consummation of any of those
transactions.
(xvi) Each of the Company and the Company's
Subsidiaries own or possess all governmental licenses,
permits, certificates (including, without limitation,
certificate of need approvals), consents, orders, approvals
and other authorizations (collectively, "Governmental
Licenses") necessary to own or lease, as the case may be, and
to operate its properties and to carry on its business as
presently conducted, except where the failure to possess such
Governmental
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<PAGE> 34
Licenses could reasonably be expected to not have a material
adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise, and neither the
Company nor any of the Company's Subsidiaries has received any
notice of proceedings relating to revocation or modification
of any such Governmental Licenses that, in the aggregate, if
the subject of an unfavorable decision, ruling or finding,
could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), earnings or
business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise.
In addition, such opinion shall state that such
counsel has participated in the preparation of the Registration
Statement and Prospectus and in conferences with officers and other
representatives of the Company, and your representatives and your
counsel at which the contents of the Registration Statement, the
Prospectus and related matters were discussed and, although such
counsel need not undertake to determine independently nor pass upon or
assume any responsibility, explicitly or implicitly, for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, on the basis of and subject
to the foregoing, no facts have come to the attention of such counsel
to lead such counsel to believe (A) that the Registration Statement
(including the Rule 430A Information, if applicable) or any amendment
thereto (except for the financial statements, supporting schedules and
other financial or statistical data included therein or omitted
therefrom and the Statement of Eligibility of the Trustee on Form T-1,
as to which such counsel need express no opinion), as of the date the
Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (B) that the Prospectus or any
amendment or supplement thereto (except for the financial statements,
supporting schedules and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need express no
opinion), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time,
contained or contains an untrue statement of a material fact or
33
<PAGE> 35
omitted or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading.
Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and the
Company's Subsidiaries and certificates of public officials.
(d) At the Closing Time, you shall have received a signed
opinion of Johnson & Gibbs, Counsel for EPIC, dated as of the Closing Time, in
form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel
to the Underwriters, to the effect that:
(i) EPIC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware with corporate power under such laws to own, lease
and operate its properties and conduct its business as
described in the Prospectus, or except to the extent that the
failure to be in good standing would not have a material
adverse effect on the Company and the Company's Subsidiaries,
considered as one enterprise.
(ii) EPIC is duly qualified to transact business
as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases property of a nature,
or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure
to so qualify or be in good standing would not have a material
adverse effect on EPIC and EPIC's Subsidiaries, considered as
one enterprise.
(iii) Each of EPIC's Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation with
corporate power under such laws to own, lease and operate its
properties and conduct its business as described in the
Prospectus, or except to the extent that the failure to be in
good standing would not have a material adverse effect on EPIC
and EPIC's Subsidiaries, considered as one enterprise.
34
<PAGE> 36
(iv) Each of EPIC's Subsidiaries is duly qualified
to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that
would make such qualification necessary, except to the extent
that the failure to so qualify or be in good standing would
not have a material adverse effect on EPIC and EPIC's
Subsidiaries, considered as one enterprise.
(v) All of the outstanding shares of capital stock of
EPIC have been duly authorized and validly issued and are
fully paid and non-assessable; and none of the outstanding
shares of capital stock of EPIC was issued in violation of the
preemptive or other similar rights of any stockholder of EPIC
arising by operation of law, under the charter or bylaws of
EPIC or under any agreements known to such counsel to which
EPIC or any of EPIC's Subsidiaries is a party.
(vi) All of the outstanding shares of capital stock of
each of EPIC's Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable; and,
except as disclosed in the Registration Statement, all of such
shares are owned by EPIC, directly or through one or more of
EPIC's Subsidiaries, free and clear of any pledge, lien,
perfected security interest, claim or encumbrance of any kind
or, to the knowledge of such counsel, any unperfected security
interest.
(vii) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in the
Prospectus that are not described as required, nor of any
contracts or documents of a character required to be described
or referred to in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that
are not described, referred to or filed as required.
(viii) The statements made in the Prospectus under
"Health Care Reform", "Reimbursement and Regulation", "Legal
Proceedings" and "ERISA Matters", to the extent that they
constitute matters of law or legal conclusions, have been
reviewed by such counsel and fairly present the
35
<PAGE> 37
information disclosed therein in all material respects.
(ix) To the knowledge of such counsel, no default exists
in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture,
loan agreement, note, lease or other agreement or instrument
that is described or referred to in the Registration Statement
or the Prospectus or filed as an exhibit to the Registration
Statement, except as disclosed in the Registration Statement
or the Prospectus and except for such defaults that would not
have a material adverse effect on EPIC and EPIC's
Subsidiaries, considered as one enterprise.
(x) The consummation by EPIC of the transactions
contemplated in this Agreement and in the Registration
Statement under the caption "The Acquisition and the Financing
Plan", "Use of Proceeds" and "Capitalization" has been duly
authorized by all necessary corporate action on the part of
EPIC and does not and will not result in any violation of the
charter or by-laws of EPIC or any of EPIC's Subsidiaries, and,
to the knowledge of such counsel, does not and will not
conflict with, or constitute a breach of any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien or encumbrance upon any
property or assets of EPIC or any of EPIC's Subsidiaries under
(A) any indenture, mortgage or loan agreement or any other
agreement or instrument to which EPIC or any of EPIC's
Subsidiaries is a party or by which it may be bound or to
which any of their respective properties may be subject, (B)
any existing applicable law, rule or regulation (other than
the securities or blue sky laws of the various states, as to
which such counsel need express no opinion), or (C) any
judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over EPIC or any
of EPIC's Subsidiaries or any of their respective properties,
in each case, except as disclosed in the Prospectus, and
except for such conflicts, breaches or defaults or liens or
encumbrances that would not have a material adverse effect on
EPIC and EPIC's Subsidiaries, considered as one enterprise.
Such counsel need express no opinion,
36
<PAGE> 38
however, as to whether the execution, delivery and performance
by EPIC of this Agreement will constitute a violation of, or
default under, any financial covenant or financial ratios
contained in any of the agreements referred to in the
preceding sentence.
(xi) All of the hospitals operated by EPIC and
EPIC's Subsidiaries are licensed under appropriate state laws
for the conduct of the business described in the Registration
Statement and are certified under the Medicare program and are
"providers of services" as defined in the Social Security Act
and the regulations promulgated thereunder, and are eligible
to participate, in the Medicare program.
(xii) To the knowledge of such counsel, there has
not been any violation on the part of any of EPIC's
Subsidiaries of any of the terms of the necessary consents to
consummate the transactions contemplated in the Prospectuses
under the heading "The Acquisition and the Financing Plan",
"Use of Proceeds" and "Capitalization" including all the
necessary consents from holders of the Company's and EPIC's
debt securities, which violation would materially and
adversely affect the consummation of the Acquisition or the
Financing Plan.
(xiii) EPIC is not an investment company under the
Investment Company Act of 1940.
(xiv) None of (i) the termination by EPIC of future
contributions to the EPIC ESOP, (ii) the discharge of that
portion of the principal amount of EPIC's loans to the EPIC
ESOP Trust that exceeds the fair market value of the shares of
the EPIC Common Stock transferred by the EPIC Trustee to EPIC,
or (iii) relying on the [ ] opinion to be delivered
pursuant to Section [5(d)] of this Agreement (and incor-
porating the caveats and assumptions contained therein),
the transfer by the EPIC Trustee to EPIC of shares of
EPIC Common Stock unallocated under the EPIC ESOP in
satisfaction of EPIC's loans to the ESOP Trust, each as
contemplated by the Registration Statement, should constitute
a violation of or result in any liability under ERISA or the
Code (including, without limitation, any tax under Section
4978B of the Code).
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<PAGE> 39
(xv) EPIC and EPIC's Subsidiaries own or possess all
governmental licenses, permits, certificates (including,
without limitation, certificate of need approvals), consents,
orders, approvals and other authorizations (collectively,
"Governmental Licenses") necessary to own or lease, as the
case may be, and to operate its properties and to carry on its
business as presently conducted, except where the failure to
possess such Governmental Licenses could reasonably be
expected to not have a material adverse effect on the
condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one
enterprise, and neither EPIC nor any of EPIC's Subsidiaries
has received any notice of proceedings relating to revocation
or modification of any such Governmental Licenses that, in the
aggregate, if the subject of an unfavorable decision, ruling
or finding, could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise),
earnings or business affairs of EPIC and EPIC's Subsidiaries,
considered as one enterprise.
(e) At the Closing Time, you shall have received a signed
opinion of Dewey Ballantine, dated as of the Closing Time, in form or substance
reasonably satisfactory to Davis Polk & Wardwell as counsel to the U.S.
Underwriters, to the effect that the transfer by the EPIC Trustee to EPIC of
shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of
EPIC's loans to the EPIC ESOP Trust, as contemplated by the Registration
Statement, will meet the requirements of Section 404, 406 and 408(e)(1) of
ERISA.
Such counsel may also state that, insofar as such opinion
involved factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of EPIC and its Subsidiaries and certificates of
public officials.
(f) At the Closing Time, you shall have received the
favorable opinion of Davis Polk & Wardwell as counsel for the
Underwriters, dated as of the Closing Time, to the effect that the
opinions delivered pursuant to Sections 5(b) and (c) appear on their
face to be appropriately responsive to the requirements of this
Agreement except, specifying the same, to the extent waived by you,
and with respect to the incorporation and legal existence of the
Company, the
38
<PAGE> 40
Securities, this Agreement, the Indenture, the Registration Statement,
the Prospectus and such other related matters as you may require. In
giving such opinion such counsel may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the corporate law of
the State of Delaware, upon the opinions of counsel satisfactory to
you. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and the Company's
Subsidiaries and certificates of public officials.
(g) At the Closing Time, (i) the Registration Statement
and the Prospectus, as they may then be amended or supplemented, shall
conform in all material respects to the requirements of the 1933 Act
and the 1933 Act Regulations and the 1939 Act and the 1939 Act
Regulations, the Company shall have complied in all material respects
with Rule 430A (if it shall have elected to rely thereon), the
Registration Statement, as it may then be amended or supplemented,
shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements in the Registration Statement not misleading, and
the Prospectus, as it may then be amended or supplemented, shall not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements in the Prospectus, in light of the circumstances under
which they were made, not misleading, (ii) there shall not have been,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse
change, or any development involving a prospective material adverse
change, in the condition (financial or otherwise), earnings or
business affairs of the Company and the Company's Subsidiaries,
considered as one enterprise, or of EPIC and EPIC's Subsidiaries,
considered as one enterprise, whether or not arising in the ordinary
course of business, (iii) no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Company,
threatened against the Company, any of the Company's Subsidiaries,
EPIC or any of EPIC's Subsidiaries that would be required to be set
forth in the Prospectus other than as set forth therein and no
proceedings shall be pending or, to the knowledge of the Company,
threatened against the Company, any of the Company's Subsidiaries,
EPIC or any of EPIC's Subsidiaries before
39
<PAGE> 41
or by any federal, state or other commission, board or administrative
agency wherein an unfavorable decision, ruling or finding could
reasonably be expected to materially adversely affect the condition
(financial or otherwise), earnings or business affairs of the Company
and the Company's Subsidiaries, considered as one enterprise, or of
EPIC and EPIC's Subsidiaries, considered as one enterprise, other than
as set forth in the Prospectus, (iv) the Company shall have complied
in all material respects with all agreements and satisfied in all
material respects all conditions on its part to be performed or
satisfied at or prior to the Closing Time and (v) the other
representations and warranties of the Company set forth in Section
1(a) shall be accurate as though expressly made at and as of the
Closing Time. At the Closing Time, you shall have received
certificates of the President or a Vice President and the Treasurer or
the Controller of the Company and of EPIC, dated as of the Closing
Time, to such effect.
(h) On the date of this Agreement and at the Closing
Time, Ernst & Young, independent public accountants with respect to
the Company, shall have furnished to you letters, dated the respective
dates of delivery thereof, in form and substance satisfactory to you,
containing statements and information of the type customarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in
the Registration Statement and the Prospectus;
(i) On the date of this Agreement and at the Closing
Time, Ernst & Young, independent public accountants with respect to
EPIC, shall have furnished to you letters, dated the respective dates
of delivery thereof, in form and substance satisfactory to you,
containing statements and information of the type customarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements of EPIC and certain financial information
contained or incorporated by reference in the Registration Statement
and the Prospectus; and
(j) At the Closing Time, counsel for the Underwriters
shall have been furnished with all such documents, certificates and
opinions as they may reasonably request for the purpose of enabling
them to pass upon the issuance and sale of the Securities as
contemplated in this Agreement and the matters referred to in Section
5(d) and in order to evidence the
40
<PAGE> 42
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any of the covenants of
the Company, or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company at or prior to the
Closing Time in connection with the authorization, issuance and sale
of the Securities as contemplated in this Agreement shall be
reasonably satisfactory in form and substance to you and to Davis Polk
& Wardwell as counsel for the Underwriters.
(k) EPIC shall have terminated future contributions to
the EPIC ESOP, discharged that portion of the principal amount of
EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value
of the shares of EPIC Common Stock transferred by the EPIC Trustee to
EPIC, and reacquired all of the shares of EPIC Common Stock held by
the EPIC ESOP at the time of termination of EPIC's contributions to
the EPIC ESOP and not allocated to the accounts of participants in the
EPIC ESOP, and EPIC shall have terminated the Grantor Trust (as such
term is defined in the Registration Statement) and consummated the
transactions contemplated by such termination substantially in the
manner described in the Prospectuses.
(l) The Company shall have consummated the Acquisition
and the equity offering of 6,000,000 Shares of Common Stock of the
Company on April 21, 1994 (the "Equity Offering"). The Company shall
have provided to you and Davis Polk & Wardwell as counsel for the U.S.
Underwriters copies of all documents with respect to the consummation
of such transactions as you or Davis Polk & Wardwell may reasonably
request.
(m) The transactions contemplated in the Prospectuses
under the heading "The Acquisition Plan and the Financing Plan" shall
have been duly authorized by the Company; all of the necessary
consents to consummate such transactions shall have been obtained,
except where the failure to obtain such consents would not have a
material adverse effect on such transactions; there shall not be any
violation on the part of the Company or the Company's Subsidiaries of
any of the terms of such consents that could reasonably be expected to
materially and adversely affect the consummation of such transactions;
and there shall not be any pending or threatened legal or governmental
proceedings with respect to any consents or the
41
<PAGE> 43
transactions contemplated in the Prospectuses (including the
transactions under the captions "The Acquisition and the Financing
Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses)
that could reasonably be expected to materially and adversely affect
such transactions.
(n) All conditions precedent to the closing of the Equity
Offering shall have been satisfied or waived. The Company shall have
provided to you and Davis Polk & Wardwell as counsel for the U.S.
Underwriters copies of all documents delivered in connection with the
closing of the Equity Offering as you or Davis Polk & Wardwell may
reasonably request.
If any of the conditions specified in this Section shall not
have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement may be terminated by you upon notice to the Company at any time
at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4
herein. Notwithstanding any such termination, the provisions of Sections 6 and
7 herein shall remain in effect.
Section 6. Indemnification. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act as
follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of an untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out
of an untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, investigation or
proceeding by any
42
<PAGE> 44
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to the last sentence of Section 6(c), fees and
disbursements of counsel chosen by you to represent the Underwriters),
reasonably incurred in investigating, preparing or defending against
any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished or confirmed in writing to the Company by
any Underwriter expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided further that the foregoing indemnification with respect
to any untrue statement contained in or any omission from a preliminary
prospectus shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) from whom the person asserting any such losses,
claims, damages, liabilities, or expenses purchased any of the Securities if a
copy of the Prospectus (or the Prospectus as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if such is
required by law, at or prior to the written confirmation of the sale of such
Securities to such person and the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense.
(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act, against any and all loss,
liability, claim, damage and expense described in the
43
<PAGE> 45
indemnity contained in Section 6(a), as incurred, but only with respect to
untrue statements or omissions; or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with information furnished or confirmed in writing to the Company by
such Underwriter expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if applicable, or such
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of such action. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
Section 7. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnity provided for
in Section 6 is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Company and one or more of the Underwriters, as incurred, in such
proportions that (a) the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the initial public offering price
appearing thereon and (b) the Company is responsible for the balance; provided
however, that no person guilty of the fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each person,
if any,
44
<PAGE> 46
who controls the Company within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Company.
Section 8. Representations, Warranties and Agreements to
Survive Delivery. The representations, warranties, indemnities, agreements and
other statements of the Company, the Underwriters or their respective officers
set forth in or made pursuant to this Agreement will remain operative and in
full force and effect regardless of any investigation made by or on behalf of
the Company or any Underwriter or controlling person and will survive delivery
of and payment for the Securities.
Section 9. Termination of Agreement. (a) You may terminate
this Agreement, by notice to the Company, at any time at or prior to the
Closing Time (i) if there has been, since the respective dates as of which
information is given in the Registration Statement, any material adverse
change, or any development involving a prospective material adverse change, in
the condition (financial or otherwise), earnings or business affairs of the
Company and the Company's Subsidiaries, considered as one enterprise, or of
EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or any
outbreak of hostilities or escalation of existing hostilities or other calamity
or crisis the effect of which is such as to make it, in your reasonable
judgment, impracticable to market the Securities or enforce contracts for the
sale of the Securities, or (iii) if trading in any securities of the Company
has been suspended by the Commission, or if trading generally on the New York
Stock Exchange or in the over-the-counter market has been suspended, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by such exchange or by order of the Commission
or any other governmental authority, or (iv) if a banking moratorium has been
declared by either federal or New York authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party, except to the extent provided in Section 4. Notwithstanding any such
termination, the provisions of Section 6 and 7 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2(c), with the effect stated in such Section.
45
<PAGE> 47
Section 10. Default by One or More of the Underwriters. If
one or more of the Underwriters shall fail at the Closing Time to purchase the
Securities that it or they are obligated to purchase pursuant to this Agreement
(the "Defaulted Securities"), you shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and upon
the terms set forth in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does
not exceed 10% of the aggregate principal amount of Securities to be
purchased pursuant to this Agreement, the non-defaulting Underwriters
shall be obligated to purchase the full amount thereof in the
proportions that their respective Securities underwriting obligation
proportions bear to the underwriting obligation proportions of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds
10% of the aggregate principal amount of Securities to be purchased
pursuant to this Agreement, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default that does not result in a
termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.
Section 11. Default by the Company. If the Company shall
fail at the Closing Time to sell and deliver the aggregate principal amount of
Securities that it is obligated to sell, then this Agreement shall terminate
without any liability on the part of any non-defaulting party except to the
extent provided in Section 4 and except that the provisions of Section 6 and 7
shall remain in effect.
46
<PAGE> 48
No action taken pursuant to this Section shall relieve the
Company from liability, if any, in respect to such default.
Section 12. Notices. All notices and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given if delivered, mailed or transmitted by any standard form of
telecommunication (notices transmitted by telecopier to be promptly confirmed
in writing). Notices to the Underwriters shall be directed to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York,
New York 10005, attention of _____________; and notices to the Company shall be
directed to it at 4525 Harding Road, Nashville, Tennessee 37205 (telecopier
no.: (615) 298-6377), attention of Philip D. Wheeler, Esq.
Section 13. Parties. This Agreement is made solely for the
benefit of the several Underwriters and the Company and, to the extent
expressed, any person controlling the Company or any of the Underwriters, and
the directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns and, subject to the provisions of Section 10, no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from any of the several Underwriters of the Securities. All of the obligations
of the Underwriters hereunder are several and not joint.
Section 14. Governing Law and Time. This Agreement shall be
governed by the laws of the State of New York. Specified times of the day
refer to New York City time.
Section 15. Counterparts. This Agreement may be executed in
one or more counterparts and, when a counterpart has been executed by each
party, all such counterparts taken together shall constitute one and the same
agreement.
47
<PAGE> 49
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon
this instrument will become a binding agreement among the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
HEALTHTRUST, INC. - THE HOSPITAL
COMPANY
By
--------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
By
-------------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
Name:
Title:
48
<PAGE> 50
Exhibit A
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(A Delaware corporation)
$___________
___% Subordinated Notes due 2004
PRICE DETERMINATION AGREEMENT
April __, 1994
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Ladies and Gentlemen:
Reference is made to the Purchase Agreement dated April __,
1994 (the "Purchase Agreement") among Healthtrust, Inc. - The Hospital Company,
a Delaware corporation (the "Company"), and Donaldson, Lufkin & Jenrette
Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated
as the several Underwriters named in Schedule A thereto or hereto (the
"Underwriters"). The Purchase Agreement provides for the purchase by the
Underwriters from the Company, subject to the terms and conditions set forth
therein, of $___________ aggregate principal amount of the Company's ___%
Subordinated Notes due ____ (the "Securities"). This Agreement is the Price
Determination Agreement referred to in the Purchase Agreement.
Pursuant to Section 2 of the Purchase Agreement, the
undersigned agree with the Underwriters as follows:
1. The initial public offering price of the Securities
shall be 100% of the principal amount thereof, plus accrued interest
from [date of the signing of the Indenture] to the Closing Time.
49
<PAGE> 51
2. The purchase price of the Securities to be paid by
the several Underwriters shall be ___% of the principal amount
thereof, plus accrued interest [date of the signing of the Indenture]
to the Closing Time.
3. The interest rate to be borne by the Securities shall
be ___% per annum.
The Company represents and warrants to each of the
Underwriters that the representations and warranties of the Company set forth
in Section 1(a) of the Purchase Agreement are accurate as though expressly made
at and as of the date hereof.
As contemplated by Section 2 of the Purchase Agreement,
attached as Schedule A is a completed list of the several Underwriters, which
shall be a part of this Agreement and the Purchase Agreement.
This Agreement shall be governed by the laws of the State of
New York.
If the foregoing is in accordance with the understanding of
the Underwriters of the agreement between the Underwriters and the Company,
please sign and return to the Company a counterpart hereof, whereupon this
instrument along with all counterparts and together with the Purchase Agreement
shall be a binding agreement among the Underwriters and the Company in
accordance with its terms and the terms of the Purchase Agreement.
Very truly yours,
HEALTHTRUST, INC. -
THE HOSPITAL COMPANY
By
----------------------------
Name:
Title:
50
<PAGE> 52
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
---------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
By
----------------------------------
Name:
Title:
51
<PAGE> 53
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
of Securities
Underwriter to be Purchased
----------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation . . . . . . . . . . . . . . . . $_______________
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . _______________
Total . . . . . . . . . . $
===============
</TABLE>
<PAGE> 1
EXHIBIT 2.3
============================================================
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(A DELAWARE CORPORATION)
5,200,000 SHARES OF COMMON STOCK
U.S. PURCHASE AGREEMENT
DATED: APRIL __, 1994
============================================================
<PAGE> 2
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(a Delaware corporation)
5,200,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
April __, 1994
MERRILL LYNCH & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
Healthtrust, Inc. - The Hospital Company, a Delaware corporation
(the "Company"), proposes to issue and sell to the underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters"), for whom you are
acting as representatives (the "U.S. Representatives"), an aggregate of [
] shares of the Company's Common Stock, par value $.001 per share (shares of
which class of stock of the Company are hereinafter referred to as "Common
Stock") and certain shareholders of the Company (the "Selling Shareholders")
named in Schedule I hereto severally propose to sell to the several U.S.
Underwriters, an aggregate of [ ] shares of Common Stock. Such shares
of Common Stock are to be sold to each U.S. Underwriter, acting severally and
not jointly, in such amounts as are set forth in Schedule A opposite the name
of such U.S. Underwriter. The Company also grants to the U.S. Underwriters,
severally and not jointly, the option described in Section 2 to purchase all
or any part of 780,000 additional shares of Common Stock to cover
over-allotments. The aforesaid [ ] shares of Common Stock (the
"Initial U.S. Shares"), together with all or any part of the [ ]
additional shares of Common Stock subject to the option described in Section
2 (the "U.S. Option Shares"), are collectively herein called the "U.S. Shares".
The U.S. Shares are more fully described in the
<PAGE> 3
U.S. Prospectus referred to below. The Company and the Selling Shareholders
are hereinafter sometimes collectively referred to as the Sellers.
It is understood that the Sellers are concurrently entering into
an agreement, dated the date hereof (the "International Purchase Agreement"),
providing for the issuance and sale by the Company of [ ] shares of
Common Stock and the sale by the Selling Shareholders of [ ] shares of
Common Stock (together, the "International Shares") through arrangements with
certain underwriters outside the United States (the "International
Underwriters"), for whom Merrill Lynch International Limited and Donaldson,
Lufkin & Jenrette Securities Corporation are acting as representatives (the
"International Representatives"). The U.S. Shares and the International Shares
are hereinafter collectively referred to as the "Offered Shares".
The Sellers understand that the U.S. Underwriters will
simultaneously enter into an agreement with the International Underwriters
dated the date hereof (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the U.S. Underwriters and the
International Underwriters, under the direction of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
You have advised us that you and the other U.S. Underwriters,
acting severally and not jointly, desire to purchase the Initial U.S. Shares
and, if the U.S. Underwriters so elect, the U.S. Option Shares, and that you
have been authorized by the other U.S. Underwriters to execute this Agreement
and the U.S Price Determination Agreement referred to below on their behalf.
The initial public offering price per share for the U.S. Shares
and the purchase price per share for the U.S. Shares to be paid by the several
U.S. Underwriters shall be agreed upon by the Company, the Selling Shareholders
and the U.S. Representatives, acting on behalf of the several U.S.
Underwriters, and such agreement shall be set forth in a separate written
instrument substantially in the form of Exhibit A hereto (the "U.S. Price
Determination Agreement"). The U.S. Price Determination Agreement may take the
form of an exchange of any standard form of written telecommunication among the
Company, the Selling Shareholders and the U.S. Representatives and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the U.S. Shares will be governed by this Agreement, as supplemented
by the U.S. Price Determination Agreement. From and after the date of
2
<PAGE> 4
the execution and delivery of the U.S Price Determination Agreement,
this Agreement shall be deemed to incorporate, and all references herein to
"this Agreement" or "herein" shall be deemed to include, the U.S Price
Determination Agreement.
The initial public offering price per share and the purchase price
per share for the International Shares to be paid by the International
Underwriters pursuant to the International Purchase Agreement shall be set
forth in a separate agreement (the "International Price Determination
Agreement"), the form of which is attached to the International Purchase
Agreement. The purchase price per share for the International Shares to be
paid by the several International Underwriters shall be identical to the
purchase price per share for the U.S. Shares to be paid by the several U.S.
Underwriters hereunder.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(File No. 33-_____) covering the registration of the Offered Shares under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectuses, and either (A) has prepared and proposes to file,
prior to the effective date of such registration statement, an amendment to
such registration statement, including final prospectuses, or (B) if the
Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations"),
will prepare and file prospectuses, in accordance with the provisions of Rule
430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly
after execution and delivery of the U.S. Price Determination Agreement.* The
information, if any, included in such prospectuses that was omitted from any
prospectus included in such registration statement at the time it becomes
effective but that is deemed, pursuant to Rule 430A(b), to be part of such
registration statement at the time it becomes effective is
__________________________________
* Two forms of prospectus are to be used in connection with the offering
and sale of the Offered Shares: one relating to the U.S. Shares (the "Form of
U.S. Prospectus") and one relating to the International Shares (the "Form of
International Prospectus"). The Form of International Prospectus is identical
to the Form of U.S. Prospectus, except for the front cover page, inside front
cover page, the sections captioned "Underwriting" and "Certain United States
Tax Consequences to Non-United States Holders" and the back cover page.
3
<PAGE> 5
referred to herein as the "Rule 430A Information". Each Form of U.S Prospectus
and Form of International Prospectus used before the time such registration
statement becomes effective, and any Form of U.S. Prospectus and Form of
International Prospectus that omits the Rule 430A Information that is used
after such effectiveness and prior to the execution and delivery of the U.S.
Price Determination Agreement or the International Price Determination
Agreement, respectively, is herein called a "preliminary prospectus". Such
registration statement, including the exhibits thereto, as amended at the time
it becomes effective and including, if applicable, the Rule 430A Information,
is herein called the "Registration Statement", and the Form of U.S. Prospectus
and Form of International Prospectus included in the Registration Statement at
the time it becomes effective is herein called the "U.S. Prospectus" and the
"International Prospectus", respectively, and, collectively, the "Prospectuses"
and, individually, a "Prospectus", except that, if the final U.S. Prospectus or
International Prospectus, as the case may be, first furnished to the U.S.
Underwriters or the International Underwriters after the execution of the U.S.
Price Determination Agreement or the International Price Determination
Agreement for use in connection with the offering of the Offered Shares differs
from the prospectuses included in the Registration Statement at the time it
becomes effective (whether or not such prospectuses are required to be filed
pursuant to Rule 424(b)), the terms "U.S. Prospectus", "International
Prospectus", "Prospectuses" and "Prospectus" shall refer to the final U.S.
Prospectus or International Prospectus, as the case may be, first furnished to
the U.S. Underwriters or the International Underwriters, as the case may be,
for such use.
The Sellers understand that the U.S. Underwriters propose to make
a public offering of the U.S. Shares as soon as you deem advisable after the
Registration Statement becomes effective and the U.S. Price Determination
Agreement has been executed and delivered.
Section 1. Representations and Warranties. (a) The Company
represents and warrants to and agrees with each of the U.S. Underwriters that:
(i) When the Registration Statement shall become effective, if the
Company has elected to rely upon Rule 430A, on the date of the U.S. Price
Determination Agreement, on the effective or issue date of each amendment
or supplement to the Registration Statement or the Prospectuses, at the
Closing Time referred to
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<PAGE> 6
below, and, if, any U.S. Option Shares are purchased, on the Date of
Delivery referred to below, (A) the Registration Statement and any
amendments and supplements thereto will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations; (B)
neither the Registration Statement nor any amendment or supplement thereto
will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and (C) neither of the Prospectuses nor
any amendment or supplement to either of them will include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing,
this representation and warranty does not apply to statements or omissions
from the Registration Statement or the Prospectuses made in reliance upon
and in conformity with information furnished or confirmed in writing to the
Company by or on behalf of any Underwriter through you or the International
Representatives expressly for use in the Registration Statement or the
Prospectuses.
(ii) This Agreement has been duly authorized, executed and delivered by
the Company.
(iii) The consolidated financial statements included in the Registration
Statement present fairly the consolidated financial position of the Company
and the Company's Subsidiaries (as hereinafter defined) as of the dates
indicated and the consolidated statements of operations, stockholders'
equity and cash flows of the Company and the Company's Subsidiaries for the
periods specified. Except as otherwise stated in the Registration
Statement, such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The financial statement schedules, if
any, included in the Registration Statement present fairly the information
required to be stated therein. The pro forma financial statements and
other pro forma financial information included in the Prospectuses present
fairly the information shown therein, have been prepared in all material
respects in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements, have been properly compiled on
the pro forma bases described therein, and, in the opinion of the Company,
the assumptions used in the
5
<PAGE> 7
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(iv) The consolidated financial statements included in the Registration
Statement present fairly the consolidated financial position of EPIC and
EPIC's Subsidiaries (as hereinafter defined) as of the dates indicated and
the consolidated statements of operations, stockholders' equity and cash
flows of EPIC and EPIC's Subsidiaries for the periods specified. Except as
otherwise stated in the Registration Statement, such financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved,
and the financial statement schedules, if any, included in the Registration
Statement present fairly the information required to be stated therein.
(v) The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware with corporate
power under such laws to own, lease and operate its properties and conduct
its business as described in the Prospectuses; and the Company is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the Company and the Company's Subsidiaries, considered as one enterprise.
(vi) EPIC is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware with corporate power under
such laws to own, lease and operate its properties and conduct its business
as described in the Prospectuses; and EPIC is duly qualified to transact
business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to
the extent that the failure to so qualify or be in good standing would not
have a material adverse effect on EPIC and EPIC's Subsidiaries, considered
as one enterprise.
(vii) Each of the Company's subsidiaries (collectively, the "Company's
Subsidiaries") is a
6
<PAGE> 8
corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation with corporate power
under such laws to own, lease and operate its properties and conduct its
business as described in the Prospectuses; and each of the Company's
Subsidiaries is duly qualified to transact business as a foreign
corporation and is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business of a type, that
would make such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have a material
adverse effect on the Company and the Company's Subsidiaries, considered as
one enterprise. Except as set forth in the Registration Statement, all of
the outstanding shares of capital stock of each of the Company's
Subsidiaries have been duly authorized and validly issued and are fully
paid and non-assessable, and are owned by the Company, directly or through
one or more Subsidiaries, free and clear of any pledge, lien, perfected
security interest, claim or encumbrance of any kind or, to the knowledge of
the Company, any unperfected security interest.
(viii) Each of EPIC's subsidiaries (collectively, "EPIC's Subsidiaries")
is a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation with corporate
power under such laws to own, lease and operate its properties and conduct
its business as described in the Prospectuses; and each of EPIC's
Subsidiaries is duly qualified to transact business as a foreign
corporation and is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business of a type, that
would make such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have a material
adverse effect on EPIC and EPIC's Subsidiaries, considered as one
enterprise. Except as set forth in the Registration Statement, all of the
outstanding shares of capital stock of each of EPIC's Subsidiaries have
been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by EPIC, directly or through one or more
Subsidiaries, free and clear of any pledge, lien, perfected security
interest, claim or encumbrance of any kind or, to the knowledge of the
Company, any unperfected security interest.
(ix) The Offered Shares to be sold by the Company pursuant to this
Agreement and the International
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<PAGE> 9
Purchase Agreement have been duly authorized and, when issued and delivered
by the Company upon receipt of the payment therefor in accordance with this
Agreement and the International Purchase Agreement, will be validly issued,
fully paid and non-assessable; such Offered Shares are not subject to the
preemptive or other similar rights of any stockholder of the Company
arising by operation of law, under the charter and bylaws of the Company or
under any agreement to which the Company or any of the Company's
Subsidiaries is a party.
(x) All of the outstanding shares of capital stock of the Company other
than the Offered Shares have been duly authorized and validly issued and
are fully paid and non-assessable; and none of the outstanding shares of
Common Stock of the Company was issued in violation of the preemptive or
other similar rights of any stockholder of the Company arising by operation
of law, under the charter and bylaws of the Company or under any agreement
to which the Company or any of the Company's Subsidiaries is a party.
(xi) All of the outstanding shares of capital stock of EPIC have been duly
authorized and validly issued and are fully paid and non-assessable; and
none of the outstanding shares of Common Stock of EPIC was issued in
violation of the preemptive or other similar rights of any stockholder of
EPIC arising by operation of law, under the charter and bylaws of the
Company or under any agreement to which EPIC or any of EPIC's Subsidiaries
is a party.
(xii) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein or contemplated thereby, there has not been any material adverse
change, or any development involving a prospective material adverse change,
in the condition (financial or otherwise), earnings or business affairs of
the Company and the Company's Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business.
(xiii) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein or contemplated thereby, there has not been (A) any material
adverse change, or any development involving a prospective material adverse
change, in the condition (financial or otherwise), earnings or business
affairs
8
<PAGE> 10
of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or
not arising in the ordinary course of business, or (B) any dividend or
distribution of any kind declared, paid or made by EPIC on its capital
stock.
(xiv) Neither the Company nor any of the Company's Subsidiaries is in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties is subject,
except as disclosed in the Prospectuses and except for such defaults that
would not have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise. The execution and delivery of
this Agreement by the Company, the issuance and delivery of the Offered
Shares, the consummation by the Company of the transactions contemplated in
this Agreement and in the Registration Statement (including the
transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration
Statement) and compliance by the Company with the terms of this Agreement
have been duly authorized by all necessary corporate action on the part of
the Company and do not and will not result in any violation of the charter
or by-laws of the Company or any of the Company's Subsidiaries, and do not
and will not conflict with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien or encumbrance upon any property or assets of the
Company or any of the Company's Subsidiaries under (A) any indenture,
mortgage, loan agreement, note, lease or other agreement or instrument to
which the Company or any of the Company's Subsidiaries is a party or by
which it is bound or to which any of its properties is subject, or (B) any
existing applicable law (including any environmental law), rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over the Company or any of the
Company's Subsidiaries or any of their respective properties, in each case,
except as disclosed in the Prospectuses and except for such conflicts,
breaches or defaults or liens or encumbrances that would not have a
material adverse effect on the condition (financial or otherwise),
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<PAGE> 11
earnings or business affairs of the Company and the Company's Subsidiaries,
considered as one enterprise.
(xv) Neither EPIC nor any of EPIC's Subsidiaries is in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties is subject, except as
disclosed in the Prospectuses and except for such defaults that would not
have a material adverse effect on the condition (financial or otherwise),
earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as
one enterprise. The consummation by EPIC of the transactions contemplated
in this Agreement and in the Registration Statement (including the
transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration
Statement) have been duly authorized by all necessary corporation action on
the part of EPIC and do not and will not result in any violation of the
charter or by-laws of EPIC or any of EPIC's Subsidiaries, and do not and
will not conflict with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien or encumbrance upon any property or assets of EPIC
or any of EPIC's Subsidiaries under (A) any indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which EPIC or
any of EPIC's Subsidiaries is a party or by which it is bound or to which
any of its properties is subject, or (B) any existing applicable law
(including any environmental law), rule, regulation, judgment, order or
decree of any government, governmental instrumentality or court having
jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their
respective properties, in each case, except as disclosed in the
Prospectuses and except for such conflicts, breaches or defaults or liens
or encumbrances that would not have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of EPIC
and EPIC's Subsidiaries, considered as one enterprise.
(xvi) No authorization, approval, consent or license of any government,
governmental instrumentality or court (other than under the 1933 Act and
the 1933 Act Regulations, the Trust Indenture Act of 1939, as amended and
the applicable rules and regulations promulgated thereunder (the "Trust
Indenture Act") and
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<PAGE> 12
the securities or blue sky laws of the various states and the securities
laws of any jurisdiction outside the United States in which International
Shares are offered or sold by the International Underwriters pursuant to
the International Purchase Agreement) is required for the valid issuance,
sale and delivery of the Offered Shares or for the consummation by the
Company of the transactions contemplated in the Prospectuses (including the
transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the
Prospectuses).
(xvii) Except as disclosed in the Prospectuses, there is no action, suit
or proceeding before or by any government, governmental instrumentality or
court, now pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of the Company's Subsidiaries that is
required to be disclosed in the Prospectuses or that could reasonably be
expected to result in any material adverse change in the condition
(financial or otherwise), earnings or business affairs of the Company and
the Company's Subsidiaries, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect the properties or
assets of the Company and the Company's Subsidiaries, considered as one
enterprise, or that could reasonably be expected to materially and
adversely affect the consummation of the transactions contemplated in this
Agreement and in the Registration Statement (including the transactions
described under the captions "The Acquisition and the Financing Plan", "Use
of Proceeds" and "Capitalization" in the Registration Statement); the
aggregate of all pending legal or governmental proceedings to which the
Company or any of the Company's Subsidiaries is a party or which affect any
of its properties that are not described or referred to in the Prospectuses
would not have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise.
(xviii) Except as disclosed in the Prospectuses, there is no action, suit
or proceeding before or by any government, governmental instrumentality or
court, now pending or, to the knowledge of the Company, threatened against
or affecting EPIC or any of EPIC's Subsidiaries that is required to be
disclosed in the Prospectuses or that could reasonably be expected to
result in any material adverse change in the condition (financial or
otherwise), earnings or business affairs of EPIC and
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<PAGE> 13
EPIC's Subsidiaries, considered as one enterprise, or that could reasonably
be expected to materially and adversely affect the properties or assets of
EPIC and EPIC's Subsidiaries, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect the consummation
of the transactions contemplated in this Agreement and in the Registration
Statement (including the transactions described under the captions "The
Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization"
in the Registration Statement). The Company has no reason to believe that
the aggregate of all pending legal or governmental proceedings to which
EPIC or any of EPIC's Subsidiaries is a party or which affect any of its
properties that are not described or referred to in the Prospectuses would
have a material adverse effect on the condition (financial or otherwise),
earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as
one enterprise.
(xix) In the Company's judgment, there are no contracts or documents of a
character required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits to the Registration Statement that
are not described and filed as required.
(xx) Each of the Company and the Company's Subsidiaries own or possess all
governmental licenses, permits, certificates (including, without
limitation, certificate of need approvals), consents, orders, approvals and
other authorizations (collectively, "Governmental Licenses") necessary to
own or lease, as the case may be, and to operate its properties and to
carry on its business as presently conducted, except where the failure to
possess such Governmental Licenses could reasonably be expected to not have
a material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's Subsidiaries,
considered as one enterprise, and neither the Company nor any of the
Company's Subsidiaries has received any notice of proceedings relating to
revocation or modification of any such Governmental Licenses that, in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
could reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of the
Company and the Company's Subsidiaries, considered as one enterprise.
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<PAGE> 14
(xxi) Each of EPIC and EPIC's Subsidiaries own or possess all governmental
licenses, permits, certificates (including, without limitation, certificate
of need approvals), consents, orders, approvals and other authorizations
(collectively, "Governmental Licenses") necessary to own or lease, as the
case may be, and to operate its properties and to carry on its business as
presently conducted, except where the failure to possess such Governmental
Licenses could reasonably be expected to not have a material adverse effect
on the condition (financial or otherwise), earnings or business affairs of
EPIC and EPIC's Subsidiaries, considered as one enterprise, and neither
EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings
relating to revocation or modification of any such Governmental Licenses
that, in the aggregate, if the subject of an unfavorable decision, ruling
or finding, could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), earnings or business affairs of
EPIC and EPIC's Subsidiaries, considered as one enterprise.
(xxii) Each approval, consent, license, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution, delivery and
performance of this Agreement, the compliance by the Company with all of
the provisions hereof, the consummation of the transactions herein
contemplated and the consummation by the Company of the transactions
contemplated in the Registration Statement (including the transactions
described under the captions "The Acquisition and the Financing Plan", "Use
of Proceeds" and "Capitalization" in the Registration Statement) (except
such additional steps as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the
Offered Shares for public offering by the Underwriters under State
securities or Blue Sky laws) has been obtained or made and is in full force
and effect.
(xxiii) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in stabilization or
manipulation of the price of the Common Stock; and the Company has not
distributed and will not distribute any prospectus (as such term is defined
in the 1933 Act and the 1933 Act Regulations) in connection with the
offering and sale of the Offered Shares other than any preliminary
prospectus filed with
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<PAGE> 15
the Commission or the Prospectuses or other material permitted by the 1933
Act or the 1933 Act Regulations.
(xxiv) Except as disclosed in the Prospectuses, all United States federal
income tax returns of the Company and the Company's Subsidiaries required
by law to be filed have been filed and all taxes shown by such returns or
otherwise assessed, which are due and payable, have been paid, except tax
assessments, if any, as are being contested in good faith and as to which
adequate reserves have been provided. Except as disclosed in the
Prospectuses, all other franchise and income tax returns of the Company and
the Company's Subsidiaries required to be filed pursuant to applicable
foreign, state or local law have been filed, except insofar as the failure
to file such returns would not have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of the
Company and the Company's Subsidiaries, considered as one enterprise, and
all taxes shown on such returns or otherwise assessed which are due and
payable have been paid, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. To the best of the Company's knowledge, the charges, accruals
and reserves on the books of the Company and the Company's Subsidiaries in
respect of any income and corporate franchise tax liability for any years
not finally determined are adequate to meet any assessments or
re-assessments for additional income or corporate franchise tax for any
years not finally determined, except as disclosed in the Prospectuses and
except to the extent of any inadequacy that would not have a material
adverse effect on the condition (financial or otherwise), earnings or
business affairs of the Company and the Company's Subsidiaries, considered
as one enterprise.
(xxv) Except as disclosed in the Prospectuses, all United States federal
income tax returns of EPIC and EPIC's Subsidiaries required by law to be
filed have been filed and all taxes shown by such returns or otherwise
assessed, which are due and payable, have been paid, except tax
assessments, if any, as are being contested in good faith and as to which
adequate reserves have been provided. Except as disclosed in the
Prospectuses, all other franchise and income tax returns of EPIC and EPIC's
Subsidiaries required to be filed pursuant to applicable foreign, state or
local law have been filed, except insofar as the failure to file such
returns would not have a material adverse
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<PAGE> 16
effect on the condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and
all taxes shown on such returns or otherwise assessed which are due and
payable have been paid, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. To the best of EPIC's knowledge, the charges, accruals and
reserves on the books of EPIC and EPIC's Subsidiaries in respect of any
income and corporate franchise tax liability for any years not finally
determined are adequate to meet any assessments or re-assessments for
additional income or corporate franchise tax for any years not finally
determined, except as disclosed in the Prospectuses and except to the
extent of any inadequacy that would not have a material adverse effect on
the condition (financial or otherwise), earnings or business affairs of
EPIC and EPIC's Subsidiaries, considered as one enterprise.
(xxvi) The Company has obtained the written agreement of all officers of
the Company who own 50,000 or more shares of Common Stock of the Company in
the form previously furnished to you that, for a period of 120 days from
the date hereof, such persons will not, without the prior written consent
of the U.S. Representatives (which consent shall not be unreasonably
withheld), directly or indirectly, sell, offer to sell, contract to sell,
grant any option for the sale of, or otherwise dispose of any shares of
Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock ("convertible securities"); provided, however, that during
such 120 day period, such persons may without such prior written consent
(i) transfer such shares of Common Stock or convertible securities by will
or the laws of descent and distribution, (ii) make gifts of shares of
Common Stock or convertible securities or transfer such shares of Common
Stock or convertible securities to (A) family members (by trust or
otherwise), so long as the donee agrees to be bound by the foregoing
restriction in the same manner as it applies to such persons, or (B)
charitable organizations and (iii) sell, transfer or otherwise dispose of
shares of Common Stock or convertible securities to the Company in
connection with any of the transactions contemplated by the Registration
Statement.
(xxvii) Except as disclosed in the Registration Statement, no holder of any
security of the Company has
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<PAGE> 17
any right to require registration of shares of Common Stock or any other
security of the Company.
(xxviii) EPIC's Employee Stock Ownership Plan (the "EPIC ESOP") and the
trust created pursuant to the Trust Agreement for the EPIC ESOP between
EPIC and [ ], as trustee under the EPIC ESOP
(the "EPIC Trustee"), dated as of [
] (the "EPIC ESOP Trust"), meet in all material respects all
applicable requirements of qualification and exemption from taxation under
Sections 401(a) and 501(a), respectively, of the Internal Revenue Code of
1986, as amended (the "Code").
(xxix) The EPIC ESOP constitutes an "employee stock ownership plan," as
defined in Section 4975(e)(7) of the Code and the Treasury Regulations
promulgated thereunder, and as defined in Section 407(d)(6) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(xxx) Each of the loans to the EPIC ESOP Trust pursuant to the EPIC ESOP
Loan A Agreement and the EPIC ESOP Loan B Agreement, each between EPIC and
the EPIC ESOP Trust and dated as of [ ] (collectively, the
"ESOP Loan Agreements"), and each of the pledges of shares of EPIC Common
Stock, par value $.___ per share (the "EPIC Common Stock"), by the EPIC
ESOP Trust pursuant to the Pledge Agreement A and the Pledge Agreement B,
each between EPIC and the EPIC ESOP Trust and dated as of [
] (collectively, the "EPIC ESOP Pledge Agreements"), satisfies in
all material respects the requirements of Section 4975(d)(3) of the Code
and Section 408(b)(3) of ERISA, and will not subject EPIC to a tax imposed
under Section 4975 of the Code or a civil penalty assessed under Section
502(i) of ERISA.
(xxxi) The EPIC Common Stock is a "qualifying employer security," within
the meaning of Section 4975(e)(8) of the Code and Section 407(d)(5) of
ERISA.
(xxxii) Each of the sales of shares of EPIC Common Stock to the EPIC ESOP
Trust pursuant to the [ ] Stock Purchase Agreement between [
] and the EPIC ESOP Trust and the Common Stock Purchase Agreement
between EPIC and the EPIC ESOP Trust, each dated as of [ ]
(collectively, the "EPIC ESOP Stock Purchase Agreements"), satisfies in all
material respects the requirements of Section 4975(d)(13) of the Code and
Section 408(e) of ERISA, and will not subject
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<PAGE> 18
EPIC to a tax imposed under Section 4975 of the Code or a civil penalty
assessed under Section 502(i) of ERISA.
(xxxiii) Except as disclosed in the Prospectuses, to the knowledge of the
Company, no opinion, correspondence or other communication, whether written
or otherwise, has been received by American Medical International, Inc.
("AMI"), EPIC or any of their respective agents, affiliates, associates,
officers or directors, or any fiduciary of the EPIC ESOP, from the United
States Department of Labor, the Internal Revenue Service or any other
Federal or state governmental or regulatory agency, body or authority, to
the effect that either of the loans to the EPIC ESOP Trust pursuant to the
EPIC ESOP Loan Agreements, either of the pledges of shares of Common Stock
by the EPIC ESOP Trust pursuant to the EPIC ESOP Pledge Agreements or
either of the sales of shares of Common Stock to the EPIC ESOP Trust
pursuant to the EPIC ESOP Stock Purchase Agreements may or will constitute
a violation of or result in any liability under ERISA or the Code.
(xxxiv) None of (i) the termination by EPIC of future contributions to the
EPIC ESOP, (ii) the discharge of that portion of the principal amount of
the EPIC loans to the EPIC ESOP Trust that exceeds the fair market value of
the shares of EPIC Common Stock transferred by the EPIC Trustee to EPIC or
(iii) the transfer by the EPIC Trustee to EPIC of shares of EPIC Common
Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to
the EPIC ESOP Trust, each as contemplated by the Registration Statement,
should constitute a material violation of or result in any material
liability under ERISA or the Code (including, without limitation, any tax
under Section 4978B of the Code).
(b) Any certificate signed by any officer of the Company and
delivered to you or to Davis Polk & Wardwell as counsel for the U.S.
Underwriters pursuant to this Agreement or at the Closing contemplated hereby
shall be deemed a representation and warranty by the Company to each U.S.
Underwriter as to the matters covered thereby.
(c) Each of the Selling Shareholders represents and warrants to
each of the Underwriters that:
(i) This Agreement has been duly authorized, executed and delivered by or
on behalf of such Selling Shareholder.
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<PAGE> 19
(ii) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Shareholder and
[ ], as Custodian, relating to the deposit of Shares to be sold
by such Selling Shareholder (the "Custody Agreement") and the Power of
Attorney appointing certain individuals as such Selling Shareholder's
attorneys-in-fact to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement (the
"Power of Attorney") will not contravene any provision of applicable law,
or the certificate of incorporation or by-laws of such Selling Shareholder
(if such Selling Shareholder is a corporation), or any agreement or other
instrument binding upon such Selling Shareholder or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
such Selling Shareholder, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for
the performance by such Selling Shareholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of such Selling
Shareholder, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares.
(iii) Such Selling Shareholder has, and on the Closing Date will have,
valid marketable title to the Shares to be sold by such Selling Shareholder
and the legal right and power, and all authorization and approval required
by law, to enter into this Agreement, the Custody Agreement and the Power
of Attorney and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder.
(iv) The Shares to be sold by such Selling Shareholder pursuant to this
Agreement have been duly authorized and are validly issued, fully paid and
non-assessable.
(v) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by such Selling Shareholder and are
valid and binding agreements of such Selling Shareholder.
(vi) Delivery of the Shares to be sold by such Selling Shareholder
pursuant to this Agreement will pass marketable title to such Shares free
and clear of any security interests, claims, liens, equities and other
encumbrances.
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(vii) All information furnished by or on behalf of such Selling
Shareholder for use in the Registration Statement and Prospectus is, and on
the Closing Date will be, true, correct, and complete, and does not, and on
the Closing Date will not, contain any untrue statement of a material fact
or omit to state any material fact necessary to make such information not
misleading.
(viii) Such Selling Shareholder has not taken, and will not take, directly
or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Shares pursuant to the distribution contemplated by this Agreement, and
other than as permitted by the Act, such Selling Shareholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Shares.
(ix) The execution, delivery and performance of this Agreement by such
Selling Shareholder, compliance by such Selling Shareholder with all the
provisions hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body (except as such may be required under the Act, state securities laws
or Blue Sky laws) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, the charter or by-laws
if any, of such Selling Shareholder, or any agreement, indenture or other
instrument to which such Selling Shareholder is a party or by which such
Selling Shareholder or their respective property is bound (other than those
as to which requisite waivers or consents have been obtained), or violate
or conflict with any laws, administrative regulation or ruling or court
decree applicable to such Selling Shareholder or such Selling Shareholder's
property.
(x) The part of the Registration Statement, under the caption "Selling
Shareholders" which specifically relates to such Selling Shareholder or
such Selling Shareholder's affiliates does not, and will not on the Closing
Date (and Option Closing Date, if applicable), contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in
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light of circumstances under which they were made, not misleading.
(xi) At any time during such period as in the opinion of
counsel for the Underwriters a prospectus is required by law to be
delivered in connection with sales by an Underwriter or a dealer, if there
is any change in the information referred to in Section 1(x) above, the
Selling Shareholders will immediately notify you of such change.
Section 2. Sale and Delivery to the U.S. Underwriters; Closing.
(a) On the basis of the representations and warranties herein contained, and
subject to the terms and conditions herein set forth, the Company agrees to
sell to each U.S. Underwriter, and each U.S. Underwriter agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share for
the Initial U.S. Shares to be agreed upon by the U.S. Representatives and the
Company in accordance with Section 2(b) or 2(c) and set forth in the U.S. Price
Determination Agreement, the number of Initial U.S. Shares set forth opposite
the name of such U.S. Underwriter in Schedule A, plus such additional number of
Initial U.S. Shares that such U.S. Underwriter may become obligated to purchase
pursuant to Section 11 hereof. If the Company elects to rely on Rule 430A,
Schedule A may be attached to the U.S. Price Determination Agreement.
(b) If the Company has elected not to rely upon Rule 430A, the
initial public offering price per share for the Initial U.S. Shares and the
purchase price per share for the Initial U.S. Shares to be paid by the several
U.S. Underwriters shall be agreed upon and set forth in the U.S. Price
Determination Agreement, dated the date hereof, and an amendment to the
Registration Statement containing such per share price information will be
filed before the Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A, the
initial public offering price per share for the Initial U.S. Shares and the
purchase price per share for the Initial U.S. Shares to be paid by the several
U.S. Underwriters shall be agreed upon and set forth in the U.S. Price
Determination Agreement. In the event that the U.S. Price Determination
Agreement has not been executed by the close of business on the fourth business
day following the date on which the Registration Statement becomes effective,
this Agreement shall terminate forthwith, without liability of any party to any
other party except that Sections 7 and 8 shall remain in effect.
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(d) In addition, on the basis of the representations and
warranties herein contained, and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the U.S. Underwriters, severally
and not jointly, to purchase up to an additional [ ] U.S. Option Shares
at the same purchase price per share as shall be applicable to the Initial U.S.
Shares. The option hereby granted will expire 30 days after the date upon
which the Registration Statement becomes effective or, if the Company has
elected to rely upon Rule 430A, the date of the U.S. Price Determination
Agreement, and may be exercised in whole or from time to time in part only for
the purpose of covering over-allotments that may be made in connection with the
offering and distribution of the Initial U.S. Shares upon notice by you to the
Company setting forth the number of U.S. Option Shares as to which the several
U.S. Underwriters are exercising the option, and the time and date of payment
and delivery thereof. Such time and date of delivery (the "Date of Delivery")
shall be determined by you but shall not be later than five full business days
after the exercise of such option, nor in any event prior to the Closing Time.
If the option is exercised as to all or any portion of the U.S. Option Shares,
the U.S. Option Shares as to which the option is exercised shall be purchased
by the U.S. Underwriters, severally and not jointly, in the respective
proportions that bear the same relationship to the number of U.S. Option Shares
to be purchased at the Date of Delivery as the number of Initial U.S. Shares
set forth opposite the name of each U.S. Underwriter in Schedule A hereto bears
to the total number of Initial U.S. Shares (such proportions are hereinafter
referred to as each U.S. Underwriter's "underwriting obligation proportions").
(e) Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Shares shall be made at the offices of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at such
other place as shall be agreed upon by the Company and you, at 10:00 A.M.
either (i) on the fifth full business day after the effective date of the
Registration Statement, or (ii) if the Company has elected to rely upon Rule
430A, the fifth full business day after execution of the U.S. Price
Determination Agreement (unless, in either case, postponed pursuant to Section
11 or 12), or at such other time not more than ten full business days
thereafter as you and the Company shall determine (such date and time of
payment and delivery being herein called the "Closing Time"). In addition, in
the event that any or all of the U.S. Option Shares are purchased by the U.S
Underwriters, payment of the purchase price for, and delivery of certificates
for, such U.S. Option Shares shall be made at the offices of Davis
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Polk & Wardwell set forth above, or at such other place as the Company and you
shall determine, on the Date of Delivery as specified in the notice from you to
the Company. Payment shall be made to the Company by certified or official
bank check or checks in New York Clearing House funds payable to the order of
the Company against delivery to you for the respective accounts of the several
U.S. Underwriters of certificates for the U.S. Shares to be purchased by them.
(f) Certificates for the Initial U.S. Shares and U.S. Option
Shares to be purchased by the U.S. Underwriters shall be in such denominations
and registered in such names as you may request in writing at least two full
business days before the Closing Time or the Date of Delivery, as the case may
be. The certificates for the Initial U.S. Shares and U.S. Option shares will
be made available in New York City for examination and packaging by you not
later than 10:00 A.M. on the business day prior to the Closing Time or the Date
of Delivery, as the case may be.
(g) It is understood that each U.S. Underwriter has authorized
you, for its account, to accept delivery of, receipt for, and make payment of
the purchase price for, the U.S. Shares that it has agreed to purchase. You,
individually and not as U.S. Representatives, may (but shall not be obligated
to) make payment of the purchase price for the Initial U.S. Shares, or U.S.
Option Shares, to be purchased by any U.S. Underwriter whose check or checks
shall not have been received by the Closing Time or the Date of Delivery, as
the case may be.
Section 3. Certain Covenants of the Company. The Company
covenants with each U.S. Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company elects to rely
upon Rule 430A and subject to Section 3(b), will comply in all material
respects with the requirements of Rule 430A and will notify you promptly, (i)
when the Registration Statement, or any post-effective amendment to the
Registration Statement, shall have become effective, or any supplement to the
Prospectuses or any amended Prospectuses shall have been filed, (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission to amend the Registration Statement or amend or supplement any
Prospectus or for additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Offered Shares for
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<PAGE> 24
offering or sale in any jurisdiction, or of the institution or threatening of
any proceedings for any of such purposes. The Company will make every
reasonable effort to prevent the issuance of any such stop order or of any
order preventing or suspending such use and, if any such order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) The Company will not at any time file or make any amendment
to the Registration Statement, or any amendment or supplement (i) if the
Company has not elected to rely upon Rule 430A, to the Prospectuses or (ii) if
the Company has elected to rely upon Rule 430A, to either the prospectus
included in the Registration Statement at the time it becomes effective or to
the Prospectuses, of which you shall not have previously been advised and
furnished a copy or to which you or Davis Polk & Wardwell as counsel for the
U.S. Underwriters shall have promptly and reasonably objected in writing.
(c) The Company has furnished or will furnish to you and Davis
Polk & Wardwell as counsel for the U.S. Underwriters, without charge, as many
signed copies (as reasonably requested) of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or after
the Registration Statement becomes effective, copies of all exhibits and
documents filed therewith and signed copies of all consents and certificates of
experts, as you may reasonably request and has furnished or will furnish to
you, for each other U.S. Underwriter, one conformed copy of the Registration
Statement as originally filed and each amendment thereto (without exhibits).
(d) The Company will deliver to each U.S. Underwriter, without
charge, from time to time until the effective date of the Registration
Statement (or, if the Company has elected to rely upon Rule 430A, until the
time the U.S. Price Determination Agreement is executed and delivered), as many
copies of each preliminary prospectus as such U.S. Underwriter may reasonably
request, and the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will deliver to each Underwriter,
without charge, as soon as the Registration Statement shall have become
effective (or, if the Company has elected to rely upon Rule 430A, as soon as
practicable after the U.S. Price Determination Agreement has been executed and
delivered) and thereafter from time to time as requested during the period when
the Prospectus is required to be delivered under the 1933 Act, such number of
copies of the Prospectuses (as supplemented or amended) as such U.S.
Underwriter may reasonably request.
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(e) The Company will comply in all material respects to the best
of its ability with the 1933 Act and the 1933 Act Regulations, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder so as to permit the completion of the distribution of
the Offered Shares as contemplated in this Agreement and in the Prospectuses.
If at any time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Offered Shares any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for the
U.S. Underwriters or counsel for the Company, to amend the Registration
Statement or amend or supplement any Prospectus in order that the Prospectuses
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of either such counsel,
at any such time to amend the Registration Statement or amend or supplement any
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such untrue statement or omission or to make the
Registration Statement or the Prospectuses comply with such requirements.
(f) The Company will use its best efforts, in cooperation with
the U.S. Underwriters, to qualify the Offered Shares for offering and sale
under the applicable securities laws of such states and other jurisdictions as
the Company and you may mutually agree upon and to maintain such qualifications
in effect for a period of not less than one year from the effective date of the
Registration Statement; provided, however, that neither the Company nor any of
the Company's Subsidiaries shall be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. The Company will file such statements and reports
as may be required by the laws of each such jurisdiction to maintain the
qualification of the Offered Shares as above provided.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 60 days after the close of
the period covered thereby, an earnings statement of the Company (in form
complying with the provisions of Rule 158 of the 1933 Act Regulations),
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<PAGE> 26
covering a period of 12 months beginning after the effective date of the
Registration Statement but not later than the first day of the Company's fiscal
quarter next following such effective date.
(h) The Company will use the net proceeds received by it from the
sale of the Offered Shares in the manner specified in the Prospectuses under
the caption "Use of Proceeds", and will provide you with any report on Form SR
filed under Rule 463 of the 1933 Act Regulations by the Company in connection
with the sale of the Offered Shares promptly after filing such report.
(i) For a period of 120 days from the date hereof, the Company
will not, without your prior written consent, which consent shall not be
unreasonably withheld, directly or indirectly, sell, offer to sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, any Common
Stock or convertible securities, other than to eligible participants in the
Company's stock plans pursuant to the terms thereof and to the U.S.
Underwriters pursuant to this Agreement, to the International Underwriters
pursuant to the International Purchase Agreement and other than in connection
with the transactions described in the Prospectuses (including the transactions
described under the captions "The Acquisition and the Financing Plan", "Use of
Proceeds" and "Capitalization" in the Prospectuses).
(j) For a period of 120 days from the date hereof, the Company
shall not take any action, directly or indirectly, without your prior written
consent, which consent shall not be unreasonably withheld, to cause the ESOP
Committee (as such term is defined in the ESOP) to direct the Trustee to
directly or indirectly sell, offer to sell, contract to sell, grant any option
for the sale of, or otherwise dispose of any shares of Common Stock or
convertible securities; provided, however, that during such 120 day period, the
ESOP Committee may direct the Trustee to (i) allocate shares of Common Stock to
ESOP participants' accounts in accordance with the terms of the ESOP, as
amended from time to time, (ii) transfer to the Company shares of Common Stock
unallocated under the ESOP as contemplated by the Registration Statement and
(iii) make distributions of shares of Common Stock allocated under the ESOP to
ESOP participants in accordance with the terms of the ESOP, as amended from
time to time.
(k) If the Company has elected to rely upon Rule 430A, it will
take such steps as it deems necessary to ascertain promptly whether the form of
prospectus
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transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus.
(l) The Company, with respect to the offering of the Offered
Shares, has complied and will comply with all of the provisions of Florida H.B.
1771, codified as Section 517.075 of the Florida Statutes, and all regulations
promulgated thereunder relating to issuers doing business with Cuba.
Section 4. Payment of Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (a) the printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectuses and the Prospectuses and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the U.S. Underwriters,
(b) the printing and distribution of this Agreement (including the U.S. Price
Determination Agreement), the Agreement among U.S. Underwriters, the
Intersyndicate Agreement among the U.S. Underwriters and the International
Underwriters, the Agreement among International Underwriters, the certificates
for the U.S. Shares and the Blue Sky Survey, (c) the delivery of the
certificates for the U.S. Shares to the U.S. Underwriters, including any stock
transfer taxes payable upon the sale of the U.S. Shares to the U.S.
Underwriters and the transfer of the U.S. Shares between the U.S. Underwriters
and the International Underwriters, (d) the fees and disbursements of the
Company's counsel and accountants, (e) all costs and expenses which are
generated by the Selling Shareholders in connection with the performance of
this Agreement, (f) the qualification of the Offered Shares under the
applicable securities laws in accordance with Section 3(f) and any filing for
review of the offering with the National Association of Securities Dealers,
Inc., including filing fees and reasonable fees and disbursements of Davis Polk
& Wardwell as counsel for the U.S. Underwriters, in connection with such
qualification of the Offered Shares and the Blue Sky Survey and (g) the listing
fees and expenses incurred in connection with listing the Shares on the New
York Stock Exchange.
If this Agreement is terminated by you in accordance with the
provisions of Section 5, 10(a)(i) or 12, the Company shall reimburse the U.S.
Underwriters for all their reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the
U.S. Underwriters.
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Section 5. Conditions of U.S. Underwriters' Obligations. In
addition to the execution and delivery of the U.S Price Determination
Agreement, the obligations of the several U.S. Underwriters to purchase and pay
for the U.S. Shares that they have respectively agreed to purchase hereunder
are subject to the accuracy of the representations and warranties of the
Company contained herein (including those contained in the U.S. Price
Determination Agreement) or in certificates of the Company's officers delivered
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M. on the date of this Agreement or, with your consent, at a
later time and date not later, however, than 5:30 P.M. on the first business
day following the date hereof, or at such later time or on such later date as
you may agree to in writing with the approval of a majority in interest of the
several U.S. Underwriters; and at the Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or the knowledge of the Company, shall
have been threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Davis Polk & Wardwell as counsel for the U.S.
Underwriters. If the Company has elected to rely upon Rule 430A, Prospectuses
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A).
(b) At the Closing Time, you shall have received a signed opinion
of Dewey Ballantine, counsel for the Company, dated as of the Closing Time, in
form and substance reasonably satisfactory to Davis Polk & Wardwell as counsel
for the U.S. Underwriters, to the effect that:
(i) This Agreement has been duly authorized, executed and
delivered by the Company.
(ii) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware with
corporate power under such laws to own, lease and operate its properties
and conduct its business as described in the Prospectuses.
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(iii) The Offered Shares sold by the Company pursuant to this Agreement
and the International Purchase Agreement have been duly authorized and,
when issued and delivered by the Company upon receipt of the payment
therefor in accordance with this Agreement and the International Purchase
Agreement, will be validly issued, fully paid and non-assessable. Such
Offered Shares are not subject to the preemptive or other similar rights of
any stockholder of the Company arising by operation of law, under the
charter or bylaws of the Company or under any agreement known to such
counsel to which the Company is a party.
(iv) The Offered Shares conform in all material respects as to legal
matters to the description thereof contained in the Prospectuses.
(v) To the knowledge of such counsel, no authorization, approval, consent
or license of any government, governmental instrumentality or court (other
than under the 1933 Act and the 1933 Act Regulations, the Trust Indenture
Act and the securities or blue sky laws of the various states and the
securities laws of any jurisdiction in which the International Shares are
offered or sold by the International Underwriters pursuant to the
International Purchase Agreement), is required for the valid issuance, sale
and delivery of the Offered Shares or for the consummation by the Company
of the transactions contemplated in this Agreement and the Prospectuses
(including the transactions described under the captions "The Acquisition
and the Financing Plan", "Use of Proceeds" and "Capitalization" in the
Prospectuses).
(vi) The execution and delivery of this Agreement, the issuance and
delivery of the Offered Shares, the consummation by the Company of the
transactions contemplated in this Agreement and in the Registration
Statement (including the transactions described under the captions "The
Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization"
in the Registration Statement) and compliance by the Company with the terms
of this Agreement have been duly authorized by all necessary corporate
action on the part of the Company and do not and will not result in any
violation of the charter or by-laws of the Company or any of the Company's
Subsidiaries, and, to the knowledge of such counsel, do not and will not
conflict with, or constitute a breach of any of the terms or provisions of,
or constitute a default under, or result
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in the creation or imposition of any lien or encumbrance upon any property
or assets of the Company or any of the Company's Subsidiaries under (A) any
indenture, mortgage or loan agreement, or any other agreement or
instrument, to which the Company is a party or by which it may be bound or
to which any of its properties may be subject, (B) any existing applicable
law, rule or regulation (other than the securities or blue sky laws of the
various states and the securities laws of any jurisdiction in which the
International Shares are offered or sold by the International Underwriters
pursuant to the International Purchase Agreement, as to which such counsel
need express no opinion), or (C) any judgment, order or decree of any
government, governmental instrumentality or court, having jurisdiction over
the Company or any of its properties, in each case, except as disclosed in
the Prospectuses, and except for such conflicts, breaches or defaults or
liens or encumbrances that would not have a material adverse effect on the
Company and the Company's Subsidiaries, considered as one enterprise. Such
counsel need express no opinion, however, as to whether the execution,
delivery and performance by the Company of this Agreement will constitute a
violation of, or default under, any financial covenant or financial ratios
contained in any of the agreements referred to in the preceding sentence.
(vii) Such counsel has been informed by the Commission that the
Registration Statement is effective under the 1933 Act; any required filing
of the Prospectuses or any supplement thereto pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule 424(b);
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or have
been threatened by the Commission under the 1933 Act.
(viii) The Registration Statement (including the Rule 430A Information, if
applicable), the Prospectuses and each amendment or supplement to the
Registration Statement and Prospectuses, as of their respective effective
or issue dates (in each case, except for the financial statements,
supporting schedules and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need express no
opinion), comply as to form in all material
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respects to the requirements of the 1933 Act and the 1933 Act Regulations.
(ix) The Company is not an investment company under the Investment Company
Act of 1940.
(x) The transactions contemplated in the Prospectuses under the heading
"The Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization", to the extent described therein, have been duly
authorized by the Company; all of the necessary consents to consummate such
transactions, including, to the knowledge of such counsel, all the
necessary consents from holders of the Company's debt securities, have been
obtained, except where the failure to obtain such consents would not have a
material adverse effect on the consummation of the Acquisition and the
Financing Plan; to the knowledge of such counsel, there has not been any
violation on the part of the Company of any of the terms of such consents
which violation would materially and adversely affect the consummation of
the Acquisition or the Financing Plan; and there is no pending or, to the
knowledge of such counsel, threatened legal or governmental proceedings
with respect to any of the consents or the transactions contemplated in the
Prospectuses (including the transactions described under the captions "The
Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization"
in the Prospectuses) that, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the consummation
of the Acquisition or the Financing Plan.
In addition, such opinion shall state that such counsel has
participated in the preparation of the Registration Statement and Prospectuses
and in conferences with officers and other representatives of the Company, and
your representatives and your counsel at which the contents of the Registration
Statement, the Prospectuses and related matters were discussed and, although
such counsel need not undertake to determine independently nor pass upon or
assume any responsibility, explicitly or implicitly, for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectuses on the basis of and subject to the foregoing, no
facts have come to the attention of such counsel to lead such counsel to
believe (A) that the Registration Statement (including the Rule 430A
Information, if applicable) or any amendment thereto (except for the financial
statements, supporting schedules and other financial or statistical data
included therein or omitted therefrom, as to which such counsel need
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express no opinion), as of the date the Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or (B) that the Prospectuses or any
amendment or supplement thereto (except for the financial statements,
supporting schedules and other financial or statistical data included therein
or omitted therefrom, as to which such counsel need express no opinion), at the
time the Prospectuses were issued, at the time any such amended or supplemented
prospectuses were issued or at the Closing Time, contained or contains an
untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Company's Subsidiaries and
certificates of public officials.
(c) At the Closing Time, you shall have received a signed opinion
of Philip D. Wheeler, General Counsel for the Company, dated as of the Closing
Time, together with reproduced copies of such opinion for each of the other
U.S. Underwriters, in form or substance reasonably satisfactory to Davis Polk &
Wardwell as counsel to the U.S. Underwriters, to the effect that:
(i) The Company is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which it owns
or leases property of a nature, or transacts business of a type, that would
make such qualification necessary, except to the extent that the failure to
so qualify or be in good standing would not have a material adverse effect
on the Company and the Company's Subsidiaries, considered as one
enterprise.
(ii) Each of the Company's Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with corporate power under such laws to
own, lease and operate its properties and conduct its business as described
in the Prospectuses, or except to the extent that the failure to be in good
standing would not have a material adverse effect on the Company and the
Company's Subsidiaries, considered as one enterprise.
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(iii) Each of the Company's Subsidiaries is duly qualified to transact
business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to
the extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and the Company's
Subsidiaries, considered as one enterprise.
(iv) The Offered Shares sold by the Company pursuant to this Agreement and
the International Purchase Agreement have been duly authorized and, when
issued and delivered by the Company upon receipt of the payment therefor in
accordance with this Agreement and the International Purchase Agreement,
will be validly issued, fully paid and non-assessable. Such Offered Shares
are not subject to the preemptive or other similar rights of any
stockholder of the Company arising by operation of law, under the charter
or bylaws of the Company or under any agreement known to such counsel to
which the Company or any of the Company's Subsidiaries is a party.
(v) All of the outstanding shares of capital stock of the Company other
than the Offered Shares have been duly authorized and validly issued and
are fully paid and non-assessable; and none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive or
other similar rights of any stockholder of the Company arising by operation
of law, under the charter or bylaws of the Company or under any agreements
known to such counsel to which the Company or any of the Company's
Subsidiaries is a party.
(vi) The authorized, issued and outstanding capital stock of the Company
as of November 30, 1993 was as set forth in the Prospectuses in the column
entitled "Healthtrust Actual" under the heading "Capitalization" and the
Offered Shares conform in all material respects to the description thereof
contained in the Prospectuses.
(vii) Based solely on an examination of relevant minute books and stock
records, except as disclosed in the Prospectuses, all of the outstanding
shares of capital stock of each of the Company's Subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable;
and, except as disclosed in the Registration Statement, all of such shares
are owned by the Company, directly or through one or more
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of the Company's Subsidiaries, free and clear of any pledge, lien,
perfected security interest, claim or encumbrance of any kind or, to the
knowledge of such counsel, any unperfected security interest.
(viii) To the best of such counsel's knowledge, after due inquiry, all
leases to which the Company or any of the Company's subsidiaries is a party
are valid and binding and no default has occurred or is continuing
thereunder, which might result in any material adverse change in the
business, prospects, financial condition or results of operation of the
Company and the Company's subsidiaries taken as a whole, and the Company
and the Company's subsidiaries enjoy peaceful and undisturbed possession
under all such leases to which any of them is a party as lessee with such
exceptions as do not materially interfere with the use made by the Company
or such subsidiary.
(ix) The Company and each of the Company's subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
Environmental Laws, as are necessary to own, lease and operate its
respective properties and to conduct its business in the manner described
in the Prospectus; to the best of such counsel's knowledge, after due
inquiry, the Company and each of the Company's subsidiaries has fulfilled
and performed all of its material obligations with respect to such permits
and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such permit, subject
in each case to such qualification as may be set forth in the Prospectus;
and, except as described in the Prospectus, such permits contain no
restrictions that are materially burdensome to the Company or any of the
Company's subsidiaries.
(x) Such counsel does not know of any statutes or regulations, or any
pending or threatened legal or governmental proceedings, required to be
described in the Prospectuses that are not described as required, nor of
any contracts or documents of a character required to be described or
referred to in the Registration Statement or the Prospectuses or to be
filed as exhibits to the Registration Statement that are not described,
referred to or filed as required.
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(xi) The statements made in the Prospectuses under "Health Care Reform",
"Reimbursement and Regulation", "Legal Proceedings", "Acquisition-Related
Considerations" and "ERISA Matters", to the extent that they constitute
matters of law or legal conclusions, have been reviewed by such counsel and
fairly present the information disclosed therein in all material respects.
(xii) To the knowledge of such counsel, no default exists in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, loan agreement, note, lease
or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed as an exhibit to the
Registration Statement, except as disclosed in the Registration Statement
or the Prospectuses and except for such defaults that would not have a
material adverse effect on the Company and the Company's Subsidiaries,
considered as one enterprise.
(xiii) The execution and delivery of this Agreement, the issuance and
delivery of the Offered Shares, the consummation by the Company of the
transactions contemplated in this Agreement and in the Registration
Statement (including the transactions described under the captions "The
Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization"
in the Registration Statement) and compliance by the Company with the terms
of this Agreement have been duly authorized by all necessary corporate
action on the part of the Company and do not and will not result in any
violation of the charter or by-laws of the Company or any of the Company's
Subsidiaries, and, to the knowledge of such counsel, do not and will not
conflict with, or constitute a breach of any of the terms or provisions of,
or constitute a default under, or result in the creation or imposition of
any lien or encumbrance upon any property or assets of the Company or any
of the Company's Subsidiaries under (A) any indenture, mortgage or loan
agreement or any other agreement or instrument to which the Company or any
of the Company's Subsidiaries is a party or by which it may be bound or to
which any of their respective properties may be subject, (B) any existing
applicable law, rule or regulation (other than the securities or blue sky
laws of the various states and the securities laws of any jurisdiction in
which the International Shares are offered or sold by the International
Underwriters pursuant to the International Purchase
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<PAGE> 36
Agreement, as to which such counsel need express no opinion), or (C) any
judgment, order or decree of any government, governmental instrumentality
or court having jurisdiction over the Company or any of the Company's
Subsidiaries or any of their respective properties, in each case, except as
disclosed in the Prospectuses, and except for such conflicts, breaches or
defaults or liens or encumbrances that would not have a material adverse
effect on the Company and the Company's Subsidiaries, considered as one
enterprise. Such counsel need express no opinion, however, as to whether
the execution, delivery and performance by the Company of this Agreement
will constitute a violation of, or default under, any financial covenant or
financial ratios contained in any of the agreements referred to in the
preceding sentence.
(xiv) All of the hospitals operated by the Company and the Company's
Subsidiaries are licensed under appropriate state laws for the conduct of
the business described in the Registration Statement and are certified
under the Medicare program and are "providers of services" as defined in
the Social Security Act and the regulations promulgated thereunder, and are
eligible to participate, in the Medicare program.
(xv) To the knowledge of such counsel, there has not been any violation on
the part of any of the Company's Subsidiaries of any of the terms of the
necessary consents to consummate the transactions contemplated in the
Prospectuses under the headings "The Acquisition and the Financing Plan",
"Use of Proceeds" and "Capitalization", including all the necessary
consents from holders of the Company's and EPIC's debt securities, which
violation would materially and adversely affect the consummation of any of
those transactions.
(xvi) Each of the Company and the Company's Subsidiaries own or possess
all governmental licenses, permits, certificates (including, without
limitation, certificate of need approvals), consents, orders, approvals and
other authorizations (collectively, "Governmental Licenses") necessary to
own or lease, as the case may be, and to operate its properties and to
carry on its business as presently conducted, except where the failure to
possess such Governmental Licenses could reasonably be expected to not have
a material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's Subsidiaries,
considered as one
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enterprise, and neither the Company nor any of the Company's Subsidiaries
has received any notice of proceedings relating to revocation or
modification of any such Governmental Licenses that, in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could reasonably
be expected to have a material adverse effect on the condition (financial
or otherwise), earnings or business affairs of the Company and the
Company's Subsidiaries, considered as one enterprise.
In addition, such opinion shall state that such counsel has
participated in the preparation of the Registration Statement and Prospectuses
and in conferences with officers and other representatives of the Company, and
your representatives and your counsel at which the contents of the Registration
Statement, the Prospectuses and related matters were discussed and, although
such counsel need not undertake to determine independently nor pass upon or
assume any responsibility, explicitly or implicitly, for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectuses, on the basis of and subject to the foregoing, no
facts have come to the attention of such counsel to lead such counsel to
believe (A) that the Registration Statement (including the Rule 430A
Information, if applicable) or any amendment thereto (except for the financial
statements, supporting schedules and other financial or statistical data
included therein or omitted therefrom, as to which such counsel need express no
opinion), as of the date the Registration Statement or any such amendment
became effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or (B) that the Prospectus or any amendment
or supplement thereto (except for the financial statements, supporting
schedules and other financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no opinion), at the time the
Prospectuses were issued, at the time any such amended or supplemented
prospectuses were issued or at the Closing Time, contained or contains an
untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Company's Subsidiaries and
certificates of public officials.
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(d) At the Closing Time, you shall have received a signed opinion
of Johnson & Gibbs, Counsel for EPIC, dated as of the Closing Time, together
with reproduced copies of such opinion for each of the other U.S. Underwriters,
in form or substance reasonably satisfactory to Davis Polk & Wardwell as
counsel to the U.S. Underwriters, to the effect that:
(i) EPIC is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware with corporate power under
such laws to own, lease and operate its properties and conduct its business
as described in the Prospectus.
(ii) EPIC is duly qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction in which it owns or leases
property of a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
EPIC and EPIC's Subsidiaries, considered as one enterprise.
(iii) Each of EPIC's subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation with corporate power under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectuses, or except to the extent that the failure to be in good
standing would not have a material adverse effect on EPIC and EPIC's
Subsidiaries, considered as one enterprise.
(iv) Each of EPIC's Subsidiaries is duly qualified to transact business as
a foreign corporation and is in good standing in each other jurisdiction in
which it owns or leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except to the extent
that the failure to so qualify or be in good standing would not have a
material adverse effect on EPIC and EPIC's Subsidiaries, considered as one
enterprise.
(v) All of the outstanding shares of capital stock of EPIC have been duly
authorized and validly issued and are fully paid and non-assessable; and
none of the outstanding shares of capital stock of EPIC was issued in
violation of the preemptive or other similar rights of any stockholder of
EPIC arising by operation of law, under the charter or bylaws of EPIC or
under any
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agreements known to such counsel to which EPIC or any of EPIC's
Subsidiaries is a party.
(vi) The authorized, issued and outstanding capital stock of EPIC as of
November 30, 1993 was as set forth in the Prospectuses in the column
entitled "EPIC Actual" under the heading "Capitalization".
(vii) All of the outstanding shares of capital stock of each of EPIC's
Subsidiaries have been duly authorized and validly issued and are fully
paid and non-assessable; and, except as disclosed in the Registration
Statement, all of such shares are owned by EPIC, directly or through one or
more of EPIC's Subsidiaries, free and clear of any pledge, lien, perfected
security interest, claim or encumbrance of any kind or, to the knowledge of
such counsel, any unperfected security interest.
(viii) Such counsel does not know of any statutes or regulations, or any
pending or threatened legal or governmental proceedings, required to be
described in the Prospectuses that are not described as required, nor of
any contracts or documents of a character required to be described or
referred to in the Registration Statement or the Prospectuses or to be
filed as exhibits to the Registration Statement that are not described,
referred to or filed as required.
(ix) To the knowledge of such counsel, no default exists in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, loan agreement, note, lease
or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed as an exhibit to the
Registration Statement, except as disclosed in the Registration Statement
or the Prospectuses and except for such defaults that would not have a
material adverse effect on EPIC and EPIC's Subsidiaries, considered as one
enterprise.
(x) The consummation by EPIC of the transactions contemplated in its Offer
to Purchase and Consent Solicitation dated March __, 1994 have been duly
authorized by all necessary corporate action on the part of EPIC and does
not and will not result in any violation of the charter or by-laws of EPIC
or any of EPIC's Subsidiaries, and, to the knowledge of such counsel, does
not and will not conflict with, or constitute a breach of any of the terms
or provisions
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of, or constitute a default under, or result in the creation or imposition
of any lien or encumbrance upon any property or assets of EPIC or any of
EPIC's Subsidiaries under (A) any indenture, mortgage or loan agreement or
any other agreement or instrument to which EPIC or any of EPIC's
Subsidiaries is a party or by which it may be bound or to which any of
their respective properties may be subject, (B) any existing applicable
law, rule or regulation (other than the securities or blue sky laws of the
various states and the securities laws of any jurisdiction in which the
International Shares are offered or sold by the International Underwriters
pursuant to the International Purchase Agreement, as to which such counsel
need express no opinion), or (C) any judgment, order or decree of any
government, governmental instrumentality or court having jurisdiction over
EPIC or any of EPIC's Subsidiaries or any of their respective properties,
in each case, except as disclosed in the Prospectuses, and except for such
conflicts, breaches or defaults or liens or encumbrances that would not
have a material adverse effect on EPIC and EPIC's Subsidiaries, considered
as one enterprise.
(xi) All of the hospitals operated by EPIC and EPIC's Subsidiaries are
licensed under appropriate state laws for the conduct of the business
described in the Registration Statement and are certified under the
Medicare program and are "providers of services" as defined in the Social
Security Act and the regulations promulgated thereunder, and are eligible
to participate in the Medicare program.
(xii) To the knowledge of such counsel, there has not been any violation
on the part of any of EPIC's Subsidiaries of any of the terms of the
necessary consents to consummate the transactions contemplated in the
Prospectuses under the heading "The Acquisition and the Financing Plan",
"Use of Proceeds" and "Capitalization" including all the necessary consents
from holders of the Company's and EPIC's debt securities, which violation
would materially and adversely affect the consummation of the Acquisition
or the Financing Plan.
(xiii) EPIC is not an investment company under the Investment Company Act
of 1940.
(xiv) None of (i) the termination by EPIC of future contributions to the
EPIC ESOP, (ii) the discharge of
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that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust
that exceeds the fair market value of the shares of the EPIC Common Stock
transferred by the EPIC Trustee to EPIC, or (iii) relying on the [
] opinion to be delivered pursuant to Section [5(d)] of this
Agreement (and incorporating the caveats and assumptions contained
therein), the transfer by the EPIC Trustee to EPIC of shares of EPIC
Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's
loans to the ESOP Trust, each as contemplated by the Registration
Statement, should constitute a violation of or result in any liability
under ERISA or the Code (including, without limitation, any tax under
Section 4978B of the Code).
(xv) EPIC and EPIC's Subsidiaries own or possess all governmental
licenses, permits, certificates (including, without limitation, certificate
of need approvals), consents, orders, approvals and other authorizations
(collectively, "Governmental Licenses") necessary to own or lease, as the
case may be, and to operate its properties and to carry on its business as
presently conducted, except where the failure to possess such Governmental
Licenses could reasonably be expected to not have a material adverse effect
on the condition (financial or otherwise), earnings or business affairs of
EPIC and EPIC's Subsidiaries, considered as one enterprise, and neither
EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings
relating to revocation or modification of any such Governmental Licenses
that, in the aggregate, if the subject of an unfavorable decision, ruling
or finding, could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), earnings or business affairs of
EPIC and EPIC's Subsidiaries, considered as one enterprise.
(e) At the Closing Time, you shall have received a signed opinion
of [ ], counsel for the Selling Shareholders, dated as of the
Closing Time, together with reproduced copies of such opinion for each of the
other U.S. Underwriters, in form or substance reasonably satisfactory to Davis
Polk & Wardwell as counsel to the U.S. Underwriters, to the effect that:
(i) This Agreement has been duly authorized, executed and delivered by or
on behalf of each Selling Shareholder.
(ii) The execution and delivery by the Selling Shareholders of, and the
performance by the Selling
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Shareholders of their obligations under, this Agreement, the Custody
Agreement signed by the Selling Shareholders and [ ], as Custodian,
relating to the deposit of the Shares to be sold by the Selling
Shareholders (the "Custody Agreement") and the Power of Attorney appointing
certain individuals as the Selling Shareholders' attorneys-in-fact to the
extent set forth therein, relating to the transactions contemplated hereby
and by the Registration Statement (the "Power of Attorney") will not
contravene any provision of applicable law, or the certificate of
incorporation or by-laws of any Selling Shareholder (if such Selling
Shareholder is a corporation), or any agreement or other instrument binding
upon any Selling Shareholder or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such Selling
Shareholder, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by any Selling Shareholder of its obligations under this
Agreement or the Custody Agreement or Power of Attorney of such Selling
Shareholder, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares.
(iii) Such Selling Shareholder has, and on the Closing Date will have,
valid marketable title to the Shares to be sold by such Selling Shareholder
and the legal right and power, and all authorization and approval required
by law, to enter into this Agreement, the Custody Agreement and the Power
of Attorney and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder.
(iv) The Shares to be sold by each Selling Shareholder pursuant to this
Agreement have been duly authorized and are validly issued, fully paid and
non-assessable.
(v) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by each Selling Shareholder and are
valid and binding agreements of each such Selling Shareholder.
(vi) Delivery of the Shares to be sold by each Selling Shareholder
pursuant to this Agreement will pass marketable title to such Shares free
and clear of any security interests, claims, liens, equities and other
encumbrances.
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(vii) The execution, delivery and performance of this Agreement by the
Selling Shareholders, compliance by the Selling Shareholders with all the
provisions hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body (except as such may be required under the Act, state securities laws
or Blue Sky laws) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, the charter or by-laws
of the Selling Shareholders, or any agreement, indenture or other
instrument to which the Selling Shareholders are a party or by which the
Selling Shareholders or their respective property are bound (other than
those as to which requisite waivers or consents have been obtained), or
violate or conflict with any laws, administrative regulation or ruling or
court decree applicable to the Selling Shareholders or their respective
property.
(viii) None of the Selling Shareholders is an investment company under the
Investment Company Act of 1940.
Such counsel may also state that, insofar as such opinion involved
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Subsidiaries and certificates
of public officials.
(f) At the Closing Time, you shall have received a signed opinion
of Dewey Ballantine, dated as of the Closing Time, together with reproduced
copies of such opinion for each of the other U.S. Underwriters, in form or
substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the
U.S. Underwriters, to the effect that the transfer by the EPIC Trustee to EPIC
of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction
of EPIC's loans to the EPIC ESOP Trust, as contemplated by the Registration
Statement, will meet the requirements of Section 404, 406 and 408(e)(1) of
ERISA.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of EPIC and its Subsidiaries and certificates of
public officials.
(g) At the Closing Time, you shall have received the favorable
opinion of Davis Polk & Wardwell as counsel
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for the U.S. Underwriters, dated as of the Closing Time, together with
reproduced copies of such opinion for each of the other U.S. Underwriters, to
the effect that the opinions delivered pursuant to Sections 5(b), (c) and (d)
appear on their face to be appropriately responsive to the requirements of this
Agreement except, specifying the same, to the extent waived by you, and with
respect to the incorporation and legal existence of the Company, the Offered
Shares, this Agreement, the Registration Statement, the transactions
contemplated under the captions "The Acquisition and Financing Plan", "Use of
Proceeds" and "Capitalization" in the Registration Statement, the Prospectuses
and such other related matters as you may require. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York, the federal law of the United States and
the corporate law of the State of Delaware, upon the opinions of counsel
satisfactory to you. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and the Company's Subsidiaries and
certificates of public officials.
(h) At the Closing Time, (i) the Registration Statement and
the Prospectuses, as they may then be amended or supplemented, shall conform in
all material respects to the requirements of the 1933 Act and the 1933 Act
Regulations, the Company shall have complied in all material respects with Rule
430A (if it shall have elected to rely thereon), the Registration Statement, as
it may then be amended or supplemented, shall not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements in the Registration Statement not
misleading, and the Prospectuses, as they may then be amended or supplemented,
shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
in the Prospectuses, in light of the circumstances under which they were made,
not misleading, (ii) there shall not have been, since the respective dates as
of which information is given in the Registration Statement and the
Prospectuses, any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's Subsidiaries,
considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as
one enterprise, whether or not arising in the ordinary course of business,
(iii) no action, suit or proceeding at law or in equity shall be pending or, to
the
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knowledge of the Company, threatened against the Company, any of the Company's
Subsidiaries, EPIC or any of EPIC's Subsidiaries that would be required to be
set forth in the Prospectuses other than as set forth therein and no
proceedings shall be pending or, to the knowledge of the Company, threatened
against the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's
Subsidiaries before or by any federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding could
reasonably be expected to materially adversely affect the condition (financial
or otherwise), earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries,
considered as one enterprise, other than as set forth in the Prospectuses, (iv)
the Company shall have complied in all material respects with all agreements
and satisfied in all material respects all conditions on its part to be
performed or satisfied at or prior to the Closing Time, (v) the Selling
Shareholders shall have complied in all material respects with all agreements
and satisfied in all material respects all conditions on its part to be
performed or satisfied at or prior to the Closing Time, and (vi) the other
representations and warranties of the Company set forth in Section 1(a) shall
be accurate as though expressly made at and as of the Closing Time. At the
Closing Time, you shall have received certificates of the President or a Vice
President and the Treasurer or the Controller of the Company and of EPIC, dated
as of the Closing Time, to such effect.
(i) On the date of this Agreement and at the Closing Time, Ernst
& Young, independent public accountants with respect to the Company, shall have
furnished to you letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, containing statements and information
of the type customarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(j) On the date of this Agreement and at the Closing Time, Ernst
& Young, independent public accountants with respect to EPIC, shall have
furnished to you letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, containing statements and information
of the type customarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements of EPIC and certain
financial information contained or incorporated by reference in the
Registration Statement and the Prospectuses.
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(k) At the Closing Time, counsel for the U.S. Underwriters shall
have been furnished with all such documents, certificates and opinions as they
may reasonably request for the purpose of enabling them to pass upon the
issuance and sale of the Offered Shares as contemplated in this Agreement and
the matters referred to in Section 5(e) and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all proceedings
taken by the Company at or prior to the Closing Time in connection with the
authorization, issuance and sale of the Offered Shares as contemplated in this
Agreement shall be reasonably satisfactory in form and substance to you and to
Davis Polk & Wardwell as counsel for the U.S. Underwriters.
(l) EPIC shall have terminated future contributions to the EPIC
ESOP, discharged that portion of the principal amount of EPIC's loans to the
EPIC ESOP Trust that exceeds the fair market value of the shares of EPIC Common
Stock transferred by the EPIC Trustee to EPIC, and reacquired all of the shares
of EPIC Common Stock held by the EPIC ESOP at the time of termination of EPIC's
contributions to the EPIC ESOP and not allocated to the accounts of
participants in the EPIC ESOP, and EPIC shall have terminated the Grantor Trust
(as such term is defined in the Registration Statement) and consummated the
transactions contemplated by such termination substantially in the manner
described in the Prospectuses.
(m) The Company shall have consummated the Acquisition (as
defined in the Registration Statement). The Company shall have provided to you
and Davis Polk & Wardwell as counsel for the U.S. Underwriters copies of all
documents with respect to the consummation of the Acquisition as you or Davis
Polk & Wardwell may reasonably request.
(n) The transactions contemplated in the Prospectuses under the
headings "The Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization" shall have been duly authorized by the Company; all of the
necessary consents to consummate such transactions shall have been obtained,
except where the failure to obtain such consents would not have a material
adverse effect on such transactions; there shall not be any violation on the
part of the Company or the Company's Subsidiaries of any of the terms of such
consents that could reasonably be expected to materially and adversely affect
the consummation of such transactions; and there shall not be any pending or
threatened legal or governmental proceedings with respect to
45
<PAGE> 47
any consents or the transactions contemplated in the Prospectuses (including
the transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses)
that could reasonably be expected to materially and adversely affect such
transactions.
(o) You shall have received on the Closing Date, a certificate of
each Selling Shareholder who is not a U.S. Person to the effect that such
Selling Shareholder is not a U.S. Person (as defined under applicable U.S.
federal tax legislation), which certificate may be in the form of a properly
completed and executed United States Treasury Department Form W-8 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement may be terminated by you upon notice to the Company at any time
at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4
herein. Notwithstanding any such termination, the provisions of Sections 7 and
8 herein shall remain in effect.
Section 6. Conditions to Purchase of U.S. Option Shares. In the
event that the U.S. Underwriters exercise their option granted in Section 2 to
purchase all or any of the U.S. Option Shares and the Date of Delivery
determined by you pursuant to Section 2 is later than the Closing Time, the
obligations of the several U.S. Underwriters to purchase and pay for the U.S.
Option Shares that they shall have respectively agreed to purchase pursuant to
this Agreement are subject to the accuracy of the representations and
warranties of the Company herein contained, to the performance by the Company
of its obligations hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective at the Date
of Delivery, and at the Date of Delivery no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or to the knowledge of the Company,
shall have been threatened by the Commission, and any request on the part of
the Commission for additional information shall have been complied with to the
reasonable satisfaction of Davis Polk & Wardwell as counsel for the U.S.
Underwriters.
46
<PAGE> 48
(b) At the Date of Delivery, the provisions of Section 5(f) shall
have been complied with at and as of the Date of Delivery and, at the Date of
Delivery, you shall have received a certificate of the President or a Vice
President and the Treasurer or the Controller of the Company with respect to
the provisions of Section 5(f), dated as of the Date of Delivery, to such
effect.
(c) At the Date of Delivery, you shall have received the
favorable opinions of Dewey Ballantine, counsel for the Company, Philip D.
Wheeler, General Counsel for the Company, Johnson & Gibbs, Counsel for EPIC
[ ], or such other counsel reasonably satisfactory to Davis Polk &
Wardwell as counsel for the U.S. Underwriters together with reproduced copies
of such opinions for each of the other U.S. Underwriters in form and substance
satisfactory to Davis Polk & Wardwell as counsel for the U.S. Underwriters,
dated as of the Date of Delivery, relating to the U.S. Option Shares and
otherwise to the same effect as the opinions required by Sections 5(b), (c) and
(d).
(d) At the Date of Delivery, you shall have received the
favorable opinion of Davis Polk & Wardwell, counsel for the U.S. Underwriters,
dated as of the Date of Delivery, relating to the U.S. Option Shares and
otherwise to the same effect as the opinion required by Section 5(e).
(e) At the Date of Delivery, you shall have received a letter
from Ernst & Young, in form and substance satisfactory to you and dated as of
the Date of Delivery, to the effect that they reaffirm the statements made in
the letter furnished pursuant to Section 5(g), except that the specified date
referred to shall be a date not more than five days prior to the Date of
Delivery.
(f) At the Date of Delivery, Davis Polk & Wardwell as counsel for
the U.S. Underwriters shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the purpose of
enabling them to pass upon the issuance and sale of the U.S. Option Shares as
contemplated in this Agreement and the matters referred to in Section 6(d) and
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company, the performance of
any of the covenants of the Company, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company at or
prior to the Date of Delivery in connection with the authorization, issuance
and sale of the U.S. Option Shares as contemplated in this Agreement shall be
reasonably satisfactory in form and substance to you and
47
<PAGE> 49
to Davis Polk & Wardwell as counsel for the U.S. Underwriters.
Section 7. Indemnification. (a) The Company and the Selling
Shareholders agree to indemnify and hold harmless each U.S. Underwriter and
each person, if any, who controls any U.S. Underwriter within the meaning of
Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of an untrue statement or alleged
untrue statement of a material fact included in any preliminary prospectus
or the Prospectuses (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to the last sentence of Section 7(c), fees and disbursements of
counsel chosen by you to represent the U.S. Underwriters), reasonably
incurred in investigating, preparing or defending against any litigation,
or investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under subparagraph (i) or (ii)
above;
provided, however, that with respect to the indemnity provided by the Selling
Shareholders, the indemnity shall
48
<PAGE> 50
only apply to information relating to the Selling Shareholders furnished or
confirmed in writing by or on behalf of the Selling Shareholders for use in the
Registration Statement (or any amendments thereto); and provided, further, that
this indemnity does not apply to any loss, liability, claim, damage or expense
to the extent arising out of an untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
furnished or confirmed in writing to the Company by or on behalf of any
Underwriter through you or the International Representatives expressly for use
in the Registration Statement (or any amendment thereto), including the Rule
430A Information, if applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto); and provided further
that the foregoing indemnification with respect to any untrue statement
contained in or any omission from a preliminary prospectus shall not inure to
the benefit of any U.S. Underwriter (or any person controlling such U.S.
Underwriter) from whom the person asserting any such losses, claims, damages,
liabilities, or expenses purchased any of the Offered Shares if a copy of the
Prospectus (or the Prospectus as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such U.S. Underwriter to such person, if such is required by
law, at or prior to the written confirmation of the sale of such Offered Shares
to such person and the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or expense.
(b) Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, the Selling Shareholders and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act, against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 7(a), as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information, if applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) in reliance upon and in
conformity with information furnished or confirmed in writing to the Company by
or on behalf of such U.S. Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, if applicable, or such preliminary prospectus or the Prospectuses
(or any amendment or supplement thereto).
49
<PAGE> 51
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of such action. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
Section 8. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnity provided for
in Section 7 is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Shareholders and the U.S. Underwriters shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity incurred by the Company, one or more of the
Selling Shareholders and one or more of the U.S. Underwriters, as incurred, in
such proportions that (a) the U.S. Underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
on the cover page of the Prospectuses bears to the initial public offering
price appearing thereon and (b) the Company and the Selling Shareholders are
responsible for the balance; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section, each person,
if any, who controls a U.S. Underwriter within the meaning of Section 15 of the
1933 Act shall have the same rights to contribution as such U.S. Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Company.
Section 9. Representations, Warranties and Agreements to Survive
Delivery. The representations, warranties, indemnities, agreements and other
statements of the Company, the Selling Shareholders and the U.S. Underwriters
or their respective officers set forth in or made pursuant to this Agreement
will remain operative and in full force and effect regardless of any
investigation made
50
<PAGE> 52
by or on behalf of the Company, any of the Selling Shareholders or any U.S.
Underwriter or controlling person and will survive delivery of and payment for
the Offered Shares.
Section 10. Termination of Agreement. (a) You may terminate
this Agreement, by notice to the Sellers, at any time at or prior to the
Closing Time (i) if there has been, since the respective dates as of which
information is given in the Registration Statement, any material adverse
change, or any development involving a prospective material adverse change, in
the condition (financial or otherwise), earnings or business affairs of the
Company and the Company's Subsidiaries, considered as one enterprise, or of
EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or any
outbreak of hostilities or escalation of existing hostilities or other calamity
or crisis the effect of which is such as to make it, in your reasonable
judgment, impracticable to market the U.S. Shares or enforce contracts for the
sale of the U.S. Shares, or (iii) if trading in any securities of the Company
has been suspended by the Commission, or if trading generally on the New York
Stock Exchange or in the over-the-counter market has been suspended, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by such exchange or by order of the Commission
or any other governmental authority, or (iv) if a banking moratorium has been
declared by either federal or New York authorities.
(b) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party,
except to the extent provided in Section 4. Notwithstanding any such
termination, the provisions of Sections 7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the provisions
of Section 2(c), with the effect stated in such Section.
Section 11. Default by One or More of the U.S. Underwriters. If
one or more of the U.S. Underwriters shall fail at the Closing Time to purchase
the Initial U.S. Shares that it or they are obligated to purchase pursuant to
this Agreement (the "Defaulted U.S. Shares"), you shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
U.S. Underwriters, or any other underwriters, to purchase all, but not less
than all, of the Defaulted U.S. Shares in such amounts as may be
51
<PAGE> 53
agreed upon and upon the terms set forth in this Agreement; if, however, you
have not completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted U.S. Shares does not exceed 10% of
the total number of Initial U.S. Shares, the non-defaulting U.S.
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective Initial U.S. Share underwriting
obligation proportions bear to the underwriting obligation proportions of
all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted U.S. Shares exceeds 10% of the
total number of Initial U.S. Shares, this Agreement shall terminate without
liability on the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting U.S. Underwriter from liability in respect of its default.
In the event of any such default that does not result in a
termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectuses or in
any other documents or arrangements. As used herein, the term "U.S.
Underwriter" includes any person substituted for a U.S. Underwriter under this
Section 11.
Section 12. Agreements of the Selling Shareholders. The Selling
Shareholders severally agree with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with respect
to the Shares to be sold by the Selling Shareholders; and
(b) To take all reasonable actions in cooperation with the
Company and the Underwriters to cause the Registration Statement to become
effective at the earliest possible time, to do and perform all things to be
done and performed under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares pursuant to
this Agreement.
Section 13. Default by the Company. If the Company shall fail at
the Closing Time to sell and deliver the number of Offered Shares that it is
obligated to sell, then this Agreement shall terminate without any liability on
52
<PAGE> 54
the part of any non-defaulting party except to the extent provided in Section 4
and except that the provisions of Sections 7 and 8 shall remain in effect.
No action taken pursuant to this Section shall relieve the Company
from liability, if any, in respect of such default.
Section 14. Notices. All notices and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if delivered, mailed or transmitted by any standard form of telecommunication
(notices transmitted by telecopier to be promptly confirmed in writing).
Notices to you or the U.S. Underwriters shall be directed to you c/o Merrill
Lynch, Pierce, Fenner & Smith Incorporated at Merrill Lynch World Headquarters,
North Tower, World Financial Center, New York, New York 10281, attention of
Raymond L.M. Wong; and notices to the Company shall be directed to it at 4525
Harding Road, Nashville, Tennessee 37205 (telecopier no.: (615) 298-6377),
attention of Philip D. Wheeler, Esq.
Section 15. Parties. This Agreement is made solely for the
benefit of the several U.S. Underwriters and the Company and, to the extent
expressed, any person controlling the Company or any of the U.S. Underwriters,
and the directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns and, subject to the provisions of Section 11, no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from any of the several U.S. Underwriters of the U.S. Shares. All of the
obligations of the U.S. Underwriters hereunder are several and not joint.
Section 16. Representation of U.S. Underwriters. You will act
for the several U.S. Underwriters in connection with this offering, and any
action under or in respect of this Agreement taken by you as U.S.
Representatives will be binding upon all the U.S. Underwriters.
Section 17. Governing Law and Time. This Agreement shall be
governed by the laws of the State of New York. Specified times of the day
refer to New York City time.
Section 18. Counterparts. This Agreement may be executed in one
or more counterparts and, when a counterpart has been executed by each party,
all such counterparts taken together shall constitute one and the same
agreement.
53
<PAGE> 55
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company and the several
U.S. Underwriters in accordance with its terms.
Very truly yours,
HEALTHTRUST, INC. - THE HOSPITAL
COMPANY
By____________________________
Name:
Title:
EACH OF THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE I HERETO
By______________________________
Name:
Title: Attorney-in-Fact
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By_________________________
Name:
Title:
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A.
54
<PAGE> 56
Exhibit A
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(a Delaware corporation)
__________ Shares
of Common Stock
U.S. PRICE DETERMINATION AGREEMENT
April __, 1994
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Dear Sirs:
Reference is made to the U.S. Purchase Agreement dated April __,
1994 (the "U.S. Purchase Agreement") among Healthtrust, Inc. - The Hospital
Company, a Delaware corporation (the "Company"), and the several U.S.
Underwriters named in Schedule A thereto or hereto (the "U.S. Underwriters"),
for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting
as representatives (the "U.S. Representatives"). The U.S. Purchase Agreement
provides for the purchase by the U.S. Underwriters from the Company, subject to
the terms and conditions set forth therein, of an aggregate of __________
shares (the "Initial U.S. Shares") of the Company's common stock, par value
$.001 per share. This Agreement is the U.S. Price Determination Agreement
referred to in the U.S. Purchase Agreement.
Pursuant to Section 2 of the U.S. Purchase Agreement, the
undersigned agree with the U.S. Representatives as follows:
<PAGE> 57
1. The initial public offering price per share for the Initial
U.S. Shares shall be $_____.
2. The purchase price per share for the Initial U.S. Shares to be
paid by the several U.S. Underwriters shall be $_____, representing an
amount equal to the initial public offering price set forth above, less
$_____ per share.
The Company represents and warrants to each of the U.S.
Underwriters that the representations and warranties of the Company set forth
in Section 1(a) of the U.S. Purchase Agreement are accurate as though expressly
made at and as of the date hereof.
As contemplated by Section 2 of the U.S. Purchase Agreement,
attached as Schedule A is a completed list of the several U.S. Underwriters,
which shall be a part of this Agreement and the U.S. Purchase Agreement.
This Agreement shall be governed by the laws of the State of New
York.
If the foregoing is in accordance with the understanding of the
U.S. Representatives of the agreement between the U.S. Underwriters and the
Company, please sign and return to the Company a counterpart hereof, whereupon
this instrument along with all counterparts and together with the U.S. Purchase
Agreement shall be a binding
2
<PAGE> 58
agreement among the U.S. Underwriters and the Company in accordance with its
terms and the terms of the U.S. Purchase Agreement.
Very truly yours,
HEALTHTRUST, INC. - THE HOSPITAL
COMPANY
By______________________________
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By_________________________
Name:
Title:
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A
attached to the U.S. Purchase Agreement.
3
<PAGE> 59
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial U.S. Shares
Underwriter to be Purchased
----------- -------------------
<S> <C>
Merrill Lynch, Pierce, Fenner
& Smith Incorporated . . . . . . . . . . . . . . . . . . .
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . . . .
=========
</TABLE>
<PAGE> 1
EXHIBIT 2.4
------------------------------------------------------------
------------------------------------------------------------
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(A DELAWARE CORPORATION)
[ ] SHARES OF COMMON STOCK
INTERNATIONAL PURCHASE AGREEMENT
DATED: APRIL __,1994
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 2
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(A DELAWARE CORPORATION)
[ ] SHARES OF COMMON STOCK
INTERNATIONAL PURCHASE AGREEMENT
April __, 1994
MERRILL LYNCH INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
As Representatives of
the several Managers
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
Healthtrust, Inc. - The Hospital Company, a Delaware
corporation (the "Company"), proposes to issue and sell to the managers named
in Schedule A (collectively, the "Managers"), for whom you are acting as
Co-Lead Managers (the "Co-Lead Managers"), an aggregate of [ ] shares of
the Company's Common Stock, par value $.001 per share (shares of which class of
stock of the Company are hereinafter referred to as "Common Stock") and certain
shareholders of the Company (the "Selling Shareholders") named in Schedule I
hereto severally propose to sell to the several Managers, an aggregate of [
] shares of Common Stock. Such shares of Common Stock are to be sold to each
Manager, acting severally and not jointly, in such amounts as are set forth in
Schedule A opposite the name of such Manager. The Company also grants to the
Managers, severally and not jointly, the option described in Section 2 to
purchase all or any part of [ ] additional shares of Common Stock to
cover over-allotments. The aforesaid [ ] shares of Common Stock (the
"Initial International Shares"), together with all or any part of the [ ]
additional shares of Common Stock subject to the option described in Section 2
(the "International Option Shares"), are collectively herein called the
"International Shares". The International Shares are more fully described in
the International Prospectus referred to below. The Company and the Selling
Shareholders are hereinafter sometimes collectively referred to as the Sellers.
2
<PAGE> 3
It is understood that the Sellers are concurrently entering
into an agreement, dated the date hereof (the "U.S. Purchase Agreement"),
providing for issuance and sale by the Company of [ ] shares of Common
Stock and the sale by the Selling Shareholders of [ ] shares of Common
Stock (together, the "Initial U.S. Shares") through arrangements with certain
underwriters in the United States (the "U.S. Underwriters"), for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as representatives (the "U.S.
Representatives"), and the grant by the Company to the U.S. Representatives of
an option to purchase all or any part of [ ] additional shares of Common
Stock (the "U.S. Option Shares") to cover over-allotments. The Initial U.S.
Shares and the U.S. Option Shares are hereinafter collectively referred to as
the "U.S. Shares". The U.S. Shares and the International Shares are
hereinafter collectively referred to as the "Offered Shares".
The Sellers understand that the Managers will simultaneously
enter into an agreement with the U.S. Underwriters dated the date hereof (the
"Intersyndicate Agreement") providing for the coordination of certain
transactions among the Managers and the U.S. Underwriters, under the direction
of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
You have advised us that you and the other Managers, acting
severally and not jointly, desire to purchase the International Shares and, if
the Managers so elect, the International Option Shares, and that you have been
authorized by the other Managers to execute this Agreement and the
International Price Determination Agreement referred to below on their behalf.
The initial public offering price per share for the
International Shares and the purchase price per share for the International
Shares to be paid by the several Managers shall be agreed upon by the Company
and the Co-Lead Managers, acting on behalf of the several Managers, and such
agreement shall be set forth in a separate written instrument substantially in
the form of Exhibit A hereto (the "International Price Determination
Agreement"). The International Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication between the
Company and the Co-Lead Managers and shall specify such applicable information
as is indicated in Exhibit A hereto. The offering of the International Shares
will be governed by this Agreement, as supplemented by the International Price
Determination Agreement. From and after the date of the execution and delivery
of the International Price
3
<PAGE> 4
Determination Agreement, this Agreement shall be deemed to incorporate, and all
references herein to "this Agreement" or "herein" shall be deemed to include,
the International Price Determination Agreement.
The initial public offering price per share and the purchase
price per share for the U.S. Shares to be paid by the U.S. Underwriters
pursuant to the U.S. Purchase Agreement shall be set forth in a separate
agreement (the "U.S. Price Determination Agreement"), the form of which is
attached to the U.S. Purchase Agreement. The purchase price per share for the
U.S. Shares to be paid by the several U.S. Underwriters shall be identical to
the purchase price per share for the International Shares to be paid by the
several Managers hereunder.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(File No. 33- ) covering the registration of the Offered Shares under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectuses, and either (A) has prepared and proposes to file,
prior to the effective date of such registration statement, an amendment to
such registration statement, including final prospectuses, or (B) if the
Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations"),
will prepare and file prospectuses, in accordance with the provisions of Rule
430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly
after execution and delivery of the International Price Determination
Agreement.(1) The information, if any, included in such prospectuses that was
omitted from any prospectus included in such registration statement at the time
it becomes effective but that is deemed, pursuant to Rule 430A(b), to be part
of such registration statement at the time it becomes effective is referred to
herein as the "Rule 430A Information". Each Form of International Prospectus
and Form of U.S. Prospectus used before the time such registration
- --------------------
(1)Two forms of prospectus are to be used in connection with
the offering and sale of the Offered Shares: one relating to the
International Shares (the "Form of International Prospectus") and
one relating to the U.S. Shares (the "Form of U.S. Prospectus").
The Form of International Prospectus is identical to the Form of
U.S. Prospectus, except for the front cover page, inside front
cover page, the sections captioned "Underwriting" and "Certain
United States Tax Consequences to Non-United States Holders" and
the back cover page.
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statement becomes effective, and any Form of International Prospectus and Form
of U.S. Prospectus that omits the Rule 430A Information that is used after such
effectiveness and prior to the execution and delivery of the International
Price Determination Agreement or the U.S. Price Determination Agreement,
respectively, is herein called a "preliminary prospectus". Such registration
statement, including the exhibits thereto, as amended at the time it becomes
effective and including, if applicable, the Rule 430A Information, is herein
called the "Registration Statement", and the Form of International Prospectus
and Form of U.S. Prospectus included in the Registration Statement at the time
it becomes effective is herein called the "International Prospectus" and the
"U.S. Prospectus", respectively, and, collectively, the "Prospectuses" and,
individually, a "Prospectus", except that, if the final International
Prospectus or U.S. Prospectus, as the case may be, first furnished to the
Managers or the U.S. Underwriters after the execution of the International
Price Determination Agreement or the U.S. Price Determination Agreement for use
in connection with the offering of the Offered Shares differs from the
prospectuses included in the Registration Statement at the time it becomes
effective (whether or not such prospectuses are required to be filed pursuant
to Rule 424(b)), the terms "International Prospectus", "U.S. Prospectus",
"Prospectuses" and "Prospectus" shall refer to the final International
Prospectus or U.S. Prospectus, as the case may be, first furnished to the
Managers or the U.S. Underwriters, as the case may be, for such use.
The Sellers understand that the Managers propose to make a
public offering of the International Shares as soon as you deem advisable after
the Registration Statement becomes effective and the International Price
Determination Agreement has been executed and delivered.
Section 1. Representations and Warranties. (a) The Company
represents and warrants to and agrees with each of the Managers that:
(i) When the Registration Statement shall become
effective, if the Company has elected to rely upon Rule 430A, on the
date of the International Price Determination Agreement, on the
effective or issue date of each amendment or supplement to the
Registration Statement or the Prospectuses, at the Closing Time
referred to below, and, if any International Option Shares are
purchased, on the Date of Delivery referred to below, (A) the
Registration Statement and any amendments and supplements thereto will
comply in all material respects with the requirements of the 1933 Act
and the
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<PAGE> 6
1933 Act Regulations; (B) neither the Registration Statement nor any
amendment or supplement thereto will contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
and (C) neither of the Prospectuses nor any amendment or supplement to
either of them will include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, this
representation and warranty does not apply to statements or omissions
from the Registration Statement or the Prospectuses made in reliance
upon and in conformity with information furnished or confirmed in
writing to the Company by or on behalf of any Manager through you or
the U.S. Representatives expressly for use in the Registration
Statement or the Prospectuses.
(ii) This Agreement has been duly authorized,
executed and delivered by the Company.
(iii) The consolidated financial statements
included in the Registration Statement present fairly the consolidated
financial position of the Company and the Company's Subsidiaries (as
hereinafter defined) as of the dates indicated and the consolidated
statements of operations, stockholders' equity and cash flows of the
Company and the Company's Subsidiaries for the periods specified.
Except as otherwise stated in the Registration Statement, such
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved. The financial statement schedules,
if any, included in the Registration Statement present fairly the
information required to be stated therein. The pro forma financial
statements and other pro forma financial information included in the
Prospectuses present fairly the information shown therein, have been
prepared in all material respects in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements,
have been properly compiled on the pro forma bases described therein,
and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances
referred to therein.
(iv) The consolidated financial statements
included in the Registration Statement present fairly the
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<PAGE> 7
consolidated financial position of EPIC and EPIC's Subsidiaries (as
hereinafter defined) as of the dates indicated and the consolidated
statements of operations, stockholders' equity and cash flows of EPIC
and EPIC's Subsidiaries for the periods specified. Except as
otherwise stated in the Registration Statement, such financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved, and the financial statement schedules, if any,
included in the Registration Statement present fairly the information
required to be stated therein.
(v) The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of
the State of Delaware with corporate power under such laws to own,
lease and operate its properties and conduct its business as described
in the Prospectuses; and the Company is duly qualified to transact
business as a foreign corporation and is in good standing in each
other jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or be
in good standing would not have a material adverse effect on the
Company and the Company's Subsidiaries, considered as one enterprise.
(vi) EPIC is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware with corporate power under such laws to own, lease and
operate its properties and conduct its business as described in the
Prospectuses; and EPIC is duly qualified to transact business as a
foreign corporation and is in good standing in each other jurisdiction
in which it owns or leases property of a nature, or transacts business
of a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing would not
have a material adverse effect on EPIC and EPIC's Subsidiaries,
considered as one enterprise.
(vii) Each of the Company's subsidiaries
(collectively, the "Company's Subsidiaries") is a corporation duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation with corporate power under such
laws to own, lease and operate its properties and conduct its business
as described in the Prospectuses; and each of the Company's
Subsidiaries is duly qualified to transact business as a foreign
corporation and is in good standing
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<PAGE> 8
in each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse
effect on the Company and the Company's Subsidiaries, considered as
one enterprise. Except as set forth in the Registration Statement,
all of the outstanding shares of capital stock of each of the
Company's Subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
directly or through one or more Subsidiaries, free and clear of any
pledge, lien, perfected security interest, claim or encumbrance of any
kind or, to the knowledge of the Company, any unperfected security
interest.
(viii) Each of EPIC's subsidiaries (collectively,
"EPIC's Subsidiaries") is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation with corporate power under such laws to own, lease
and operate its properties and conduct its business as described in
the Prospectuses; and each of EPIC's Subsidiaries is duly qualified to
transact business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse
effect on EPIC and EPIC's Subsidiaries, considered as one enterprise.
Except as set forth in the Registration Statement, all of the
outstanding shares of capital stock of each of EPIC's Subsidiaries
have been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by EPIC, directly or through one or more
Subsidiaries, free and clear of any pledge, lien, perfected security
interest, claim or encumbrance of any kind or, to the knowledge of the
Company, any unperfected security interest.
(ix) The Offered Shares to be sold by the Company
pursuant to this Agreement and the U.S. Purchase Agreement have been
duly authorized and, when issued and delivered by the Company upon
receipt of the payment therefor in accordance with this Agreement and
the U.S. Purchase Agreement, will be validly issued, fully paid and
non-assessable; such Offered Shares are not subject to the preemptive
or other similar rights of any stockholder of the Company arising by
operation of law, under the charter and bylaws of the Company or under
any
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<PAGE> 9
agreement to which the Company or any of the Company's Subsidiaries is
a party.
(x) All of the outstanding shares of capital stock of the
Company other than the Offered Shares have been duly authorized and
validly issued and are fully paid and non-assessable; and none of the
outstanding shares of Common Stock of the Company was issued in
violation of the preemptive or other similar rights of any stockholder
of the Company arising by operation of law, under the charter and
bylaws of the Company or under any agreement to which the Company or
any of the Company's Subsidiaries is a party.
(xi) All of the outstanding shares of capital
stock of EPIC have been duly authorized and validly issued and are
fully paid and non-assessable; and none of the outstanding shares of
Common Stock of EPIC was issued in violation of the preemptive or
other similar rights of any stockholder of EPIC arising by operation
of law, under the charter and bylaws of the Company or under any
agreement to which EPIC or any of EPIC's Subsidiaries is a party.
(xii) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, except as otherwise stated therein or contemplated
thereby, there has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), earnings or business affairs of
the Company and the Company's Subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business.
(xiii) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, except as otherwise stated therein or contemplated
thereby, there has not been (A) any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), earnings or business affairs of
EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or
not arising in the ordinary course of business, or (B) any dividend or
distribution of any kind declared, paid or made by EPIC on its capital
stock.
(xiv) Neither the Company nor any of the Company's
Subsidiaries is in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage,
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<PAGE> 10
loan agreement, note, lease or other agreement or instrument to which
it is a party or by which it is bound or to which any of its
properties is subject, except as disclosed in the Prospectuses and
except for such defaults that would not have a material adverse effect
on the condition (financial or otherwise), earnings or business
affairs of the Company and the Company's Subsidiaries, considered as
one enterprise. The execution and delivery of this Agreement by the
Company, the issuance and delivery of the Offered Shares, the
consummation by the Company of the transactions contemplated in this
Agreement and in the Registration Statement (including the
transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the
Registration Statement) and compliance by the Company with the terms
of this Agreement have been duly authorized by all necessary corporate
action on the part of the Company and do not and will not result in
any violation of the charter or by-laws of the Company or any of the
Company's Subsidiaries, and do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien
or encumbrance upon any property or assets of the Company or any of
the Company's Subsidiaries under (A) any indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which the
Company or any of the Company's Subsidiaries is a party or by which it
is bound or to which any of its properties is subject, or (B) any
existing applicable law (including any environmental law), rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over the Company or any
of the Company's Subsidiaries or any of their respective properties,
in each case, except as disclosed in the Prospectuses and except for
such conflicts, breaches or defaults or liens or encumbrances that
would not have a material adverse effect on the condition (financial
or otherwise), earnings or business affairs of the Company and the
Company's Subsidiaries, considered as one enterprise.
(xv) Neither EPIC nor any of EPIC's Subsidiaries
is in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument
to which it is a party or by which it is bound or to which any of its
properties is subject, except as disclosed in the Prospectuses and
except for such defaults that would not have a material adverse effect
on
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<PAGE> 11
the condition (financial or otherwise), earnings or business affairs
of EPIC and EPIC's Subsidiaries, considered as one enterprise. The
consummation by EPIC of the transactions contemplated in this
Agreement and in the Registration Statement (including the
transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the
Registration Statement) have been duly authorized by all necessary
corporation action on the part of EPIC and do not and will not result
in any violation of the charter or by-laws of EPIC or any of EPIC's
Subsidiaries, and do not and will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien or
encumbrance upon any property or assets of EPIC or any of EPIC's
Subsidiaries under (A) any indenture, mortgage, loan agreement, note,
lease or other agreement or instrument to which EPIC or any of EPIC's
Subsidiaries is a party or by which it is bound or to which any of its
properties is subject, or (B) any existing applicable law (including
any environmental law), rule, regulation, judgment, order or decree of
any government, governmental instrumentality or court having
jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their
respective properties, in each case, except as disclosed in the
Prospectuses and except for such conflicts, breaches or defaults or
liens or encumbrances that would not have a material adverse effect on
the condition (financial or otherwise), earnings or business affairs
of EPIC and EPIC's Subsidiaries, considered as one enterprise.
(xvi) No authorization, approval, consent or
license of any government, governmental instrumentality or court
(other than under the 1933 Act and the 1933 Act Regulations, the Trust
Indenture Act of 1939, as amended and the applicable rules and
regulations promulgated thereunder (the "Trust Indenture Act") and the
securities or blue sky laws of the various states and the securities
laws of any jurisdiction outside the United States in which
International Shares are offered or sold by the Managers pursuant to
this Agreement) is required for the valid issuance, sale and delivery
of the Offered Shares or for the consummation by the Company of the
transactions contemplated in the Prospectuses (including the
transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the
Prospectuses).
(xvii) Except as disclosed in the Prospectuses, there is
no action, suit or proceeding
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before or by any government, governmental instrumentality or court,
now pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of the Company's Subsidiaries that is
required to be disclosed in the Prospectuses or that could reasonably
be expected to result in any material adverse change in the condition
(financial or otherwise), earnings or business affairs of the Company
and the Company's Subsidiaries, considered as one enterprise, or that
could reasonably be expected to materially and adversely affect the
properties or assets of the Company and the Company's Subsidiaries,
considered as one enterprise, or that could reasonably be expected to
materially and adversely affect the consummation of the transactions
contemplated in this Agreement and in the Registration Statement
(including the transactions described under the captions "The
Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization" in the Registration Statement); the aggregate of all
pending legal or governmental proceedings to which the Company or any
of the Company's Subsidiaries is a party or which affect any of its
properties that are not described or referred to in the Prospectuses
would not have a material adverse effect on the condition (financial
or otherwise), earnings or business affairs of the Company and the
Company's Subsidiaries, considered as one enterprise.
(xviii) Except as disclosed in the Prospectuses,
there is no action, suit or proceeding before or by any government,
governmental instrumentality or court, now pending or, to the
knowledge of the Company, threatened against or affecting EPIC or any
of EPIC's Subsidiaries that is required to be disclosed in the
Prospectuses or that could reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
earnings or business affairs of EPIC and EPIC's Subsidiaries,
considered as one enterprise, or that could reasonably be expected to
materially and adversely affect the properties or assets of EPIC and
EPIC's Subsidiaries, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect the
consummation of the transactions contemplated in this Agreement and in
the Registration Statement (including the transactions described under
the captions "The Acquisition and the Financing Plan","Use of
Proceeds" and "Capitalization" in the Registration Statement). The
Company has no reason to believe that the aggregate of all pending
legal or governmental proceedings to which EPIC or any of EPIC's
Subsidiaries is a party or which affect any of its properties that are
not described or referred to in the
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Prospectuses would have a material adverse effect on the condition
(financial or otherwise), earnings or business affairs of EPIC and
EPIC's Subsidiaries, considered as one enterprise.
(xix) In the Company's judgment, there are no
contracts or documents of a character required to be described in the
Registration Statement or the Prospectuses or to be filed as exhibits
to the Registration Statement that are not described and filed as
required.
(xx) Each of the Company and the Company's
Subsidiaries own or possess all governmental licenses, permits,
certificates (including, without limitation, certificate of need
approvals), consents, orders, approvals and other authorizations
(collectively, "Governmental Licenses") necessary to own or lease, as
the case may be, and to operate its properties and to carry on its
business as presently conducted, except where the failure to possess
such Governmental Licenses could reasonably be expected to not have a
material adverse effect on the condition (financial or otherwise),
earnings or business affairs of the Company and the Company's
Subsidiaries, considered as one enterprise, and neither the Company
nor any of the Company's Subsidiaries has received any notice of
proceedings relating to revocation or modification of any such
Governmental Licenses that, in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and the
Company's Subsidiaries, considered as one enterprise.
(xxi) Each of EPIC and EPIC's Subsidiaries own or
possess all governmental licenses, permits, certificates (including,
without limitation, certificate of need approvals), consents, orders,
approvals and other authorizations (collectively, "Governmental
Licenses") necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as presently
conducted, except where the failure to possess such Governmental
Licenses could reasonably be expected to not have a material adverse
effect on the condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise,
and neither EPIC nor any of EPIC's Subsidiaries has received any
notice of proceedings relating to revocation or modification of any
such Governmental Licenses that, in the aggregate, if the
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<PAGE> 14
subject of an unfavorable decision, ruling or finding, could
reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of
EPIC and EPIC's Subsidiaries, considered as one enterprise.
(xxii) Each approval, consent, license, order,
authorization, designation, declaration or filing by or with any
regulatory, administrative or other governmental body necessary in
connection with the execution, delivery and performance of this
Agreement, the compliance by the Company with all of the provisions
hereof, the consummation of the transactions herein contemplated and
the consummation by the Company of the transactions contemplated in
the Registration Statement (including the transactions described under
the captions "The Acquisition and the Financing Plan", "Use of
Proceeds" and "Capitalization" in the Registration Statement) (except
such additional steps as may be required by the National Association
of Securities Dealers, Inc. (the "NASD") or may be necessary to
qualify the Offered Shares for public offering by the Underwriters
under State securities or Blue Sky laws) has been obtained or made and
is in full force and effect.
(xxiii) The Company has not taken and will not take,
directly or indirectly, any action designed to cause or result in
stabilization or manipulation of the price of the Common Stock; and
the Company has not distributed and will not distribute any prospectus
(as such term is defined in the 1933 Act and the 1933 Act Regulations)
in connection with the offering and sale of the Offered Shares other
than any preliminary prospectus filed with the Commission or the
Prospectuses or other material permitted by the 1933 Act or the 1933
Act Regulations.
(xxiv) Except as disclosed in the Prospectuses, all
United States federal income tax returns of the Company and the
Company's Subsidiaries required by law to be filed have been filed and
all taxes shown by such returns or otherwise assessed, which are due
and payable, have been paid, except tax assessments, if any, as are
being contested in good faith and as to which adequate reserves have
been provided. Except as disclosed in the Prospectuses, all other
franchise and income tax returns of the Company and the Company's
Subsidiaries required to be filed pursuant to applicable foreign,
state or local law have been filed, except insofar as the failure to
file such returns would not have a material adverse effect on the
condition
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<PAGE> 15
(financial or otherwise), earnings or business affairs of the Company
and the Company's Subsidiaries, considered as one enterprise, and all
taxes shown on such returns or otherwise assessed which are due and
payable have been paid, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. To the best of the Company's knowledge, the charges,
accruals and reserves on the books of the Company and the Company's
Subsidiaries in respect of any income and corporate franchise tax
liability for any years not finally determined are adequate to meet
any assessments or re-assessments for additional income or corporate
franchise tax for any years not finally determined, except as
disclosed in the Prospectuses and except to the extent of any
inadequacy that would not have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs of
the Company and the Company's Subsidiaries, considered as one
enterprise.
(xxv) Except as disclosed in the Prospectuses, all
United States federal income tax returns of EPIC and EPIC's
Subsidiaries required by law to be filed have been filed and all taxes
shown by such returns or otherwise assessed, which are due and
payable, have been paid, except tax assessments, if any, as are being
contested in good faith and as to which adequate reserves have been
provided. Except as disclosed in the Prospectuses, all other
franchise and income tax returns of EPIC and EPIC's Subsidiaries
required to be filed pursuant to applicable foreign, state or local
law have been filed, except insofar as the failure to file such
returns would not have a material adverse effect on the condition
(financial or otherwise), earnings or business affairs of EPIC and
EPIC's Subsidiaries, considered as one enterprise, and all taxes shown
on such returns or otherwise assessed which are due and payable have
been paid, except for such taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided. To
the best of EPIC's knowledge, the charges, accruals and reserves on
the books of EPIC and EPIC's Subsidiaries in respect of any income and
corporate franchise tax liability for any years not finally determined
are adequate to meet any assessments or re-assessments for additional
income or corporate franchise tax for any years not finally
determined, except as disclosed in the Prospectuses and except to the
extent of any inadequacy that would not have a material adverse effect
on the condition (financial or otherwise), earnings or business
affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise.
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(xxvi) The Company has obtained the written
agreement of all officers of the Company who own 50,000 or more shares
of Common Stock of the Company in the form previously furnished to you
that, for a period of 120 days from the date hereof, such persons will
not, without the prior written consent of the U.S. Representatives
(which consent shall not be unreasonably withheld), directly or
indirectly, sell, offer to sell, contract to sell, grant any option
for the sale of, or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common
Stock ("convertible securities"); provided, however, that during such
120 day period, such persons may without such prior written consent
(i) transfer such shares of Common Stock or convertible securities by
will or the laws of descent and distribution, (ii) make gifts of
shares of Common Stock or convertible securities or transfer such
shares of Common Stock or convertible securities to (A) family members
(by trust or otherwise), so long as the donee agrees to be bound by
the foregoing restriction in the same manner as it applies to such
persons, or (B) charitable organizations and (iii) sell, transfer or
otherwise dispose of shares of Common Stock or convertible securities
to the Company in connection with any of the transactions contemplated
by the Registration Statement.
(xxvii) Except as disclosed in the Registration
Statement, no holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security
of the Company.
(xxviii) EPIC's Employee Stock Ownership Plan
(the "EPIC ESOP") and the trust created pursuant to the Trust
Agreement for the EPIC ESOP between EPIC and [ ]
, as trustee under the EPIC ESOP (the "EPIC Trustee"), dated as of [
] (the "EPIC ESOP Trust"), meet in all material respects all
applicable requirements of qualification and exemption from taxation
under Sections 401(a) and 501(a), respectively, of the Internal
Revenue Code of 1986, as amended (the "Code").
(xxix) The EPIC ESOP constitutes an "employee stock
ownership plan," as defined in Section 4975(e)(7) of the Code and the
Treasury Regulations promulgated thereunder, and as defined in Section
407(d)(6) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
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(xxx) Each of the loans to the EPIC ESOP Trust
pursuant to the EPIC ESOP Loan A Agreement and the EPIC ESOP Loan B
Agreement, each between EPIC and the EPIC ESOP Trust and dated as of [
] (collectively, the "ESOP Loan Agreements"), and each of the pledges
of shares of EPIC Common Stock, par value $.___ per share (the "EPIC
Common Stock"), by the EPIC ESOP Trust pursuant to the Pledge
Agreement A and the Pledge Agreement B, each between EPIC and the EPIC
ESOP Trust and dated as of [ ] (collectively, the "EPIC
ESOP Pledge Agreements"), satisfies in all material respects the
requirements of Section 4975(d)(3) of the Code and Section 408(b)(3)
of ERISA, and will not subject EPIC to a tax imposed under Section
4975 of the Code or a civil penalty assessed under Section 502(i) of
ERISA.
(xxxi) The EPIC Common Stock is a "qualifying
employer security," within the meaning of Section 4975(e)(8) of the
Code and Section 407(d)(5) of ERISA.
(xxxii) Each of the sales of shares of EPIC Common
Stock to the EPIC ESOP Trust pursuant to the [ ] ESOP Stock Purchase
Agreement between [ ] and the EPIC ESOP Trust and
the Common Stock Purchase Agreement between EPIC and the EPIC ESOP
Trust, each dated as of [ ] (collectively, the "EPIC
ESOP Stock Purchase Agreements"), satisfies in all material respects
the requirements of Section 4975(d)(13) of the Code and Section
408(e) of ERISA, and will not subject EPIC to a tax imposed under
Section 4975 of the Code or a civil penalty assessed under Section
502(i) of ERISA.
(xxxiii) Except as disclosed in the Prospectuses, to
the knowledge of the Company, no opinion, correspondence or other
communication, whether written or otherwise, has been received by
American Medical International, Inc. ("AMI"), EPIC or any of their
respective agents, affiliates, associates, officers or directors, or
any fiduciary of the EPIC ESOP, from the United States Department of
Labor, the Internal Revenue Service or any other Federal or state
governmental or regulatory agency, body or authority, to the effect
that either of the loans to the EPIC ESOP Trust pursuant to the EPIC
ESOP Loan Agreements, either of the pledges of shares of Common Stock
by the EPIC ESOP Trust pursuant to the EPIC ESOP Pledge Agreements or
either of the sales of shares of Common Stock to the EPIC ESOP Trust
pursuant to the EPIC ESOP Stock Purchase Agreements may or will
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constitute a violation of or result in any liability under ERISA or
the Code.
(xxxiv) None of (i) the termination by EPIC of future
contributions to the EPIC ESOP, (ii) the discharge of that portion of
the principal amount of the EPIC loans to the EPIC ESOP Trust that
exceeds the fair market value of the shares of EPIC Common Stock
transferred by the EPIC Trustee to EPIC or (iii) the transfer by the
EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under
the EPIC ESOP in satisfaction of EPIC's loans to the EPIC ESOP Trust,
each as contemplated by the Registration Statement, should constitute
a material violation of or result in any material liability under
ERISA or the Code (including, without limitation, any tax under
Section 4978B of the Code).
(b) Any certificate signed by any officer of the Company and
delivered to you or to Davis Polk & Wardwell as counsel for the Managers
pursuant to this Agreement or at the Closing contemplated hereby shall be
deemed a representation and warranty by the Company to each Manager as to the
matters covered thereby.
(c) Each of the Selling Shareholders represents and warrants
to each of the Underwriters that:
(i) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(ii) The execution and delivery by such Selling Shareholder
of, and the performance by such Selling Shareholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Shareholder and [ ], as Custodian, relating to the deposit of
Shares to be sold by such Selling Shareholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals
as such Selling Shareholder's attorneys-in-fact to the extent set
forth therein, relating to the transactions contemplated hereby and by
the Registration Statement (the "Power of Attorney") will not
contravene any provision of applicable law, or the certificate of
incorporation or by-laws of such Selling Shareholder (if such Selling
Shareholder is a corporation), or any agreement or other instrument
binding upon such Selling Shareholder or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over
such Selling Shareholder, and no consent, approval, authorization or
order of or qualification with any
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governmental body or agency is required for the performance by such Selling
Shareholder of its obligations under this Agreement or the Custody
Agreement or Power of Attorney of such Selling Shareholder, except such as
may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(iii) Such Selling Shareholder has, and on the Closing
Date will have, valid marketable title to the Shares to be sold by such
Selling Shareholder and the legal right and power, and all authorization
and approval required by law, to enter into this Agreement, the Custody
Agreement and the Power of Attorney and to sell, transfer and deliver the
Shares to be sold by such Selling Shareholder.
(iv) The Shares to be sold by such Selling Shareholder
pursuant to this Agreement have been duly authorized and are validly
issued, fully paid and non-assessable.
(v) The Custody Agreement and the Power of Attorney
have been duly authorized, executed and delivered by such Selling
Shareholder and are valid and binding agreements of such Selling
Shareholder.
(vi) Delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement will pass marketable title to such
Shares free and clear of any security interests, claims, liens, equities
and other encumbrances.
(vii) All information furnished by or on behalf of such
Selling Shareholder for use in the Registration Statement and Prospectus
is, and on the Closing Date will be, true, correct, and complete, and does
not, and on the Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information not misleading.
(viii) Such Selling Shareholder has not taken, and will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Shares pursuant to the distribution contemplated by this
Agreement, and other than as permitted by the Act, such Selling Shareholder
has not distributed and will not distribute any prospectus or
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<PAGE> 20
other offering material in connection with the offering and sale of the
Shares.
(ix) The execution, delivery and performance of this
Agreement by such Selling Shareholder, compliance by such Selling
Shareholder with all the provisions hereof and the consummation of the
transactions contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body (except as such may be required under the
Act, state securities laws or Blue Sky laws) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the charter or by-laws if any, of such Selling Shareholder, or any
agreement, indenture or other instrument to which such Selling Shareholder
is a party or by which such Selling Shareholder or their respective
property is bound (other than those as to which requisite waivers or
consents have been obtained), or violate or conflict with any laws,
administrative regulation or ruling or court decree applicable to such
Selling Shareholder or such Selling Shareholder's property.
(x) The part of the Registration Statement, under the
caption "Selling Shareholders" which specifically relates to such Selling
Shareholder or such Selling Shareholder's affiliates does not, and will not
on the Closing Date (and Option Closing Date, if applicable), contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of circumstances under which they were made, not misleading.
(xi) At any time during such period as in the opinion
of counsel for the Managers a prospectus is required by law to be delivered
in connection with sales by a Manager or a dealer, if there is any change
in the information referred to in Section 1(x) above, the Selling
Shareholders will immediately notify you of such change.
Section 2. Sale and Delivery to the Managers; Closing.
(a) On the basis of the representations and warranties herein contained, and
subject to the terms and conditions herein set forth, the Sellers agree to
sell to each Manager, and each Manager agrees, severally and not jointly, to
purchase from the Sellers, at the purchase price per share for the Initial
International Shares to be agreed upon by the Co-Lead Managers and the Company
in accordance with Section 2(b) or 2(c) and set forth in the International Price
Determination Agreement, the number of Initial International
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<PAGE> 21
Shares set forth opposite the name of such Manager in Schedule A, plus such
additional number of Initial International Shares such Manager may become
obligated to purchase pursuant to Section 11 hereof. If the Company elects to
rely on Rule 430A, Schedule A may be attached to the International Price
Determination Agreement.
(b) If the Company has elected not to rely upon Rule 430A, the
initial public offering price per share for the Initial International Shares
and the purchase price per share for the Initial International Shares to be
paid by the several Managers shall be agreed upon and set forth in the
International Price Determination Agreement, dated the date hereof, and an
amendment to the Registration Statement containing such per share price
information will be filed before the Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A, the
initial public offering price per share for the Initial International Shares
and the purchase price per share for the Initial International Shares to be
paid by the several Managers shall be agreed upon and set forth in the
International Price Determination Agreement. In the event that the
International Price Determination Agreement has not been executed by the close
of business on the fourth business day following the date on which the
Registration Statement becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that
Sections 7 and 8 shall remain in effect.
(d) In addition, on the basis of the representations and
warranties herein contained, and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Managers, severally and not
jointly, to purchase up to an additional [ ] International Option Shares at
the same purchase price per share as shall be applicable to the Initial
International Shares. The option hereby granted will expire 30 days after the
date upon which the Registration Statement becomes effective or, if the Company
has elected to rely upon Rule 430A, the date of the International Price
Determination Agreement, and may be exercised in whole or from time to time in
part only for the purpose of covering over-allotments that may be made in
connection with the offering and distribution of the Initial International
Shares upon notice by you to the Company setting forth the number of
International Option Shares as to which the several Managers are exercising the
option, and the time and date of payment and delivery thereof. Such time and
date of delivery (the "Date of Delivery") shall be determined by you but shall
not be later than five full business days after the exercise of such option,
nor in any event prior to the
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<PAGE> 22
Closing Time. If the option is exercised as to all or any portion of the
International Option Shares, the International Option Shares as to which the
option is exercised shall be purchased by the Managers, severally and not
jointly, in the respective proportions that bear the same relationship to the
number of International Option Shares to be purchased at the Date of Delivery
as the number of Initial International Shares set forth opposite the name of
each Manager in Schedule A hereto bears to the total number of Initial
International Shares (such proportions are hereinafter referred to as each
Manager's "underwriting obligation proportions").
(e) Payment of the purchase price for, and delivery of
certificates for, the Initial International Shares shall be made at the offices
of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at
such other place as shall be agreed upon by the Company and you, at 10:00 A.M.
either (i) on the fifth full business day after the effective date of the
Registration Statement, or (ii) if the Company has elected to rely upon Rule
430A, the fifth full business day after execution of the International Price
Determination Agreement (unless, in either case, postponed pursuant to Section
11 or 12), or at such other time not more than ten full business days
thereafter as you and the Company shall determine (such date and time of
payment and delivery being herein called the "Closing Time"). In addition, in
the event that any or all of the International Option Shares are purchased by
the Managers, payment of the purchase price for, and delivery of certificates
for, such International Option Shares shall be made at the offices of Davis
Polk & Wardwell set forth above, or at such other place as the Company and you
shall determine, on the Date of Delivery as specified in the notice from you to
the Company. Payment shall be made to the Company by certified or official
bank check or checks in New York Clearing House funds payable to the order of
the Company against delivery to you for the respective accounts of the several
Managers of certificates for the International Shares to be purchased by them.
(f) Certificates for the Initial International Shares and the
International Option Shares to be purchased by the Managers shall be in such
denominations and registered in such names as you may request in writing at
least two full business days before the Closing Time or the Date of Delivery,
as the case may be. The certificates for the Initial International Shares and
International Option Shares will be made available in New York City for
examination and packaging by you not later than 10:00 A.M. on the business day
prior to the Closing Time or the Date of Delivery, as the case may be.
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(g) It is understood that each Manager has authorized you, for
its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the International Shares that it has agreed to purchase.
You, individually and not as a Co-Lead Manager, may (but shall not be
obligated to) make payment of the purchase price for the Initial International
Shares, of International Option Shares, to be purchased by and Manager whose
check or checks shall not have been received by the Closing Time or the Date of
Delivery, as the case may be.
(h) The obligation of the Company to sell to each Manager the
Initial International Shares and the International Option Shares and the
several and not joint obligations of the Managers to purchase and pay for the
International Shares, upon the terms and subject to the conditions of this
Agreement, are subject to the concurrent closing of the sale of the U.S. Shares
to the U.S. Underwriters pursuant to the terms of the U.S. Purchase Agreement.
Section 3. Certain Covenants of the Company. The Company
covenants with each Manager as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company elects to
rely upon Rule 430A and subject to Section 3(b), will comply in all
material respects with the requirements of Rule 430A and will notify you
promptly, (i) when the Registration Statement, or any post-effective
amendment to the Registration Statement, shall have become effective, or
any supplement to the Prospectuses or any amended Prospectuses shall have
been filed, (ii) of the receipt of any comments from the Commission, (iii)
of any request by the Commission to amend the Registration Statement or
amend or supplement any Prospectus or for additional information and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of
the qualification of the Offered Shares for offering or sale in any
jurisdiction, or of the institution or threatening of any proceedings for
any of such purposes. The Company will make every reasonable effort to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and, if any such order is issued, to obtain the lifting
thereof at the earliest possible moment.
(b) The Company will not at any time file or make any amendment
to the Registration Statement, or any
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amendment or supplement (i) if the Company has not elected to rely upon
Rule 430A, to the Prospectuses or (ii) if the Company has elected to rely
upon Rule 430A, to either the prospectus included in the Registration
Statement at the time it becomes effective or to the Prospectuses, of which
you shall not have previously been advised and furnished a copy or to which
you or Davis Polk & Wardwell as counsel for the Managers shall have
promptly and reasonably objected in writing.
(c) The Company has furnished or will furnish to you and Davis
Polk & Wardwell as counsel for the Managers, without charge, as many signed
copies (as reasonably requested) of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all exhibits
and documents filed therewith and signed copies of all consents and
certificates of experts, as you may reasonably request and has furnished or
will furnish to you, for each other Manager, one conformed copy of the
Registration Statement as originally filed and each amendment thereto
(without exhibits).
(d) The Company will deliver to each Manager, without charge,
from time to time until the effective date of the Registration Statement
(or, if the Company has elected to rely upon Rule 430A, until the time the
International Price Determination Agreement is executed and delivered), as
many copies of each preliminary prospectus as such Manager may reasonably
request, and the Company hereby consents to the use of such copies for
purposes permitted by the 1933 Act. The Company will deliver to each
Manager, without charge, as soon as the Registration Statement shall have
become effective (or, if the Company has elected to rely upon Rule 430A, as
soon as practicable after the International Price Determination Agreement
has been executed and delivered) and thereafter from time to time as
requested during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectuses (as
supplemented or amended) as such Manager may reasonably request.
(e) The Company will comply in all material respects to the best
of its ability with the 1933 Act and the 1933 Act Regulations, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission thereunder so as to permit the completion of the
distribution of the Offered Shares as contemplated in this Agreement and in
the Prospectuses. If at any time
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when a prospectus is required by the 1933 Act to be delivered in connection
with sales of the Offered Shares any event shall occur or condition exist
as a result of which it is necessary, in the opinion of counsel for the
Managers or counsel for the Company, to amend the Registration Statement or
amend or supplement any Prospectus in order that the Prospectuses will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of either such
counsel, at any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such untrue statement or omission
or to make the Registration Statement or the Prospectuses comply with such
requirements.
(f) The Company will use its best efforts, in cooperation with
the Managers, to qualify the Offered Shares for offering and sale under the
applicable securities laws of such states and other jurisdictions as the
Company and you may mutually agree upon and to maintain such qualifications
in effect for a period of not less than one year from the effective date of
the Registration Statement; provided, however, that neither the Company nor
any of the Company's Subsidiaries shall be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as
a dealer in securities in any jurisdiction in which it is not so qualified
or to subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company will
file such statements and reports as may be required by the laws of each
such jurisdiction to maintain the qualification of the Offered Shares as
above provided.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 60 days after the close
of the period covered thereby, an earnings statement of the Company (in
form complying with the provisions of Rule 158 of the 1933 Act
Regulations), covering a period of 12 months beginning after the effective
date of the Registration Statement but not later than the first day of the
Company's fiscal quarter next following such effective date.
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(h) The Company will use the net proceeds received by it from
the sale of the Offered Shares in the manner specified in the Prospectuses
under the caption "Use of Proceeds", and will provide you with any report
on Form SR filed under Rule 463 of the 1933 Act Regulations by the Company
in connection with the sale of the Offered Shares promptly after filing
such report.
(i) For a period of 120 days from the date hereof, the Company
will not, without the prior written consent of the U.S. Representatives,
which consent shall not be unreasonably withheld, directly or indirectly,
sell, offer to sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, any Common Stock or convertible securities, other
than to eligible participants in the Company's stock plans pursuant to the
terms thereof and to the Managers pursuant to this Agreement, to the U.S.
Underwriters pursuant to the U.S. Purchase Agreement and other than in
connection with the transactions described in the Prospectuses (including
the transactions described under the captions "The Acquisition and the
Financing Plan", "Use of Proceeds" and "Capitalization" in the
Prospectuses).
(j) For a period of 120 days from the date hereof, the Company
shall not take any action, directly or indirectly, without the prior
written consent of the U.S. Representatives, which consent shall not be
unreasonably withheld, to cause the ESOP Committee (as such term is defined
in the ESOP) to direct the Trustee to directly or indirectly sell, offer to
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of any shares of Common Stock or convertible securities; provided,
however, that during such 120 day period, the ESOP Committee may direct the
Trustee to (i) allocate shares of Common Stock to ESOP participants'
accounts in accordance with the terms of the ESOP, as amended from time to
time, (ii) transfer to the Company shares of Common Stock unallocated under
the ESOP as contemplated by the Registration Statement and (iii) make
distributions of shares of Common Stock allocated under the ESOP to ESOP
participants in accordance with the terms of the ESOP, as amended from time
to time.
(k) If the Company has elected to rely upon Rule 430A, it will
take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424 (b) was received
for filing by the Commission and, in the event that it was not, it will
promptly file such prospectus.
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Section 4. Payment of Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (a) the printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectuses and the Prospectuses and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the Managers, (b) the
printing and distribution of this Agreement (including the International Price
Determination Agreement), the Agreement among Managers, the Intersyndicate
Agreement, the Agreement among U.S. Underwriters, the certificates for the
International Shares and the Blue Sky Survey, (c) the delivery of the
certificates for the International Shares to the Managers, including any stock
transfer taxes payable upon the sale of the International Shares to the
Managers and the transfer of the International Shares between the Managers and
the U.S. Underwriters, (d) the fees and disbursements of the Company's counsel
and accountants, (e) all costs and expenses which are generated by the Selling
Shareholders in connection with the performance of this Agreement, (f) the
qualification of the Offered Shares under the applicable securities laws in
accordance with Section 3(f) and any filing for review of the offering with the
National Association of Securities Dealers, Inc., including filing fees and
reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the
Managers, in connection with such qualification of the Offered Shares and the
Blue Sky Survey and (g) the listing fees and expenses incurred in connection
with listing the Offered Shares on the New York Stock Exchange.
If this Agreement is terminated by you in accordance with the
provisions of Section 5, 10(a)(i) or 12, the Company shall reimburse the
Managers for all their reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the
Managers.
Section 5. Conditions of Managers' Obligations. In addition to
the execution and delivery of the International Price Determination Agreement,
the obligations of the several Managers to purchase and pay for the
International Shares that they have respectively agreed to purchase hereunder
(including any International Option Shares as to which the option granted in
Section 2 has been exercised and the Date of Delivery determined by you is the
same as the Closing Time) are subject to the accuracy of the representations
and warranties of the Company contained herein (including those contained in
the International Price Determination Agreement) or in certificates of the
Company's officers delivered pursuant to the provisions hereof, to the
performance by the Company of
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<PAGE> 28
its obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M. on the date of this Agreement or, with your consent,
at a later time and date not later, however, than 5:30 P.M. on the first
business day following the date hereof, or at such later time or on such
later date as you may agree to in writing with the approval of a majority
in interest of the several Managers; and at the Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act and no proceedings for that purpose shall have
been instituted or shall be pending or, to your knowledge or the knowledge
of the Company, shall have been threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Davis Polk & Wardwell
as counsel for the Managers. If the Company has elected to rely upon Rule
430A, Prospectuses containing the Rule 430A Information shall have been
filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed
and declared effective in accordance with the requirements of Rule 430A.
(b) At the Closing Time, you shall have received a signed opinion
of Dewey Ballantine, counsel for the Company, dated as of the Closing Time,
together with reproduced copies of such opinion for each of the other
Managers, in form and substance reasonably satisfactory to Davis Polk &
Wardwell as counsel for the Managers, to the effect that:
(i) This Agreement has been duly authorized,
executed and delivered by the Company.
(ii) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Delaware with corporate power under such laws to own, lease and
operate its properties and conduct its business as described in
the Prospectuses.
(iii) The Offered Shares sold by the Company pursuant
to this Agreement and the U.S. Purchase Agreement have been duly
authorized and, when issued and delivered by the Company upon
receipt of the payment therefor in accordance with this Agreement
and the U.S. Purchase Agreement, will be validly issued,
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fully paid and non-assessable. Such Offered Shares are not
subject to the preemptive or other similar rights of any
stockholder of the Company arising by operation of law, under the
charter or bylaws of the Company or under any agreement known to
such counsel to which the Company is a party.
(iv) The Offered Shares conform in all material
respects as to legal matters to the description thereof contained
in the Prospectuses.
(v) To the knowledge of such counsel, no
authorization, approval, consent or license of any government,
governmental instrumentality or court (other than under the 1933
Act and the 1933 Act Regulations, the Trust Indenture Act and the
securities or blue sky laws of the various states and the
securities laws of any jurisdiction in which the International
Shares are offered or sold by the Managers pursuant to this
Agreement), is required for the valid issuance, sale and delivery
of the Offered Shares or for the consummation by the Company of
the transactions contemplated in this Agreement and the
Prospectuses (including the transactions described under the
captions "The Acquisition and the Financing Plan", "Use of
Proceeds" and "Capitalization" in the Prospectuses).
(vi) The execution and delivery of this Agreement, the
issuance and delivery of the Offered Shares, the consummation by
the Company of the transactions contemplated in this Agreement and
in the Registration Statement (including the transactions
described under the captions "The Acquisition and the Financing
Plan", "Use of Proceeds" and "Capitalization" in the Registration
Statement) and compliance by the Company with the terms of this
Agreement have been duly authorized by all necessary corporate
action on the part of the Company and do not and will not result
in any violation of the charter or bylaws of the Company or any of
the Company's Subsidiaries, and, to the knowledge of such counsel,
do not and will not conflict with, or constitute a breach of any
of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien or encumbrance
upon any property or assets of the Company or any of the Company's
Subsidiaries under (A) any indenture, mortgage or loan agreement,
or any other agreement or instrument, to which the Company is a
party or by which it may be bound or to
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which any of its properties may be subject, (B) any existing
applicable law, rule or regulation (other than the securities or
blue sky laws of the various states and the securities laws of
any jurisdiction in which the International Shares are offered or
sold by the Agreement pursuant to this Agreement, as to which
such counsel need express no opinion), or (C) any judgment, order
or decree of any government, governmental instrumentality or
court, having jurisdiction over the Company or any of its
properties, in each case, except as disclosed in the
Prospectuses, and except for such conflicts, breaches or defaults
or liens or encumbrances that would not have a material adverse
effect on the Company and the Company's Subsidiaries, considered
as one enterprise. Such counsel need express no opinion, however,
as to whether the execution, delivery and performance by the
Company of this Agreement will constitute a violation of, or
default under, any financial covenant or financial ratios
contained in any of the agreements referred to in the preceding
sentence.
(vii) Such counsel has been informed by the Commission
that the Registration Statement is effective under the 1933 Act;
any required filing of the Prospectuses or any supplement thereto
pursuant to Rule 424(b) has been made in the manner and within the
time period required by Rule 424(b); and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or have been
threatened by the Commission under the 1933 Act.
(viii) The Registration Statement (including the Rule
430A Information, if applicable), the Prospectuses and each
amendment or supplement to the Registration Statement and
Prospectuses, as of their respective effective or issue dates (in
each case, except for the financial statements, supporting
schedules and other financial or statistical data included therein
or omitted therefrom, as to which such counsel need express no
opinion), comply as to form in all material respects to the
requirements of the 1933 Act and the 1933 Act Regulations.
(ix) The Company is not an investment company under
the Investment Company Act of 1940.
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(x) The transactions contemplated in the Prospectuses
under the heading "The Acquisition and the Financing Plan", "Use
of Proceeds" and "Capitalization", to the extent described
therein, have been duly authorized by the Company; all of the
necessary consents to consummate such transactions, including, to
the knowledge of such counsel, all the necessary consents from
holders of the Company's debt securities, have been obtained,
except where the failure to obtain such consents would not have a
material adverse effect on the consummation of the Acquisition and
the Refinancing Plan; to the knowledge of such counsel, there has
not been any violation on the part of the Company of any of the
terms of such consents which violation would materially and
adversely affect the consummation of the Acquisition and the
Refinancing Plan; and there is no pending or, to the knowledge of
such counsel, threatened legal or governmental proceedings with
respect to any of the consents or the transactions contemplated in
the Prospectuses (including the transactions described under the
captions "The Acquisition and the Financing Plan", "Use of
Proceeds" and "Capitalization" in the Prospectuses) that, if the
subject of an unfavorable decision, ruling or finding, would have
a material adverse effect on the consummation of the Acquisition
and the Refinancing Plan.
In addition, such opinion shall state that such counsel has
participated in the preparation of the Registration Statement and
Prospectuses and in conferences with officers and other representatives of
the Company, and your representatives and your counsel at which the
contents of the Registration Statement, the Prospectuses and related
matters were discussed and, although such counsel need not undertake to
determine independently nor pass upon or assume any responsibility,
explicitly or implicitly, for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectuses on
the basis of and subject to the foregoing, no facts have come to the
attention of such counsel to lead such counsel to believe (A) that the
Registration Statement (including the Rule 430A Information, if applicable)
or any amendment thereto (except for the financial statements, supporting
schedules and other financial or statistical data included therein or
omitted therefrom, as to which such counsel need express no opinion), as of
the date the Registration Statement or any such amendment became effective,
contained an untrue statement of a material
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fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (B) that the
Prospectuses or any amendment or supplement thereto (except for the
financial statements, supporting schedules and other financial or
statistical data included therein or omitted therefrom, as to which such
counsel need express no opinion), at the time the Prospectuses were issued,
at the time any such amended or supplemented prospectuses were issued or at
the Closing Time, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Company's Subsidiaries and
certificates of public officials.
(c) At the Closing Time, you shall have received a signed opinion
of Philip D. Wheeler, General Counsel for the Company, dated as of the
Closing Time, together with reproduced copies of such opinion for each of
the other Managers, in form or substance reasonably satisfactory to Davis
Polk & Wardwell as counsel to the Managers, to the effect that:
(i) The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or
be in good standing would not have a material adverse effect on
the Company and the Company's Subsidiaries, considered as one
enterprise.
(ii) Each of the Company's Subsidiaries is a
corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
with corporate power under such laws to own, lease and operate its
properties and conduct its business as described in the
Prospectuses, or except to the extent that the failure to be in
good standing would not have a material adverse effect on the
Company and the Company's Subsidiaries, considered as one
enterprise.
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(iii) Each of the Company's Subsidiaries is duly
qualified to transact business as a foreign corporation and is in
good standing in each other jurisdiction in which it owns or
leases property of a nature, or transacts business of a type, that
would make such qualification necessary, except to the extent that
the failure to so qualify or be in good standing would not have a
material adverse effect on the Company and the Company's
Subsidiaries, considered as one enterprise.
(iv) The Offered Shares sold by the Company pursuant
to this Agreement and the U.S. Purchase Agreement have been duly
authorized and, when issued and delivered by the Company upon
receipt of the payment therefor in accordance with this Agreement
and the U.S. Purchase Agreement, will be validly issued, fully
paid and non-assessable. Such Offered Shares are not subject to
the preemptive or other similar rights of any stockholder of the
Company arising by operation of law, under the charter or bylaws
of the Company or under any agreement known to such counsel to
which the Company or any of the Company's Subsidiaries is a party.
(v) All of the outstanding shares of capital stock of
the Company other than the Offered Shares have been duly
authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or
other similar rights of any stockholder of the Company arising by
operation of law, under the charter or bylaws of the Company or
under any agreements known to such counsel to which the Company or
any of the Company's Subsidiaries is a party.
(vi) The authorized, issued and outstanding capital
stock of the Company as of November 30, 1993 was as set forth in
the Prospectuses in the column entitled "Healthtrust Actual" under
the heading "Capitalization" and the Offered Shares conform in all
material respects to the description thereof contained in the
Prospectuses.
(vii) Based solely on an examination of relevant minute
books and stock records, except as disclosed in the Prospectuses,
all of the outstanding shares of capital stock of each of the
Company's Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable; and,
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<PAGE> 34
except as disclosed in the Registration Statement, all of such
shares are owned by the Company, directly or through one or more
of the Company's Subsidiaries, free and clear of any pledge, lien,
perfected security interest, claim or encumbrance of any kind or,
to the knowledge of such counsel, any unperfected security
interest.
(viii) To the best of such counsel's knowledge, after
due inquiry, all leases to which the Company or any of the
Company's Subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder, which might
result in any material adverse change in the business, prospects,
financial condition or results of operation of the Company and the
Company's Subsidiaries taken as a whole, and the Company and the
Company's Subsidiaries enjoy peaceful and undisturbed possession
under all such leases to which any of them is a party as lessee
with such exceptions as do not materially interfere with the use
made by the Company or such subsidiary.
(ix) The Company and each of the Company's
Subsidiaries has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities
("permits"), including, without limitation, under any
Environmental Laws, as are necessary to own, lease and operate its
respective properties and to conduct its business in the manner
described in the Prospectus; to the best of such counsel's
knowledge, after due inquiry, the Company and each of the
Company's Subsidiaries has fulfilled and performed all of its
material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such
permit, subject in each case to such qualification as may be set
forth in the Prospectus; and, except as described in the
Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of the Company's
Subsidiaries.
(x) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or governmental
proceedings, required to be described in the Prospectuses that are
not described as required, nor of any contracts or documents of a
character required to be described or referred to in
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<PAGE> 35
the Registration Statement or the Prospectuses or to be filed as
exhibits to the Registration Statement that are not described,
referred to or filed as required.
(xi) The statements made in the Prospectuses under
"Health Care Reform", "Reimbursement and Regulation", "Legal
Proceedings", "Acquisition-Related Considerations" and "ERISA
Matters", to the extent that they constitute matters of law or
legal conclusions, have been reviewed by such counsel and fairly
present the information disclosed therein in all material
respects.
(xii) To the knowledge of such counsel, no default
exists in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration
Statement or the Prospectuses or filed as an exhibit to the
Registration Statement, except as disclosed in the Registration
Statement or the Prospectuses and except for such defaults that
would not have a material adverse effect on the Company and the
Company's Subsidiaries, considered as one enterprise.
(xiii) The execution and delivery of this Agreement, the
issuance and delivery of the Offered Shares, the consummation by
the Company of the transactions contemplated in this Agreement and
in the Registration Statement (including the transactions
described under the captions "The Acquisition and the Financing
Plan", "Use of Proceeds" and "Capitalization" in the Registration
Statement) and compliance by the Company with the terms of this
Agreement have been duly authorized by all necessary corporate
action on the part of the Company and do not and will not result
in any violation of the charter or bylaws of the Company or any of
the Company's Subsidiaries, and, to the knowledge of such counsel,
do not and will not conflict with, or constitute a breach of any
of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien or encumbrance
upon any property or assets of the Company or any of the Company's
Subsidiaries under (A) any indenture, mortgage or loan agreement
or any other agreement or instrument to which the Company or any
of the Company's Subsidiaries is a party or
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<PAGE> 36
by which it may be bound or to which any of their respective
properties may be subject, (B) any existing applicable law, rule
or regulation (other than the securities or blue sky laws of the
various states and the securities laws of any jurisdiction in
which the International Shares are offered or sold by the Managers
pursuant to this Agreement, as to which such counsel need express
no opinion), or (C) any judgment, order or decree of any
government, governmental instrumentality or court having
jurisdiction over the Company or any of the Company's Subsidiaries
or any of their respective properties, in each case, except as
disclosed in the Prospectuses, and except for such conflicts,
breaches or defaults or liens or encumbrances that would not have
a material adverse effect on the Company and the Company's
Subsidiaries, considered as one enterprise. Such counsel need
express no opinion, however, as to whether the execution, delivery
and performance by the Company of this Agreement will constitute a
violation of, or default under, any financial covenant or
financial ratios contained in any of the agreements referred to in
the preceding sentence.
(xiv) All of the hospitals operated by the Company and
the Company's Subsidiaries are licensed under appropriate state
laws for the conduct of the business described in the Registration
Statement and are certified under the Medicare program and are
"providers of services" as defined in the Social Security Act and
the regulations promulgated thereunder, and are eligible to
participate, in the Medicare program.
(xv) To the knowledge of such counsel, there has not
been any violation on the part of any of the Company's
Subsidiaries of any of the terms of the necessary consents to
consummate the transactions contemplated in the Prospectuses under
the headings "The Acquisition and the Financing Plan", "Use of
Proceeds" and "Capitalization", including all the necessary
consents from holders of the Company's and EPIC's debt securities,
which violation would materially and adversely affect the
consummation of any of those transactions.
(xvi) Each of the Company and the Company's
Subsidiaries own or possess all governmental licenses, permits,
certificates (including, without limitation, certificate of need
approvals),
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<PAGE> 37
consents, orders, approvals and other authorizations
(collectively, "Governmental Licenses") necessary to own or lease,
as the case may be, and to operate its properties and to carry on
its business as presently conducted, except where the failure to
possess such Governmental Licenses could reasonably be expected to
not have a material adverse effect on the condition (financial or
otherwise), earnings or business affairs of the Company and the
Company's Subsidiaries, considered as one enterprise, and neither
the Company nor any of the Company's Subsidiaries has received any
notice of proceedings relating to revocation or modification of
any such Governmental Licenses that, in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could
reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs
of the Company and the Company's Subsidiaries, considered as one
enterprise.
In addition, such opinion shall state that such counsel has
participated in the preparation of the Registration Statement and
Prospectuses and in conferences with officers and other representatives of
the Company, and your representatives and your counsel at which the
contents of the Registration Statement, the Prospectuses and related
matters were discussed and, although such counsel need not undertake to
determine independently nor pass upon or assume any responsibility,
explicitly or implicitly, for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectuses, on
the basis of and subject to the foregoing, no facts have come to the
attention of such counsel to lead such counsel to believe (A) that the
Registration Statement (including the Rule 430A Information, if applicable)
or any amendment thereto (except for the financial statements, supporting
schedules and other financial or statistical data included therein or
omitted therefrom, as to which such counsel need express no opinion), as of
the date the Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (B) that the Prospectus or any
amendment or supplement thereto (except for the financial statements,
supporting schedules and other financial or statistical data included
therein or omitted therefrom, as to which such counsel need express no
opinion), at the time the Prospectuses were issued, at the time any such
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<PAGE> 38
amended or supplemented prospectuses were issued or at the Closing Time,
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Company's Subsidiaries and
certificates of public officials.
(d) At the Closing Time, you shall have received a signed
opinion of Johnson & Gibbs, Counsel for EPIC, dated as of the Closing Time,
together with reproduced copies of such opinion for each of the other Managers,
in form or substance reasonably satisfactory to Davis Polk & Wardwell as
counsel to the Managers, to the effect that:
(i) EPIC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware with corporate power under such laws to own, lease and
operate its properties and conduct its business as described in
the Prospectus.
(ii) EPIC is duly qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction
in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on EPIC and
EPIC's Subsidiaries, considered as one enterprise.
(iii) Each of EPIC's subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws
of the jurisdiction of its incorporation with corporate power
under such laws to own, lease and operate its properties and
conduct its business as described in the Prospectuses, or except
to the extent that the failure to be in good standing would not
have a material adverse effect on EPIC and EPIC's Subsidiaries,
considered as one enterprise.
(iv) Each of EPIC's Subsidiaries is duly qualified to
transact business as a foreign corporation and is in good standing
in each other jurisdiction in which
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<PAGE> 39
it owns or leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing would
not have a material adverse effect on EPIC and EPIC's
Subsidiaries, considered as one enterprise.
(v) All of the outstanding shares of capital stock of
EPIC have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of
capital stock of EPIC was issued in violation of the preemptive or
other similar rights of any stockholder of EPIC arising by
operation of law, under the charter or bylaws of EPIC or under any
agreements known to such counsel to which EPIC or any of EPIC's
Subsidiaries is a party.
(vi) The authorized, issued and outstanding capital
stock of EPIC as of November 30, 1993 was as set forth in the
Prospectuses in the column entitled "EPIC Actual" under the
heading "Capitalization".
(vii) All of the outstanding shares of capital stock of
each of EPIC's Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable; and, except as
disclosed in the Registration Statement, all of such shares are
owned by EPIC, directly or through one or more of EPIC's
Subsidiaries, free and clear of any pledge, lien, perfected
security interest, claim or encumbrance of any kind or, to the
knowledge of such counsel, any unperfected security interest.
(viii) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or governmental
proceedings, required to be described in the Prospectuses that are
not described as required, nor of any contracts or documents of a
character required to be described or referred to in the
Registration Statement or the Prospectuses or to be filed as
exhibits to the Registration Statement that are not described,
referred to or filed as required.
(ix) To the knowledge of such counsel, no default
exists in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the
39
<PAGE> 40
Registration Statement or the Prospectuses or filed as an exhibit
to the Registration Statement, except as disclosed in the
Registration Statement or the Prospectuses and except for such
defaults that would not have a material adverse effect on EPIC and
EPIC's Subsidiaries, considered as one enterprise.
(x) The consummation by EPIC of the transactions
contemplated in its Offer to Purchase and Consent Solicitation
dated March __, 1994 have been duly authorized by all necessary
corporate action on the part of EPIC and does not and will not
result in any violation of the charter or by-laws of EPIC or any
of EPIC's Subsidiaries, and, to the knowledge of such counsel,
does not and will not conflict with, or constitute a breach of any
of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien or encumbrance
upon any property or assets of EPIC or any of EPIC's Subsidiaries
under (A) any indenture, mortgage or loan agreement or any other
agreement or instrument to which EPIC or any of EPIC's
Subsidiaries is a party or by which it may be bound or to which
any of their respective properties may be subject, (B) any
existing applicable law, rule or regulation (other than the
securities or blue sky laws of the various states and the
securities laws of any jurisdiction in which the International
Shares are offered or sold by the International Underwriters
pursuant to the International Purchase Agreement, as to which such
counsel need express no opinion), or (C) any judgment, order or
decree of any government, governmental instrumentality or court
having jurisdiction over EPIC or any of EPIC's Subsidiaries or any
of their respective properties, in each case, except as disclosed
in the Prospectuses, and except for such conflicts, breaches or
defaults or liens or encumbrances that would not have a material
adverse effect on EPIC and EPIC's Subsidiaries, considered as one
enterprise.
(xi) All of the hospitals operated by EPIC and EPIC's
Subsidiaries are licensed under appropriate state laws for the
conduct of the business described in the Registration Statement
and are certified under the Medicare program and are "providers of
services" as defined in the Social Security Act and the
regulations promulgated thereunder, and are eligible to
participate in the Medicare program.
40
<PAGE> 41
(xii) To the knowledge of such counsel, there has not
been any violation on the part of any of EPIC's Subsidiaries of
any of the terms of the necessary consents to consummate the
transactions contemplated in the Prospectuses under the heading
"The Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization" including all the necessary consents from holders
of the Company's and EPIC's debt securities, which violation would
materially and adversely affect the consummation of the
Acquisition or the Financing Plan.
(xiii) EPIC is not an investment company under the
Investment Company Act of 1940.
(xiv) None of (i) the termination by EPIC of future
contributions to the EPIC ESOP, (ii) the discharge of that portion
of the principal amount of EPIC's loans to the EPIC ESOP Trust
that exceeds the fair market value of the shares of the EPIC
Common Stock transferred by the EPIC Trustee to EPIC, or (iii)
relying on the [ ] opinion to be delivered pursuant
to Section [5(d)] of this Agreement (and incorporating the caveats
and assumptions contained therein), the transfer by the EPIC
Trustee to EPIC of shares of EPIC Common Stock unallocated under
the EPIC ESOP in satisfaction of EPIC's loans to the ESOP Trust,
each as contemplated by the Registration Statement, should
constitute a violation of or result in any liability under ERISA
or the Code (including, without limitation, any tax under Section
4978B of the Code).
(xv) EPIC and EPIC's Subsidiaries own or possess all
governmental licenses, permits, certificates (including, without
limitation, certificate of need approvals), consents, orders,
approvals and other authorizations (collectively, "Governmental
Licenses") necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as presently
conducted, except where the failure to possess such Governmental
Licenses could reasonably be expected to not have a material
adverse effect on the condition (financial or otherwise), earnings
or business affairs of EPIC and EPIC's Subsidiaries, considered as
one enterprise, and neither EPIC nor any of EPIC's Subsidiaries
has received any notice of proceedings relating to revocation or
modification of any such Governmental Licenses that, in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, could
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<PAGE> 42
reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), earnings or business affairs
of EPIC and EPIC's Subsidiaries, considered as one enterprise.
(e) At the Closing Time, you shall have received a signed
opinion of [ ], counsel for the Selling Shareholders, dated as of
the Closing Time, together with reproduced copies of such opinion for each of
the other Managers, in form or substance reasonably satisfactory to Davis Polk
& Wardwell as counsel to the Managers, to the effect that:
(i) This Agreement has been duly authorized, executed
and delivered by or on behalf of each Selling Shareholder.
(ii) The execution and delivery by the Selling
Shareholders of, and the performance by the Selling Shareholders
of their obligations under, this Agreement, the Custody Agreement
signed by the Selling Shareholders and [
], as Custodian, relating to the deposit of the Shares to be sold
by the Selling Shareholders (the "Custody Agreement") and the
Power of Attorney appointing certain individuals as the Selling
Shareholders' attorneys-in-fact to the extent set forth therein,
relating to the transactions contemplated hereby and by the
Registration Statement (the "Power of Attorney") will not
contravene any provision of applicable law, or the certificate of
incorporation or by-laws of any Selling Shareholder (if such
Selling Shareholder is a corporation), or any agreement or other
instrument binding upon any Selling Shareholder or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over such Selling Shareholder, and no consent,
approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by any
Selling Shareholder of its obligations under this Agreement or the
Custody Agreement or Power of Attorney of such Selling
Shareholder, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(iii) Such Selling Shareholder has, and on the Closing
Date will have, valid marketable title to the Shares to be sold by
such Selling Shareholder and the legal right and power, and all
authorization and approval required by law, to enter into this
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<PAGE> 43
Agreement, the Custody Agreement and the Power of Attorney and to
sell, transfer and deliver the Shares to be sold by such Selling
Shareholder.
(iv) The Shares to be sold by each Selling Shareholder
pursuant to this Agreement have been duly authorized and are
validly issued, fully paid and non-assessable.
(v) The Custody Agreement and the Power of Attorney
have been duly authorized, executed and delivered by each Selling
Shareholder and are valid and binding agreements of each such
Selling Shareholder.
(vi) Delivery of the Shares to be sold by each Selling
Shareholder pursuant to this Agreement will pass marketable title
to such Shares free and clear of any security interests, claims,
liens, equities and other encumbrances.
(vii) The execution, delivery and performance of this
Agreement by the Selling Shareholders, compliance by the Selling
Shareholders with all the provisions hereof and the consummation
of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body
(except as such may be required under the Act, state securities
laws or Blue Sky laws) and will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Selling Shareholders, or any
agreement, indenture or other instrument to which the Selling
Shareholders are a party or by which the Selling Shareholders or
their respective property are bound (other than those as to which
requisite waivers or consents have been obtained), or violate or
conflict with any laws, administrative regulation or ruling or
court decree applicable to the Selling Shareholders or their
respective property.
(viii) None of the Selling Shareholders is an investment
company under the Investment Company Act of 1940.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Subsidiaries and certificates
of public officials.
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(f) At the Closing Time, you shall have received a signed
opinion of Dewey Ballantine, dated as of the Closing Time, together with
reproduced copies of such opinion for each of the other Managers, in form
or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to
the Managers, to the effect that the transfer by the EPIC Trustee to EPIC
of shares of EPIC Common Stock unallocated under the EPIC ESOP in
satisfaction of EPIC's loans to the EPIC ESOP Trust, as contemplated by the
Registration Statement, will meet the requirements of Sections 404, 406 and
408(e)(1) of ERISA.
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of EPIC and its Subsidiaries and certificates of
public officials.
(g) At the Closing Time, you shall have received the favorable
opinion of Davis Polk & Wardwell as counsel for the Managers, dated as of
the Closing Time, together with reproduced copies of such opinion for each
of the other Managers, to the effect that the opinions delivered pursuant
to Sections 5(b), (c) and (d) appear on their face to be appropriately
responsive to the requirements of this Agreement except, specifying the
same, to the extent waived by you, and with respect to the incorporation
and legal existence of the Company, the Offered Shares, this Agreement, the
Registration Statement, the transactions contemplated under the captions
"The Acquisition and Financing Plan", "Use of Proceeds" and
"Capitalization" in the Registration Statement, the Prospectuses and such
other related matters as you may require. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York, the federal law of the United
States and the corporate law of the State of Delaware, upon the opinions of
counsel satisfactory to you. Such counsel may also state that, insofar as
such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and the Company's
Subsidiaries and certificates of public officials.
(h) At the Closing Time, (i) the Registration Statement and
the Prospectuses, as they may then be amended or supplemented, shall
conform in all material respects to the requirements of the 1933 Act and
the 1933 Act Regulations, the Company shall have complied in all material
respects with Rule 430A (if it shall have
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<PAGE> 45
elected to rely thereon), the Registration Statement, as it may then be
amended or supplemented, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements in the Registration Statement
not misleading, and the Prospectuses, as they may then be amended or
supplemented, shall not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements in the Prospectuses, in light of the circumstances
under which they were made, not misleading, (ii) there shall not have been,
since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, any material adverse change,
or any development involving a prospective material adverse change, in the
condition (financial or otherwise), earnings or business affairs of the
Company and the Company's Subsidiaries, considered as one enterprise, or of
EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, (iii) no action, suit or
proceeding at law or in equity shall be pending or, to the knowledge of the
Company, threatened against the Company, any of the Company's Subsidiaries,
EPIC or any of EPIC's Subsidiaries that would be required to be set forth
in the Prospectuses other than as set forth therein and no proceedings
shall be pending or, to the knowledge of the Company, threatened against
the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's
Subsidiaries before or by any federal, state or other commission, board or
administrative agency wherein an unfavorable decision, ruling or finding
could reasonably be expected to materially adversely affect the condition
(financial or otherwise), earnings or business affairs of the Company and
the Company's Subsidiaries, considered as one enterprise, or of EPIC and
EPIC's Subsidiaries, considered as one enterprise, other than as set forth
in the Prospectuses, (iv) the Company shall have complied in all material
respects with all agreements and satisfied in all material respects all
conditions on its part to be performed or satisfied at or prior to the
Closing Time, (v) the Selling Shareholders shall have complied in all
material respects with all agreements and satisfied in all material
respects all conditions on its part to be performed or satisfied at or
prior to the Closing Time, and (vi) the other representations and
warranties of the Company set forth in Section 1(a) shall be accurate as
though expressly made at and as of the Closing Time. At the Closing Time,
you shall have received certificates of the President or a Vice President
and the Treasurer or the Controller of the
45
<PAGE> 46
Company and of EPIC, dated as of the Closing Time, to such effect.
(i) On the date of this Agreement and at the Closing Time,
Ernst & Young, independent public accountants with respect to the Company,
shall have furnished to you letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, containing statements
and information of the type customarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses.
(j) On the date of this Agreement and at the Closing Time,
Ernst & Young, independent public accountants with respect to EPIC, shall
have furnished to you letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, containing statements
and information of the type customarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements of EPIC
and certain financial information contained or incorporated by reference in
the Registration Statement and the Prospectuses.
(k) At the Closing Time, counsel for the Managers shall have
been furnished with all such documents, certificates and opinions as they
may reasonably request for the purpose of enabling them to pass upon the
issuance and sale of the Offered Shares as contemplated in this Agreement
and the matters referred to in Section 5(e) and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any of the covenants of the
Company, or the fulfillment of any of the conditions herein contained; and
all proceedings taken by the Company at or prior to the Closing Time in
connection with the authorization, issuance and sale of the Offered Shares
as contemplated in this Agreement shall be reasonably satisfactory in form
and substance to you and to Davis Polk & Wardwell as counsel for the
Managers.
(l) EPIC shall have terminated future contributions to the
EPIC ESOP, discharged that portion of the principal amount of EPIC's loans
to the EPIC ESOP Trust that exceeds the fair market value of the shares of
EPIC Common Stock transferred by the EPIC Trustee to EPIC, and reacquired
all of the shares of EPIC Common Stock held by the EPIC ESOP at the time of
termination of EPIC's
46
<PAGE> 47
contributions to the EPIC ESOP and not allocated to the accounts of
participants in the EPIC ESOP, and EPIC shall have terminated the Grantor
Trust (as such term is defined in the Registration Statement) and
consummated the transactions contemplated by such termination substantially
in the manner described in the Prospectuses.
(m) The Company shall have consummated the Acquisition (as
defined in the Registration Statement). The Company shall have provided to
you and Davis Polk & Wardwell as counsel for the Managers copies of all
documents with respect to the consummation of the Acquisition as you or
Davis Polk & Wardwell may reasonably request.
(n) The transactions contemplated in the Prospectuses under
the headings "The Acquisition and the Financing Plan", "Use of Proceeds"
and "Capitalization" shall have been duly authorized by the Company; all of
the necessary consents to consummate such transactions shall have been
obtained, except where the failure to obtain such consents would not have a
material adverse effect on such transactions; there shall not be any
violation on the part of the Company or the Company's Subsidiaries of any
of the terms of such consents that could reasonably be expected to
materially and adversely affect the consummation of such transactions; and
there shall not be any pending or threatened legal or governmental
proceedings with respect to any consents or the transactions contemplated
in the Prospectuses (including the transactions described under the
captions "The Acquisition and the Financing Plan", "Use of Proceeds" and
"Capitalization" in the Prospectuses) that could reasonably be expected to
materially and adversely affect such transactions.
(o) You shall have received on the Closing Date, a certificate
of each Selling Shareholder who is not a U.S. Person to the effect that
such Selling Shareholder is not a U.S. Person (as defined under applicable
U.S. federal tax legislation), which certificate may be in the form of a
properly completed and executed United States Treasury Department Form W-8
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement may be terminated by you upon notice to the Company at any time
at or prior to the
47
<PAGE> 48
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 4 herein. Notwithstanding any
such termination, the provisions of Sections 7 and 8 herein shall remain in
effect.
Section 6. Conditions to Purchase of International Option Shares.
In the event that the Managers exercise their option granted in Section 2 to
purchase all or any of the International Option Shares and the Date of Delivery
determined by you pursuant to Section 2 is later than the Closing Time, the
obligations of the several Managers to purchase and pay for the International
Option Shares that they shall have respectively agreed to purchase pursuant to
this Agreement are subject to the accuracy of the representations and
warranties of the Company herein contained, to the performance by the Company
of its obligations hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective at the
Date of Delivery, and at the Date of Delivery no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the 1933 Act and no proceedings for that purpose shall have been instituted
or shall be pending or, to your knowledge or to the knowledge of the
Company, shall have been threatened by the Commission, and any request on
the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Davis Polk & Wardwell as
counsel for the Managers.
(b) At the Date of Delivery, the provisions of Section 5(f)
shall have been complied with at and as of the Date of Delivery and, at the
Date of Delivery, you shall have received a certificate of the President or
a Vice President and the Treasurer or the Controller of the Company with
respect to the provisions of Section 5(f), dated as of the Date of
Delivery, to such effect.
(c) At the Date of Delivery, you shall have received the
favorable opinions of Dewey Ballantine, counsel for the Company, Philip D.
Wheeler, General Counsel for the Company, Johnson & Gibbs, Counsel for
EPIC, [ ], or such other counsel reasonably satisfactory to Davis
Polk & Wardwell as counsel for the Managers together with reproduced copies
of such opinions for each of the other Managers in form and substance
satisfactory to Davis Polk & Wardwell as counsel for the Managers, dated as
of the Date of Delivery, relating to the International Option Shares and
otherwise to the same effect as the opinions required by Sections 5(b), (c)
and (d).
48
<PAGE> 49
(d) At the Date of Delivery, you shall have received the
favorable opinion of Davis Polk & Wardwell, counsel for the Managers, dated
as of the Date of Delivery, relating to the International Option Shares and
otherwise to the same effect as the opinion required by Section 5(e).
(e) At the Date of Delivery, you shall have received a letter
from Ernst & Young, in form and substance satisfactory to you and dated as
of the Date of Delivery, to the effect that they reaffirm the statements
made in the letter furnished pursuant to Section 5(g), except that the
specified date referred to shall be a date not more than five days prior to
the Date of Delivery.
(f) At the Date of Delivery, Davis Polk & Wardwell as counsel
for the Managers shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the purpose of
enabling them to pass upon the issuance and sale of the International
Option Shares as contemplated in this Agreement and the matters referred to
in Section 6(d) and in order to evidence the accuracy and completeness of
any of the representations, warranties or statements of the Company, the
performance of any of the covenants of the Company, or the fulfillment of
any of the conditions herein contained; and all proceedings taken by the
Company at or prior to the Date of Delivery in connection with the
authorization, issuance and sale of the International Option Shares as
contemplated in this Agreement shall be reasonably satisfactory in form and
substance to you and to Davis Polk & Wardwell as counsel for the Managers.
Section 7. Indemnification. (a) The Company and the Selling
Shareholders agree to indemnify and hold harmless each Manager and each person,
if any, who controls any Manager within the meaning of Section 15 of the 1933
Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of an untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information,
if applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of an untrue statement or alleged
untrue statement of a material fact included in any preliminary prospectus
or the
49
<PAGE> 50
Prospectuses (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to the last sentence of Section 7(c), fees and
disbursements of counsel chosen by you to represent the Managers),
reasonably incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that with respect to the indemnity provided by the Selling
Shareholders, the indemnity shall only apply to information relating to the
Selling Shareholders furnished or confirmed in writing by or on behalf of the
Selling Shareholders for use in the Registration Statement (or any amendments
thereto); and provided, further, that this indemnity does not apply to any
loss, liability, claim, damage or expense to the extent arising out of an
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished or confirmed in
writing to the Company by or on behalf of any Manager through you or the U.S.
Representatives expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if applicable, or any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto); and provided further that the foregoing indemnification with respect
to any untrue statement contained in or any omission from a preliminary
prospectus shall not inure to the benefit of any Manager (or any person
controlling such Manager) from whom the person asserting any such losses,
claims, damages, liabilities, or expenses purchased any of the Offered Shares
if a copy of the Prospectus (or the Prospectus as amended or supplemented if
50
<PAGE> 51
the Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Manager to such person, if such is
required by law, at or prior to the written confirmation of the sale of such
Offered Shares to such person and the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
(b) Each Manager severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, the Selling Shareholders and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act, against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in Section 7(a), as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information, if
applicable, or any preliminary prospectus or the Prospectuses (or any amendment
or supplement thereto) in reliance upon and in conformity with information
furnished or confirmed in writing to the Company by or on behalf of such
Manager through you expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if applicable, or such
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto).
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of such action. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
Section 8. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnity provided for
in Section 7 is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Shareholders and the Managers shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity incurred by the Company, one or more of the Selling Shareholders and
one or
51
<PAGE> 52
more of the Managers, as incurred, in such proportions that (a) the Managers
are responsible for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectuses bears to
the initial public offering price appearing thereon and (b) the Company and the
Selling Shareholders are responsible for the balance; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section, each person, if any, who controls a Manager within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as such
Manager, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company.
Section 9. Representations, Warranties and Agreements to Survive
Delivery. The representations, warranties, indemnities, agreements and other
statements of the Company, the Selling Shareholders and the Managers or their
respective officers set forth in or made pursuant to this Agreement will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Company, any of the Selling Shareholders or any Manager or
controlling person and will survive delivery of and payment for the Offered
Shares.
Section 10. Termination of Agreement. (a) You may terminate
this Agreement, by notice to the Sellers, at any time at or prior to the
Closing Time (i) if there has been, since the respective dates as of which
information is given in the Registration Statement, any material adverse
change, or any development involving a prospective material adverse change, in
the condition (financial or otherwise), earnings or business affairs of the
Company and the Company's Subsidiaries, considered as one enterprise, or of
EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or any
outbreak of hostilities or escalation of existing hostilities or other calamity
or crisis the effect of which is such as to make it, in your reasonable
judgment, impracticable to market the International Shares or enforce contracts
for the sale of the International Shares, or (iii) if trading in any securities
of the Company has been suspended by the Commission, or if trading generally on
the New York Stock Exchange or in the over-the-counter market has been
suspended, or minimum or
52
<PAGE> 53
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by such exchange or by order of the Commission
or any other governmental authority, or (iv) if a banking moratorium has been
declared by either federal or New York authorities.
(b) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party,
except to the extent provided in Section 4. Notwithstanding any such
termination, the provisions of Sections 7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2(c), with the effect stated in such Section.
(d) If the U.S. Purchase Agreement shall terminate for any
reason, this Agreement shall terminate.
Section 11. Default by One or More of the Managers. If one or
more of the Managers shall fail at the Closing Time to purchase the Initial
International Shares that it or they are obligated to purchase pursuant to this
Agreement (the "Defaulted International Shares"), you shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Managers, or any other underwriters, to purchase all, but not
less than all, of the Defaulted International Shares in such amounts as may be
agreed upon and upon the terms set forth in this Agreement; if, however, you
have not completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted International Shares does not
exceed 10% of the total number of Initial International Shares, the
non-defaulting Managers shall be obligated to purchase the full amount
thereof in the proportions that their respective Initial International
Share underwriting obligation proportions bear to the underwriting
obligation proportions of all non-defaulting Managers, or
(b) if the number of Defaulted International Shares exceeds
10% of the total number of Initial International Shares, this Agreement
shall terminate without liability on the part of any non-defaulting
Manager.
No action taken pursuant to this Section shall relieve any
defaulting Manager from liability in respect of its default.
53
<PAGE> 54
In the event of any such default that does not result in a
termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectuses or in
any other documents or arrangements. As used herein, the term "Manager"
includes any person substituted for a Manager under this Section 11.
Section 12. Agreements of the Selling Shareholders. The
Selling Shareholders severally agree with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with
respect to the Shares to be sold by the Selling Shareholders; and
(b) To take all reasonable actions in cooperation with the
Company and Managers to cause the Registration Statement to become
effective at the earliest possible time, to do and perform all things to be
done and performed under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares pursuant to
this Agreement.
Section 13. Default by the Company. If the Company shall
fail at the Closing Time to sell and deliver the number of Offered Shares that
it is obligated to sell, then this Agreement shall terminate without any
liability on the part of any non-defaulting party except to the extent
provided in Section 4 and except that the provisions of Sections 7 and 8 shall
remain in effect.
No action taken pursuant to this Section shall relieve the Company
from liability, if any, in respect of such default.
Section 14. Notices. All notices and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if delivered, mailed or transmitted by any standard form of telecommunication
(notices transmitted by telecopier to be promptly confirmed in writing).
Notices to you or the Managers shall be directed to you c/o Merrill Lynch
International Limited, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY,
England, attention of Ms. Georgia May; and notices to the Company shall be
directed to it at 4525 Harding Road, Nashville, Tennessee 37205 (telecopier
no.: (615) 298-6377), attention of Philip D. Wheeler, Esq.
54
<PAGE> 55
Section 15. Parties. This Agreement is made solely for the
benefit of the several Managers and the Company and, to the extent expressed,
any person controlling the Company or any of the Managers, and the directors of
the Company, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns and, subject to
the provisions of Section 11, no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchasers, as such purchaser, from any of the several Managers
of the International Shares. All of the obligations of the Managers hereunder
are several and not joint.
Section 16. Representation of Co-Lead Managers. You will act for
the several Managers in connection with this offering, and any action under or
in respect of this Agreement taken by you as Co-Lead Managers will be binding
upon all the Managers.
Section 17. Governing Law and Time. This Agreement shall be
governed by the laws of the State of New York. Specified times of the day
refer to New York City time.
Section 18. Counterparts. This Agreement may be executed in one
or more counterparts and, when a counterpart has been executed by each party,
all such counterparts taken together shall constitute one and the same
agreement.
55
<PAGE> 56
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company and the several
Managers in accordance with its terms.
Very truly yours,
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
By:
------------------------------
Name:
Title:
EACH OF THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE I HERETO
By:
------------------------------
Name:
Title: Attorney-in-Fact
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: MERRILL LYNCH INTERNATIONAL
LIMITED
By:
------------------------
Attorney-in-Fact
For themselves and as Co-Lead Managers of the other Managers
named in Schedule A.
56
<PAGE> 57
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF INITIAL
INTERNATIONAL SHARES
MANAGER TO BE PURCHASED
------- --------------------
<S> <C>
Merrill Lynch International Limited . . . . . . . . . . . . . . . . . . . . . . . . . . [ ]
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [ ]
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [ ]
========
</TABLE>
<PAGE> 58
EXHIBIT A
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(A DELAWARE CORPORATION)
[ ] SHARES
OF COMMON STOCK
INTERNATIONAL PRICE DETERMINATION AGREEMENT
April __, 1994
MERRILL LYNCH INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
As Representatives of the
several Managers
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
Reference is made to the International Purchase Agreement dated
April __, 1994 (the "International Purchase Agreement") among Healthtrust, Inc.
- - The Hospital Company, a Delaware corporation (the "Company"), the Selling
Shareholders named in Schedule I to the International Purchase Agreement (the
"Selling Shareholders") and the several Managers named in Schedule A thereto or
hereto (the "Managers"), for whom Merrill Lynch International Limited and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as Co-Lead
Managers (the "Co-Lead Managers"). The International Purchase Agreement
provides for the purchase by the Managers from the Company and the Selling
Shareholders, subject to the terms and conditions set forth therein, of any
aggregate of [ ] shares (the "Initial International Shares") of the
Company's common stock, par value $.001 per share. This Agreement is the
International Price Determination Agreement referred to in the International
Purchase Agreement.
<PAGE> 59
Pursuant to Section 2 of the International Purchase Agreement,
the undersigned agree with the Co-Lead Managers as follows:
1. The initial public offering price per share for the
Initial International Shares shall be $_____.
2. The purchase price per share for the Initial International
Shares to be paid by the several Managers shall be $_____, representing an
amount equal to the initial public offering price set forth above, less
$___ per share.
The Company represents and warrants to each of the Managers that
the representations and warranties of the Company set forth in Section 1(a) of
the International Purchase Agreement are accurate as though expressly made at
and as of the date hereof.
The Selling Shareholders represent and warrant to each of the
Managers that the representations and warranties of the Company set forth in
Section 1(c) of the International Purchase Agreement are accurate as though
expressly made at and as of the date hereof.
As contemplated by Section 2 of the International Purchase
Agreement, attached as Schedule A is a completed list of the several Managers,
which shall be a part of this Agreement and the International Purchase
Agreement.
2
<PAGE> 60
This Agreement shall be governed by the laws of the State of New
York.
If the foregoing is in accordance with the understanding of the
Co-Lead Managers of the agreement between the Managers and the Company, please
sign and return to the Company a counterpart hereof, whereupon this instrument
along with all counterparts and together with the International Purchase
Agreement shall be a binding agreement among the Managers and the Company in
accordance with its terms and the terms of the International Purchase
Agreement.
Very truly yours,
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
By:
------------------------------
Name:
Title:
EACH OF THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE I TO THE
INTERNATIONAL PURCHASE AGREEMENT
By:
-------------------------------
Name:
Title: Attorney-in-Fact
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: MERRILL LYNCH INTERNATIONAL
LIMITED
By:
------------------------
Attorney-in-Fact
For themselves and as Co-Lead Managers of the other Managers
named in Schedule A attached to the International Purchase
Agreement.
3
<PAGE> 1
EXHIBIT 5.1
April 22, 1994
Healthtrust, Inc. - The Hospital Company
4525 Harding Road
Nashville, Tennessee 37205
Re: Healthtrust, Inc. - The Hospital Company
Registration Statement on Form S-3 relating
to $200,000,000 principal amount of
Subordinated Notes due 2004
Ladies and Gentlemen:
We have acted as special counsel to Healthtrust, Inc. - The Hospital
Company, a Delaware corporation (the "Company"), in connection with the
proposed offering by the Company of $200,000,000 principal amount of the
Company's % Subordinated Notes Due 2004 (the "Notes"), as described in the
Registration Statement on Form S-3 (File No. 33-52403) (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Restated
Certificate of Incorporation and By-Laws of the Company, as amended to date,
(ii) the Registration Statement, (iii) the applicable resolutions of the Board
of Directors of the Company, (iv) the Indenture dated as of March 30, 1993 (the
"Indenture") among the Company and The First National Bank of Boston as trustee
(the "Trustee"), (v) the proposed form of Purchase Agreement among the Company,
Merrill Lynch & Co. and Donaldson, Lufkin & Jenrette Securities Corporation
(the "Purchase Agreement") and (vi) such other documents, records and
instruments as we have deemed necessary or appropriate for the purpose of this
opinion. In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as conformed or photostatic copies. As to any
facts material to this opinion that we did not independently establish or
verify, we have relied upon
<PAGE> 2
statements and representations of officers and other representatives of the
Company and others. We also have assumed that the Purchase Agreement, when
executed and delivered, will be substantially in the form submitted to us for
examination.
We are admitted to the Bar of the State of New York and express no
opinion as to the laws of any other jurisdiction other than the General
Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that the
Notes have been duly authorized by the Company and, when (i) the Registration
Statement shall become effective under the Act, (ii) the Purchase Agreement
shall have been duly executed and delivered by the parties thereto and (iii) the
Notes shall have been duly executed on behalf of the Company and authenticated
by the Trustee and issued and delivered pursuant to the Indenture and the
Purchase Agreement against payment to the Company of the authorized
consideration therefor, the Notes will be validly issued and will be valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principals of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
/s/ Dewey Ballantine
2
<PAGE> 1
EXHIBIT 12.2 TO FORM S-3 REGISTRATION STATEMENT
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1994 1993
------------ ----------
<S> <C> <C>
Pro forma net income................................................. $ 80.6 $127.7
Pro forma income tax charge.......................................... 57.6 91.9
------------ ----------
Pro forma pre-tax income............................................. $138.2 $219.6
------------ ----------
Pro Forma Fixed Charges:
Interest (expensed or capitalized)................................. $ 75.1 $165.0
Amortization of debt expense, discount or premium.................. 1.6 3.5
Estimated interest factor on operating lease payments.............. 10.5 19.8
------------ ----------
Total pro forma fixed charges.............................. $ 87.2 $188.3
------------ ----------
Pro Forma Earnings:
Pre-tax income..................................................... $138.2 $219.6
Fixed charges...................................................... 87.2 188.3
Interest capitalized............................................... (5.6) (10.4)
Amortization of interest capitalized............................... 1.2 2.2
------------ ----------
Total pro forma earnings................................... $221.0 $399.7
------------ ----------
Pro forma ratio of earnings to fixed charges......................... 2.5X 2.1X
------------ ----------
------------ ----------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Historical Financial Information" and "Experts" in Amendment No. 3 to the
Registration Statement (Form S-3 No. 33-52403) and related Prospectus of
Healthtrust, Inc. -- The Hospital Company for the registration of $200,000,000
Subordinated Notes and to the incorporation by reference therein of our report
dated October 15, 1993, with respect to the consolidated financial statements
and schedules of Healthtrust, Inc. -- The Hospital Company included in its
Annual Report (Form 10-K) for the year ended August 31, 1993, filed with the
Securities and Exchange Commission.
Ernst & Young
Nashville, Tennessee
April 22, 1994
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Historical Financial Information" and "Experts" and to the use of our reports
dated December 3, 1993, with respect to the consolidated financial statements of
EPIC Holdings, Inc. and subsidiaries and EPIC Healthcare Group, Inc. and
subsidiaries included in Amendment No. 3 to the Registration Statement (Form S-3
No. 33-52403) and related Prospectus of Healthtrust, Inc. -- The Hospital
Company for the registration of $200,000,000 Subordinated Notes.
Ernst & Young
Dallas, Texas
April 22, 1994
<PAGE> 1
SECURITIES ACT OF 1933 FILE NO: (IF APPLICATION TO DETERMINE ELIGIBILITY
OF TRUSTEE FOR DELAYED OFFERING PURSUANT TO SECTION 305(b)(2)
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B) (2)______
______________________
THE FIRST NATIONAL BANK OF BOSTON
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
04-2472499
(I.R.S. EMPLOYER IDENTIFICATION NO.)
100 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
GARY A. SPEISS, CASHIER AND GENERAL COUNSEL
100 FEDERAL STREET, 24TH FLOOR, BOSTON, MASSACHUSETTS 02110 (617) 434-2870
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
______________________
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1234332
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4525 HARDING ROAD
NASHVILLE, TENNESSEE 37205
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
SUBORDINATED NOTES
(TITLE OF INDENTURE SECURITIES)
==============================================================================
<PAGE> 2
1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
Comptroller of the Currency of the United States, Washington D.C.
Board of Governors of the Federal Reserve System, Washington, D.C
Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.
IF THE OBLIGOR OR ANY UNDERWRITER FOR THE OBLIGOR IS AN AFFILIATE OF THE
TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
None with respect to the Trustee.
(See Notes on page 2)
None with respect to Bank of Boston Corporation.
16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY AND
QUALIFICATION.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A certified copy of the Articles of Association of the trustee is filed as
Exhibit No. 1 to statement of eligibility and qualification No. 22-9514 and is
incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of the certificate of T. McLean Griffin, Cashier of the trustee,
dated February 3, 1978, as to corporate succession containing copies of the
Certificate of the Comptroller of the Currency that The Massachusetts Bank,
National Association, into which The First National Bank of Boston was merged
effective January 4, 1971, is authorized to commence the business of banking as
a national banking association, as well as a certificate as to such merger is
filed as Exhibit No. 2 to statement of eligibility and qualification No.
22-9514 and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN
PARAGRAPH (1) OR (2) ABOVE.
A copy of a certificate of the Office of the Currency dated February 6,
1978 is filed as Exhibit No. 3 to statement of eligibility and qualification
No. 22-9514 and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A certified copy of the existing By-Laws of the trustee dated December 23,
1993 is filed as Exhibit No. 4 to statement of eligibility and qualification
No. 22-25754 and is incorporated herein by reference thereto.
<PAGE> 3
5. THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto and made a part hereof.
6. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee published pursuant
to law or the requirements of its supervising or examining authority is annexed
hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item in this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information furnished
to it by the obligor and the underwriters, and the trustee disclaims
responsibility for the accuracy or completeness of such information.
The answer furnished to Item 2 of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939, THE TRUSTEE,
THE FIRST NATIONAL BANK OF BOSTON, A NATIONAL BANKING ASSOCIATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE UNITED STATES OF AMERICA, HAS DULY CAUSED THIS
STATEMENT OF ELIGIBILITY AND QUALIFICATION TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ALL IN THE TOWN OF CANTON AND
COMMONWEALTH OF MASSACHUSETTS, ON THE 19TH DAY OF APRIL, 1994.
THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE
BY: MARK NELSON
------------------------------------
MARK NELSON
AUTHORIZED OFFICER
EXHIBIT 6
CONSENT OF TRUSTEE
PURSUANT TO THE REQUIREMENTS OF SECTION 321(B) OF THE TRUST INDENTURE
ACT OF 1939 IN CONNECTION WITH THE PROPOSED ISSUE BY HEALTHTRUST, INC. - THE
HOSPITAL COMPANY OF SUBORDINATED NOTES, WE HEREBY CONSENT THAT REPORTS OF
EXAMINATIONS BY FEDERAL, STATE, TERRITORIAL, OR DISTRICT AUTHORITIES MAY BE
FURNISHED BY SUCH AUTHORITIES TO THE SECURITIES AND EXCHANGE COMMISSION UPON
REQUEST THEREFOR.
THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE
BY: MARK NELSON
------------------------------------
MARK NELSON
AUTHORIZED OFFICER
<PAGE> 4
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION, INCLUDING DOMESTIC
AND FOREIGN SUBSIDIARIES, OF
THE FIRST NATIONAL BANK OF BOSTON
In the Commonwealth of Massachusetts, at the close of business on
December 31, 1993. Published in response to call made by Comptroller of the
Currency, under Title 12, United States Code, Section 161. Charter number 200.
Comptroller of the Currency Northeastern District.
<TABLE>
<CAPTION>
ASSETS
DOLLAR
AMOUNTS IN
THOUSANDS
----------
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . $ 1,896,648
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . 989,983
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,120,299
Federal funds sold and securities purchased under agreements to resell in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's:
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786,594
Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . 0
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . . . . . . $ 21,760,082
LESS: Allowance for loan and lease losses . . . . . . . . . . . . . . 488,235
LESS: Allocated transfer risk reserve . . . . . . . . . . . . . . . . 0
Loans and leases, net of unearned income, allowance and reserve . . . . . . . . . . 21,271,847
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303,841
Premises and fixed assets (including capitalized leases) . . . . . . . . . . . . . . . . 317,599
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,600
Investments in unconsolidated subsidiaries and associated companies . . . . . . . . . . . 118,921
Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . 374,873
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,582
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,881
------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,551,668
============
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,331,731
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,780,365
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,551,366
In foreign offices, Edge and Agreement subsidiaries, and IBF's . . . . . . . . . . . . . 7,295,863
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . 525,888
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,769,975
Federal funds purchased and securities sold under agreements to repurchase in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,302,034
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . 199,132
Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . 48,780
Other borrowed money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,590,569
Mortgage indebtedness and obligations under capitalized leases . . . . . . . . . . . . . 14,180
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . 375,153
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598,835
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723,480
------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,479,757
============
Limited-life preferred stock and equity capital . . . . . . . . . . . . . . . . . . . . . 0
</TABLE>
<PAGE> 5
EQUITY CAPITAL
<TABLE>
<S> <C>
Perpetual preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . . . $ 0
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,200
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 893,227
Undivided profits and capital reserves . . . . . . . . . . . . . . . . . . . . . . . . . 1,076,870
LESS: Net unrealized loss on marketable equity securities . . . . . . . . . . . . . . . . (34,746)
Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . (8,132)
Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,071,911
------------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK, AND EQUITY . . . . . . . . . . . . $ 29,551,668
============
</TABLE>
I, Robert T. Jefferson, Comptroller of the above-named bank, do
hereby declare that this Report of Condition is true and correct to the best
of my knowledge and belief.
ROBERT T. JEFFERSON
FEBRUARY 9, 1994
We, the undersigned directors, attest to the correctness of this
statement of resources and liabilities. We declare that it has been examined
by us, and to the best of our knowledge and belief has been prepared in
conformance with the instructions and is true and correct.
CHARLES K. GIFFORD
IRA STEPANIAN
PAUL C. O'BRIEN
DIRECTORS
FEBRUARY 9, 1994
