-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MrSZKOIw/Xf/FVM31DE1rnxgJnWzlphA2dcnM5LCJaMu5el+f6+tZW+AYkhem9Qf nWhO778OFMG2gYrtwK8r1g== 0001047469-98-033004.txt : 19980831 0001047469-98-033004.hdr.sgml : 19980831 ACCESSION NUMBER: 0001047469-98-033004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980828 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENET HEALTHCARE CORP CENTRAL INDEX KEY: 0000070318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 952557091 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-07293 FILM NUMBER: 98699547 BUSINESS ADDRESS: STREET 1: 3820 STATE STREET CITY: SANTA BARBARA STATE: CA ZIP: 93105- BUSINESS PHONE: 8055637000 MAIL ADDRESS: STREET 1: P O BOX 4070 CITY: SANTA MONICA STATE: CA ZIP: 90404 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL MEDICAL ENTERPRISES INC /NV/ DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K --------------- /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1998. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER: I-7293 ------------------------ TENET HEALTHCARE CORPORATION (Exact name of Registrant as specified in its charter) NEVADA 95-2557091 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3820 STATE STREET SANTA BARBARA, CALIFORNIA 93105 (Address of principal executive offices) (Zip Code)
AREA CODE (805) 563-7000 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock New York Stock Exchange Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Pacific Stock Exchange 9 5/8% Senior Notes due 2002 New York Stock Exchange 7 7/8% Senior Notes due 2003 New York Stock Exchange 8 5/8% Senior Notes due 2003 New York Stock Exchange 6% Exchangeable Subordinated Notes due 2005 New York Stock Exchange 8% Senior Notes due 2005 New York Stock Exchange 10 1/8% Senior Subordinated Notes due 2005 New York Stock Exchange 8 5/8% Senior Subordinated Notes due 2007 New York Stock Exchange
------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. /X/ As of July 31, 1998, there were 309,356,363 shares of Common Stock outstanding. The aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant, based on the closing price of these shares on the New York Stock Exchange, was $9,255,609,225. For the purposes of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates. Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended May 31, 1998, have been incorporated by reference into Parts I, II and IV of this Report. Portions of the definitive Proxy Statement for the Registrant's 1998 Annual Meeting of Shareholders have been incorporated by reference into Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS FORM 10-K ANNUAL REPORT--1998 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
PAGE ----- PART I Item 1. Business.................................................................................... 1 Item 2. Properties.................................................................................. 23 Item 3. Legal Proceedings........................................................................... 24 Item 4. Submission of Matters to a Vote of Security Holders......................................... 24 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................... 25 Item 6. Selected Financial Data..................................................................... 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 25 Item 8. Financial Statements and Supplementary Data................................................. 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 25 PART III Item 10. Directors and Executive Officers of the Registrant.......................................... 25 Item 11. Executive Compensation...................................................................... 25 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 25 Item 13. Certain Relationships and Related Transactions.............................................. 25 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K........................... 26
- ------------------------ Note: The responses to Items 5 through 8, Item 12 and portions of Items 1, 3, 10, 11 and 14 are included in the Registrant's Annual Report to Shareholders for the year ended May 31, 1998, or the definitive Proxy Statement for the Registrant's 1998 Annual Meeting of Shareholders. The required information is incorporated into this Report by reference to those documents and is not repeated herein. i PART I ITEM 1. BUSINESS GENERAL Tenet Healthcare Corporation (together with its subsidiaries, "Tenet", the "Registrant" or the "Company") is the second largest investor-owned healthcare services company in the United States. At May 31, 1998, Tenet's subsidiaries and affiliates (collectively "subsidiaries") owned or operated 122 general hospitals with 27,867 licensed beds and related healthcare facilities serving urban and rural communities in 18 states and held investments in other healthcare companies. Tenet's subsidiaries also owned or operated a small number of rehabilitation hospitals, specialty hospitals, long-term care facilities and psychiatric facilities and many medical office buildings located on the same campus as, or nearby, its general hospitals. In addition, Tenet's subsidiaries own or operate various ancillary healthcare businesses, including outpatient surgery centers, home healthcare agencies, occupational and rural healthcare clinics, health maintenance organizations, a preferred provider organization, a managed care insurance company and physician practices. Tenet intends to continue its strategic acquisitions of and partnerships or affiliations with additional general hospitals and related healthcare businesses in order to expand and enhance its integrated healthcare delivery systems. Tenet has grown substantially over the past several years through corporate acquisitions and acquisitions of individual facilities. On March 1, 1995, Tenet acquired the parent company of American Medical International, Inc., now known as Tenet HealthSystem Medical, Inc. ("TH Medical"), in a transaction accounted for as a purchase. At the time it was acquired, TH Medical owned 35 general hospitals as well as related healthcare businesses. On January 30, 1997, Tenet acquired OrNda HealthCorp ("OrNda"), now known as Tenet HealthSystem HealthCorp ("TH HealthCorp"), in a transaction accounted for as a pooling-of-interests (the "Merger"). Accordingly, the consolidated financial statements incorporated herein by reference and all statistical data shown herein prior to the Merger were restated in fiscal 1997 to include the accounts and results of operations of OrNda for all periods presented. At the time it was acquired, OrNda owned 50 general hospitals as well as related healthcare operations. As discussed in more detail under General Hospitals on page 2 below, Tenet's subsidiaries acquired six general hospitals during fiscal 1998 and one general hospital during the first quarter of fiscal 1999. In addition, Tenet closed four general hospitals, sold six general hospitals, exchanged its ownership interest in one hospital for a minority interest in a joint venture and combined the operations of one general hospital with those of a nearby general hospital during fiscal 1998. Tenet also closed one general hospital and combined the operations of one general hospital with those of a nearby general hospital during the first quarter of fiscal 1999. At May 31, 1998, Tenet's subsidiaries also held as investments interests in Ventas, Inc. (formerly known as Vencor, Inc.) ("Ventas") and Total Renal Care Holdings, Inc. ("TRC"). These investments are discussed in more detail under Investments on page 8 below. In fiscal year 1998 Tenet issued $350 million of 7 5/8% Senior Notes due 2008 and $1.005 billion of 8 1/8% Senior Subordinated Notes due 2008. The proceeds of those Notes were used to repurchase substantially all of Tenet's 9 5/8% Senior Notes due 2002 and 10 1/8% Senior Subordinated Notes due 2005. Tenet's revolving credit agreement allows Tenet to borrow, repay and reborrow up to $2.8 billion prior to its January 31, 2002, maturity date. The Company had approximately $1.2 billion available under its revolving credit agreement at May 31, 1998. 1 Under segment reporting criteria, Tenet believes that "healthcare" is its only material business segment. See the discussion of Tenet's revenues and operations in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Tenet's 1998 Annual Report to Shareholders. OPERATIONS GENERAL HOSPITALS All of Tenet's operations are conducted through its subsidiaries. Tenet's general hospital and other healthcare operations are conducted primarily through the following three subsidiaries and their subsidiaries: (i) Tenet HealthSystem Hospitals, Inc., (ii) TH Medical and (iii) TH HealthCorp. At May 31, 1998, Tenet's subsidiaries operated 122 general hospitals with 27,867 licensed beds serving urban and rural communities in 18 states. Of those general hospitals, 95 are owned by Tenet's subsidiaries and 27 are owned by and leased from third parties (including two owned facilities that are on leased land). A Tenet subsidiary also owns one general hospital and ancillary healthcare operations in Barcelona, Spain. During fiscal 1998, Tenet's subsidiaries acquired the following six general hospitals: (i) the three-hospital 1,030-bed Deaconess Incarnate Word Health System (now known as Deaconess Medical Center-West, Deaconess Medical Center-Central and LaFayette-Grand Hospital) in St. Louis, Missouri, (ii) the 356-bed Saint Louis University Hospital in St. Louis, Missouri, (iii) the 460-bed Georgia Baptist Medical Center in Atlanta, Georgia, and (iv) the 25-bed Sylvan Grove Hospital in Jackson, Georgia. During the first quarter of fiscal 1999, Tenet acquired the 418-bed Queen of Angels-Hollywood Presbyterian Medical Center in Los Angeles, California. In addition, Tenet closed four general hospitals, sold six general hospitals, exchanged its ownership interest in one hospital for a minority interest in a joint venture and combined the operations of the Florida Medical Center-South general hospital with those of the nearby Florida Medical Center general hospital during fiscal 1998. Tenet also closed one general hospital and combined the operations of one general hospital with those of a nearby general hospital during the first quarter of fiscal 1999. During fiscal 1998 construction began on a new hospital in Weston, Florida, under a joint venture with the Cleveland Clinic. Each of Tenet's general hospitals offers acute care services, operating and recovery rooms, radiology services, respiratory therapy services, pharmacies and clinical laboratories, and most offer intensive-care, critical-care and/or and coronary care units and physical therapy, orthopedic, oncology and outpatient services. A number of the hospitals also offer tertiary care services such as open-heart surgery, neonatal intensive care and neuroscience. Four of the Company's hospitals--Memorial Medical Center, USC University Hospital, St. Louis University Hospital and Sierra Medical Center--offer quaternary care in such areas as heart, lung, liver and kidney transplants. USC University Hospital and Sierra Medical Center also offer gamma-knife brain surgery. Except for one small hospital that has not sought to be accredited, each of the Company's facilities that is eligible for accreditation is fully accredited by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"), the Commission on Accreditation of Rehabilitation Facilities ("CARF") (in the case of rehabilitation hospitals) or another appropriate accreditation agency. With such accreditation, the Company's hospitals are eligible to participate in the Medicare and Medicaid programs. The one hospital that is not accredited participates in the Medicare program through a special waiver that must be renewed each year. 2 Various factors, such as technological developments permitting more procedures to be performed on an outpatient basis, pharmaceutical advances and pressures to contain healthcare costs, have led to a shift from inpatient care to ambulatory or outpatient care. Tenet has responded to this trend by enhancing its hospitals' outpatient service capabilities, including (i) establishing freestanding outpatient surgery centers at or near certain of its hospital facilities, (ii) reconfiguring certain hospitals to more effectively accommodate outpatient treatment, by, among other things, providing more convenient, dedicated outpatient facilities and (iii) restructuring existing surgical and diagnostic capacity to allow a greater number and range of procedures to be performed on an outpatient basis. Tenet's facilities will continue to emphasize those outpatient services that can be provided on a quality, cost-effective basis and that the Company believes will experience increased demand. The patient volumes and net operating revenues at both the Company's general hospitals and its outpatient surgery centers are subject to seasonal variations caused by a number of factors, including but not necessarily limited to, seasonal cycles of illness, climate and weather conditions, vacation patterns of both patients and physicians and other factors relating to the timing of elective procedures. In addition, inpatient care is continuing to move from acute care to sub-acute care, where a less-intensive level of care is provided. Tenet has been proactive in the development of a variety of sub-acute inpatient services to utilize a portion of its unused capacity. By offering cost-effective ancillary services in appropriate circumstances, Tenet is able to provide a continuum of care where the demand for such services exists. For example, in certain hospitals the Company has developed transitional care, rehabilitation and long-term care sub-acute units. Such units utilize less intensive staffing levels to provide the range of services sought by payors with a lower cost structure. The largest concentrations of the Company's hospital beds are in California (28.1%), Texas (16.2%) and Florida (15.7%). While having concentrations of hospital beds within geographic areas helps the Company to reduce management and marketing expenses and more efficiently utilize resources, such concentrations also increase the risk that any adverse economic, regulatory or other developments that may occur within such areas may adversely affect the Company's business, results of operations or financial condition. Tenet believes that its general hospitals are well-positioned to compete effectively in the rapidly evolving healthcare environment. Tenet continually analyzes whether each of its hospitals fits within its strategic plans and will continue to analyze ways in which such assets may best be used to maximize shareholder value. To that end, the Company occasionally may close, sell or convert to alternate uses certain of the Company's facilities and services in order to eliminate duplicate services and excess capacity resulting from the Merger or from changing market conditions. The following table lists, by state, the general hospitals owned or (if indicated below) leased by Tenet's subsidiaries and operated domestically as of May 31, 1998:
GEOGRAPHIC AREA/STATE FACILITY LOCATION LICENSED BEDS STATUS - --------------- -------------------------------------------------------- --------------------- ------------- --------- Alabama Brookwood Medical Center Birmingham 586 Owned Lloyd Noland Hospital Birmingham 319 Owned Arizona Community Hospital Medical Center Phoenix 53 Owned Mesa General Hospital Medical Center Mesa 143 Leased St. Luke's Medical Center Phoenix 280 Leased Tempe St. Luke's Hospital Tempe 106 Leased Tucson General Hospital Tucson 129 Owned
3
GEOGRAPHIC AREA/STATE FACILITY LOCATION LICENSED BEDS STATUS - --------------- -------------------------------------------------------- --------------------- ------------- --------- Arkansas Central Arkansas Hospital Searcy 193 Owned Methodist Hospital of Jonesboro (1) Jonesboro 104 Owned National Park Medical Center Hot Springs 166 Owned St. Mary's Regional Medical Center Russellville 170 Owned California (Southern) Alvarado Hospital Medical Center San Diego 231 Owned Brotman Medical Center Culver City 436 Owned Centinela Hospital Medical Center Inglewood 400 Owned Century City Hospital Los Angeles 190 Leased Chapman Medical Center Orange 126 Leased Coastal Communities Hospital Santa Ana 177 Owned Community Hospital of Huntington Park Huntington Park 81 Leased Desert Hospital Palm Springs 388 Leased Encino-Tarzana Regional Medical Center (2) Encino 151 Leased Encino-Tarzana Regional Medical Center (2) Tarzana 236 Leased Fountain Valley Regional Hospital and Medical Ctr. Fountain Valley 396 Owned Garden Grove Hospital and Medical Center Garden Grove 167 Owned Garfield Medical Center Monterey Park 211 Owned Greater El Monte Community Hospital South El Monte 113 Owned Irvine Medical Center Irvine 176 Leased John F. Kennedy Memorial Hospital Indio 130 Owned Lakewood Regional Medical Center Lakewood 161 Owned Los Alamitos Medical Center Los Alamitos 173 Owned North Hollywood Medical Center (3) North Hollywood 160 Owned Midway Hospital Medical Center Los Angeles 225 Owned Mission Hospital of Huntington Park Huntington Park 109 Owned Monterey Park Hospital Monterey Park 101 Owned Placentia Linda Hospital Placentia 114 Owned San Dimas Community Hospital San Dimas 93 Owned Santa Ana Hospital Medical Center Santa Ana 90 Leased Saint Luke Medical Center Pasadena 165 Owned Suburban Medical Center Paramount 182 Leased USC University Hospital (3) Los Angeles 285 Leased Western Medical Center--Anaheim Anaheim 193 Owned Western Medical Center Santa Ana 296 Owned Whittier Hospital Medical Center Whittier 172 Owned California (Northern) Community Hospital of Los Gatos Los Gatos 148 Leased Doctors Hospital of Manteca Manteca 73 Owned Doctors Medical Center of Modesto Modesto 459 Owned Doctors Medical Center--San Pablo San Pablo 233 Leased Doctors Medical Center--Pinole Pinole 136 Leased Redding Medical Center Redding 185 Owned San Ramon Regional Medical Center San Ramon 123 Owned Sierra Vista Regional Medical Center San Luis Obispo 201 Owned Twin Cities Community Hospital Templeton 84 Owned Santa Maria Valley Medical Center Santa Maria 70 Leased Florida (Southern) Coral Gables Hospital Coral Gables 273 Owned Delray Medical Center Delray Beach 248 Owned Florida Medical Center Ft. Lauderdale 459 Owned Hialeah Hospital Hialeah 378 Owned Hollywood Medical Center Hollywood 324 Owned
4
GEOGRAPHIC AREA/STATE FACILITY LOCATION LICENSED BEDS STATUS - --------------- -------------------------------------------------------- --------------------- ------------- --------- Florida North Ridge Medical Center Ft. Lauderdale 391 Owned (Southern) North Shore Medical Center Miami 357 Owned (continued) Palm Beach Gardens Medical Center Palm Beach Gardens 204 Leased Palmetto General Hospital Hialeah 360 Owned Parkway Regional Medical Center North Miami 382 Owned West Boca Medical Center Boca Raton 185 Owned Florida (Tampa/St. Petersburg) Memorial Hospital of Tampa Tampa 174 Owned Palms of Pasadena Hospital St. Petersburg 307 Owned Seven Rivers Community Hospital Crystal River 128 Owned Town & Country Hospital Tampa 201 Owned Georgia Georgia Baptist Medical Center Atlanta 460 Owned North Fulton Regional Hospital Roswell 167 Leased Spalding Regional Hospital Griffin 160 Owned Sylvan Grove Hospital Jackson 25 Leased Indiana Culver Union Hospital Crawfordsville 120 Owned Winona Memorial Hospital Indianapolis 317 Owned Louisiana Doctors Hospital of Jefferson Metairie 122 Leased Kenner Regional Medical Center Kenner 300 Owned Meadowcrest Hospital Gretna 203 Owned Memorial Medical Center, Mid-City New Orleans 272 Owned Memorial Medical Center, Uptown New Orleans 526 Owned Minden Medical Center Minden 121 Owned Northshore Regional Medical Center Slidell 174 Leased St. Charles General Hospital New Orleans 163 Owned Massachusetts Saint Vincent Hospital Worcester 398 Owned Mississippi Gulf Coast Medical Center Biloxi 189 Owned Missouri Columbia Regional Hospital Columbia 265 Owned Deaconess Medical Center Central St. Louis 527 Owned Deaconess Medical Center-West Des Peres 167 Owned LaFayette-Grand Hospital St. Louis 336 Owned Lucy Lee Hospital Poplar Bluff 201 Leased Lutheran Medical Center St. Louis 408 Owned Saint Louis University Hospital St. Louis 356 Owned Twin Rivers Regional Medical Center Kennett 118 Owned Nebraska Saint Joseph Hospital (4) Omaha 404 Owned Nevada Lake Mead Hospital Medical Center North Las Vegas 198 Owned North Carolina Central Carolina Hospital Sanford 137 Owned Frye Regional Medical Center Hickory 355 Leased South Carolina East Cooper Regional Medical Center Mount Pleasant 100 Owned Hilton Head Hospital (5) Hilton Head 79 Owned Piedmont Medical Center Rock Hill 268 Owned Tennessee John W. Harton Regional Medical Center Tullahoma 137 Owned Medical Center of Manchester Manchester 49 Leased Saint Francis Hospital Memphis 651 Owned University Medical Center Lebanon 261 Owned
5
GEOGRAPHIC AREA/STATE FACILITY LOCATION LICENSED BEDS STATUS - --------------- -------------------------------------------------------- --------------------- ------------- --------- Texas (Dallas) Doctors Hospital Dallas 228 Owned Garland Community Hospital Garland 113 Owned Lake Pointe Medical Center (6) Rowlett 92 Owned RHD Memorial Medical Center Dallas 150 Leased Trinity Medical Center Carrollton 149 Leased Texas (Houston) Cypress Fairbanks Medical Center Houston 136 Owned Houston Northwest Medical Center (7) Houston 498 Owned Park Plaza Hospital Houston 468 Owned Sharpstown General Hospital Houston 190 Owned Twelve Oaks Hospital Houston 336 Owned Texas (Other) Brownsville Medical Center Brownsville 219 Owned Mid-Jefferson Hospital Nederland 138 Owned Nacogdoches Medical Center Nacogdoches 150 Owned Odessa Regional Hospital (8) Odessa 100 Owned Park Place Medical Center Port Arthur 244 Owned Providence Memorial Hospital El Paso 501 Owned Sierra Medical Center El Paso 365 Owned Southwest General Hospital San Antonio 286 Owned Trinity Valley Medical Center Palestine 150 Owned Washington Puget Sound Hospital Tacoma 160 Owned
- -------------------------- (1) Owned by a limited liability company in which a Tenet subsidiary owns a 95% interest and is the managing member. (2) Leased by a partnership in which Tenet's subsidiaries own a 75% interest. (3) On leased land. (4) Owned by a limited liability company in which a Tenet subsidiary owns a 74% interest and is the managing member. (5) Owned by a partnership in which Tenet's subsidiaries own a 90% interest. (6) Owned by a partnership in which Tenet's subsidiaries own a 76% interest. The partnership leases the land on which the facility is located from a wholly owned Tenet subsidiary. (7) Owned by a partnership in which Tenet's subsidiaries own a 78% interest. The partnership leases the land on which the facility is located from a wholly owned Tenet subsidiary. (8) Owned by a partnership in which Tenet's subsidiaries own a 75% interest. The following table shows certain information about the general hospitals owned or leased domestically by Tenet's subsidiaries (including OrNda, both before and after it was acquired by Tenet) for the fiscal years ended May 31:
1996 1997 1998 --------- --------- --------- Total number of facilities........................................... 123 128 122 Total number of licensed beds........................................ 26,265 27,959 27,867 Average occupancy during the period.................................. 42.7% 42.5% 44.0%
The above tables do not include Tenet's general hospital in Barcelona, Spain, or Tenet's rehabilitation hospitals, long-term care facilities, psychiatric facilities, outpatient surgery centers or other ancillary facilities. 6 BUSINESS STRATEGY The Company's strategic objective is to provide quality healthcare services responsive to the needs of each community or region within the current managed care environment. Tenet believes that competition among healthcare providers occurs primarily at the local level. Accordingly, the Company tailors its local strategies to address the specific competitive characteristics of the geographic areas in which it operates, including the number of facilities operated by Tenet, the nature and structure of physician practices and physician groups, the extent of managed care penetration, the number and size of competitors and the demographic characteristics of the area. Key elements of the Company's strategy are: - to develop integrated healthcare delivery systems by coordinating the operations and services of the Company's facilities with other hospitals and ancillary care providers and through alliances with physicians and physician groups; - to reduce costs through enhanced operating efficiencies while maintaining the quality of care provided; - to develop or maintain its strong relationships with physicians and generally to foster a physician-friendly culture; - to enter into discounted fee-for-service arrangements, capitated contracts and other managed care contracts with third-party payors; and - to acquire or enter into strategic partnerships with hospitals, groups of hospitals, other healthcare businesses, ancillary healthcare providers, physician practices and physician practice assets where appropriate to expand and enhance quality integrated healthcare delivery systems responsive to the current managed care environment. Tenet's general hospitals serve as the hubs of its integrated healthcare delivery systems. Those systems are designed to provide a full spectrum of care throughout a community or region. For a further discussion of how Tenet's business strategy enhances its competitive position, see Competition on page 10 below. Tenet intends to continue its strategic acquisitions of and partnerships with additional general hospitals and related healthcare businesses in order to expand and enhance its integrated healthcare delivery networks. Several factors have impacted the environment for acquisitions of general hospitals and have caused Tenet's pace for acquisitions to slow. First, many states have enacted and other states are considering enacting legislation that subjects conversions of not-for-profit hospitals to for-profit status and acquisitions of not-for-profit hospitals by for-profit companies to public hearings and/ or state approval. These reviews and hearings have resulted in it taking longer to acquire not-for-profit hospitals. Second, not-for-profit boards have become more deliberative in the process of selling their hospitals and increasingly are engaging investment bankers or other third parties to assist with the sale process. Third, start-up companies and financially strong not-for-profit bidders -- alone or in consortiums -- are continuing to compete with Tenet for acquisitions. As a result, Tenet did not acquire as many hospitals as it otherwise might have in fiscal 1998. Finally, a recent revenue ruling by the Internal Revenue Service concerning the impact of joint ventures between not-for-profit and for-profit corporations has had a chilling effect on the formation of such joint ventures. In the past, relationships established through such joint ventures have led to acquisition opportunities. 7 INVESTMENTS At May 31, 1998, Tenet held as investments interests in various healthcare companies, including the following two companies that once were, or have acquired companies that once were, Tenet subsidiaries. Tenet owns 8,301,067 shares of, or an approximately 12.0% interest in, Ventas. Ventas is a self-administered and self-managed realty company that started operations on May 1, 1998, when it spun off a new entity now known as Vencor, Inc. ("New Vencor"). Ventas leases to New Vencor, and New Vencor operates, the long term care facilities formerly owned and operated by Ventas. In January 1996, Tenet sold $320 million principal amount of its 6% Exchangeable Subordinated Notes due 2005 (the "Exchangeable Notes"). The Exchangeable Notes now are exchangeable into Tenet's 8,301,067 shares of Ventas common stock at an exchange rate of 25.9403 Ventas shares plus $239.36 of cash per $1,000 principal amount, subject to Tenet's right to pay an amount in cash equal to the market price of the Ventas shares plus $239.36 in cash in lieu of delivery of such shares and cash. Following the spin-off of New Vencor, the escrow agent holding the New Vencor shares that Tenet received in the spin-off sold those shares in accordance with the terms of the indenture governing the Exchangeable Notes. The $239.36 cash portion of what holders will receive upon exchange of the Exchangeable Notes is the amount per $1,000 principal amount of Exchangeable Notes of the cash proceeds from the escrow agent's sale of the New Vencor shares. Since holders will receive $239.36 cash per $1,000 principal amount of Exchangeable Notes upon exchange, the effective exchange price per share of Ventas common stock equivalent to the exchange rate is approximately $29.32. Tenet also owns 2,865,000 shares of, or an approximately 3.55% interest in, TRC, which operates kidney dialysis units and certain related healthcare businesses. During fiscal 1998 Tenet donated 2,135,000 of its TRC shares to the Tenet Healthcare Foundation, a foundation that makes charitable donations. PROPERTIES Tenet's principal executive offices are located at 3820 State Street, Santa Barbara, CA 93105. That building is leased by a Tenet subsidiary under a five-year lease with one five-year renewal option. The telephone number of Tenet's Santa Barbara headquarters is (805) 563-7000. Hospital support services for Tenet's subsidiaries are located in space leased by a subsidiary in an operations center in Dallas, Texas. On May 14, 1998, the Company signed a long-term lease for a new operations center in Dallas, Texas, that will replace its present office space being leased there. Construction is expected to be completed by the end of fiscal year 2000. At May 31, 1998, Tenet and its subsidiaries also were leasing space for regional offices in Alabama, Arizona, Arkansas, California, Florida, Georgia, Louisiana, Tennessee and Texas. In addition, Tenet's subsidiaries operated domestically 147 medical office buildings, most of which are adjacent to Tenet's general hospitals. The number of licensed beds and locations of the Company's general hospitals are described on pages 3 through 6 above. As of May 31, 1998, Tenet had approximately $66 million of outstanding loans secured by real property and approximately $55 million of capitalized lease obligations. The Company believes that all of these properties, as well as the administrative and medical office buildings described above, are suitable for their intended purposes. 8 MEDICAL STAFF AND EMPLOYEES Tenet's hospitals are staffed by licensed physicians who have been admitted to the medical staff of individual hospitals. Members of the medical staffs of Tenet's hospitals also often serve on the medical staffs of hospitals not owned by the Company and may terminate their affiliation with the Tenet hospital or shift some or all of their admissions to competing hospitals at any time. Although the Company purchases physician practices and, where permitted by law, employs physicians, most of the physicians who practice at the Company's hospitals are not employees of the Company. The Company also manages physician practices in states where corporations are not permitted to purchase physician practices or employ physicians. Nurses, therapists, lab technicians, facility maintenance staff and the administrative staff of hospitals, however, normally are employees of the Company. Tenet's operations are dependent on the efforts, ability and experience of its officers, employees and physicians. Tenet's continued growth depends on its ability to attract and retain skilled employees, on the ability of its officers to manage growth successfully and on Tenet's ability to attract and retain physicians and other healthcare professionals at its hospitals. In addition, the success of Tenet is, in part, dependent upon the quality, number and specialties of physicians on its hospitals' medical staffs, most of whom have no long-term contractual relationship with Tenet and may terminate their association with Tenet's hospitals at any time. Although Tenet currently believes it will continue to be able to successfully attract and retain key officers, qualified physicians and other healthcare professionals, the loss of some or all of its key officers or an inability to attract or retain sufficient numbers of qualified physicians and other healthcare professionals could have a material adverse impact on its business, financial condition and/or results of operations. The number of Tenet's employees (of which approximately 30% were part-time employees) at May 31, 1998, was approximately as follows: General Hospitals and Other Businesses(1).................................... 115,670 Dallas Operations Center and Regional and Support Offices.................... 1,000 Corporate Headquarters....................................................... 130 --------- Total........................................................................ 116,800 --------- ---------
- -------------------------- (1) Includes employees whose employment relates to the operations of the Company's general hospitals, rehabilitation hospitals, psychiatric facilities, specialty hospitals, outpatient surgery centers, managed services organizations (including physicians whose practices have been acquired by the Company), print center, debt collection subsidiary and other healthcare operations. Tenet is subject to the federal minimum wage and hour laws and maintains various employee benefit plans. Labor relations at Tenet's facilities have been satisfactory. A small percentage of Tenet's employees are represented by labor unions. Although the Company as a whole currently is not experiencing a shortage of nursing personnel at most of its facilities, there is a shortage of nurses in certain geographic areas, such as South Florida, and in certain specialties, affecting hospitals throughout the country, which has resulted in increased costs to the Company for nursing personnel. The availability of nursing personnel fluctuates from year to year and the Company cannot predict the degree to which it will be affected by the future availability and cost of nursing personnel. 9 COMPETITION Tenet's general hospitals and other healthcare businesses operate in competitive environments. A facility's competitive position within the geographic area in which it operates is affected by a number of competitive factors. Those factors include the scope, breadth and quality of services a hospital offers to its patients and their physicians; the number, quality and specialties of the physicians, nurses and other healthcare professionals employed by the hospital or on its staff; its reputation; its managed care contracting relationships; the extent to which it is part of an integrated network; the number of competitive facilities and other healthcare alternatives; the physical condition of its buildings and improvements; the quality, age and state of the art of its medical equipment; its location; its parking or proximity to public transportation; the length of time it has been a part of the community; and its charges for services. Tax-exempt competitors may have certain financial advantages, such as endowments, charitable contributions, tax-exempt financing and exemption from sales, property and income taxes, not available to Tenet facilities. One factor of ever-increasing importance in the competitive position of Tenet's facilities is the ability of those facilities to obtain managed care contracts. The importance of obtaining managed care contracts has increased over the years and is expected to continue to increase as employers, private and government payors and others turn to the use of managed care in an attempt to control rising healthcare costs. The revenues and operating results of most of the Company's hospitals are significantly affected by the hospitals' ability to negotiate favorable contracts with managed care payors. Under such contracts, healthcare providers agree to provide services on a discounted-fee or capitated basis in exchange for the payors agreeing to send some or all of their members/employees to those providers. With capitated contracts, a healthcare provider such as Tenet receives specific fixed periodic payments from a health maintenance organization, preferred provider organization or employer based on the number of members of such organization being serviced by the provider. In return, the provider agrees to provide healthcare services to such members regardless of the actual costs incurred and services provided. The profitability of such contracts depends upon the provider's ability to negotiate payments per patient that, in the aggregate, are adequate to cover the cost of meeting the healthcare needs of the covered persons. In some cases, a provider may contract with an insurance carrier to cover some or all of the costs of providing the necessary healthcare. A healthcare provider's ability to compete for managed care contracts is affected by many factors, including the competitive factors referred to above. Among the most important of those factors is whether the hospital is part of an integrated healthcare delivery network and, if so, the scope, breadth and quality of services offered by such network and by competing networks. A hospital that is part of a network that offers a broad range of services in a wide geographic area is more likely to obtain managed care contracts than a hospital that is not. Tenet evaluates changing circumstances in each geographic area on an ongoing basis and positions itself to compete in the managed care market by forming its own, or joining with others to form, integrated healthcare delivery networks. Tenet's networks in Southern California, South Florida, the greater New Orleans area and El Paso are models of how Tenet has developed regional networks of its own hospitals and related healthcare facilities and ancillary services to serve the full spectrum of healthcare needs of those communities. The St. Louis area is a good example of how Tenet is developing new networks to serve communities where its hospitals are located. During fiscal 1998, Tenet acquired Deaconess Medical Center-West, Deaconess Medical Center-Central, LaFayette-Grand Hospital and St. Louis University Hospital in St. Louis. Tenet is in the process of integrating those 10 hospitals and related ancillary healthcare operations with its Lutheran Medical Center and Southgate Care Center and related healthcare facilities and ancillary services to form an integrated network that will greatly expand Tenet's ability to offer a full spectrum of healthcare services to meet the needs of the St. Louis community. That in turn is expected to enhance Tenet's ability to obtain managed care contracts. In Southeast Texas, Tenet's Mid-Jefferson Hospital and Park Place Medical Center have joined with three hospitals that are part of the Baptist healthcare system to form the Five Star Baptist System. All five of those hospitals work together to compete for managed care contracts and to better serve the healthcare needs of their communities. In addition to competing for managed care contracts, Tenet's hospitals and networks compete for traditional fee-for-service patients and contracts with traditional healthcare insurers and employers. Tenet's future success will depend, in part, on the ability of its hospitals to continue to attract and retain staff physicians, enter into managed care contracts and organize and structure integrated healthcare delivery networks, including those with other healthcare providers and physician practice groups, while continuing to provide quality, cost- effective care. Recent changes in the federal Medicare laws permit providers to create Provider Sponsored Organizations to contract directly with the federal government for the provision of medical care to Medicare beneficiaries on a fully capitated basis. As part of the Health Care Financing Administration's demonstration project in this area, Tenet and its physician partners launched Tenet Choices 65 in July 1997. Tenet Choices 65 is a managed care plan for Medicare patients in the greater New Orleans area. If it proves successful, Tenet Choices 65 could serve as a model for similar plans for seniors in other selected markets. The healthcare industry, including Tenet, has been characterized in recent years by increased competition for patients and staff physicians, significant excess capacity at general hospitals, a shift from inpatient to outpatient treatment settings and increased consolidation. New competitive strategies of hospitals and other healthcare providers place increasing emphasis on the use of alternative healthcare delivery systems (such as home healthcare services, outpatient surgery and emergency and diagnostic centers) that eliminate or reduce lengths of hospital stays. The principal factors contributing to these trends are advances in medical technology and pharmaceuticals, cost-containment efforts by managed care payors, employers and traditional healthcare insurers, changes in regulations and reimbursement policies, increases in the number and type of competing healthcare providers and changes in physician practice patterns. The Company's hospitals, and the healthcare industry as a whole, also face the challenge of continuing to provide quality patient care while dealing with strong competition for patients and with pressure on reimbursement rates not only by private payors, but also by government payors. National and state efforts to reform the healthcare system in the United States have adversely impacted and may further impact reimbursement rates. Changes in medical technology, existing and future legislation, regulations and interpretations and competitive contracting for provider services by payors may require changes in the Company's facilities, equipment, personnel, procedures, rates and/or services in the future. Inpatient admissions, average lengths of stay and average occupancy at general hospitals throughout the industry, including the Company's general hospitals, continue to be adversely affected by payor-required pre-admission authorization and utilization review and payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill patients. Increased competition, admissions constraints and payor pressures are expected to continue. Inpatient acuity and intensity of services continue to increase as less intensive services shift from 11 an inpatient to an outpatient basis or to alternative healthcare delivery services because of various factors such as technological improvements, pharmaceutical advances and payor pressures to limit or reduce payments. Those pressures imposed by government and private payors and the increasing percentage of business negotiated with purchasers of group healthcare services are expected to continue to adversely affect the per-patient revenues received by the Company. To meet these challenges, the Company (i) has expanded or converted many of its general hospitals' facilities to include distinct outpatient centers, (ii) offers discounts to private payor groups, (iii) enters into capitation contracts in some service areas, (iv) upgrades facilities and equipment, and (v) offers new programs and services. The Company also has been reducing its costs. For example, the Company has implemented a case management system designed to maximize efficiency by identifying cost-per-procedure variables among physicians performing the same procedures, standardizing supplies used and negotiating volume discounts for purchases. In addition, the Company has developed a computerized outcomes management system that contains clinical and demographic information from the Company's hospitals and physicians and allows users to identify "best practices" for treating specific diagnostic related groups. Nevertheless, the Company cannot provide assurance that these measures will be successful, or that if they are successful, they will serve to compensate for the reduced inpatient admissions, average lengths of stay and average occupancy, and the consequent reductions in per-patient revenue, resulting from the payor pressures referred to above. As noted above, the Company also is responding to the challenges facing its hospitals by forming integrated healthcare delivery systems. Components of these systems include: (i) encouraging physicians practicing at its hospitals to form independent physician associations ("IPAs"), (ii) joining with those IPAs, physicians and physician group practices to form physician hospital organizations ("PHOs") to contract with managed care and other payors as well as directly with employers and (iii) forming management services organizations ("MSOs") to (A) purchase physician practices or their assets, as appropriate, (B) provide management and administrative services to physicians, physician group practices and IPAs and (C) enter into managed care contracts both on behalf of those groups and, in certain circumstances, on behalf of PHOs. In large part, a hospital's revenues, whether from managed care payors, traditional health insurance payors or directly from patients, depends on the quality and scope of practices of physicians on staff. Physicians refer patients to hospitals on the basis of the quality of services provided by the hospital to patients and their physicians, the hospital's location, the quality of the medical staff affiliated with the hospital and the quality, age and state of the art of the hospital's facilities, equipment and employees. The Company attracts physicians to its hospitals by equipping its hospitals with technologically advanced equipment, sponsoring training programs to educate physicians on advanced medical procedures and otherwise creating an environment within which physicians prefer to practice. The Company also attracts physicians to its hospitals by using local governing boards, consisting primarily of physicians and community members, to develop short- and long-term plans for the hospital and review and approve, as appropriate, actions of the medical staff, including staff appointments, credentialing, peer review and quality assurance. While physicians may terminate their association with a hospital at any time, Tenet believes that by striving to maintain and improve the level of care at its hospitals and by maintaining ethical and professional standards, it will attract and retain qualified physicians with a variety of specialties. 12 There has been significant consolidation in the hospital industry over the past decade due, in large part, to continuing pressures on payments from government and private payors and increasing shifts away from the provision of traditional in-patient services. Those economic trends have caused many hospitals to close and many to consolidate either through acquisitions or affiliations. Tenet's management believes that these cost-containment pressures will continue and will lead to further consolidation in the hospital industry. MEDICARE, MEDICAID AND OTHER REVENUES Tenet receives payments for patient care from private insurance carriers, federal Medicare programs for elderly patients and patients with disabilities, health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), state Medicaid programs for indigent and cash grant patients, the TriCare Program (formerly known as the Civilian Health and Medical Program of the Uniformed Services program, or CHAMPUS) ("Tri Care"), employers and patients directly. The approximate percentages of Tenet's net patient revenue by payment sources for Tenet's domestic general hospitals owned or operated by its subsidiaries (including TH HealthCorp for all years) are as follows:
YEARS ENDED MAY 31, ------------------------------- 1996 1997 1998 --------- --------- --------- Medicare................................................................ 39.6% 40.2% 38.0% Medicaid................................................................ 8.6 8.6 8.4 Managed Care............................................................ 27.6 29.5 33.7 Private and Other....................................................... 24.2 21.7 19.9 --------- --------- --------- Totals.................................................................. 100.0% 100.0% 100.0% --------- --------- --------- --------- --------- ---------
Payments from government programs, such as Medicare and Medicaid, account for a significant portion of Tenet's operating revenues. Recent legislative changes, including the Balanced Budget Act of 1997 (the "1997 Act"), have resulted in limitations on and, in some cases, reductions in levels of payments to healthcare providers under government programs. The 1997 Act is being phased in over a period of five years beginning October 1, 1997. The 1997 Act changes the method of paying healthcare providers under the Medicare and Medicaid programs, which has resulted and is expected to continue to result in significant reductions in payments to healthcare providers for their inpatient, outpatient, home health, capital and skilled nursing facilities costs. In addition, private payors, including managed care payors, increasingly are demanding discounted fee structures or the assumption by healthcare providers of all or a portion of the financial risk through capitation arrangements. Inpatient utilization, average lengths of stay and occupancy rates continue to be negatively affected by payor-required pre-admission authorization and utilization review and by payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill patients. Efforts to impose reduced allowances, greater discounts and more stringent cost controls by government and other payors also are expected to continue. Although Tenet is unable to predict the effect these changes will have on its operations, as the number of patients covered by managed care payors increases, significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on its business, financial condition and/or results of operations. 13 DESCRIPTION OF GOVERNMENT PROGRAMS Medicare payments for general hospital inpatient services are based on a prospective payment system ("PPS"), referred to herein as the "DRG-PPS". Under the DRG-PPS, a general hospital receives for each Medicare patient discharged from the hospital a fixed amount based on the Medicare patient's assigned diagnostic related group ("DRG"). DRG payments are adjusted for area wage differentials but otherwise do not consider a specific hospital's operating costs. As discussed below, DRG payments exclude the reimbursement of (a) capital costs, including depreciation, interest relating to capital expenditures, property taxes and lease expenses, and (b) outpatient services. Payments for those items are made in advance based on estimates and later are increased or decreased, as the case may be, based on the final audit of the cost report by program auditors. Payments from state Medicaid programs are based on reasonable costs with certain limits or are at fixed rates. Substantially all Medicare and Medicaid payments are below the retail rates charged by Tenet's facilities. Payments from other sources usually are based on the hospital's established charges, a percentage discount from such charges or all-inclusive per diem rates. Historically, DRG rates were increased each year to take into account the increased cost of goods and services purchased by hospitals and non-hospitals (the "Market Basket"). With the exception of federal fiscal year 1997 (which ended on September 30, 1997), in which the increase in DRG rates was equal to the 2.5% Market Basket, the percentage increases to the DRG rates for the past several years have been lower than the Market Basket and, as a result, payments received by general hospitals under the DRG-PPS has not kept up with the cost of goods and services. Moreover, the 1997 Act froze DRG rates at their 1997 levels through federal fiscal year 1998 (which ends September 30, 1998). The 1997 Act also limits the rate of increase in DRG rates thereafter to the annual Market Basket for such year minus (a) 1.9% from October 1, 1998 through September 30, 1999, (b) 1.8% from October 1, 1999 through September 30, 2002, and (c) 1.1% from October 1, 2000 through September 30, 2003. Payments to be received by general hospitals under the DRG-PPS continue to be below the increases in the cost of goods and services purchased by hospitals. Medicare pays general hospitals' capital costs separately from DRG payments. Beginning in 1992, a PPS for Medicare reimbursement of general hospitals' inpatient capital costs ("PPS-CC") generally became effective with respect to the Company's general hospitals. Pursuant to the 1997 Act, the PPS-CC rates paid to Tenet's general hospitals for their inpatient capital costs were reduced by approximately 15% in federal fiscal year 1998 from their prior-year levels. Medicare historically has limited payment for outpatient services provided at general hospitals, physical rehabilitation hospitals and psychiatric facilities to the lower of customary charges or 94.2% of actual cost. In addition, Congress has established additional limits on the payment of operating costs for the following outpatient services: (a) clinical laboratory services, which have been paid based on a fee schedule, and (b) ambulatory surgery procedures and certain imaging and other diagnostic procedures, which have been paid based on a blend of the hospital's specific cost and the rate paid by Medicare to non-hospital providers for such services. The 1997 Act corrects a flaw in the existing payment formula for ambulatory surgery services referred to as the "formula-driven overpayment." That flaw resulted in general hospitals receiving payments that were higher than those anticipated by the Health Care Financing Administration ("HCFA") but were still below the actual cost of providing the services. The correction of the formula-driven overpayment will result in payments to general hospitals for outpatient services 14 performed by them being reduced even further below the cost of providing those services. Under the 1997 Act, the payment method for outpatient services provided at general hospitals is to be converted from the cost-based system to a PPS, which is to be phased in over a three-year period beginning January 1, 1999. As discussed below, that conversion may be delayed. Hospitals and hospital units currently exempt from the DRG-PPS, such as qualified physical rehabilitation hospitals and psychiatric facilities ("Exempt Hospitals/Units"), traditionally have been paid by Medicare on a cost-based system under which target rates for each facility were used in applying various limitations and calculating incentive payments. Tenet's Exempt Hospitals/Units received a Market Basket increase of 2.5% in target rates for cost reporting periods commencing in federal fiscal year 1997. Under the 1997 Act, however, Tenet's Exempt Hospitals/ Units will receive no increase to their target rates for cost reporting periods beginning from October 1, 1997 through September 30, 1998. Increases in target rates for future periods will vary between a Market Basket increase and no increase at all, depending upon the extent to which the Exempt Hospitals/Units' actual costs are below their target rates. An additional change under the 1997 Act is that the Company's Exempt Hospitals/Units will lose certain incentive payments they have been receiving for keeping their costs lower than their pre-established target limits. Home health services historically have been exempt from the DRG-PPS and have been paid by Medicare at cost, subject to certain limits. The 1997 Act requires that HCFA develop a PPS for home health services, which is to be phased in over a four-year period for cost-reporting periods beginning on or after October 1, 1999. In the interim, payment rates in effect under the current system have been reduced. In addition, a new limit based on a per beneficiary cost limit has been established. The 1997 Act also provides that rates in effect on September 30, 1999 be reduced by 15%, even if HCFA does not begin to implement the PPS by October 1, 1999. As discussed below, the development of that PPS may be delayed. As a result of these changes, the Company expects that its hospitals will receive significantly lower payment for home health services. Hospitals that treat a disproportionately large number of low-income patients (Medicaid and Medicare patients eligible to receive supplemental Social Security income) currently receive additional payment from the federal government in the form of Disproportionate Share Payments. The 1997 Act provides that such payments will be reduced by 1% for each federal fiscal year from 1998 through 2002. A general hospital historically has been paid its full DRG payment for patients discharged from an acute-care setting. Under the 1997 Act, however, if a patient is discharged from a general hospital prior to being in the general hospital for the mean length of stay for the patient's DRG and receives home health services or rehabilitation, psychiatric or skilled nursing services in either a freestanding hospital or hospital unit, the general hospital will receive only a pro-rated payment for that DRG depending on the length of time the patient was in the hospital. This new provision, which will become effective for discharges after October 1, 1998, will apply only with respect to ten high-volume DRG's selected by the Secretary of the Department of Health and Human Services ("HHS"). Under current law, if a hospital is unable to collect a Medicare beneficiary's deductible or co-payment (a "Bad Debt"), the hospital may be paid by the federal government for the Bad Debt provided certain conditions are met. The 1997 Act provides that the amount of a Bad Debt for which the Company otherwise would be paid will be reduced: 25% beginning October 1, 1997, 40% beginning October 1, 1998, and 45% beginning October 1, 1999. 15 As discussed above, the 1997 Act significantly changes the manner in which the Company will be paid for all services provided to Medicare beneficiaries. While none of the changes individually is expected to have a significant impact on the amount of payment received by the Company, the changes taken as a whole are expected to significantly reduce the amount of payment received by the Company from the federal government. The aggregate effect of those reduced payments, however, is not expected to have a material adverse effect on Tenet's business, financial condition or results of operations. The purpose of the 1997 Act is to balance the federal budget by federal fiscal year 2002. If the federal budget is not balanced by federal fiscal year 2002 and the federal deficit is not reduced thereafter, payment rates could be further reduced to ensure the solvency of the Social Security system. The Company is unable to predict at this time if there will be any further reductions in payment rates in future years and, if there are further reductions, how significant those reductions will be. As noted above, the 1997 Act requires that the system for paying providers for outpatient services, rehabilitation services and home health services be converted from a cost-based system to a PPS. It recently has been reported that HCFA may request approval from Congress to postpone implementing some or all of those new PPS systems. Those reports state that the reason for the delay is HCFA's need to focus its resources on correcting its computer systems to handle its Year 2000 Issues (discussed below). The Company cannot predict if HCFA will in fact receive approval from Congress for the delay in the implementation of the mandated changes to a PPS, or, if the delay does occur, how that delay would impact payments to Tenet's hospitals. The Medicare, Medicaid and TriCare programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review and new governmental funding restrictions, all of which may materially increase or decrease program payments as well as affect the cost of providing services and the timing of payments to facilities. The final determination of amounts earned under the programs often requires many years, because of audits by the program representatives, providers' rights of appeal and the application of numerous technical reimbursement provisions. Management believes that adequate provision has been made for such adjustments. Until final adjustment, however, significant issues remain unresolved and previously determined allowances could be more or less than ultimately required. HEALTHCARE REFORM, REGULATION AND LICENSING CERTAIN BACKGROUND INFORMATION Healthcare, as one of the largest industries in the United States, continues to attract much legislative interest and public attention. Changes in the Medicare, Medicaid and other programs, hospital cost-containment initiatives by public and private payors, proposals to limit payments and healthcare spending and industry-wide competitive factors are highly significant to the healthcare industry. In addition, the healthcare industry is governed by a framework of federal and state laws, rules and regulations that are extremely complex and for which the industry has the benefit of little or no regulatory or judicial interpretation. Although the Company believes it is in compliance in all material respects with such laws, rules and regulations, if a determination is made that the Company was in material violation of such laws, rules or regulations, its operations and financial results could be materially adversely affected. 16 As discussed under Medicare, Medicaid and Other Revenues on pages 13 through 16 above, the 1997 Act has the effect of reducing payments to hospitals and other healthcare providers under the Medicare program. The reductions in payments and other changes mandated by the 1997 Act, discussed above, have had, and are expected to continue to have, a significant but not material impact on the Company's revenues under the Medicare program. In addition, there continue to be federal and state proposals that would, and actions that do, impose more limitations on payments to providers such as Tenet and proposals to increase co-payments and deductibles from patients. Tenet's facilities also are affected by controls imposed by government and private payors designed to reduce admissions and lengths of stay. Such controls, including what is commonly referred to as "utilization review," have resulted in fewer of certain treatments and procedures being performed. Utilization review entails the review of the admission and course of treatment of a patient by a third party. Utilization review by third-party peer review organizations ("PROs") is required in connection with the provision of care paid for by Medicare and Medicaid. Utilization review by third parties also is a requirement of many managed care arrangements. Many states have enacted or are considering enacting measures that are designed to reduce their Medicaid expenditures and to make certain changes to private healthcare insurance. Various states have applied, or are considering applying, for a federal waiver from current Medicaid regulations to allow them to serve some of their Medicaid participants through managed care providers. Tennessee was granted a waiver and has implemented a managed care program for some of its Medicaid participants. Texas was denied a waiver under Section 1115 of the 1997 Act but is in the process of implementing regional managed care programs under a more limited waiver. Texas also plans to apply for federal funds for children's health programs under the 1997 Act. Louisiana is considering wider use of managed care for its Medicaid population. California has created a voluntary health insurance purchasing cooperative that seeks to make healthcare coverage more affordable for businesses with five to 50 employees and, effective January 1, 1995, began changing the payment system for participants in its Medicaid program in certain counties from fee-for-service arrangements to managed care plans. Florida has enacted a program creating a system of local purchasing cooperatives and has proposed other changes that have not yet been enacted. Florida also has adopted, and other states are considering adopting, legislation imposing a tax on net revenues of hospitals to help finance or expand those states' Medicaid systems. A number of other states are considering the enactment of managed care initiatives designed to provide universal low-cost coverage. These proposals also may attempt to include coverage for some people who currently are uninsured. 17 CERTIFICATE OF NEED REQUIREMENTS Some states require state approval for construction and expansion of healthcare facilities, including findings of need for additional or expanded healthcare facilities or services. Certificates of Need, which are issued by governmental agencies with jurisdiction over healthcare facilities, are at times required for capital expenditures exceeding a prescribed amount, changes in bed capacity or services and certain other matters. Following a number of years of decline, the number of states requiring Certificates of Need is on the rise as state legislators once again are looking at the Certificate of Need process as a way to contain rising healthcare costs. At May 31, 1998, Tenet operated hospitals in 12 states that require state approval under Certificate of Need Programs. Tenet is unable to predict whether it will be able to obtain any Certificates of Need in any jurisdiction where such Certificates of Need are required. ANTIKICKBACK AND SELF-REFERRAL REGULATIONS The healthcare industry is subject to extensive federal, state and local regulation relating to licensure, conduct of operations, ownership of facilities, addition of facilities and services and prices for services. In particular, Medicare and Medicaid antikickback and antifraud and abuse amendments codified under Section 1128B(b) of the Social Security Act (the "Antikickback Amendments") prohibit certain business practices and relationships that might affect the provision and cost of healthcare services payable under the Medicare, Medicaid and other government programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid for by such programs. Sanctions for violating the Antikickback Amendments include criminal penalties and civil sanctions, including fines and possible exclusion from government programs such as the Medicare and Medicaid programs. The "Health Insurance Portability and Accountability Act of 1996," which became effective January 1, 1997, amends, among other things, Title XI (42 U.S.C. 1301 ET SEQ.) to broaden the scope of current fraud and abuse laws to include all health plans, whether or not they are reimbursed as a federal program. Section 1877 of the Social Security Act (commonly referred to as the "Stark" laws) restricts referrals by physicians of Medicare, Medicaid and other government-program patients to providers of a broad range of designated health services with which they have ownership or certain other financial arrangements. Section 1877 was amended effective January 1, 1995, to significantly broaden the scope of prohibited physician referrals under the Medicare and Medicaid programs to providers with which they have ownership or certain other financial arrangements. Many states have adopted or are considering similar legislative proposals, some of which extend beyond the Medicaid program to prohibit the payment or receipt of remuneration for the referral of patients and physician self-referrals regardless of the source of the payment for the care. Tenet's participation in and development of joint ventures and other financial relationships with physicians could be adversely affected by these amendments and similar state enactments. 18 The federal government has issued regulations that describe some of the conduct and business relationships that are permissible under the Antikickback Amendments ("Safe Harbors"). The fact that certain conduct or a given business arrangement does not fall within a Safe Harbor does not render the conduct or business arrangement per se illegal under the Antikickback Amendments. Such conduct and business arrangements, however, do risk increased scrutiny by government enforcement authorities. Tenet may be less willing than some of its competitors to enter into conduct or business arrangements that do not clearly satisfy the Safe Harbors. Passing up certain of those opportunities of which its competitors are willing to take advantage may put Tenet at a competitive disadvantage. Tenet systematically reviews all of its operations to ensure that they comply with the Antikickback Amendments, the Social Security Act and similar state statutes. Both federal and state government agencies are continuing heightened and coordinated civil and criminal enforcement efforts. As part of an announced work plan, the government has begun to scrutinize, among other things, the terms of acquisitions of physician practices by companies that own hospitals. The Company has received a subpoena from HHS requesting information concerning the purchase of certain physician practices, primarily by a company subsequently acquired by Tenet. The Company is cooperating with the investigation and does not believe it will have a material adverse affect on the Company's business, financial condition or results of operations. The Company believes that the healthcare industry will continue to be subject to increased government scrutiny and investigations such as this. Another trend impacting the healthcare industry today is the increased use of the False Claims Act by individuals. Such QUI TAM or "whistleblower" actions allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the federal government. If the government intervenes in the action and prevails, the party filing the initial complaint may share in a portion of any settlement or judgment. If the government does not intervene in the action, the QUI TAM plaintiff may pursue the action independently. Although from time to time companies in the healthcare industry in general and the Company in particular may be subject to QUI TAM actions, the Company is unable to predict the impact of such actions on its business, financial condition or results of operations. Tenet 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 a material adverse effect on Tenet's business, financial condition and results of operations. ENVIRONMENTAL REGULATIONS The Company's healthcare operations generate medical waste that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. The Company's operations, as well as the Company's purchases and sales of facilities, also are subject to compliance with various other environmental laws, rules and regulations. Such compliance does not, and the Company anticipates that such compliance will not, materially affect the Company's capital expenditures, earnings or competitive position. 19 HEALTHCARE FACILITY LICENSING REQUIREMENTS Tenet's healthcare facilities are subject to extensive federal, state and local legislation and regulation. In order to maintain their operating licenses, healthcare facilities must comply with strict standards concerning medical care, equipment and hygiene. Various licenses and permits also are required in order to dispense narcotics, operate pharmacies, handle radioactive materials and operate certain equipment. Tenet's healthcare facilities hold all required governmental approvals, licenses and permits. Except for one small hospital that has not sought to be accredited, each of Tenet's facilities that is eligible for accreditation is fully accredited by the JCAHO, CARF (in the case of rehabilitation hospitals) or another appropriate accreditation agency. With such accreditation, the Company's hospitals are eligible to participate in government-sponsored provider programs such as the Medicare and Medicaid programs. The one hospital that is not accredited participates in the Medicare program through a special waiver that must be renewed each year. UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE Tenet's healthcare facilities are subject to and comply with various forms of utilization review. In addition, under the Medicare PPS, each state must have a PRO to carry out a federally mandated system of review of Medicare patient admissions, treatments and discharges in general hospitals. Medical and surgical services and practices are extensively supervised by committees of staff doctors at each healthcare facility, are overseen by each healthcare facility's local governing board, the members of which primarily are physicians and community members, and are reviewed by Tenet's quality assurance personnel. The local governing boards also help maintain standards for quality care, develop long-range plans, establish, review and enforce practices and procedures and approve the credentials and disciplining of medical staff members. COMPLIANCE PROGRAM The Company maintains a multi-faceted corporate compliance and ethics program. A portion of the program results from a 1994 settlement between the Company and HHS. The mandated portion of the program, which is in effect until June 1999, provides, in part, that the Company will not own or operate psychiatric facilities (defined for the purposes of the agreement to include residential treatment centers and substance abuse facilities) except as specifically provided for under the terms of the agreement (which permits the Company's subsidiaries to own and operate a small number of psychiatric facilities on the same campus as or nearby certain of Tenet's general hospitals) and requires self-reporting of credible evidence of violations of criminal law or material violations of civil laws, rules or regulations governing federally funded programs. The Company now has in place a program designed to provide annual ethics training to every employee and to encourage all employees to report any ethical violations to a toll-free telephone hotline. 20 MANAGEMENT The executive officers of the Company who are not also Directors as of August 22, 1998 are:
NAME POSITION AGE - ------------------------------ ------------------------------------------------------------------ --- Scott M. Brown................ Senior Vice President, General Counsel and Secretary 53 Trevor Fetter................. Executive Vice President and Chief Financial Officer 38 Raymond L. Mathiasen.......... Senior Vice President and Chief Accounting Officer 55
Scott M. Brown is Senior Vice President, General Counsel and Secretary of the Company. He joined Tenet in 1981. Mr. Brown was elected Secretary in 1984 and Senior Vice President in 1990. He was appointed acting General Counsel in July 1993 and General Counsel in February 1994. Trevor Fetter is Executive Vice President and Chief Financial Officer of the Company. Mr. Fetter joined Tenet as an Executive Vice President in October 1995. In March 1996, he was appointed to the additional position of Chief Financial Officer. Mr. Fetter served as Executive Vice President and Chief Financial Officer of Metro-Goldwyn-Mayer, Inc. ("MGM") from September 1993 to October 1995, as Executive Vice President of MGM from October 1990 to September 1993, and as Senior Vice President of MGM from 1988 to October 1990. From 1982 to 1988, Mr. Fetter worked in various corporate finance positions in the investment banking division of Merrill Lynch Capital Markets. Raymond L. Mathiasen is Senior Vice President and, since March 1996, Chief Accounting Officer of the Company. From February 1994 to March 1996, Mr. Mathiasen served as Senior Vice President and Chief Financial Officer of the Company and from September 1993 to February 1994, Mr. Mathiasen served as Senior Vice President and acting Chief Financial Officer. Mr. Mathiasen was elected to the position of Senior Vice President in 1990 and Chief Operating Financial Officer in 1991. Prior to joining Tenet as a Vice President in 1985, he was a partner with Arthur Young & Company (now known as Ernst & Young). PROFESSIONAL AND GENERAL LIABILITY INSURANCE The Company insures substantially all of its professional and comprehensive general liability risks in excess of self-insured retentions through a majority-owned insurance subsidiary. These self-insured retentions currently are $1 million per occurrence and varied in prior years by hospital and by policy period from $500 thousand to $3 million per occurrence. A significant portion of these risks is, in turn, reinsured with major independent insurance companies. Prior to fiscal 1995, the Company insured its professional and comprehensive general liability risks related to its psychiatric and rehabilitation hospitals through a wholly owned insurance subsidiary, which reinsured risks in excess of $500 thousand per occurrence with major independent insurance companies. The Company has reached the policy limits provided by this insurance subsidiary related to the psychiatric hospitals in most of its coverage years. In addition, damages, if any, arising from fraud and conspiracy claims in psychiatric malpractice cases (described under Legal Proceedings below) may not be insured. If actual payments of claims materially exceed projected payments of claims, Tenet's financial condition could be materially adversely affected. 21 THE YEAR 2000 ISSUE THE YEAR 2000 ISSUE Many existing computer systems and programs process transactions using a two-digit rather than a four-digit code for the year of a transaction. Unless they have been or are modified, a significant number of those computer systems and programs may process a transaction with a date of 2000 as the year "00", which could cause the system or program to fail or create erroneous results before, on or after January 1, 2000. The Company has initiated a six-phase program in order to assess the effect of this problem (the "Year 2000 Issue") on the Company's computer systems and programs, including the embedded systems that control certain medical and other equipment, and address the Year 2000 Issues that are discovered. In addition, as part of the program the Company is contacting its principal suppliers, other vendors and payors to assess whether their Year 2000 Issues, if any, will affect the Company. The Company's financial and general ledger systems already are substantially Year-2000 compliant. Furthermore, changes to the Company's payroll and patient accounting systems are underway, testing of those changes is expected to be substantially completed by the end of fiscal 1999 and implementation of those changes is expected to be completed during the fall of calendar 1999. The cost to bring these systems into Year 2000 compliance has not been and is not expected to be material. The first phase of the program, conducting an inventory of what systems and programs may be affected by the Year 2000 Issue, has been substantially completed. The second phase, assessment of how the Year 2000 Issues may affect each piece of equipment and system, has begun and is expected to be substantially completed by the second quarter of fiscal 1999. The third phase involves planning how to correct any Year 2000 Issues that are discovered and is expected to be substantially completed by the third quarter of fiscal 1999. The fourth phase will entail executing the plans developed during the third phase and correcting the Year 2000 Issues. During the fifth phase the Company will test the corrections made during the fourth phase to make sure that the Year 2000 Issues have been properly corrected. The sixth phase will involve implementing the corrections of the Year 2000 Issues across all of the Company's systems and programs. Different systems and programs will be subject to the fourth and fifth phases of the program concurrently through the end of fiscal 1999, by which time those phases are expected to be substantially completed. The sixth phase of the program is expected to run through the fall of calendar 1999, by which time the program is expected to be substantially completed. In addition to the six-phase remediation program, the Company is preparing general contingency plans to address unforseen Year 2000 Issues. These contingency plans include preparing the Company's hospitals for any increased service demands that may occur as a result of problems at non-Year 2000 compliant hospitals owned by others. Since the Company has not yet completed its assessment of the scope of the Year 2000 Issues facing most of its systems and programs, it is unable at this time to estimate the costs to correct any Year 2000 Issues that may be discovered. Although the costs incurred by the Company to date have not been material, the Company is unable to estimate at this time whether or not future costs will be material. 22 Furthermore, as noted above, the Company is contacting its principal suppliers, other vendors and payors, including federal and state governments, Medicare fiscal intermediaries, insurance companies and managed care companies, concerning the state of their Year 2000 compliance. The Company is not aware at this time whether those other systems are or will be Year 2000 compliant and is unable to estimate at this time the impact on the Company if one or more of those systems is not Year 2000 compliant. For the foregoing reasons, the Company is not able to determine at this time whether the Year 2000 Issue will materially affect its future financial results or financial condition. FORWARD-LOOKING STATEMENTS Certain statements contained in this Form 10-K, including, without limitation, statements containing the words "believes", "anticipates", "expects", "will", "may", "might", and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current expectations and involve known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both national and in the regions in which the Company operates; industry capacity; demographic changes; existing laws and government regulations and changes in, or the failure to comply with laws and governmental regulations; legislative proposals for healthcare reform; the ability to enter into managed care provider arrangements on acceptable terms; a shift from fee-for-service payment to capitated and other risk-based payment systems; changes in Medicare and Medicaid reimbursement levels; liability and other claims asserted against the Company; competition; the loss of any significant customers; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, healthcare; changes in business strategy or development plans; the ability to attract and retain qualified personnel, including physicians; the significant indebtedness of the Company; the availability of suitable acquisition opportunities and the length of time it takes to accomplish acquisitions; the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities; and the impact of the Year 2000 Issues. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. Tenet disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. ITEM 2. PROPERTIES. The response to this item is included in Item 1. 23 ITEM 3. LEGAL PROCEEDINGS. The Company has been involved in significant legal proceedings of an unusual nature related principally to its discontinued psychiatric business. In prior years, the Company recorded provisions to estimate the cost of the ultimate disposition of all of these proceedings and to estimate the legal fees that it expected to incur. The Company has settled the most significant of these matters. The remaining reserves are for unusual litigation costs that relate to matters that had not been settled as of May 31, 1998, and an estimate of the legal fees to be incurred subsequent to May 31, 1998. These reserves represent management's estimate of the remaining net costs of the ultimate disposition of these matters. There can be no assurance, however, that the ultimate liability will not exceed such estimates. Although, based upon information currently available to it, management believes that the amount of damages, if any, in excess of its reserves for unusual litigation costs that may be awarded in any of the following unresolved legal proceedings cannot reasonably be estimated, management does not believe it is likely that any such damages will have a material adverse effect on the Company's business, financial condition or results of operations. Tenet continues to defend a greater-than-normal level of civil litigation relating to certain of its subsidiaries' discontinued psychiatric operations. The majority of the lawsuits filed contain allegations of medical malpractice as well as allegations of fraud and conspiracy against Tenet and certain of its subsidiaries and former employees. Also named as defendants are numerous doctors and other healthcare professionals. Tenet believes that this litigation has arisen primarily from advertisements by certain lawyers seeking former psychiatric patients in order to file claims against Tenet and certain of its subsidiaries. The advertisements focus, in many instances, on the settlement of past disputes involving the operations of the subsidiaries' discontinued psychiatric business. Many of the cases alleging fraud and conspiracy that have been filed to date against the Company and certain of its subsidiaries have been resolved. The number of advertisements has increased and Tenet expects that additional lawsuits with similar allegations will be filed. Tenet believes it has a number of defenses to each of these actions and will defend these and any additional lawsuits vigorously. Until the lawsuits are resolved, however, Tenet will continue to incur substantial legal expenses. Two federal securities class actions filed in August 1993 were consolidated into one action. This consolidated action was on behalf of a purported class of shareholders who purchased or sold stock of Tenet between January 14, 1993 and August 26, 1993, and alleged violations of the securities laws by the Company and certain of its executive officers. On March 2, 1998, the Company signed a definitive settlement agreement, pursuant to which the Company paid $11,650,000 to settle all claims. In its normal course of business the Company also is subject to claims and lawsuits relating to injuries arising from patient treatment. The Company believes that its liability for damages resulting from such claims and lawsuits in its normal course of business is adequately covered by insurance or is adequately provided for in its consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 24 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The response to this item is included on page 41 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1998. The required information hereby is incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA. The response to this item is included on page 8 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1998. The required information hereby is incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The response to this item is included on pages 9 through 18 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1998. The required information hereby is incorporated by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The response to this item is included on pages 15 and 16 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1998. The required information hereby is incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The response to this item is included on pages 19 through 41 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1998. The required information hereby is incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION. Information concerning the Directors of the Registrant, including executive officers of the Registrant who also are Directors, and other information required by Items 10 and 11, is included on pages 2 through 4 of the definitive Proxy Statement for Registrant's 1998 Annual Meeting of Shareholders and hereby is incorporated by reference. Similar information regarding executive officers of the Registrant who, except as noted therein, are not Directors is set forth on page 21 above. Information regarding compensation of executive officers and Directors of the Registrant is included on pages 8 through 18 and pages 25 through 28 of the definitive Proxy Statement for the Registrant's 1998 Annual Meeting of Shareholders and hereby is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The response to this item is included on pages 6 and 28 of the definitive Proxy Statement for the Registrant's 1998 Annual Meeting of Shareholders. The required information hereby is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. (A) 1. FINANCIAL STATEMENTS. The consolidated financial statements to be included in Part II, Item 8, are incorporated by reference to the Registrant's 1998 Annual Report to Shareholders. (See Exhibit (13)) 2. FINANCIAL STATEMENT SCHEDULES. Schedule II--Valuation and Qualifying Accounts and Reserves (included on page F-1) All other schedules and Condensed Financial Statements of Registrant are omitted because they are not applicable or not required or because the required information is included in the financial statements or notes thereto. 3. EXHIBITS. (3) Articles of Incorporation and Bylaws (a) Restated Articles of Incorporation of Registrant, as amended October 13, 1987 and June 22, 1995 (Incorporated by reference to Exhibit 3(a) to Registrant's Annual Report on Form 10-K, dated August 25, 1995, for the fiscal year ended May 31, 1995) (b) Restated Bylaws of Registrant, as amended October 16, 1996 (Incorporated by reference to Exhibit 3 to Registrant's Quarterly Report on Form 10-Q, dated January 14, 1998, for the fiscal quarter ended November 30, 1997) (4) Instruments Defining the Rights of Security Holders, Including Indentures (a) Indenture, dated as of March 1, 1995, between Tenet and The Bank of New York, as Trustee, relating to 9 5/8% Senior Notes due 2002 (Incorporated by reference to Exhibit 4(a) to Registrant's Quarterly Report on Form 10-Q, dated April 14, 1995, for the fiscal quarter ended February 28, 1995) (b) First Supplemental Indenture, dated as of October 30, 1995, between Tenet and The Bank of New York, as Trustee, relating to 9 5/8% Senior Notes due 2002 (Incorporated by reference to Exhibit 4(c) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (c) Second Supplemental Indenture, dated as of August 21, 1997, between Tenet and The Bank of New York, as Trustee, relating to 9 5/8% Senior Notes due 2002 (Incorporated by reference to Exhibit 4(d) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (d) Indenture, dated as of March 1, 1995, between Tenet and The Bank of New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q, dated April 14, 1995, for the fiscal quarter ended February 28, 1995) (e) First Supplemental Indenture, dated as of October 27, 1995, between Tenet and The Bank of New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(f) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) 26 (f) Second Supplemental Indenture, dated as of August 21, 1997, between Tenet and The Bank of New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(g) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (g) Indenture, dated as of October 16, 1995, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(d) to Registrant's Annual Report on Form 10-K, dated August 26, 1996, for the fiscal year ended May 31, 1996) (h) First Supplemental Indenture, dated as of October 30, 1995, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(i) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (i) Second Supplemental Indenture, dated as of August 21, 1997, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(j) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (j) Indenture, dated as of January 10, 1996, between Tenet and The Bank of New York, as Trustee, relating to 6% Exchangeable Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(a) to Registrant's Quarterly Report on Form 10-Q, dated January 15, 1996, for the fiscal quarter ended November 30, 1995) (k) Escrow Agreement, dated as of January 10, 1996, among the Company, NME Properties, Inc., NME Property Holding Co., Inc. and The Bank of New York, as Escrow Agent (Incorporated by reference to Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q, dated as of January 15, 1996, for the fiscal quarter ended November 30, 1995) (l) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 7 7/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(m) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (m) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 8% Senior Notes due 2005 (Incorporated by reference to Exhibit 4(n) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (n) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Subordinated Notes due 2007 (Incorporated by reference to Exhibit 4(o) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (o) Indenture, dated May 21, 1998, between Tenet and The Bank of New York, as Trustee, relating to 7 5/8% Senior Notes due 2008 (p) Indenture, dated May 21, 1998, between Tenet and The Bank of New York, as Trustee, relating to 8 1/8% Senior Subordinated Notes due 2008 (10) Material Contracts (a) $91,350,000 Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of February 28, 1995, among the Company, as Account Party, and Bank of America National Trust and Savings Association, The Bank of New York, Bankers Trust Company and 27 Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as Issuing Bank (Incorporated by reference to Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q, dated April 14, 1995, for the fiscal quarter ended February 28, 1995) (b) Amendment to Reimbursement Agreement, dated as of March 1, 1996, among the Company, as Account Party, Bank of America National Trust and Savings Association, The Bank of New York, Bankers Trust Company and Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as the Issuing Bank (Incorporated by reference to Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q, dated as of April 12, 1996, for the fiscal quarter ended February 29, 1996) (c) Amendment No. 2 to Reimbursement Agreement, dated January 30, 1997, among the Company, as Account Party, Bank of America National Trust and Savings Corporation, The Bank of New York and Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as Issuing Bank (Incorporated by reference to Exhibit 10(c) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (d) Agreement, dated August 22, 1995, among the Registrant, The Hillhaven Corporation and Vencor, Inc. (Incorporated by reference to Exhibit 10(n) to Registrant's Annual Report on Form 10-K, dated August 25, 1995, for the fiscal year ended May 31, 1995) (e) $2,800,000,000 Credit Agreement, dated as of January 30, 1997, among Tenet, as Borrower, the Lenders, Managing Agents and Co-Agents party thereto, the Swingline Bank party thereto, The Bank of New York and the Bank of Nova Scotia, as Documentation Agents, Bank of America National Trust and Savings Association, as Syndication Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent (Incorporated by reference to Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q, dated as of April 14, 1997, for the fiscal quarter ended February 28, 1997) (f) Amendment, dated as of July 25, 1997, to the Credit Agreement, dated as of January 30, 1997, among Tenet the Lenders, Managing Agents and Co-Agents party thereto, the Swingline Bank party thereto, The Bank of New York and The Bank of Nova Scotia, as Documentation Agents, Bank of America National Trust and Savings Association, as Syndication Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent (Incorporated by reference to Exhibit 10(f) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (g) Letter from the Registrant to Jeffrey C. Barbakow, dated May 26, 1993 (Incorporated by reference to Exhibit 10(l) to Registrant's Annual Report on Form 10-K, dated August 30, 1993, for the fiscal year ended May 31, 1993) (h) Letter from the Registrant to Jeffrey C. Barbakow, dated June 1, 1993 (Incorporated by reference to Exhibit 10(m) to Registrant's Annual Report on Form 10-K, dated August 30, 1993, for the fiscal year ended May 31, 1993) (i) Memorandum from the Registrant to Jeffrey C. Barbakow, dated June 14, 1993 (Incorporated by reference to Exhibit 10(n) to Registrant's Annual Report on Form 10-K, dated August 30, 1993, for the fiscal year ended May 31, 1993) (j) Memorandum of Understanding, dated May 21, 1996, from Jeffrey C. Barbakow to the Company (Incorporated by reference to Exhibit 10(t) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (k) Deferred Compensation Agreement, dated May 31, 1997, between Jeffrey C. Barbakow and the Company 28 (l) Memorandum of Understanding, dated May 21, 1996, from Michael H. Focht, Sr. to the Company (Incorporated by reference to Exhibit 10(u) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (m) Executive Officers Relocation Protection Agreement (Incorporated by reference to Exhibit 10(v) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (n) Executive Officers Severance Protection Plan (Incorporated by reference to Exhibit 10(w) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (o) Board of Directors Retirement Plan, effective January 1, 1985, as amended August 18, 1993, April 25, 1994 and July 30, 1997 (p) Supplemental Executive Retirement Plan, dated as of November 1, 1984, as amended May 21, 1986, April 25, 1994, July 25, 1994 and January 28, 1997. (q) 1994 NME Supplemental Executive Retirement Plan Trust Agreement, dated as of May 25, 1994, as amended July 25, 1994, between the Registrant, and United States Trust Company of New York (Incorporated by reference to Exhibit 10(uu) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (r) Agreement, dated October 30, 1996, between Tenet and United States Trust Company of New York, as Trustee, regarding the First Amendment to the 1994 Tenet Supplemental Executive Retirement Plan Trust (Incorporated by reference to Exhibit 10(b) to Registration Statement on Form S-3 (Registration No. 333-26621) dated May 7, 1997, filed with the Commission on May 7, 1997) (s) 1994 Annual Incentive Plan (Incorporated by reference to Exhibit B to the Definitive Proxy Statement, dated as of August 25, 1994, for the Registrant's 1994 Annual Meeting of Shareholders) (t) 1997 Annual Incentive Plan (Incorporated by reference to Exhibit B to the Definitive Proxy Statement, dated as of August 26, 1997, for the Registrant's 1997 Annual Meeting of Shareholders) (u) Deferred Compensation Plan, effective March 23, 1983 (Incorporated by reference to Exhibit 10(gg) to Registrant's Annual Report on Form 10-K, dated August 26, 1996, for the fiscal year ended May 31, 1996) (v) First Amendment to Deferred Compensation Plan, dated as of August 15, 1994 (Incorporated by reference to Exhibit 10(zz) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (w) 1994 NME Deferred Compensation Plan Trust Agreement, dated as of May 25, 1994, as amended July 25, 1994, between the Registrant and United States Trust Company of New York (Incorporated by reference to Exhibit 10(aaa) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (x) Agreement, dated October 30, 1996, between Tenet and United States Trust Company of New York, as Trustee, Regarding the First Amendment to the 1994 Tenet Deferred Compensation Plan Trust (Incorporated by reference to Exhibit 10(d) to Registration Statement on Form S-3 (Registration No. 333-26621) dated May 7, 1997, filed with the Commission on May 7, 1997) 29 (y) First Amended and Restated 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit A to the Definitive Proxy Statement, dated as of August 26, 1997, for the Registrant's 1997 Annual Meeting of Shareholders) (z) 1991 Stock Incentive Plan (Incorporated by reference to Exhibit 10(kk) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (aa) Amended and Restated 1995 Stock Incentive Plan (Incorporated by reference to Annex D to the Proxy Statement/Prospectus, dated as of December 18, 1997, for the Registrant's Special Meeting of Shareholders held on January 28, 1997) (bb) First Amended and Restated 1995 Employee Stock Purchase Plan (Incorporated by reference to Exhibit C to the definitive Proxy Statement, dated as of August 26, 1997, for the Registrant's 1997 Annual Meeting of Shareholders) (13) 1998 Annual Report to Shareholders of Registrant (21) Subsidiaries of the Registrant (23) Consent of Experts (a) Accountants' Consent and Report on Consolidated Schedule (KPMG Peat Marwick LLP) (27.1) Financial Data Schedule for fiscal year 1998 (included only in the EDGAR filing) (27.2) Restated Financial Data Schedule for fiscal years 1994, 1995, 1996 and 1997 (included only in the EDGAR filing) (B) REPORTS ON FORM 8-K (1) On May 4, 1998, the Company filed with the Commission a Current Report on Form 8-K, dated May 4, 1998, for Item 5, Other Events. The Form 8-K was filed to report the Company's offering of $300 million of Senior Notes and $900 million of Senior Subordinated Notes to qualified institutional investors through a private placement. (2) On May 8, 1998, the Company filed with the Commission a Current Report on Form 8-K, dated May 7, 1998, for Item 5, Other Events. The Form 8-K was filed to report (a) the Company's determination of the pricing for its previously commenced offer to purchase (the "Tender Offers") any and all of its 9 5/8% Senior Notes due 2002 (the "9 5/8% Notes") and its 10 1/8% Senior Subordinated Notes due 2005 (together with the 9 1/8% Notes, the "Notes"); and (b) the pricing of its offering of $300 million of 7 5/8% Senior Notes due 2008 and $900 million dollars of 8 1/8% Senior Subordinated Notes due 2008 to qualified institutional investors through a private placement and to overseas investors pursuant to Regulation S. The Form 8-K also reported the Company's intention to use the proceeds of such offering to finance the Tender Offers for the Notes. (The Company subsequently increased the amounts offered to $350 million of 7 5/8% Senior Notes due 2008 and $1.005 billion of 8 1/8% Senior Subordinated Notes due 2008.) 30 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 27, 1998. TENET HEALTHCARE CORPORATION By: /s/ TREVOR FETTER By: /s/ SCOTT M. BROWN --------------------------------------- ------------------------------------------ Trevor Fetter Scott M. Brown EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL SENIOR VICE PRESIDENT FINANCIAL OFFICER) By: /s/ RAYMOND L. MATHIASEN --------------------------------------- Raymond L. Mathiasen SENIOR VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER (PRINCIPAL ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on August 27, 1998, by the following persons on behalf of the registrant and in the capacities indicated:
SIGNATURE TITLE - ------------------------------ --------------------------------------------- /s/ JEFFREY C. BARBAKOW - ------------------------------ Chairman, Chief Executive Officer and Jeffrey C. Barbakow Director (Principal Executive Officer) /s/ MICHAEL H. FOCHT, SR. - ------------------------------ President, Chief Operating Officer and Michael H. Focht, Sr. Director /s/ LAWRENCE BIONDI - ------------------------------ Director Lawrence Biondi /s/ BERNICE BRATTER - ------------------------------ Director Bernice Bratter /s/ SANFORD CLOUD, JR. - ------------------------------ Director Sanford Cloud, Jr. /s/ MAURICE J. DEWALD - ------------------------------ Director Maurice J. DeWald /s/ EDWARD EGBERT, M.D. - ------------------------------ Director Edward Egbert, M.D. /s/ RAYMOND A. HAY - ------------------------------ Director Raymond A. Hay /s/ LESTER B. KORN - ------------------------------ Director Lester B. Korn /s/ RICHARD S. SCHWEIKER - ------------------------------ Director Richard S. Schweiker
31 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MAY 31, 1996, 1997 AND 1998 (IN MILLIONS) ALLOWANCE FOR DOUBTFUL ACCOUNTS
ADDITIONS CHARGED TO: BALANCE AT ---------------------------- BEGINNING COSTS AND OTHER BALANCE AT OF PERIOD EXPENSES(1) OTHER ACCOUNTS DEDUCTIONS(2) ITEMS(3) END OF PERIOD ---------- ----------- -------------- ------------- -------- ------------- 1996.................................... $212 $431 -- $(471) $33 $205 1997.................................... $205 $499 -- $(474) $(6) $224 1998.................................... $224 $598 -- $(629) $(2) $191
- ------------------------ (1) Before considering recoveries on accounts or notes previously written off. (2) Accounts written off. (3) Primarily beginning balances for purchased businesses, net of balances for businesses sold, and, in 1997, also net of the elimination of the effects of including OrNda's results of operations for the three months ended August 31, 1996 in the years ended May 31, 1996 and 1997. 32 INDEX TO EXHIBITS (3) Articles of Incorporation and Bylaws (a) Restated Articles of Incorporation of Registrant, as amended October 13, 1987 and June 22, 1995 (Incorporated by reference to Exhibit 3(a) to Registrant's Annual Report on Form 10-K, dated August 25, 1995, for the fiscal year ended May 31, 1995) (b) Restated Bylaws of Registrant, as amended October 16, 1996 (Incorporated by reference to Exhibit 3 to Registrant's Quarterly Report on Form 10-Q, dated January 14, 1998, for the fiscal quarter ended November 30, 1997) (4) Instruments Defining the Rights of Security Holders, Including Indentures (a) Indenture, dated as of March 1, 1995, between Tenet and The Bank of New York, as Trustee, relating to 9 5/8% Senior Notes due 2002 (Incorporated by reference to Exhibit 4(a) to Registrant's Quarterly Report on Form 10-Q, dated April 14, 1995, for the fiscal quarter ended February 28, 1995) (b) First Supplemental Indenture, dated as of October 30, 1995, between Tenet and The Bank of New York, as Trustee, relating to 9 5/8% Senior Notes due 2002 (Incorporated by reference to Exhibit 4(c) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (c) Second Supplemental Indenture, dated as of August 21, 1997, between Tenet and The Bank of New York, as Trustee, relating to 9 5/8% Senior Notes due 2002 (Incorporated by reference to Exhibit 4(d) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (d) Indenture, dated as of March 1, 1995, between Tenet and The Bank of New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q, dated April 14, 1995, for the fiscal quarter ended February 28, 1995) (e) First Supplemental Indenture, dated as of October 27, 1995, between Tenet and The Bank of New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(f) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (f) Second Supplemental Indenture, dated as of August 21, 1997, between Tenet and The Bank of New York, as Trustee, relating to 10 1/8% Senior Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(g) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (g) Indenture, dated as of October 16, 1995, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(d) to Registrant's Annual Report on Form 10-K, dated August 26, 1996, for the fiscal year ended May 31, 1996) (h) First Supplemental Indenture, dated as of October 30, 1995, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(i) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (i) Second Supplemental Indenture, dated as of August 21, 1997, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(j) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (j) Indenture, dated as of January 10, 1996, between Tenet and The Bank of New York, as Trustee, relating to 6% Exchangeable Subordinated Notes due 2005 (Incorporated by reference to Exhibit 4(a) to Registrant's Quarterly Report on Form 10-Q, dated January 15, 1996, for the fiscal quarter ended November 30, 1995) (k) Escrow Agreement, dated as of January 10, 1996, among the Company, NME Properties, Inc., NME Property Holding Co., Inc. and The Bank of New York, as Escrow Agent (Incorporated by reference to Exhibit 4(b) to Registrant's Quarterly Report on Form 10-Q, dated as of January 15, 1996, for the fiscal quarter ended November 30, 1995) (l) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 7 7/8% Senior Notes due 2003 (Incorporated by reference to Exhibit 4(m) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (m) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 8% Senior Notes due 2005 (Incorporated by reference to Exhibit 4(n) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (n) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 8 5/8% Senior Subordinated Notes due 2007 (Incorporated by reference to Exhibit 4(o) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (o) Indenture, dated May 21, 1998, between Tenet and The Bank of New York, as Trustee, relating to 7 5/8% Senior Notes due 2008 (p) Indenture, dated May 21, 1998, between Tenet and The Bank of New York, as Trustee, relating to 8 1/8% Senior Subordinated Notes due 2008 (10) Material Contracts (a) $91,350,000 Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of February 28, 1995, among the Company, as Account Party, and Bank of America National Trust and Savings Association, The Bank of New York, Bankers Trust Company and Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as Issuing Bank (Incorporated by reference to Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q, dated April 14, 1995, for the fiscal quarter ended February 28, 1995) (b) Amendment to Reimbursement Agreement, dated as of March 1, 1996, among the Company, as Account Party, Bank of America National Trust and Savings Association, The Bank of New York, Bankers Trust Company and Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as the Issuing Bank (Incorporated by reference to Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q, dated as of April 12, 1996, for the fiscal quarter ended February 29, 1996) (c) Amendment No. 2 to Reimbursement Agreement, dated January 30, 1997, among the Company, as Account Party, Bank of America National Trust and Savings Corporation, The Bank of New York and Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as Issuing Bank (Incorporated by reference to Exhibit 10(c) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (d) Agreement, dated August 22, 1995, among the Registrant, The Hillhaven Corporation and Vencor, Inc. (Incorporated by reference to Exhibit 10(n) to Registrant's Annual Report on Form 10-K, dated August 25, 1995, for the fiscal year ended May 31, 1995) (e) $2,800,000,000 Credit Agreement, dated as of January 30, 1997, among Tenet, as Borrower, the Lenders, Managing Agents and Co-Agents party thereto, the Swingline Bank party thereto, The Bank of New York and the Bank of Nova Scotia, as Documentation Agents, Bank of America National Trust and Savings Association, as Syndication Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent (Incorporated by reference to Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q, dated as of April 14, 1997, for the fiscal quarter ended February 28, 1997) (f) Amendment, dated as of July 25, 1997, to the Credit Agreement, dated as of January 30, 1997, among Tenet the Lenders, Managing Agents and Co-Agents party thereto, the Swingline Bank party thereto, The Bank of New York and The Bank of Nova Scotia, as Documentation Agents, Bank of America National Trust and Savings Association, as Syndication Agent, and Morgan Guaranty Trust Company of New York, as Administrative Agent (Incorporated by reference to Exhibit 10(f) to Registrant's Annual Report on Form 10-K, dated August 27, 1997, for the fiscal year ended May 31, 1997) (g) Letter from the Registrant to Jeffrey C. Barbakow, dated May 26, 1993 (Incorporated by reference to Exhibit 10(l) to Registrant's Annual Report on Form 10-K, dated August 30, 1993, for the fiscal year ended May 31, 1993) (h) Letter from the Registrant to Jeffrey C. Barbakow, dated June 1, 1993 (Incorporated by reference to Exhibit 10(m) to Registrant's Annual Report on Form 10-K, dated August 30, 1993, for the fiscal year ended May 31, 1993) (i) Memorandum from the Registrant to Jeffrey C. Barbakow, dated June 14, 1993 (Incorporated by reference to Exhibit 10(n) to Registrant's Annual Report on Form 10-K, dated August 30, 1993, for the fiscal year ended May 31, 1993) (j) Memorandum of Understanding, dated May 21, 1996, from Jeffrey C. Barbakow to the Company (Incorporated by reference to Exhibit 10(t) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (k) Deferred Compensation Agreement, dated May 31, 1997, between Jeffrey C. Barbakow and the Company (l) Memorandum of Understanding, dated May 21, 1996, from Michael H. Focht, Sr. to the Company (Incorporated by reference to Exhibit 10(u) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (m) Executive Officers Relocation Protection Agreement (Incorporated by reference to Exhibit 10(v) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (n) Executive Officers Severance Protection Plan (Incorporated by reference to Exhibit 10(w) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (o) Board of Directors Retirement Plan, effective January 1, 1985, as amended August 18, 1993, April 25, 1994 and July 30, 1997 (p) Supplemental Executive Retirement Plan, dated as of November 1, 1984, as amended May 21, 1986, April 25, 1994, July 25, 1994 and January 28, 1997. (q) 1994 NME Supplemental Executive Retirement Plan Trust Agreement, dated as of May 25, 1994, as amended July 25, 1994, between the Registrant, and United States Trust Company of New York (Incorporated by reference to Exhibit 10(uu) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (r) Agreement, dated October 30, 1996, between Tenet and United States Trust Company of New York, as Trustee, regarding the First Amendment to the 1994 Tenet Supplemental Executive Retirement Plan Trust (Incorporated by reference to Exhibit 10(b) to Registration Statement on Form S-3 (Registration No. 333-26621) dated May 7, 1997, filed with the Commission on May 7, 1997) (s) 1994 Annual Incentive Plan (Incorporated by reference to Exhibit B to the Definitive Proxy Statement, dated as of August 25, 1994, for the Registrant's 1994 Annual Meeting of Shareholders) (t) 1997 Annual Incentive Plan (Incorporated by reference to Exhibit B to the Definitive Proxy Statement, dated as of August 26, 1997, for the Registrant's 1997 Annual Meeting of Shareholders) (u) Deferred Compensation Plan, effective March 23, 1983 (Incorporated by reference to Exhibit 10(gg) to Registrant's Annual Report on Form 10-K, dated August 26, 1996, for the fiscal year ended May 31, 1996) (v) First Amendment to Deferred Compensation Plan, dated as of August 15, 1994 (Incorporated by reference to Exhibit 10(zz) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (w) 1994 NME Deferred Compensation Plan Trust Agreement, dated as of May 25, 1994, as amended July 25, 1994, between the Registrant and United States Trust Company of New York (Incorporated by reference to Exhibit 10(aaa) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (x) Agreement, dated October 30, 1996, between Tenet and United States Trust Company of New York, as Trustee, Regarding the First Amendment to the 1994 Tenet Deferred Compensation Plan Trust (Incorporated by reference to Exhibit 10(d) to Registration Statement on Form S-3 (Registration No. 333-26621) dated May 7, 1997, filed with the Commission on May 7, 1997) (y) First Amended and Restated 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit A to the Definitive Proxy Statement, dated as of August 26, 1997, for the Registrant's 1997 Annual Meeting of Shareholders) (z) 1991 Stock Incentive Plan (Incorporated by reference to Exhibit 10(kk) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (aa) Amended and Restated 1995 Stock Incentive Plan (Incorporated by reference to Annex D to the Proxy Statement/Prospectus, dated as of December 18, 1997, for the Registrant's Special Meeting of Shareholders held on January 28, 1997) (bb) First Amended and Restated 1995 Employee Stock Purchase Plan (Incorporated by reference to Exhibit C to the definitive Proxy Statement, dated as of August 26, 1997, for the Registrant's 1997 Annual Meeting of Shareholders) (13) 1998 Annual Report to Shareholders of Registrant (21) Subsidiaries of the Registrant (23) Consent of Experts (a) Accountants' Consent and Report on Consolidated Schedule (KPMG Peat Marwick LLP) (27.1) Financial Data Schedule for fiscal year 1998 (included only in the EDGAR filing) (27.2) Restated Financial Data Schedule for fiscal years 1994, 1995, 1996 and 1997 (included only in the EDGAR filing) EX-4.(O) 2 EXHIBIT 4(O) EXHIBIT 4(o) TENET HEALTHCARE CORPORATION -------------------------------- $350,000,000 7 5/8% SENIOR NOTES due 2008 -------------------------------- ----------------------------- INDENTURE Dated as of May 21, 1998 ----------------------------- -------------------------------- THE BANK OF NEW YORK -------------------------------- as Trustee TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. OTHER DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 11 SECTION 1.03. INCORPORATION BY REFERENCE OF TIA . . . . . . . . . . . . . 12 SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . 12 ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY. . . . . . . . . . . . . 13 SECTION 2.03. EXECUTION AND AUTHENTICATION. . . . . . . . . . . . . . . . 13 SECTION 2.04. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . . . . . 14 SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . . . 14 SECTION 2.06. HOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 2.07. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . . 15 SECTION 2.08. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . . . . 16 SECTION 2.09. REPLACEMENT SECURITIES. . . . . . . . . . . . . . . . . . . 16 SECTION 2.10. OUTSTANDING SECURITIES. . . . . . . . . . . . . . . . . . . 16 SECTION 2.11. TREASURY SECURITIES . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.12. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . . . 17 SECTION 2.13. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.14. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.15. RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.16. CUSIP NUMBER. . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . 18 SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. . . . . . . . . . . 18 SECTION 3.03. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . . . 18 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. . . . . . . . . . . . . . . 19 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . 19 SECTION 3.06. SECURITIES REDEEMED IN PART . . . . . . . . . . . . . . . . 20 SECTION 3.07. OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . 20 SECTION 3.08. MANDATORY REDEMPTION. . . . . . . . . . . . . . . . . . . . 21
-i-
ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . . . . . . 21 SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . 21 SECTION 4.03. COMMISSION REPORTS. . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.04. COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . . 23 SECTION 4.05. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 4.06. STAY, EXTENSION AND USURY LAWS. . . . . . . . . . . . . . . 24 SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS. . . . . . . . . . . . . 24 SECTION 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. . . . . . . . . . . . . . . . . . . 26 SECTION 4.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK . . . . . . . . . . . . . . . . 26 SECTION 4.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES . . . . . . . . 28 SECTION 4.11. LIMITATIONS ON LIENS. . . . . . . . . . . . . . . . . . . . 28 SECTION 4.12. CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . 28 SECTION 4.13. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . 30 SECTION 4.14. LINE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . 30 SECTION 4.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. . . . . . . . . . . . . . . . 30 SECTION 4.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED NOTE INDENTURE . . . . . . . . . . . . . . . . 31 ARTICLE 5 SUCCESSORS SECTION 5.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS . 31 SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . . . 32 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 32 SECTION 6.02. ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 6.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . 34 SECTION 6.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . . 34 SECTION 6.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. . . . . . . . . . . . 35 SECTION 6.08. COLLECTION SUIT BY TRUSTEE. . . . . . . . . . . . . . . . . 35 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . . . 35 SECTION 6.10. PRIORITIES. . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . 36
-ii-
ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . 36 SECTION 7.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . 37 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . 38 SECTION 7.04. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . . . . . . 38 SECTION 7.05. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . 38 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . . . . . . 38 SECTION 7.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . . . . . . 39 SECTION 7.08. REPLACEMENT OF TRUSTEE. . . . . . . . . . . . . . . . . . . 39 SECTION 7.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC.. . . . . . . . . 40 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . . . 40 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . . . 41 ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. . . . . . . . . . . . . . . 41 SECTION 8.03. COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . 41 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. . . . . . . . . 42 SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS . . . . . . . 44 SECTION 8.06. REPAYMENT TO COMPANY. . . . . . . . . . . . . . . . . . . . 44 SECTION 8.07. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . 45 SECTION 9.02. WITH CONSENT OF HOLDERS . . . . . . . . . . . . . . . . . . 45 SECTION 9.03. COMPLIANCE WITH TIA . . . . . . . . . . . . . . . . . . . . 46 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . . . 47 SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . . . . 47 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.. . . . . . . . . . . . . . 47 ARTICLE 10 MISCELLANEOUS SECTION 10.01. TIA CONTROLS. . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 10.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 10.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS . . . . . . . . 49 SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. . . . . 49 SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . . 49
-iii-
SECTION 10.06. RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . . . . . . 49 SECTION 10.07. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. . . . . . . . . . . . . . . . . 50 SECTION 10.09. DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . . . . . 50 SECTION 10.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 10.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . . 50 SECTION 10.12. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 10.13. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 10.14. COUNTERPART ORIGINALS . . . . . . . . . . . . . . . . . . . 50 SECTION 10.15. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . . 51
SIGNATURES APPENDIX A APPENDIX B FORM OF SUPPLEMENTAL INDENTURE -iv- CROSS-REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION --------------- ----------------- 310 (a)(1) . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . 7.10 (b). . . . . . . . . . . . . . . . . . . 7.08; 7.10 (c). . . . . . . . . . . . . . . . . . . N.A. 311 (a). . . . . . . . . . . . . . . . . . . 7.11 (b). . . . . . . . . . . . . . . . . . . 7.11 (c). . . . . . . . . . . . . . . . . . . N.A. 312 (a). . . . . . . . . . . . . . . . . . . 2.06 (b). . . . . . . . . . . . . . . . . . . 10.03 (c). . . . . . . . . . . . . . . . . . . 10.03 313 (a). . . . . . . . . . . . . . . . . . . 7.06 (b)(1) . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . 7.06 (c). . . . . . . . . . . . . . . . . . . 7.06; 10.02 (d). . . . . . . . . . . . . . . . . . . N.A. 314 (a). . . . . . . . . . . . . . . . . . . 4.03; 10.02 (b). . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . 10.04 (c)(2) . . . . . . . . . . . . . . . . . 10.04 (c)(3) . . . . . . . . . . . . . . . . . N.A. (d). . . . . . . . . . . . . . . . . . . N.A. (e). . . . . . . . . . . . . . . . . . . 10.05 (f). . . . . . . . . . . . . . . . . . . N.A. 315 (a). . . . . . . . . . . . . . . . . . . 7.01(iii)(b) (b). . . . . . . . . . . . . . . . . . . 7.05; 10.02 (c). . . . . . . . . . . . . . . . . . . 7.01(i) (d). . . . . . . . . . . . . . . . . . . 7.01(iii) (e). . . . . . . . . . . . . . . . . . . 6.11 316 (a)(last sentence) . . . . . . . . . . . 2.11 (a)(1)(A) . . . . . . . . . . . . . . . 6.05 (a)(1)(B) . . . . . . . . . . . . . . . 6.04 (a)(2) . . . . . . . . . . . . . . . . . N.A. (b). . . . . . . . . . . . . . . . . . . 6.07 (c). . . . . . . . . . . . . . . . . . . 2.15; 9.04
- ------------------------------- *This Cross-Reference Table is not part of the indenture. -v-
TRUST INDENTURE ACT SECTION INDENTURE SECTION --------------- ----------------- 317 (a)(1) . . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . . 6.09 (b). . . . . . . . . . . . . . . . . . . 2.05 318 (a). . . . . . . . . . . . . . . . . . . 10.01 (b). . . . . . . . . . . . . . . . . . . N.A. (c). . . . . . . . . . . . . . . . . . . 10.01
N.A. means not applicable -vi- INDENTURE dated as of May 21, 1998 between Tenet Healthcare Corporation, a Nevada corporation (the "COMPANY"), and The Bank of New York, as trustee (the "TRUSTEE"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 7 5/8% Senior Notes due 2008: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "AGENT" means any Registrar, Paying Agent or co-registrar. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices and (ii) the issuance or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $25.0 million or (b) for net proceeds in excess of $25.0 million. Notwithstanding the foregoing: (a) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 4.07 hereof and (d) a Hospital Swap shall not be deemed to be an Asset Sale. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any authorized committee thereof. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL LEASE" means, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment would be capitalized on a balance sheet of the lessee in accordance with GAAP. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Capital Lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a Person or group who, prior to such transaction, held a majority of the voting power of the voting stock of the Company, (ii) the acquisition by any Person or group (as defined above) of a direct or indirect interest in more than 50% of the voting power of the voting stock of the Company, by way of merger or consolidation or otherwise, or (iii) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change of Control and a Rating Decline. "CLOSING DATE" means May 21, 1998. "COMMISSION" means the Securities and Exchange Commission. "COMPANY" means Tenet Healthcare Corporation, as obligor under the Securities, unless and until a successor replaces Tenet Healthcare Corporation, in accordance with Article 5 hereof and thereafter includes such successor. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period PLUS in each case, without duplication (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, (iii) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income, (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP, (v) the amount of any restructuring charges deducted in such period in computing Consolidated Net Income for such period, (vi) the amount of all losses related to discontinued operations deducted in such period in computing Consolidated Net Income for such -2- period, (vii) the amount of all non-recurring charges and expenses related to acquisitions and mergers deducted in such period in computing Consolidated Net Income for such period and (viii) any non-cash charges reducing Consolidated Net Income for such period (excluding any portion of such charge requiring an accrual of a cash reserve for anticipated cash charges for any future period). Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP but excluding any one-time charge or expense incurred in order to consummate the Refinancing; PROVIDED that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date PLUS (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock), LESS all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made in accordance with GAAP as a result of the acquisition of such business) subsequent to the Closing Date in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, and excluding the cumulative effect of a change in accounting principles, all as determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the Closing Date or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 10.02 hereof or such other address as to which the Trustee may give notice to the Company. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. -3- "DEPOSITARY" means a clearing agency registered under the Exchange Act that is designated to act as Depositary for the Securities. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to June 1, 2008. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE SECURITIES" shall have the meaning set forth in Appendix A. "EXISTING CREDIT FACILITY" means that certain Credit Agreement by and among the Company and Morgan Guaranty Trust Company of New York and the other banks that are party thereto, providing for $2.8 billion in aggregate principal amount of Indebtedness, including any related notes, instruments, and agreements executed in connection therewith, as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Existing Credit Facility) in existence on the Closing Date, until such amounts are repaid, including all reimbursement obligations with respect to letters of credit outstanding as of the Closing Date. "FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period, and (ii) the Consolidated Cash Flow and Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded. "FIXED CHARGES" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in -4- respect of letters of credit or bankers' acceptance financings, and net payments or receipts (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, TIMES (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as in effect from time to time. "GLOBAL SECURITY" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 2.02. "GOVERNMENT SECURITIES" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) forward foreign exchange contracts or currency swap agreements and (iii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency values. "HOLDER" means a Person in whose name a Security is registered. "HOSPITAL" means a hospital, outpatient clinic, long-term care facility or other facility or business that is used or useful in or related to the provision of healthcare services. "HOSPITAL SWAP" means an exchange of assets by the Company or a Subsidiary of the Company for one or more Hospitals and/or one or more Related Businesses or for the Capital Stock of any Person owning one or more Hospitals and/or one or more Related Businesses. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than -5- letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INITIAL SECURITIES" shall have the meaning set forth in Appendix A. "INVESTMENT GRADE" means a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such lien, pledge, charge or security interest). "MOODY'S" means Moody's Investors Services, Inc. and its successors. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFICERS" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary and any Vice President of the Company or any Subsidiary, as the case may be. "OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer or principal accounting officer of the Company. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company, any Subsidiary or the Trustee. -6- "PAYMENT DEFAULT" means any failure to pay any scheduled installment of interest or principal on any Indebtedness within the grace period provided for such payment in the documentation governing such Indebtedness. "PERMITTED LIENS" means (i) Liens in favor of the Company; (ii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; PROVIDED that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition (unless such Liens secure Indebtedness that was incurred in connection with or in contemplation of such acquisition and is used to refinance tax-exempt Indebtedness) and do not extend to any assets or the Company or its Subsidiaries other than those of the Person merged into or consolidated with the Company or that becomes a Subsidiary of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company; PROVIDED that such Liens were in existence prior to the contemplation of such acquisition (unless such Liens secure Indebtedness that was incurred in connection with or in contemplation of such acquisition and is used to refinance tax-exempt Indebtedness); (iv) Liens to secure the performance of statutory obligations, tender, bid, performance, government contract, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the Closing Date; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) other Liens on assets of the Company or any Subsidiary of the Company securing Indebtedness that is permitted by the terms hereof to be outstanding having an aggregate principal amount at any one time outstanding not to exceed 10% of the Stockholders' Equity of the Company; and (viii) Liens to secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was secured by a Lien permitted hereunder and that was incurred in accordance with the provisions hereof; PROVIDED that such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than assets or property securing the Indebtedness so refinanced. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED that, except in the case of Indebtedness of the Company issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any premiums paid and reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Securities, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Securities on subordination terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iv) such Indebtedness is incurred by the Company if the Company is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (v) such Indebtedness is incurred by the Company or a Subsidiary if a Subsidiary is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. -7- "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust or unincorporated organization (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "PHYSICIAN JOINT VENTURE DISTRIBUTIONS" means distributions made by the Company or any of its Subsidiaries to any physician, pharmacist or other allied healthcare professional in connection with the unwinding, liquidation or other termination of any joint venture or similar arrangement between any such Person and the Company or any of its Subsidiaries. "PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee incurred in the ordinary course of business by the Company or a Subsidiary of the Company in connection with any advance, loan or payment to, or on behalf of or for the benefit of any physician, pharmacist or other allied healthcare professional for the purpose of recruiting, redirecting or retaining the physician, pharmacist or other allied healthcare professional to provide service to patients in the service area of any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries; EXCLUDING, HOWEVER, compensation for services provided by physicians, pharmacists or other allied healthcare professionals to any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries. "QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the Company other than Disqualified Stock of the Company. "RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if neither S&P nor Moody's shall make a rating of the Securities 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 Securities 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+, shall constitute a decrease of one gradation). "RATING DATE" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control. "RATING DECLINE" means the occurrence on or within 90 days after the date of the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control (which period shall be extended so long as the rating of the 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, a decrease in the rating of the Securities by both Rating Agencies to a rating that is below Investment Grade, or (b) in the event the Securities are rated below Investment Grade by both Rating Agencies on the Rating Date, a decrease in the rating of the Securities by either Rating Agency by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). -8- "REFINANCING" has the meaning ascribed to it in the offering memorandum dated May 8, 1998 relating to the Securities and the Senior Subordinated Notes. "RELATED BUSINESS" means a healthcare business affiliated or associated with a Hospital or any business related or ancillary to the provision of healthcare services or information or the investment in, management, leasing or operation of a Hospital. "RESPONSIBLE OFFICER" when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SECURITIES" means the securities described above, issued under this Indenture. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR SUBORDINATED NOTES" means the 8 1/8% Senior Subordinated Notes due 2008 of the Company in an aggregate principal amount of $1.005 billion, issued pursuant to the Senior Subordinated Note Indenture. "SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of May 21, 1998 between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time, under which the Senior Subordinated Notes were issued. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Closing Date. "S&P" means Standard & Poor's Corporation and its successors. "SPECIFIED EXCHANGE" means any retirement of Indebtedness upon the exercise by a holder of such Indebtedness, pursuant to the terms thereof, of any right to exchange such Indebtedness for shares of common stock of Vencor, Inc. or any successor thereto or any other equity securities, other than Equity Interests of a Subsidiary, owned by the Company as of October 11, 1995, or for any securities or other property received with respect to such common stock or equity securities or cash in lieu thereof, whether or not such right is subject to the Company's ability to pay an amount in cash in lieu thereof. "STOCKHOLDERS' EQUITY" means, with respect to any Person as of any date, the stockholders' equity of such Person determined in accordance with GAAP as of the date of the most recent available internal financial statements of such Person, and calculated on a PRO FORMA basis to give effect to any acquisition or disposition by such Person consummated or to be consummated since the date of such financial statements and on or prior to the date of such calculation. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of -9- the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 hereof. "TRANSFER RESTRICTION" means, with respect to the Company's Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries, or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries. "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. "2005 EXCHANGEABLE SUBORDINATED NOTES" means the 6% Exchangeable Subordinated Notes due 2005 of the Company in an aggregate principal amount of $320.0 million, issued pursuant to the Indenture dated as of January 10, 1996, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. "2005 SENIOR SUBORDINATED NOTES" means the 10 1/8% Senior Subordinated Notes due 2005 of the Company in an aggregate principal amount of $900.0 million, issued pursuant to the Indenture dated as of March 1, 1995, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. "2007 SENIOR SUBORDINATED NOTES" means the 8 5/8% Senior Subordinated Notes due 2007 of the Company in an aggregate principal amount of $700.0 million, issued pursuant to the Indenture dated as of January 15, 1997, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. SECTION 1.02. OTHER DEFINITIONS. -10-
DEFINED IN TERM SECTION ---- ---------- "Affiliate Transaction" . . . . . . . . . . . . . . 4.10 "Bankruptcy Law" . . . . . . . . . . . . . . . . . 6.01 "Change of Control Offer" . . . . . . . . . . . . . 4.12 "Change of Control Payment" . . . . . . . . . . . . 4.12 "Change of Control Payment Date" . . . . . . . . . 4.12 "Company Deposit" . . . . . . . . . . . . . . . . . 9.04 "Covenant Defeasance" . . . . . . . . . . . . . . . 8.03 "Custodian" . . . . . . . . . . . . . . . . . . . . 6.01 "Deposits" . . . . . . . . . . . . . . . . . . . . 9.04 "Event of Default" . . . . . . . . . . . . . . . . 6.01 "incur" . . . . . . . . . . . . . . . . . . . . . . 4.09 "Legal Defeasance" . . . . . . . . . . . . . . . . 8.02 "Legal Holiday" . . . . . . . . . . . . . . . . . . 10.07 "New Lender Deposit" . . . . . . . . . . . . . . . 9.04 "New Loan" . . . . . . . . . . . . . . . . . . . . 9.04 "New Loan Agreement" . . . . . . . . . . . . . . . 9.04 "Notice of Default" . . . . . . . . . . . . . . . . 6.01 "Paying Agent" . . . . . . . . . . . . . . . . . . 2.03 "Registrar" . . . . . . . . . . . . . . . . . . . . 2.03 "Restricted Payments" . . . . . . . . . . . . . . . 4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Securities; "INDENTURE SECURITY HOLDER" means a Holder; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; "OBLIGOR" on the Securities means the Company and any successor obligor upon the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Commission rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: -11- (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. Provisions relating to the Initial Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto ("Appendix A"), which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to Appendix A, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 2 to Appendix A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in Appendix A and the Exhibits thereto are part of the terms of this Indenture. The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. The Securities may be Global Securities, as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY. Every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be registered, in the name of any person other than such Depositary or a nominee thereof, except in the limited circumstances described in the Indenture." SECTION 2.03. EXECUTION AND AUTHENTICATION. An Officer of the Company shall sign the Securities for the Company by manual or facsimile signature. -12- If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Appendix A and the exhibits thereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Securities for original issue up to the aggregate principal amount stated in paragraph 4 of the Securities. The aggregate principal amount of Securities outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.09 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. The Company initially appoints The Depository Trust Company as the Depositary. SECTION 2.04. REGISTRAR AND PAYING AGENT. The Company shall maintain (i) an office or agency where Securities may be presented for registration of transfer or for exchange (including any co-registrar, the "REGISTRAR") and (ii) an office or agency where Securities may be presented for payment (the "PAYING AGENT"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co-registrar without prior notice to any Holder. The Company shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.07 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Securities. -13- SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST. On or prior to the due date of principal of, premium, if any, and interest on any Securities, the Company shall deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and interest becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Securities, and shall notify the Trustee of any Default by the Company in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. SECTION 2.06. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, including the aggregate principal amount of the Securities held by each thereof, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.07. TRANSFER AND EXCHANGE. When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; PROVIDED, HOWEVER, that any Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Securities at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required to (i) register the transfer or exchange of Securities during a period beginning at the opening of business on a Business Day 15 days before the day of mailing of a notice of redemption of Securities for redemption under Section 3.03 hereof and ending at the close of business on the day of such mailing, (ii) register the transfer or exchange of any Security selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (iii) register the transfer or exchange of a Security between the record date and the next succeeding interest payment date. No service charge shall be made to any Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.12 or 9.05 hereof, which shall be paid by the Company). -14- Notwithstanding the foregoing, a Global Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or any such nominee to a successor of the Depositary or a nominee of such successor, unless: (i) the Depositary is at any time unwilling or unable to continue as depository or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act and a successor depository is not appointed by the Company within 90 days, (ii) an Event of Default under this Indenture with respect to the Securities has occurred and is continuing and the beneficial owners representing a majority in principal amount of the Securities advise the Depositary to cease acting as depositary or (iii) the Company, in its sole discretion, determines at any time that the Securities shall no longer be represented by a Global Security, the Company will issue individual Securities of the applicable amount and in certificated form in exchange for a Global Security. In any such instance, an owner of a beneficial interest in the Global Security will be entitled to physical delivery of individual securities in certificated form of like tenor, equal in principal amount to such beneficial interest and to have such Securities in certificated form registered in its name. SECTION 2.08. PERSONS DEEMED OWNERS. Prior to due presentment for registration of transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of, premium, if any, and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. So long as the Depositary or its nominee is the registered Holder of a Global Security, the Depositary or its nominee, as the case may be, will be treated as the sole owner of it for all purposes under the Indenture and the beneficial owners of the Securities will be entitled only to those rights and benefits afforded to them in accordance with the Depositary's regular operating procedures. Except as provided in Section 2.07, owners of beneficial interests in a Global Security will not be entitled to have Securities represented by a Global Security registered in their names, will not receive or be entitled to receive physical delivery of Securities in certificated form and will not be considered the registered Holders thereof under the Indenture. None of the Company, the Trustee, any Paying Agent or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 2.09. REPLACEMENT SECURITIES. If any mutilated Security is surrendered to the Trustee or the Company, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. An indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee -15- and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss which any of them may suffer if a Security is replaced. Each of the Company and the Trustee may charge for its expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. SECTION 2.10. OUTSTANDING SECURITIES. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.09 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the principal amount of any Security is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.11 hereof, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. SECTION 2.11. TREASURY SECURITIES. In determining whether the Holders of the required principal amount of Securities then outstanding have concurred in any demand, direction, waiver or consent, Securities owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such demand, direction, waiver or consent, only Securities that a Responsible Officer actually knows to be so owned shall be so considered. Notwithstanding the foregoing, Securities that are to be acquired by the Company or an Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company or an Affiliate of the Company until legal title to such Securities passes to the Company or such Affiliate, as the case may be. SECTION 2.12. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company and the Trustee consider appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. SECTION 2.13. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for -16- registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return such cancelled Securities to the Company. The Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.14. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the related payment date, in each case at the rate provided in the Securities and in Section 4.01 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.15. RECORD DATE. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c). SECTION 2.16. CUSIP NUMBER. The Company in issuing the Securities may use a "CUSIP" number, and if it does so, the Trustee shall use the CUSIP number in notices to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Securities pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Securities to be redeemed and (iv) the redemption price. If the Company is required to make an offer to purchase Securities pursuant to the provisions of Section 4.12 hereof, it shall furnish to the Trustee an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the purchase shall occur, (ii) the purchase date, (iii) the principal amount of Securities to be purchased, (iv) the purchase price and (v) a statement to the effect that a Change of Control has occurred and the conditions set forth in Section 4.12 hereof have been satisfied, as applicable. -17- SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If less than all of the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed among the Holders in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are then listed, or, if the Securities are not so listed, on a PRO RATA basis, by lot or by such method the Trustee shall deem fair and appropriate; PROVIDED that Securities with a principal amount of $1,000 shall not be redeemed in part. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities and portions of them selected shall be in the amounts of $1,000 or whole multiples of $1,000; except that if all of the Securities of a Holder are to be redeemed, the entire outstanding amount of Securities held by such Holders, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed by first class mail a notice of redemption to each Holder of Securities to be redeemed at its registered address. The notice shall identify the Securities to be redeemed (including CUSIP number) and shall state: (1) the redemption date; (2) the redemption price; (3) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion shall be issued; (4) the name and address of the Paying Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Securities called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Securities and/or Section of this Indenture pursuant to which the Securities called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. -18- At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company shall have delivered to the Trustee, at least 40 days prior to the redemption date, unless the Trustee shall agree to a shorter period, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. The notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security shall not affect the validity of the proceeding for the redemption of any other Security. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Securities called for redemption become due and payable on the redemption date at the redemption price plus accrued and unpaid interest, if any, to such date. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of, and accrued interest on, all Securities to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of (including any applicable premium), and accrued interest on, all Securities to be redeemed. On and after the redemption date, interest ceases to accrue on the Securities or the portions of Securities called for redemption. If a Security is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whoso name such Security was registered at the close of business on such record date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case the rate provided in the Securities and in Section 4.01 hereof. SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Security equal in principal amount to the unredeemed portion of the Security surrendered. SECTION 3.07. OPTIONAL REDEMPTION. The Securities shall be redeemable, in whole, at any time, or in part, from time to time, at the option of the Company upon not less than 30 nor more than 60 days' notice at a redemption price equal to the Make-Whole Price. "Make-Whole Price" means an amount equal to the greater of (i) 100% of the principal amount of the Securities and (ii) as determined by an Independent Investment Banker (as defined herein), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year -19- consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined herein), plus, in each case, accrued interest thereon to the date of redemption. "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (as defined), assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price (as defined) for such redemption date, plus 0.5%. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Treasury Reference Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. "Independent Investment Banker" means one of the Reference Treasury Dealers (as defined) appointed by the Company. "Reference Treasury Dealer" means Donaldson, Lufkin & Jenrette Securities Corporation and its successors; PROVIDED, HOWEVER, that if the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. SECTION 3.08. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 4.12 hereof, the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. -20- ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Securities on the dates and in the manner provided in this Indenture and the Securities. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary of the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than five days following the date of payment, any money (including accrued interest) that exceeds such amount of principal, premium, if any, and interest to be paid on the Securities. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the interest rate then applicable to the Securities to the extent lawful. In addition, it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates The Bank of New York, 101 Barclay Street, 21 West, New York, New York 10286 as one such office or agency of the Company in accordance with Section 2.04 hereof. SECTION 4.03. COMMISSION REPORTS. (i) So long as any of the Securities remain outstanding, the Company shall provide to the Trustee within 15 days after the filing thereof with the Commission copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is -21- required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. All obligors on the Securities shall comply with the provisions of TIA Section 314(a). Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Commission, the Company shall file with the Commission and provide to the Trustee (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and a report thereon by the Company's certified public accountants; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form); PROVIDED, HOWEVER, that the Company shall not be in default of the provisions of this Section 4.03(i) for any failure to file reports with the Commission solely by the refusal of the Commission to accept the same for filing. Each of the financial statements contained in such reports shall be prepared in accordance with GAAP. (ii) The Trustee, at the Company's request and expense, shall promptly mail copies of all such annual reports, information, documents and other reports provided to the Trustee pursuant to Section 4.03(i) hereof to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. (iii) Whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability and make such information available to securities analysts and prospective investors upon request. (iv) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to the Holders under this Section 4.03. (v) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.04. COMPLIANCE CERTIFICATE. (i) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such -22- certificate, that to the best of his or her knowledge each entity has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto), all without regard to periods of grace or notice requirements, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Securities is prohibited or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto. (ii) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's certified independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any Subsidiary of the Company has violated any provisions of Article 4 or of Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (iii) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of (a) any Default or Event of Default or (b) any event of default under any other mortgage, indenture or instrument referred to in Section 6.01(v) hereof, an Officers' Certificate specifying such Default, Event of Default or event of default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except (i) as contested in good faith by appropriate proceedings and with respect to which appropriate reserves have been taken in accordance with GAAP or (ii) where the failure to effect such payment is not adverse in any material respect to the Holders. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. -23- SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Subsidiaries' Equity Interests (other than (w) Physician Joint Venture Distributions, (x) dividends or distributions payable in Qualified Equity Interests of the Company, (y) dividends or distributions payable to the Company or any Subsidiary of the Company, and (z) dividends or distributions by any Subsidiary of the Company payable to all holders of a class of Equity Interests of such Subsidiary on a PRO RATA basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company; or (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Securities, except at the original final maturity date thereof or pursuant to a Specified Exchange or the Refinancing (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the fair market value (as conclusively evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee within 60 days prior to the date of such Restricted Payment) of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to such Restricted Payment): (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving PRO FORMA effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Restricted Payment, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after March 1, 1995 (excluding Restricted Payments permitted by clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less than the sum of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after March 1, 1995 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), PLUS (2) 100% of the aggregate net cash proceeds received by the Company from the issue or sale (other than to a Subsidiary of the Company) since March 1, 1995 of Qualified Equity Interests of the Company or of debt securities of the Company or any of its Subsidiaries that have been converted into or exchanged for such Qualified Equity Interests of the Company, PLUS (3) $50.0 million. If no Default or Event of Default has occurred and is continuing, or would occur as a consequence thereof, the foregoing provisions shall not prohibit the following Restricted Payments: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions hereof; -24- (ii) the payment of cash dividends on any series of Disqualified Stock issued after the Closing Date in an aggregate amount not to exceed the cash received by the Company since the Closing Date upon issuance of such Disqualified Stock; (iii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Subsidiary in exchange for, or out of the net cash proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (iv) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in exchange for or out of the net cash proceeds from the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (v) the repurchase, redemption or other acquisition or retirement for value of (A) any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement or (B) any Equity Interests of the Company which are or intended to be used to satisfy issuances of such Equity Interests upon exercise of employee stock options or upon exercise or satisfaction of other similar instruments outstanding under employee benefit plans of the Company or any subsidiary of the Company; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $25.0 million in any twelve-month period; and (vi) the making and consummation of (A) a senior subordinated asset sale offer in accordance with the provisions of the indenture relating to the 2005 Senior Subordinated Notes or (B) a Change of Control Offer with respect to the Senior Subordinated Notes in accordance with the provisions of the Senior Subordinated Note Indenture or change of control offer with respect to the 2005 Senior Subordinated Notes or the 2005 Exchangeable Subordinated Notes in accordance with the provisions of the indentures relating thereto. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed. SECTION 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual Transfer Restriction, except for such Transfer Restrictions existing under or by reason of: (a) Existing Indebtedness as in effect on the Closing Date, -25- (b) this Indenture, the Senior Subordinated Note Indenture and the Indenture relating to the Company's 8% Senior Notes due 2005, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition, unless such Indebtedness was incurred in connection with or in contemplation of such acquisition for the purpose of refinancing Indebtedness which was tax-exempt, or in violation of Section 4.09 hereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that the Consolidated Cash Flow of such Person shall not be taken into account in determining whether such acquisition was permitted by the terms hereof except to the extent that such Consolidated Cash Flow would be permitted to be dividends to the Company without the prior consent or approval of any third party, (e) customary non-assignment provisions in leases entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the ability of any of the Company's Subsidiaries to transfer the property so acquired to the Company or any of its Subsidiaries, (g) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, or (h) the Existing Credit Facility and related documentation as the same is in effect on the Closing Date and as amended, modified, extended, renewed, refunded, refinanced, restated or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the Existing Credit Facility and related documentation as in effect on the Closing Date. SECTION 4.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "INCUR") after the Closing Date any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) and the Company may issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.5 to 1, determined on a PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may -26- be, at the beginning of such four-quarter period. Indebtedness consisting of reimbursement obligations in respect of a letter of credit shall be deemed to be incurred when the letter of credit is first issued. The foregoing provisions shall not apply to: (a) the incurrence by the Company of Indebtedness pursuant to the Existing Credit Facility in an aggregate principal amount at any time outstanding not to exceed an amount equal to $2.8 billion less the aggregate amount of all mandatory repayments applied to permanently reduce the commitments with respect to such Indebtedness; (b) the incurrence by the Company of Indebtedness represented by the Securities, the 8% Senior Notes due 2005 and the Senior Subordinated Notes; (c) the incurrence by the Company and its Subsidiaries of the Existing Indebtedness; (d) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by this Indenture to be incurred (including, without limitation, Existing Indebtedness); (e) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms hereof to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; PROVIDED that the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates; (f) the incurrence by the Company or any of its Subsidiaries of Physician Support Obligations; (g) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Subsidiaries; (h) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by tender, bid, performance, government contract, surety or appeal bonds, standby letters of credit or warranty or contractual service obligations of like nature, in each case to the extent incurred in the ordinary course of business of the Company or such Subsidiary; (i) the incurrence by any Subsidiary of the Company of Indebtedness, the aggregate principal amount of which, together with all other Indebtedness of the Company's Subsidiaries at the time outstanding (excluding the Existing Indebtedness until repaid or refinanced and excluding Physician Support Obligations), does not exceed the greater of (1) 10% of the Company's Stockholders' Equity as of the date of incurrence or (2) $10.0 million; PROVIDED that, in the case of clause (1) only, the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred would have been at least 2.5 to 1, determined on a PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if such Indebtedness had been incurred at the beginning of such four-quarter period; and -27- (j) the incurrence by the Company of Indebtedness (in addition to Indebtedness permitted by any other clause of this covenant) in an aggregate principal amount at any time outstanding not to exceed $400.0 million. SECTION 4.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (i) such Affiliate Transaction, is on terms that are no less favorable to the Company or the relevant Subsidiary than those that could have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction was approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an investment banking firm of national standing; PROVIDED that (x) transactions or payments pursuant to any employment arrangements or employee or director benefit plans entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (y) transactions between or among the Company and/or its Subsidiaries and (z) transactions permitted under Section 4.07 hereof, in each case, shall not be deemed to be Affiliate Transactions. SECTION 4.11. LIMITATIONS ON LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien (except Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom unless all payments due hereunder and under the Securities are secured on an equal and ratable basis with the Obligations so secured until such time as such Obligations are no longer secured by a Lien. SECTION 4.12. CHANGE OF CONTROL. Upon the occurrence of a Change of Control Triggering Event, each Holder of Securities shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Securities pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "CHANGE OF CONTROL PAYMENT") on a date that is not more than 90 days after the occurrence of such Change of Control Triggering Event (the "CHANGE OF CONTROL PAYMENT DATE"). Within 30 days following any Change of Control Triggering Event, the Company shall mail, or at the Company's request the Trustee shall mail, a notice of a Change of Control to each Holder (at its last registered address with a copy to the Trustee and the Paying Agent) offering to repurchase the Securities held by such Holder pursuant to the procedure specified in such notice. The Change of Control Offer shall remain open from the time of mailing until the close of business on the Business Day next -28- preceding the Change of Control Payment Date. The notice, which shall govern the terms of the Change of Control Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer and shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.12 and that all Securities tendered will be accepted for payment; (2) the Change of Control Payment and the Change of Control Payment Date, which date shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; (3) that any Security not tendered will continue to accrue interest in accordance with the terms of this Indenture; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Securities accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to any Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day next preceding the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; and (8) the circumstances and relevant facts regarding such Change of Control (including, but not limited to, information with respect to PRO FORMA historical financial information after giving effect to such Change of Control, information regarding the Person or Persons acquiring control and such Person's or Persons' business plans going forward) and any other information that would be material to a decision as to whether to tender a Security pursuant to the Change of Control Offer. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Securities or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered the Change of Control -29- Payment for such Securities, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered, if any; PROVIDED that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities as a result of a Change of Control Triggering Event. SECTION 4.13. CORPORATE EXISTENCE. Subject to Section 4.12 and Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. SECTION 4.14. LINE OF BUSINESS. The Company shall not, and shall not permit any of its Subsidiaries to, engage in any material extent in any business other than the ownership, operation and management of Hospitals and Related Businesses. SECTION 4.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. The Company shall not permit any Subsidiary, directly or indirectly, to Guarantee or secure the payment of any other Indebtedness of the Company or any of its Subsidiaries (except Indebtedness of a Subsidiary of such Subsidiary or Physician Support Obligations) unless such Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture, in substantially the form attached hereto as Appendix B, providing for the Guarantee of the payment of the Securities by such Subsidiary, which Guarantee shall be senior to or PARI PASSU with such Subsidiary's Guarantee of or pledge to secure such other Indebtedness. Notwithstanding the foregoing, any such Guarantee by a Subsidiary of the Securities shall provide by its terms that it shall be automatically and unconditionally released and discharged upon the sale or other disposition, by way of merger or otherwise, to any Person not an Affiliate of the Company, of all of the Company's stock in, or all or substantially all the assets of, such Subsidiary. The foregoing provisions shall not be applicable to any one or more Guarantees that otherwise would be prohibited of up to $25.0 million in aggregate principal amount of Indebtedness of the Company or its Subsidiaries at any time outstanding. SECTION 4.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED NOTE INDENTURE. -30- The Company shall not amend, modify or alter the Senior Subordinated Note Indenture or the indentures relating to the untendered 2005 Senior Subordinated Notes, the 2007 Senior Subordinated Notes or the 2005 Exchangeable Subordinated Notes in any way that would (i) increase the principal of, advance the final maturity date of or shorten the Weighted Average Life to Maturity of (a) any untendered 2005 Senior Subordinated Notes, 2007 Senior Subordinated or 2005 Exchangeable Subordinated Notes or (b) any Senior Subordinated Notes such that the final maturity date of the Senior Subordinated Notes is earlier than the 91st day following the final maturity date of the Senior Notes or (ii) amend the provisions of Article 10 of the Senior Subordinated Note Indenture (which relates to subordination) or the subordination provisions of the indentures relating to the untendered 2005 Senior Subordinated Notes, the 2007 Senior Subordinated Notes or the 2005 Exchangeable Subordinated Notes or any of the defined terms used therein in a manner that would be adverse to the Holders of the Securities. ARTICLE 5 SUCCESSORS SECTION 5.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the Obligations of the Company under this Indenture and the Securities pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have a Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after giving PRO FORMA effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. -31- The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i) through (iv) above, stating that the proposed transaction and such supplemental indenture comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation), and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person has been named as the Company, herein. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF DEFAULT": (i) default for 30 days in the payment when due of interest on the Securities; (ii) default in payment when due of the principal of or premium, if any, on the Securities at maturity or otherwise; (iii) failure by the Company to comply with the provisions of Sections 4.07, 4.09 or 4.12 hereof; (iv) failure by the Company to comply with any other covenant or agreement in the Indenture or the Securities for the period and after the notice specified below; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the Closing Date or is created after the Closing Date, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million entered by a court or courts -32- of competent jurisdiction against the Company or any of its Significant Subsidiaries if such final judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days after their entry; (vii) the Company or any Significant Subsidiary thereof pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case in which it is the debtor, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing its inability generally to pay its debts as the same become due; and (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary thereof in an involuntary case in which it is the debtor, (b) appoints a Custodian of the Company or any Significant Subsidiary thereof or for all or substantially all of the property of the Company or any Significant Subsidiary thereof, or (c) orders the liquidation of the Company or any Significant Subsidiary thereof, and the order or decree remains unstayed and in effect for 60 days. The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (iv) is not an Event of Default until the Trustee notifies the Company in writing, or the Holders of at least 25% in principal amount of the then outstanding Securities notify the Company and the Trustee in writing, of the Default and the Company does not cure the Default within 60 days after receipt of such notice. The written notice must specify the Default, demand that it be remedied and state that the notice is a "NOTICE OF DEFAULT." SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare the unpaid principal of, premium, if any, and any accrued and unpaid interest on -33- all the Securities to be due and payable immediately. Upon such declaration the principal, premium, if any, and interest shall be due and payable immediately. If an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof occurs with respect to the Company or any Significant Subsidiary thereof such an amount shall IPSO FACTO become and be immediately due and payable without further action or notice on the part of the Trustee or any Holder. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to Section 3.07 hereof, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. Any determination regarding the primary purpose of any such action or inaction, as the case may be, shall be made by and set forth in a resolution of the Board of Directors (including the concurrence of a majority of the independent directors of the Company then serving) delivered to the Trustee after consideration of the business reasons for such action or inaction, other than the avoidance of payment of such premium or prohibition on redemption. In the absence of fraud, each such determination shall be final and binding upon the Holders of Securities. Subject to Section 7.01 hereof, the Trustee shall be entitled to rely on the determination set forth in any such resolutions delivered to the Trustee. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on any Security. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be -34- unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability. The Trustee may take any other action which it deems proper which is not inconsistent with any such direction. SECTION 6.06. LIMITATION ON SUITS. A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the then outstanding Securities do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any other obligor for the whole amount of principal, premium, if any, and interest remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover amounts due the Trustee under Section 7.07 hereof, including the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect, receive and -35- distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10 upon five Business Days prior notice to the Company. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. -36- ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (i) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (ii) Except during the continuance of an Event of Default known to the Trustee: (a) the duties of the Trustee shall be determined solely by the express provisions of this Indenture or the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture or the TIA and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provisions hereof are required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (iii) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) this paragraph does not limit the effect of paragraph (ii) of this Section; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (iv) Whether or not therein expressly so provided every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (i), (ii), and (iii) of this Section. (v) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives security and indemnity satisfactory to it against any loss, liability or expense. (vi) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Absent written instruction from the -37- Company, the Trustee shall not be required to invest any such money. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (vii) The Trustee shall not be deemed to have knowledge of any matter unless such matter is actually known to a Responsible Officer. SECTION 7.02. RIGHTS OF TRUSTEE. (i) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (ii) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (iii) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (iv) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. A permissive right granted to the Trustee hereunder shall not be deemed an obligation to act. (v) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (vi) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. (vii) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11 hereof. -38- SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, nor shall it be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision of this Indenture, nor shall it be responsible for the use or application of any money received by any Paying Agent other than the Trustee, nor shall it be responsible for any statement or recital herein or any statement in the Securities or any other document in connection with the sale of the Securities or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each December 31 beginning with the December 31 following the Closing Date, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with the Commission and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange or of any delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the Company and Trustee shall agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities, damages, claims or expenses incurred by it arising out of or in connection with the acceptance of its duties and the administration of the trusts under this Indenture, except as set forth below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the -39- Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(vii) or (viii) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. -40- If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC. If the Trustee or any Agent consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee or Agent. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by federal or state authority and shall have a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, with respect to the Securities, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Securities subject to compliance with the conditions set forth below in this Article 8. Subject to such compliance, the application of Section 8.02 or 8.03 hereof shall occur on the date of a New Lender Deposit (as defined below) or on the 91st day after the date of a Company Deposit (as defined below), as the case may be. -41- SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 8.02, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Article 2 and Section 4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 7.07 hereof, and the Company's obligations in connection therewith and (iv) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof with respect to the Securities. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.14, 4.15, and 4.16 and Article 5 hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(iii) hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, Sections 6.01(iv) through 6.01(vi) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 8.02 or Section 8.03 hereof to the outstanding Securities: (i) The Company shall irrevocably have deposited or caused to be deposited (a "Company Deposit") or an entity other than the Company (a "New Lender") shall irrevocably have deposited or caused to be deposited (a "New Lender Deposit" and, together with the -42- Company Deposit, the "Deposits") with the Trustee (or another trustee satisfying the requirements of Section 7.10 who shall agree to comply with the provisions of this Article 8 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) cash in U.S. Dollars in an amount, or (b) non-callable Government Securities that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in U.S. Dollars in an amount, or (c) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, interest and liquidated damages, if any, on such outstanding Securities on the stated maturity date or the applicable redemption date, as the case may be. (ii) Simultaneously with any Deposit, the Company shall have delivered to the Trustee (or other qualifying trustee) a notice specifying whether the Company is exercising its option under Section 8.02 or Section 8.03 hereof or both and whether the Securities are being defeased to maturity or to a particular redemption date. (iii) In the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Closing Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred. (iv) In the case of an election under Section 8.03 hereof before the date that is one year prior to the final maturity of the Securities, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. (v) No Default or Event of Default with respect to the Securities shall have occurred and be continuing (a) on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or, (b) in the case of a Company Deposit, insofar as Section 6.01(vii) or 6.01(viii) hereof is concerned, at any time within 90 days after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (vi) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound (other than a breach, violation or default resulting from the borrowing of funds to be applied to such deposit). -43- (vii) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (a) on and after the date of the New Lender Deposit or after the 90th day following the Company Deposit, as the case may be, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (b) all conditions precedent provided for relating to either the Legal Defeasance under Section 8.02 hereof or the Covenant Defeasance under Section 8.03 hereof (as the case may be) have been complied with as contemplated by this Section 8.04. (viii) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 8.02 or 8.03 hereof was not made by the Company with the intent of preferring the Holders of the Securities over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. (ix) The Company shall have delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 8.02 hereof or the Covenant Defeasance under Section 8.03 hereof (as the case may be) have been complied with as contemplated by this Section 8.04. (x) In the case of a New Lender Deposit, the Company shall have delivered to the Trustee an Officers' Certificate stating that (a) the New Lender made the New Lender Deposit under an agreement (the "New Loan Agreement") with the Company; (b) under the New Loan Agreement, the New Lender Deposit constitutes an unsecured loan (the "New Loan") by the New Lender to the Company; (c) the maturity date of the New Loan is later than the 90th day after the date of the New Lender Deposit; and (iv) the New Loan Agreement prohibits prepayment of the New Loan on or before the 90th day after the date of the New Lender Deposit, except in the event of a default thereunder, and the remaining terms of the New Loan Agreement (including the interest rate on the New Loan) are consistent with ordinary business practice. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, interest and liquidated damages, if any, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any money or non-callable Government -44- Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(i) hereof), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, interest or liquidated damages, if any, has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the NEW YORK TIMES and THE WALL STREET JOURNAL National edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any U.S. Dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any payment of principal of, premium, if any, interest or liquidated damages, if any, on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Security to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend or supplement this Indenture or the Securities without the consent of any Holder: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for uncertificated Securities in addition to or in place of certificated Securities; -45- (iii) to provide for any supplemental indenture required pursuant to Section 4.15 hereof; (iv) to provide for the assumption of the Company's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 hereof; (v) to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights hereunder of any such Holder; or (vi) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such supplemental indenture which affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS. Except as provided in Section 9.01 and the next succeeding paragraphs, this Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of this Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of -46- this Indenture or the Securities. Without the consent of each Holder affected, however, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security; (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in Section 6.04 or 6.07 hereof; or (vii) make any change in this sentence of this Section 9.02. SECTION 9.03. COMPLIANCE WITH TIA. Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.06 hereof or (ii) such other date as the Company shall designate. SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. -47- Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 7.01, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or Supplemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it shall be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. ARTICLE 10 MISCELLANEOUS SECTION 10.01. TIA CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 10.02. NOTICES. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to the Company: Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Telecopier No.: (805) 563-7070 Attention: Treasurer With a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Telecopier No.: (213) 687-5600 Attention: Thomas C. Janson, Jr. -48- If to the Trustee: The Bank of New York 101 Barclay Street, 21 West New York, New York 10286 Telecopier No.: (212) 815-5915 Attention: Corporate Trust Trustee Administration The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Unless otherwise set forth above, any notice or communication to a Holder shall be mailed by first class mail, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 10.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 10.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. -49- SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been satisfied; PROVIDED, HOWEVER, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 10.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 10.07. LEGAL HOLIDAYS. A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 10.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. SECTION 10.09. DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. -50- SECTION 10.10. GOVERNING LAW. The internal law of the State of New York, shall govern and be used to construe this Indenture and the Securities, without regard to the conflict of laws provisions thereof. SECTION 10.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.12. SUCCESSORS. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 10.13. SEVERABILITY. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 10.14. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 10.15. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. -51- SIGNATURES Dated as of May 21, 1998 TENET HEALTHCARE CORPORATION By: ------------------------- Name: Title: Attest: - -------------------------------- Richard B. Silver Dated as of May 21, 1998 THE BANK OF NEW YORK, as Trustee By: ------------------------- Name: Title: Attest: - -------------------------------- By: ----------------------------- Authorized Signatory -52- APPENDIX A FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S. PROVISIONS RELATING TO INITIAL SECURITIES AND EXCHANGE SECURITIES 1. DEFINITIONS 1.1 DEFINITIONS For the purposes of this Appendix the following terms shall have the meanings indicated below: "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Exchange Offer" means the exchange and issuance by the Company, pursuant to the Registration Rights Agreement, of a principal amount of Exchange Securities equal to the outstanding principal amount of Initial Securities that are tendered by the Holders in connection with such exchange and issuance. "Exchange Securities" means the 7 5/8% Senior Notes due 2008 to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to the Registration Rights Agreement. "Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, Salomon Brothers Inc, Deutsche Morgan Grenfell Inc. and BancAmerica Robertson Stephens. "Initial Securities" means the 7 5/8% Senior Notes due 2008, issued under this Indenture on or about the date hereof. "Purchase Agreement" means the Purchase Agreement, dated May 8, 1998, among the Company and the Initial Purchasers. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated May 21, 1998, among the Company and the Initial Purchasers. "Securities Act" means the Securities Act of 1933, as amended. "Shelf Registration Statement" means the registration statement, if any, filed by the Company, in connection with the offer and sale of Initial Securities, pursuant to the Registration Rights Agreement. "Transfer Restricted Securities" means Securities that bear or are required to bear the legend set forth in Section 2.3(b) hereto. 1.2 OTHER DEFINITIONS
Defined in Term Section: ---- ---------- "Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.1(a) "Regulation S" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.1(a) "Rule 144A". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.1(a)
2. THE SECURITIES 2.1 FORM AND DATING The Initial Securities are being offered and sold by the Company pursuant to the Purchase Agreement. Initial Securities offered and sold to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities Act ("Regulation S"), in each case as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Trustee, at its New York, New York office, as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee. 2.2 AUTHENTICATION. The Trustee shall authenticate and deliver: (1) Initial Securities for original issue in an aggregate principal amount of $350,000,000 and (2) Exchange Securities for issue only in a Exchange Offer pursuant to the Registration Rights Agreement, for a like principal amount of Initial Securities, in each case pursuant to Section 2.03 of this Indenture. The Company Order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities or Exchange Securities. The aggregate principal amount of Securities outstanding at any time may not exceed $350,000,000 except as provided in Section 2.09 of this Indenture. 2.3 LEGEND. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: -2- "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS." (ii) Prior to any sale or transfer of a Transfer Restricted Security, the Holder must complete the Assignment Form and present it to the Registrar. Upon any sale or transfer of a Transfer -3- Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, in the case of any Transfer Restricted Security that is represented by a Global Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Security in certificated or global form that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). (iii) After a transfer of any Initial Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities, all requirements pertaining to legends on such Initial Security will cease to apply, and an Initial Security in certificated or global form that does not bear the legend set forth above will be available to the transferee of the Holder of such Initial Securities upon exchange of such transferring Holder's certificated Initial Security or directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of an Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, Exchange Securities in certificated or global form without restrictive legends, in the form set forth in Exhibit 2 hereto, will be available to Holders that exchange such Initial Securities in such Exchange Offer. Initial Securities not exchanged for Exchange Securities shall continue to bear the legend set forth in Exhibit 1 hereto. -4- EXHIBIT 1 to APPENDIX A (Face of Initial Security) [Restricted Securities Legend] THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. 7 5/8% Senior Note due June 1, 2008 CUSIP: No. $____________ TENET HEALTHCARE CORPORATION promises to pay to - -------------------------------------------------------------- or its registered assigns, the principal sum of __________________ Dollars on June 1, 2008. Interest Payment Dates: June 1 and December 1 commencing December 1, 1998. Record Dates: May 15 and November 15 (whether or not a Business Day). This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be registered, in the name of any person other than such Depositary or a nominee thereof, except in the limited circumstances described in the Indenture. TENET HEALTHCARE CORPORATION By: ------------------------- (SEAL) Dated: , ----------- ---- Trustee's Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture: The Bank of New York, as Trustee By: ------------------------- Authorized Signatory -2- (Back of Initial Security) 7 5/8% Senior Note due June 1, 2008 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. INTEREST/LIQUIDATED DAMAGES. Tenet Healthcare Corporation, a Nevada corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate and in the manner specified below. The Company shall pay interest in cash on the principal amount of this Security at the rate per annum of 7 5/8%. The Company shall pay interest semiannually in arrears on June 1 and December 1 of each year, commencing December 1, 1998 to Holders of record on the immediately preceding May 15 and November 15, respectively, or if any such date of payment is not a Business Day on the next succeeding Business Day (each an "Interest Payment Date"). However, (i) if the Company fails to file a registration statement (the "Exchange Offer Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), registering a security substantially identical to this Security pursuant to an exchange offer (the "Exchange Offer") upon the terms and conditions set forth in the Registration Rights Agreement with the Commission on or prior to the 30th day after the date of the filing of the Company's Annual Report on Form 10-K for the year ending May 31, 1998 (the "Filing Date"), (ii) if the Exchange Offer Registration Statement is not declared effective by the Commission on or prior to the 90th day after the Filing Date, (iii) if the Exchange Offer is not consummated on or before the 30th business day after the Exchange Offer Registration Statement is declared effective, (iv) if the Company is obligated to file the registration statement under the Securities Act registering this Security for resale (the "Shelf Registration Statement") and the Company fails to file the Shelf Registration Statement with the Commission on or prior to the 30th day after such filing obligation arises, (v) if the Company is obligated to file a Shelf Registration Statement and the Shelf Registration Statement is not declared effective on or prior to the 60th day after the obligation to file a Shelf Registration Statement arises, or (vi) if the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is declared effective but thereafter ceases to be effective or useable, for such time of non-effectiveness or non-usability in connection with resales of the Transfer Related Securities (as defined below) (each, a "Registration Default"), the Company agrees to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages ("Liquidated Damages") in an amount equal to $0.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the Liquidated Damages shall increase by an additional $0.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $0.35 per week per $1,000 in principal amount of Transfer Restricted Securities. The Company shall not be required to pay Liquidated Damages for more than one Registration Default at any given time. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. All accrued Liquidated Damages shall be paid by the Company to Holders entitled thereto by wire transfer to the accounts specified by them or by mailing checks to their registered address if no such accounts have been specified. -3- Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Securities. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the interest rate then applicable to the Securities; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are canceled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Security to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Principal, premium, if any, and interest shall be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to Securities, the Holders of which have given appropriate written wire transfer instructions, on or before the relevant record date, to the Paying Agent shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of May 21, 1998 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Securities. The Securities are unsecured general obligations of the Company. The Securities are limited to $350,000,000 in aggregate principal amount. 5. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 4.12 of the Indenture (as described in paragraph 7 below), the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. 6. OPTIONAL REDEMPTION. The Securities shall be redeemable, in whole, at any time, or in part, from time to time, at the option of the Company upon not less than 30 nor more than 60 days' notice at a redemption price equal to the Make-Whole Price. "Make-Whole Price" means an amount equal to the greater of (i) 100% of the principal amount of the Securities and (ii) as determined by an Independent Investment Banker (as defined herein), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined herein), plus, in each case, accrued interest thereon to the date of redemption. "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (as defined), assuming -4- a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price (as defined) for such redemption date, plus 0.5%. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotation, or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Treasury Reference Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. "Independent Investment Banker" means one of the Reference Treasury Dealers (as defined) appointed by the Company. "Reference Treasury Dealer" means Donaldson, Lufkin & Jenrette Securities Corporation and its successors; PROVIDED, HOWEVER, that if the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. 7. REPURCHASE AT OPTION OF HOLDER. If there is a Change of Control Triggering Event, the Company shall offer to repurchase on the Change of Control Payment Date all outstanding Securities at 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the Change of Control Payment Date. Holders that are subject to an offer to purchase shall receive a Change of Control Offer from the Company prior to any related Change of Control Payment Date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons, and in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities between a record date and the corresponding Interest Payment Date. 9. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name this Security is registered as its absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Security and for all other purposes whatsoever, whether or not this -5- Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Security shall be treated as its owner for all purposes. 10. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the next succeeding paragraphs, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of the Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security; (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities, (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or premium, if any, or interest on the Securities; or (vii) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of Securities, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for any supplemental indenture required pursuant to Section 4.15 of the Indenture, to provide for the assumption of the Company's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. 11. DEFAULTS AND REMEDIES. Events of Default under the Indenture include: (i) a default for 30 days in the payment when due of interest on the Securities; (ii) a default in payment when due of the principal of or premium, if any, on the Securities, at maturity or otherwise; (iii) a failure by the Company to comply with the provisions of Sections 4.07, 4.09 or 4.12 of the Indenture; (iv) a failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Securities; (v) any default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the date of the Indenture or is created after the date of the Indenture, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million, which judgment or judgments are not paid, discharged or stayed for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. -6- If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare all the Securities to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries, all outstanding Securities shall become due and payable without further action or notice. Holders of the Securities may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Securities notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in the Holders' interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Securities. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 12. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, repurchase Equity Interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, issue or sell Equity Interests of the Company's Subsidiaries, issue Guarantees of Indebtedness by the Company's Subsidiaries and enter into certain mergers and consolidations. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 14. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. -7- 15. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Attention: Treasurer 18. GOVERNING LAW. The internal laws of the State of New York shall govern and be used to construe the Indenture and the Securities, without regard to conflict of laws provisions thereof. -8- ASSIGNMENT FORM To assign this Security, fill in the form below: For value received (I) or (we) hereby sell, assign and transfer this Security to - ----------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and do hereby irrevocably constitute and appoint ____________________________ Attorney to transfer this Security on the books of the Company with full power of substitution in the premises. - ----------------------------------------------------------------------------- Date: ----------------------------- Your Signature: ------------------------------ (Sign exactly as your name appears on the face of this Security) Signature Guarantee.(2) - ---------------------------- (2) NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -9- In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) to the Company or any Subsidiary thereof; or (2) to a person whom the Holder reasonably believes is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) purchasing for its own account or for the account of a qualified institutional buyer in compliance with Rule 144A under the Securities Act; or (3) outside the United States in an offshore transaction in compliance with Rule 903 or Rule 904 under the Securities Act; or (4) pursuant to the exemption from registration provided by Rule 144 under the Securities Act. (5) pursuant to an effective registration statement under the Securities Act; or (6) in accordance with another exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (6) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. ------------------------- Signature Signature Guarantee: - ------------------------- ------------------------- Signature must be guaranteed Signature -10- - -------------------------------------------------------------------------------- TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: -------------------- ----------------------------- Signature -11- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.12 of the Indenture, check the box below: Section 4.12 (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 4.12 of the Indenture, state the amount you elect to have purchased: $ --------------- Date: --------- Your Signature: ------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee.(3) - ----------------------------- (3) NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -12- [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Amount of decrease Amount of increase in Principal in Principal Principal amount of this Signature of authorized Date of Amount of this Amount of this Global Security following signatory of Trustee or Exchange Global Security Global Security such decrease or increase Depositary
-13- EXHIBIT 2 to APPENDIX A (Face of Exchange Security) 7 5/8% Senior Note due June 1, 2008 CUSIP: No. $ ___________ TENET HEALTHCARE CORPORATION promises to pay to - ------------------------------------- ---------------------- or its registered assigns, the principal sum of _________________ Dollars on June 1, 2008. Interest Payment Dates: June 1 and December 1 commencing December 1, 1998. Record Dates: May 15 and November 15 (whether or not a Business Day). TENET HEALTHCARE CORPORATION By: ------------------------- (SEAL) Dated: , ----------- ---- Trustee's Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture: The Bank of New York, as Trustee By: --------------------------- Authorized Signatory (Back of Exchange Security) 7 5/8% Senior Note due June 1, 2008 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. INTEREST. Tenet Healthcare Corporation, a Nevada corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate and in the manner specified below. The Company shall pay interest in cash on the principal amount of this Security at the rate per annum of 7 5/8%. The Company shall pay interest semiannually in arrears on June 1 and December 1 of each year, commencing December 1, 1998 to Holders of record on the immediately preceding May 15 and November 15, respectively, or if any such date of payment is not a Business Day on the next succeeding Business Day (each an "Interest Payment Date"). Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Securities. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the interest rate then applicable to the Securities; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are canceled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Security to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Principal, premium, if any, and interest shall be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to Securities, the Holders of which have given appropriate written wire transfer instructions, on or before the relevant record date, to the Paying Agent shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of May 21, 1998 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Securities. The Securities are unsecured general obligations of the Company. The Securities are limited to $350,000,000 in aggregate principal amount. -2- 5. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 4.12 of the Indenture (as described in paragraph 7 below), the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. 6. OPTIONAL REDEMPTION. The Securities shall be redeemable, in whole, at any time, or in part, from time to time, at the option of the Company upon not less than 30 nor more than 60 days' notice at a redemption price equal to the Make-Whole Price. "Make-Whole Price" means an amount equal to the greater of (i) 100% of the principal amount of the Securities and (ii) as determined by an Independent Investment Banker (as defined herein), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined herein), plus, in each case, accrued interest thereon to the date of redemption. "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue (as defined), assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price (as defined) for such redemption date, plus 0.5%. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotation, or (B) if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Treasury Reference Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. "Independent Investment Banker" means one of the Reference Treasury Dealers (as defined) appointed by the Company. "Reference Treasury Dealer" means Donaldson, Lufkin & Jenrette Securities Corporation and its successors; PROVIDED, HOWEVER, that if the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer. 7. REPURCHASE AT OPTION OF HOLDER. If there is a Change of Control Triggering Event, the Company shall offer to repurchase on the Change of Control Payment Date all outstanding Securities at 101% -3- of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the Change of Control Payment Date. Holders that are subject to an offer to purchase shall receive a Change of Control Offer from the Company prior to any related Change of Control Payment Date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons, and in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities between a record date and the corresponding Interest Payment Date. 9. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name this Security is registered as its absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Security and for all other purposes whatsoever, whether or not this Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Security shall be treated as its owner for all purposes. 10. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the next succeeding paragraphs, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of the Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security; (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities, (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or premium, if any, or interest on the Securities; or (vii) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of Securities, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for any supplemental indenture required pursuant to Section 4.15 of the Indenture, to provide for the assumption of the Company's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. -4- 11. DEFAULTS AND REMEDIES. Events of Default under the Indenture include: (i) a default for 30 days in the payment when due of interest on the Securities; (ii) a default in payment when due of the principal of or premium, if any, on the Securities, at maturity or otherwise; (iii) a failure by the Company to comply with the provisions of Sections 4.07, 4.09 or 4.12 of the Indenture; (iv) a failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Securities; (v) any default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the date of the Indenture or is created after the date of the Indenture, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million, which judgment or judgments are not paid, discharged or stayed for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare all the Securities to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries, all outstanding Securities shall become due and payable without further action or notice. Holders of the Securities may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Securities notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in the Holders' interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Securities. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 12. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or -5- make other distributions, repurchase Equity Interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, issue or sell Equity Interests of the Company's Subsidiaries, issue Guarantees of Indebtedness by the Company's Subsidiaries and enter into certain mergers and consolidations. 13. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 14. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 15. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Attention: Treasurer 18. GOVERNING LAW. The internal laws of the State of New York shall govern and be used to construe the Indenture and the Securities, without regard to conflict of laws provisions thereof. -6- ASSIGNMENT FORM To assign this Security, fill in the form below: For value received (I) or (we) hereby sell, assign and transfer this Security to - ------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and do hereby irrevocably constitute and appoint ____________________________ Attorney to transfer this Security on the books of the Company with full power of substitution in the premises. - ------------------------------------------------------------------------- Date: ---------------------------- Your Signature: --------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee.(4) - ------------------------------- (4) NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -7- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.12 of the Indenture, check the box below: Section 4.12 (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 4.12 of the Indenture, state the amount you elect to have purchased: $ --------------- Date: ------------ Your Signature: ------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee.(5) - ------------------------------ (5) * NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -8- APPENDIX B FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, between __________________ (the "Guarantor"), a subsidiary of Tenet Healthcare Corporation (or its successor), a Nevada corporation (the "Company"), and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of May 21, 1998, providing for the issuance of an aggregate principal amount of $350,000,000 of 7 5/8% Senior Notes due 2008 (the "Securities"); WHEREAS, Section 4.15 of the Indenture provides that under certain circumstances the Company is required to cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall guarantee the payment of the Securities pursuant to a Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company hereunder and thereunder, that: (a) the principal of, premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed for whatever reason the Guarantor shall be obligated to pay the same immediately. An Event of Default under the Indenture or the Securities shall constitute an event of default under this Guarantee, and shall entitle the Holders of Securities to accelerate the Obligations of the Guarantor hereunder in the same manner and to the same extent as the Obligations of the Company. The Guarantor hereby agrees that its Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Guarantee will not be discharged except by complete performance of the Obligations contained in the Securities and the Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantor, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantor, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor agrees that it shall not be entitled to, and hereby waives, any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby. The Guarantor further agrees that, as between the Guarantor, on one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of this Guarantee. 3. EXECUTION AND DELIVERY OF GUARANTEE. To evidence its Guarantee set forth in Section 2, the Guarantor hereby agrees that a notation of such Guarantee substantially in the form of EXHIBIT 1 shall be endorsed by an officer of such Guarantor on each Security authenticated and delivered by the Trustee and that this Supplemental Indenture shall be executed on behalf of such Guarantor, by manual or facsimile signature, by its President or one of its Vice Presidents. The Guarantor hereby agrees that its Guarantee set forth in Section 2 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an Officer whose signature is on this Supplemental Indenture or on the Guarantee no longer holds that office at the time the Trustee authenticates the Security on which a Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors. 4. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Except as set forth in Articles 4 and 5 of the Indenture, nothing contained in this Supplemental Indenture or in the Securities shall prevent any consolidation or merger of the Guarantor with or into the Company or any Subsidiary of the Company that has executed and delivered a supplemental indenture substantially in the form hereof or shall prevent any sale or conveyance of the property of the Guarantor as an entirety or substantially as an entirety, to the Company or any such Subsidiary of the Company. (b) Except as provided in Section 4(a) hereof or in a transaction referred to in Section 5 hereof, the Guarantor shall not consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, another Person unless (1) either (x) the Guarantor shall be the surviving Person of such merger or consolidation or (y) the surviving Person or transferee is a corporation, partnership or trust organized and existing under the laws of the United States, -2- any state thereof or the District of Columbia and such surviving Person or transferee shall expressly assume all the obligations of the Guarantor under this Guarantee and the Indenture pursuant to a supplemental indenture substantially in the form hereof; (2) immediately after giving effect to such transaction (including the incurrence of any Indebtedness incurred or anticipated to be incurred in connection with such transaction) no Default or Event of Default shall have occurred and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the Indenture, that the surviving Person agrees to be bound thereby, and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of the Guarantor, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Guarantor, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Guarantor. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Guarantor in accordance with this Section 4(b) hereof, the successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Guarantees had been issued at the date of the execution hereof. 5. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any sale, lease, conveyance or other disposition (by merger, consolidation or otherwise) of assets of the Guarantor (including, if applicable, disposition of all of the Capital Stock of the Guarantor), any Liens in favor of the Trustee in the assets sold, leased, conveyed or otherwise disposed of shall be released. If the assets sold, leased, conveyed or otherwise disposed of (by merger, consolidation or otherwise) include all or substantially all of the assets of the Guarantor or all of the Capital Stock of the Guarantor in each case, in compliance with the terms of the Indenture, then the Guarantor shall be automatically and unconditionally released from and relieved of its Obligations under its Guarantee. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale, lease, conveyance or other disposition was made by the Company in accordance with the provisions of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guarantor from its Obligations under its Guarantee. 6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (A) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of the Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries -3- of the Company that have executed and delivered a supplemental indenture substantially in the form hereof and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. 7. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under the Indenture, the term "Trustee" as used in this Supplemental Indenture shall in each case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Supplemental Indenture in place of the Trustee. 8. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantor under the Securities, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 9. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. 10. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 11. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. -4- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: , ----------------- --- ---- [Guarantor] By: ------------------------------ Name: Title: The Bank of New York, as Trustee By: ------------------------------ Name: Title: -5- EXHIBIT 1 TO SUPPLEMENTAL INDENTURE GUARANTEE The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company to the Holders or the Trustee under the Securities or under the Indenture, that: (a) the principal of, and premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee under the Indenture or under the Securities will be promptly paid in full, all in accordance with the terms thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed, for whatever reason, the Guarantor shall be obligated to pay the same immediately. The obligations of the Guarantor to the Holders of Securities and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in a Supplemental Indenture, dated as of _________ __, ____ to the Indenture, and reference is hereby made to the Indenture, as supplemented, for the precise terms of this Guarantee. This is a continuing Guarantee and shall remain in full force and effect and shall be binding upon the Guarantor and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's Obligations under the Securities and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders of Securities and, in the event of any transfer or assignment of rights by any Holder of Securities or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This a Guarantee of payment and not a guarantee of collection. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (A) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have become Guarantors and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. [GUARANTOR] By: ----------------------- Name: Title: -2- EX-4.(P) 3 EXHIBIT 4(P) EXHIBIT 4(p) TENET HEALTHCARE CORPORATION -------------------------------- $1,005,000,000 8 1/8% SENIOR SUBORDINATED NOTES due 2008 -------------------------------- ----------------------------- INDENTURE Dated as of May 21, 1998 ----------------------------- -------------------------------- THE BANK OF NEW YORK -------------------------------- as Trustee TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. OTHER DEFINITIONS . . . . . . . . . . . . . . . . . . . . . .11 SECTION 1.03. INCORPORATION BY REFERENCE OF TIA . . . . . . . . . . . . . .11 SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . .12 ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . . . . .12 SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY. . . . . . . . . . . . . .13 SECTION 2.03. EXECUTION AND AUTHENTICATION. . . . . . . . . . . . . . . . .13 SECTION 2.04. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . . . . . .14 SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . . . .14 SECTION 2.06. HOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . . . .14 SECTION 2.07. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . . .15 SECTION 2.08. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . . . . .15 SECTION 2.09. REPLACEMENT SECURITIES. . . . . . . . . . . . . . . . . . . .16 SECTION 2.10. OUTSTANDING SECURITIES. . . . . . . . . . . . . . . . . . . .16 SECTION 2.11. TREASURY SECURITIES . . . . . . . . . . . . . . . . . . . . .17 SECTION 2.12. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . . . .17 SECTION 2.13. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . .17 SECTION 2.14. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . . .17 SECTION 2.15. RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . .17 SECTION 2.16. CUSIP NUMBER. . . . . . . . . . . . . . . . . . . . . . . . .18 ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . .18 SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. . . . . . . . . . . .18 SECTION 3.03. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . . . .18 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. . . . . . . . . . . . . . . .19 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . .19 SECTION 3.06. SECURITIES REDEEMED IN PART . . . . . . . . . . . . . . . . .20 SECTION 3.07. OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . .20 SECTION 3.08. MANDATORY REDEMPTION. . . . . . . . . . . . . . . . . . . . .20
-i-
ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . . . . . . .21 SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . .21 SECTION 4.03. COMMISSION REPORTS. . . . . . . . . . . . . . . . . . . . . .21 SECTION 4.04. COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . . .22 SECTION 4.05. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 SECTION 4.06. STAY, EXTENSION AND USURY LAWS. . . . . . . . . . . . . . . .23 SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS. . . . . . . . . . . . . .24 SECTION 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. . . . . . . . . . . . . . . . . . . .25 SECTION 4.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. . . . . . . . . . . . . . . .26 SECTION 4.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES . . . . . . . . .28 SECTION 4.11. LIMITATIONS ON LIENS. . . . . . . . . . . . . . . . . . . . .28 SECTION 4.12. CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . .28 SECTION 4.13. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . .30 SECTION 4.14. LINE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . .30 SECTION 4.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES . . . . . . . . . . . . . . .30 SECTION 4.16. NO SENIOR SUBORDINATED DEBT . . . . . . . . . . . . . . . . .31 ARTICLE 5 SUCCESSORS SECTION 5.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS . . . . . . . . . . . . . . . . . . . . . .31 SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . . . .32 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . .32 SECTION 6.02. ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . . .33 SECTION 6.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . . . .34 SECTION 6.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . .34 SECTION 6.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . . .35 SECTION 6.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . .35 SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. . . . . . . . . . . . .35 SECTION 6.08. COLLECTION SUIT BY TRUSTEE. . . . . . . . . . . . . . . . . .35 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . . . .36 SECTION 6.10. PRIORITIES. . . . . . . . . . . . . . . . . . . . . . . . . .36 SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . .37
-ii-
ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . .37 SECTION 7.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . .38 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . .38 SECTION 7.04. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . . . . . . .39 SECTION 7.05. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . .39 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . . . . . . .39 SECTION 7.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . . . . . . .39 SECTION 7.08. REPLACEMENT OF TRUSTEE. . . . . . . . . . . . . . . . . . . .40 SECTION 7.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC.. . . . . . . . . .41 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . . . .41 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . . . .41 ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES . . . . . . . . . . . . . . . . . . . .41 SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. . . . . . . . . . . . . . . .42 SECTION 8.03. COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . .42 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. . . . . . . . . .42 SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS . . . . .44 SECTION 8.06. REPAYMENT TO COMPANY. . . . . . . . . . . . . . . . . . . . .45 SECTION 8.07. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . .45 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . .45 SECTION 9.02. WITH CONSENT OF HOLDERS . . . . . . . . . . . . . . . . . . .46 SECTION 9.03. COMPLIANCE WITH TIA . . . . . . . . . . . . . . . . . . . . .47 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . . . .47 SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . . . . .48 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.. . . . . . . . . . . . . . .48 ARTICLE 10 SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. . . . . . . . . . . . . . . . . . .48 SECTION 10.02. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . .48 SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. . . . . . . . . . . . .49 SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT . . . . . . . . . . . . . .49
-iii-
SECTION 10.05. ACCELERATION OF SECURITIES. . . . . . . . . . . . . . . . . .50 SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER . . . . . . . . . . . . .50 SECTION 10.07. NOTICE BY COMPANY . . . . . . . . . . . . . . . . . . . . . .51 SECTION 10.08. SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . .51 SECTION 10.09. RELATIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . .51 SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. . . . . . . . .51 SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. . . . . . . . . . .51 SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. . . . . . . . . . . . . .52 SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION . . . . . . . . . . . .52 SECTION 10.14. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .52 ARTICLE 11 MISCELLANEOUS SECTION 11.01. TIA CONTROLS. . . . . . . . . . . . . . . . . . . . . . . . .52 SECTION 11.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . .52 SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS . . . . . . . . .54 SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. . . . . .54 SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . . .54 SECTION 11.06. RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . . . . . . .54 SECTION 11.07. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . . .54 SECTION 11.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS . . . . . . . . . . . . . . . .55 SECTION 11.09. DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . . . . . .55 SECTION 11.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . .55 SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . . .55 SECTION 11.12. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . .55 SECTION 11.13. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . .55 SECTION 11.14. COUNTERPART ORIGINALS . . . . . . . . . . . . . . . . . . . .55 SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . . .56
SIGNATURES APPENDIX A RULE 144A/REGULATION S APPENDIX B FORM OF SUPPLEMENTAL INDENTURE -iv- CROSS-REFERENCE TABLE (*)
TRUST INDENTURE ACT SECTION INDENTURE SECTION --------------- ----------------- 310 (a)(1) . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . 7.10 (b). . . . . . . . . . . . . . . . . . 7.08; 7.10 (c). . . . . . . . . . . . . . . . . . N.A. 311 (a). . . . . . . . . . . . . . . . . . 7.11 (b). . . . . . . . . . . . . . . . . . 7.11 (c). . . . . . . . . . . . . . . . . . N.A. 312 (a). . . . . . . . . . . . . . . . . . 2.06 (b). . . . . . . . . . . . . . . . . . 11.03 (c). . . . . . . . . . . . . . . . . . 11.03 313 (a). . . . . . . . . . . . . . . . . . 7.06 (b)(1) . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . 7.06 (c). . . . . . . . . . . . . . . . . . 7.06; 11.02 (d). . . . . . . . . . . . . . . . . . N.A. 314 (a). . . . . . . . . . . . . . . . . . 4.03; 11.02 (b). . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . 11.04 (c)(2) . . . . . . . . . . . . . . . . 11.04 (c)(3) . . . . . . . . . . . . . . . . N.A. (d). . . . . . . . . . . . . . . . . . N.A. (e). . . . . . . . . . . . . . . . . . 11.05 (f). . . . . . . . . . . . . . . . . . N.A. 315 (a). . . . . . . . . . . . . . . . . . 7.01(iii)(b) (b). . . . . . . . . . . . . . . . . . 7.05; 11.02 (c). . . . . . . . . . . . . . . . . . 7.01(i) (d). . . . . . . . . . . . . . . . . . 7.01(iii) (e). . . . . . . . . . . . . . . . . . 6.11 316 (a)(last sentence) . . . . . . . . . . 2.11 (a)(1)(A) . . . . . . . . . . . . . . 6.05 (a)(1)(B) . . . . . . . . . . . . . . 6.04 (a)(2) . . . . . . . . . . . . . . . . N.A. (b). . . . . . . . . . . . . . . . . . 6.07 (c). . . . . . . . . . . . . . . . . . 2.15; 9.04
- ------------------------ (*) This Cross-Reference Table is not part of the indenture. -v-
317 (a)(1) . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . 6.09 (b). . . . . . . . . . . . . . . . . . 2.05 318 (a). . . . . . . . . . . . . . . . . . 11.01 (b). . . . . . . . . . . . . . . . . . N.A. (c). . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable -vi- INDENTURE dated as of May 21, 1998 between Tenet Healthcare Corporation, a Nevada corporation (the "COMPANY"), and The Bank of New York, as trustee (the "TRUSTEE"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 8 1/8% Senior Subordinated Notes due 2008: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "AGENT" means any Registrar, Paying Agent or co-registrar. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices and (ii) the issuance or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $25.0 million or (b) for net proceeds in excess of $25.0 million. Notwithstanding the foregoing: (a) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 4.07 hereof and (d) a Hospital Swap shall not be deemed to be an Asset Sale. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any authorized committee thereof. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL LEASE" means, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment would be capitalized on a balance sheet of the lessee in accordance with GAAP. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Capital Lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a Person or group who, prior to such transaction, held a majority of the voting power of the voting stock of the Company, (ii) the acquisition by any Person or group (as defined above) of a direct or indirect interest in more than 50% of the voting power of the voting stock of the Company, by way of merger or consolidation or otherwise, or (iii) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change of Control and a Rating Decline. "CLOSING DATE" means May 21, 1998. "COMMISSION" means the Securities and Exchange Commission. "COMPANY" means Tenet Healthcare Corporation, as obligor under the Securities, unless and until a successor replaces Tenet Healthcare Corporation, in accordance with Article 5 hereof and thereafter includes such successor. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period PLUS in each case, without duplication (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, (iii) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income, (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP, (v) the amount of any restructuring charges deducted in such period in computing Consolidated Net Income for such period, (vi) the amount of all losses related -2- to discontinued operations deducted in such period in computing Consolidated Net Income for such period, (vii) the amount of all non-recurring charges and expenses related to acquisitions and mergers deducted in such period in computing Consolidated Net Income for such period and (viii) any non-cash charges reducing Consolidated Net Income for such period (excluding any portion of such charge requiring an accrual of a cash reserve for anticipated cash charges for any future period). Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP but excluding any one-time charge or expense incurred in order to consummate the Refinancing; PROVIDED that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date PLUS (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock), LESS all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made in accordance with GAAP as a result of the acquisition of such business) subsequent to the Closing Date in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, and excluding the cumulative effect of a change in accounting principles, all as determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the Closing Date or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 11.02 hereof or such other address as to which the Trustee may give notice to the Company. -3- "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DEPOSITARY" means a clearing agency registered under the Exchange Act that is designated to act as Depositary for the Securities. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to December 1, 2008. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE SECURITIES" shall have the meaning set forth in Appendix A. "EXISTING CREDIT FACILITY" means that certain Credit Agreement by and among the Company and Morgan Guaranty Trust Company of New York and the other banks that are party thereto, providing for $2.8 billion in aggregate principal amount of Indebtedness, including any related notes, instruments, and agreements executed in connection therewith, as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Existing Credit Facility) in existence on the Closing Date, until such amounts are repaid, including all reimbursement obligations with respect to letters of credit outstanding as of the Closing Date. "EXISTING SENIOR NOTES" means the 8 5/8% 2003 Senior Notes, the 2002 Senior Notes, the 2005 Senior Notes and the 7 7/8% 2003 Senior Notes. "FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be calculated giving PRO FORMA effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period, and (ii) the Consolidated Cash Flow and -4- Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded. "FIXED CHARGES" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments or receipts (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, TIMES (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as in effect from time to time. "GLOBAL SECURITY" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 2.02. "GOVERNMENT SECURITIES" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) forward foreign exchange contracts or currency swap agreements and (iii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency values. "HOLDER" means a Person in whose name a Security is registered. "HOSPITAL" means a hospital, outpatient clinic, long-term care facility or other facility or business that is used or useful in or related to the provision of healthcare services. -5- "HOSPITAL SWAP" means an exchange of assets by the Company or a Subsidiary of the Company for one or more Hospitals and/or one or more Related Businesses or for the Capital Stock of any Person owning one or more Hospitals and/or one or more Related Businesses. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INITIAL SECURITIES" shall have the meaning set forth in Appendix A. "INVESTMENT GRADE" means a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such lien, pledge, charge or security interest). "MOODY'S" means Moody's Investors Services, Inc. and its successors. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. -6- "OFFICERS" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary and any Vice President of the Company or any Subsidiary, as the case may be. "OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer or principal accounting officer of the Company. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company, any Subsidiary or the Trustee. "PERMITTED LIENS" means (i) Liens in favor of the Company; (ii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; PROVIDED that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition (unless such Liens secure Indebtedness that was incurred in connection with or in contemplation of such acquisition and is used to refinance tax-exempt Indebtedness) and do not extend to any assets or the Company or its Subsidiaries other than those of the Person merged into or consolidated with the Company or that becomes a Subsidiary of the Company; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company; PROVIDED that such Liens were in existence prior to the contemplation of such acquisition (unless such Liens secure Indebtedness that was incurred in connection with or in contemplation of such acquisition and is used to refinance tax-exempt Indebtedness); (iv) Liens to secure the performance of statutory obligations, tender, bid, performance, government contract, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business; (v) Liens existing on the Closing Date; (vi) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (vii) other Liens on assets of the Company or any Subsidiary of the Company securing Indebtedness that is permitted by the terms hereof to be outstanding having an aggregate principal amount at any one time outstanding not to exceed 10% of the Stockholders' Equity of the Company; and (viii) Liens to secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was secured by a Lien permitted hereunder and that was incurred in accordance with the provisions hereof; PROVIDED that such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than assets or property securing the Indebtedness so refinanced. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED that, except in the case of Indebtedness of the Company issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any premiums paid and reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or -7- refunded is subordinated in right of payment to the Securities, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Securities on subordination terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iv) such Indebtedness is incurred by the Company if the Company is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (v) such Indebtedness is incurred by the Company or a Subsidiary if a Subsidiary is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust or unincorporated organization (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "PHYSICIAN JOINT VENTURE DISTRIBUTIONS" means distributions made by the Company or any of its Subsidiaries to any physician, pharmacist or other allied healthcare professional in connection with the unwinding, liquidation or other termination of any joint venture or similar arrangement between any such Person and the Company or any of its Subsidiaries. "PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee incurred in the ordinary course of business by the Company or a Subsidiary of the Company in connection with any advance, loan or payment to, or on behalf of or for the benefit of any physician, pharmacist or other allied healthcare professional for the purpose of recruiting, redirecting or retaining the physician, pharmacist or other allied healthcare professional to provide service to patients in the service area of any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries; EXCLUDING, HOWEVER, compensation for services provided by physicians, pharmacists or other allied healthcare professionals to any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries. "QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the Company other than Disqualified Stock of the Company. "RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if neither S&P nor Moody's shall make a rating of the Securities 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 Securities 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+, shall constitute a decrease of one gradation). "RATING DATE" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control. -8- "RATING DECLINE" means the occurrence on or within 90 days after the date of the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control (which period shall be extended so long as the rating of the 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, a decrease in the rating of the Securities by both Rating Agencies to a rating that is below Investment Grade, or (b) in the event the Securities are rated below Investment Grade by both Rating Agencies on the Rating Date, a decrease in the rating of the Securities by either Rating Agency by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "REFINANCING" has the meaning ascribed to it in the offering memorandum dated May 8, 1998 relating to the Senior Notes and the Securities. "RELATED BUSINESS" means a healthcare business affiliated or associated with a Hospital or any business related or ancillary to the provision of healthcare services or information or the investment in, management, leasing or operation of a Hospital. "RESPONSIBLE OFFICER" when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SECURITIES" means the Initial Securities and the Exchange Securities, treated as a single class. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR NOTES" means the 7 5/8% Senior Notes due 2008 of the Company in an aggregate principal amount of $350.0 million, issued pursuant to the Senior Note Indenture. "SENIOR NOTE INDENTURE" means the Indenture dated as of May 21, 1998 between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time, under which the Senior Notes were issued. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Closing Date. "S&P" means Standard & Poor's Corporation and its successors. "SPECIFIED EXCHANGE" means any retirement of Indebtedness upon the exercise by a holder of such Indebtedness, pursuant to the terms thereof, of any right to exchange such Indebtedness for shares of common stock of Vencor, Inc. or any successor thereto or any other equity securities, other than Equity Interests of a Subsidiary, owned by the Company as of October 11, 1995, or for any securities or other property received with respect to such common stock or equity securities or cash in lieu thereof, whether or not such right is subject to the Company's ability to pay an amount in cash in lieu thereof. -9- "STOCKHOLDERS' EQUITY" means, with respect to any Person as of any date, the stockholders' equity of such Person determined in accordance with GAAP as of the date of the most recent available internal financial statements of such Person, and calculated on a PRO FORMA basis to give effect to any acquisition or disposition by such Person consummated or to be consummated since the date of such financial statements and on or prior to the date of such calculation. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 hereof. "TRANSFER RESTRICTION" means, with respect to the Company's Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries, or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries. "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. "2002 SENIOR NOTES" means the 9% Senior Notes due 2002 of the Company in an aggregate principal amount of $300.0 million, issued pursuant to the Indenture dated as of March 1, 1995, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. -10- "7% 2003 SENIOR NOTES" means the 7% Senior Notes due 2003 of the Company in an aggregate principal amount of $400.0 million, issued pursuant to the Indenture dated as of January 15, 1997, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. "8% 2003 SENIOR NOTES" means the 8% Senior Notes due 2003 of the Company in an aggregate principal amount of $500.0 million, issued pursuant to the Indenture dated as of October 16, 1995, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. "2005 EXCHANGEABLE SUBORDINATED NOTES" means the 6% Exchangeable Subordinated Notes due 2005 of the Company in an aggregate principal amount of $320.0 million, issued pursuant to the Indenture dated as of January 10, 1996, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. "2005 SENIOR NOTES" means the 8% Senior Notes due 2005 of the Company in an aggregate principal amount of $900.0 million, issued pursuant to the Indenture dated as of January 15, 1997, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. "2005 SENIOR SUBORDINATED NOTES" means the 10% Senior Subordinated Notes due 2005 of the Company in an aggregate principal amount of $900.0 million, issued pursuant to the Indenture dated as of March 1, 1995, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. "2007 SENIOR SUBORDINATED NOTES" means the 8% Senior Subordinated Notes due 2007 of the Company in an aggregate principal amount of $700.0 million, issued pursuant to the Indenture dated as of January 15, 1997, between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time. SECTION 1.02. OTHER DEFINITIONS.
DEFINED IN TERM SECTION ---- ---------- "Affiliate Transaction" . . . . . . . . . . . . . . 4.10 "Bankruptcy Law" . . . . . . . . . . . . . . . . . 6.01 "Change of Control Offer" . . . . . . . . . . . . . 4.12 "Change of Control Payment" . . . . . . . . . . . . 4.12 "Change of Control Payment Date" . . . . . . . . . 4.12 "Company Deposit" . . . . . . . . . . . . . . . . . 8.04 "Covenant Defeasance" . . . . . . . . . . . . . . . 8.03 "Deposits" . . . . . . . . . . . . . . . . . . . . 8.04 "Designated Senior Debt" . . . . . . . . . . . . . 10.02 "Custodian" . . . . . . . . . . . . . . . . . . . . 6.01 "Event of Default" . . . . . . . . . . . . . . . . 6.01 "incur" . . . . . . . . . . . . . . . . . . . . . . 4.09 "Legal Defeasance" . . . . . . . . . . . . . . . . 8.02 "Legal Holiday" . . . . . . . . . . . . . . . . . . 11.07
-11-
"New Lender Deposit" . . . . . . . . . . . . . . . 8.04 "New Loan" . . . . . . . . . . . . . . . . . . . . 8.04 "New Loan Agreement" . . . . . . . . . . . . . . . 8.04 "Notice of Default" . . . . . . . . . . . . . . . . 6.01 "Paying Agent" . . . . . . . . . . . . . . . . . . 2.03 "Payment Blockage Notice" . . . . . . . . . . . . . 10.04 "Registrar" . . . . . . . . . . . . . . . . . . . . 2.03 "Representative" . . . . . . . . . . . . . . . . . 10.02 "Restricted Payments" . . . . . . . . . . . . . . . 4.07 "Senior Debt" . . . . . . . . . . . . . . . . . . . 10.02
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Securities; "INDENTURE SECURITY HOLDER" means a Holder; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; "OBLIGOR" on the Securities means the Company and any successor obligor upon the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Commission rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. -12- ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. Provisions relating to the Initial Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto ("Appendix A"), which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to Appendix A, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 2 to Appendix A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in Appendix A and the Exhibits thereto are part of the terms of this Indenture. The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. The Securities may be Global Securities, as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY. Every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be registered, in the name of any person other than such Depositary or a nominee thereof, except in the limited circumstances described in the Indenture." SECTION 2.03. EXECUTION AND AUTHENTICATION. An Officer of the Company shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Appendix A and the exhibits thereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Securities for original issue up to the aggregate principal amount stated in -13- paragraph 4 of the Securities. The aggregate principal amount of Securities outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.09 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. The Company initially appoints The Depository Trust Company as the Depositary. SECTION 2.04. REGISTRAR AND PAYING AGENT. The Company shall maintain (i) an office or agency where Securities may be presented for registration of transfer or for exchange (including any co-registrar, the "REGISTRAR") and (ii) an office or agency where Securities may be presented for payment (the "PAYING AGENT"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co-registrar without prior notice to any Holder. The Company shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.07 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Securities. SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST. On or prior to the due date of principal of, premium, if any, and interest on any Securities, the Company shall deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and interest becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Securities, and shall notify the Trustee of any Default by the Company in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money -14- held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. SECTION 2.06. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, including the aggregate principal amount of the Securities held by each thereof, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.07. TRANSFER AND EXCHANGE. When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; PROVIDED, HOWEVER, that any Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Securities at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required to (i) register the transfer or exchange of Securities during a period beginning at the opening of business on a Business Day 15 days before the day of mailing of a notice of redemption of Securities for redemption under Section 3.03 hereof and ending at the close of business on the day of such mailing, (ii) register the transfer or exchange of any Security selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (iii) register the transfer or exchange of a Security between the record date and the next succeeding interest payment date. No service charge shall be made to any Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.12 or 9.05 hereof, which shall be paid by the Company). Notwithstanding the foregoing, a Global Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or any such nominee to a successor of the Depositary or a nominee of such successor, unless: (i) the Depositary is at any time unwilling or unable to continue as depository or if at any time the Depositary ceases to be a clearing agency registered under the Exchange Act and a successor depository is not appointed by the Company within 90 days, -15- (ii) an Event of Default under this Indenture with respect to the Securities has occurred and is continuing and the beneficial owners representing a majority in principal amount of the Securities advise the Depositary to cease acting as depositary or (iii) the Company, in its sole discretion, determines at any time that the Securities shall no longer be represented by a Global Security, the Company will issue individual Securities of the applicable amount and in certificated form in exchange for a Global Security. In any such instance, an owner of a beneficial interest in the Global Security will be entitled to physical delivery of individual securities in certificated form of like tenor, equal in principal amount to such beneficial interest and to have such Securities in certificated form registered in its name. SECTION 2.08. PERSONS DEEMED OWNERS. Prior to due presentment for registration of transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of, premium, if any, and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. So long as the Depositary or its nominee is the registered Holder of a Global Security, the Depositary or its nominee, as the case may be, will be treated as the sole owner of it for all purposes under the Indenture and the beneficial owners of the Securities will be entitled only to those rights and benefits afforded to them in accordance with the Depositary's regular operating procedures. Except as provided in Section 2.07, owners of beneficial interests in a Global Security will not be entitled to have Securities represented by a Global Security registered in their names, will not receive or be entitled to receive physical delivery of Securities in certificated form and will not be considered the registered Holders thereof under the Indenture. None of the Company, the Trustee, any Paying Agent or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. SECTION 2.09. REPLACEMENT SECURITIES. If any mutilated Security is surrendered to the Trustee or the Company, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. An indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss which any of them may suffer if a Security is replaced. Each of the Company and the Trustee may charge for its expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. -16- SECTION 2.10. OUTSTANDING SECURITIES. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.09 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the principal amount of any Security is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.11 hereof, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. SECTION 2.11. TREASURY SECURITIES. In determining whether the Holders of the required principal amount of Securities then outstanding have concurred in any demand, direction, waiver or consent, Securities owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such demand, direction, waiver or consent, only Securities that a Responsible Officer actually knows to be so owned shall be so considered. Notwithstanding the foregoing, Securities that are to be acquired by the Company or an Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company or an Affiliate of the Company until legal title to such Securities passes to the Company or such Affiliate, as the case may be. SECTION 2.12. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company and the Trustee consider appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. SECTION 2.13. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return such cancelled Securities to the Company. The Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. -17- SECTION 2.14. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the related payment date, in each case at the rate provided in the Securities and in Section 4.01 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.15. RECORD DATE. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c). SECTION 2.16. CUSIP NUMBER. The Company in issuing the Securities may use a "CUSIP" number, and if it does so, the Trustee shall use the CUSIP number in notices to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Securities pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Securities to be redeemed and (iv) the redemption price. If the Company is required to make an offer to purchase Securities pursuant to the provisions of Section 4.12 hereof, it shall furnish to the Trustee an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the purchase shall occur, (ii) the purchase date, (iii) the principal amount of Securities to be purchased, (iv) the purchase price and (v) a statement to the effect that a Change of Control has occurred and the conditions set forth in Section 4.12 hereof have been satisfied, as applicable. -18- SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If less than all of the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed among the Holders in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are then listed, or, if the Securities are not so listed, on a PRO RATA basis, by lot or by such method the Trustee shall deem fair and appropriate; PROVIDED that Securities with a principal amount of $1,000 shall not be redeemed in part. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities and portions of them selected shall be in the amounts of $1,000 or whole multiples of $1,000; except that if all of the Securities of a Holder are to be redeemed, the entire outstanding amount of Securities held by such Holders, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed by first class mail a notice of redemption to each Holder of Securities to be redeemed at its registered address. The notice shall identify the Securities to be redeemed (including CUSIP number) and shall state: (1) the redemption date; (2) the redemption price; (3) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion shall be issued; (4) the name and address of the Paying Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Securities called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Securities and/or Section of this Indenture pursuant to which the Securities called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. -19- At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company shall have delivered to the Trustee, at least 40 days prior to the redemption date, unless the Trustee shall agree to a shorter period, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. The notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security shall not affect the validity of the proceeding for the redemption of any other Security. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Securities called for redemption become due and payable on the redemption date at the redemption price plus accrued and unpaid interest, if any, to such date. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of, and accrued interest on, all Securities to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of (including any applicable premium), and accrued interest on, all Securities to be redeemed. On and after the redemption date, interest ceases to accrue on the Securities or the portions of Securities called for redemption. If a Security is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whoso name such Security was registered at the close of business on such record date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case the rate provided in the Securities and in Section 4.01 hereof. SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Security equal in principal amount to the unredeemed portion of the Security surrendered. SECTION 3.07. OPTIONAL REDEMPTION. On or after June 1, 2003, the Company may redeem all or any portion of the Securities at the redemption prices (expressed as a percentage of the principal amount thereof), as set forth in the immediately succeeding paragraph, plus accrued and unpaid interest, if any, to the redemption date. -20- The redemption price (expressed as a percentage of the principal amount) shall be as follows, if the Securities are redeemed during the twelve-month period beginning on June 1 of the following years:
Year Percentage ---- ---------- 2003 104.063% 2004 102.708% 2005 101.354% ---------- ---------- 2006 and thereafter 100.000%
SECTION 3.08. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 4.12 hereof, the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Securities on the dates and in the manner provided in this Indenture and the Securities. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary of the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than five days following the date of payment, any money (including accrued interest) that exceeds such amount of principal, premium, if any, and interest to be paid on the Securities. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the interest rate then applicable to the Securities to the extent lawful. In addition, it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required -21- office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates The Bank of New York, 101 Barclay Street, 21 West, New York, New York 10286 as one such office or agency of the Company in accordance with Section 2.04 hereof. SECTION 4.03. COMMISSION REPORTS. (i) So long as any of the Securities remain outstanding, the Company shall provide to the Trustee within 15 days after the filing thereof with the Commission copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. All obligors on the Securities shall comply with the provisions of TIA Section 314(a). Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Commission, the Company shall file with the Commission and provide to the Trustee (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and a report thereon by the Company's certified public accountants; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form); PROVIDED, HOWEVER, that the Company shall not be in default of the provisions of this Section 4.03(i) for any failure to file reports with the Commission solely by the refusal of the Commission to accept the same for filing. Each of the financial statements contained in such reports shall be prepared in accordance with GAAP. (ii) The Trustee, at the Company's request and expense, shall promptly mail copies of all such annual reports, information, documents and other reports provided to the Trustee pursuant to Section 4.03(i) hereof to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. -22- (iii) Whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability and make such information available to securities analysts and prospective investors upon request. (iv) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to the Holders under this Section 4.03. (v) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.04. COMPLIANCE CERTIFICATE. (i) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each entity has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto), all without regard to periods of grace or notice requirements, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Securities is prohibited or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto. (ii) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's certified independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any Subsidiary of the Company has violated any provisions of Article 4 or of Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (iii) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of (a) any Default or Event of Default or (b) any event of default under any other mortgage, indenture or instrument referred to in Section -23- 6.01(v) hereof, an Officers' Certificate specifying such Default, Event of Default or event of default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except (i) as contested in good faith by appropriate proceedings and with respect to which appropriate reserves have been taken in accordance with GAAP or (ii) where the failure to effect such payment is not adverse in any material respect to the Holders. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Subsidiaries' Equity Interests (other than (w) Physician Joint Venture Distributions, (x) dividends or distributions payable in Qualified Equity Interests of the Company, (y) dividends or distributions payable to the Company or any Subsidiary of the Company, and (z) dividends or distributions by any Subsidiary of the Company payable to all holders of a class of Equity Interests of such Subsidiary on a PRO RATA basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company; or (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Securities, except at the original final maturity date thereof or pursuant to a Specified Exchange or the Refinancing (all such payments and other actions set forth in clauses (i) through (iii) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the fair market value (as conclusively evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee within 60 days prior to the date of such Restricted Payment) of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to such Restricted Payment): (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving PRO FORMA effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Restricted Payment, have been permitted to incur at least -24- $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after March 1, 1995 (excluding Restricted Payments permitted by clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less than the sum of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after March 1, 1995 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), PLUS (2) 100% of the aggregate net cash proceeds received by the Company from the issue or sale (other than to a Subsidiary of the Company) since March 1, 1995 of Qualified Equity Interests of the Company or of debt securities of the Company or any of its Subsidiaries that have been converted into or exchanged for such Qualified Equity Interests of the Company, PLUS (3) $50.0 million. If no Default or Event of Default has occurred and is continuing, or would occur as a consequence thereof, the foregoing provisions shall not prohibit the following Restricted Payments: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions hereof; (ii) the payment of cash dividends on any series of Disqualified Stock issued after the Closing Date in an aggregate amount not to exceed the cash received by the Company since the Closing Date upon issuance of such Disqualified Stock; (iii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Subsidiary in exchange for, or out of the net cash proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (iv) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in exchange for or out of the net cash proceeds from the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (v) the repurchase, redemption or other acquisition or retirement for value of (A) any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement or (B) any Equity Interests of the Company which are or intended to be used to satisfy issuances of such Equity Interests upon exercise of employee stock options or upon exercise or satisfaction of other similar instruments outstanding under employee benefit plans of the Company or any subsidiary of the Company; PROVIDED that -25- the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $25.0 million in any twelve-month period; and (vi) the making and consummation of (A) a senior subordinated asset sale offer in accordance with the provisions of the indenture relating to the 2005 Senior Subordinated Notes or (B) a Change of Control Offer with respect to the Senior Subordinated Notes in accordance with the provisions of the Senior Subordinated Note Indenture or change of control offer with respect to the 2005 Senior Subordinated Notes or the 2005 Exchangeable Subordinated Notes in accordance with the provisions of the indentures relating thereto. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed. SECTION 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual Transfer Restriction, except for such Transfer Restrictions existing under or by reason of: (a) Existing Indebtedness as in effect on the Closing Date, (b) this Indenture, the Senior Subordinated Note Indenture and the Indenture relating to the Company's 8% Senior Notes due 2005, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition, unless such Indebtedness was incurred in connection with or in contemplation of such acquisition for the purpose of refinancing Indebtedness which was tax-exempt, or in violation of Section 4.09 hereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that the Consolidated Cash Flow of such Person shall not be taken into account in determining whether such acquisition was permitted by the terms hereof except to the extent that such Consolidated Cash Flow would be permitted to be dividends to the Company without the prior consent or approval of any third party, (e) customary non-assignment provisions in leases entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the ability of any of the Company's Subsidiaries to transfer the property so acquired to the Company or any of its Subsidiaries, -26- (g) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, or (h) the Existing Credit Facility and related documentation as the same is in effect on the Closing Date and as amended, modified, extended, renewed, refunded, refinanced, restated or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the Existing Credit Facility and related documentation as in effect on the Closing Date. SECTION 4.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "INCUR") after the Closing Date any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) and the Company may issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.5 to 1, determined on a PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. Indebtedness consisting of reimbursement obligations in respect of a letter of credit shall be deemed to be incurred when the letter of credit is first issued. The foregoing provisions shall not apply to: (a) the incurrence by the Company of Indebtedness pursuant to the Existing Credit Facility in an aggregate principal amount at any time outstanding not to exceed an amount equal to $2.8 billion less the aggregate amount of all mandatory repayments applied to permanently reduce the commitments with respect to such Indebtedness; (b) the incurrence by the Company of Indebtedness represented by the Securities, the 8% Senior Notes due 2005 and the Senior Subordinated Notes; (c) the incurrence by the Company and its Subsidiaries of the Existing Indebtedness; (d) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by this Indenture to be incurred (including, without limitation, Existing Indebtedness); (e) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms hereof to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; PROVIDED that the -27- notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates; (f) the incurrence by the Company or any of its Subsidiaries of Physician Support Obligations; (g) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Subsidiaries; (h) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by tender, bid, performance, government contract, surety or appeal bonds, standby letters of credit or warranty or contractual service obligations of like nature, in each case to the extent incurred in the ordinary course of business of the Company or such Subsidiary; (i) the incurrence by any Subsidiary of the Company of Indebtedness, the aggregate principal amount of which, together with all other Indebtedness of the Company's Subsidiaries at the time outstanding (excluding the Existing Indebtedness until repaid or refinanced and excluding Physician Support Obligations), does not exceed the greater of (1) 10% of the Company's Stockholders' Equity as of the date of incurrence or (2) $10.0 million; PROVIDED that, in the case of clause (1) only, the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred would have been at least 2.5 to 1, determined on a PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if such Indebtedness had been incurred at the beginning of such four-quarter period; and (j) the incurrence by the Company of Indebtedness (in addition to Indebtedness permitted by any other clause of this covenant) in an aggregate principal amount at any time outstanding not to exceed $400.0 million. SECTION 4.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (i) such Affiliate Transaction, is on terms that are no less favorable to the Company or the relevant Subsidiary than those that could have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction was approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an investment banking firm of national standing; PROVIDED that (x) transactions or payments pursuant to any employment arrangements or employee or director benefit plans entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (y) transactions -28- between or among the Company and/or its Subsidiaries and (z) transactions permitted under Section 4.07 hereof, in each case, shall not be deemed to be Affiliate Transactions. SECTION 4.11. LIMITATIONS ON LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien (except Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom unless all payments due hereunder and under the Securities are secured on an equal and ratable basis with the Obligations so secured until such time as such Obligations are no longer secured by a Lien. SECTION 4.12. CHANGE OF CONTROL. Upon the occurrence of a Change of Control Triggering Event, each Holder of Securities shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Securities pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "CHANGE OF CONTROL PAYMENT") on a date that is not more than 90 days after the occurrence of such Change of Control Triggering Event (the "CHANGE OF CONTROL PAYMENT DATE"). Within 30 days following any Change of Control Triggering Event, the Company shall mail, or at the Company's request the Trustee shall mail, a notice of a Change of Control to each Holder (at its last registered address with a copy to the Trustee and the Paying Agent) offering to repurchase the Securities held by such Holder pursuant to the procedure specified in such notice. The Change of Control Offer shall remain open from the time of mailing until the close of business on the Business Day next preceding the Change of Control Payment Date. The notice, which shall govern the terms of the Change of Control Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer and shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.12 and that all Securities tendered will be accepted for payment; (2) the Change of Control Payment and the Change of Control Payment Date, which date shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; (3) that any Security not tendered will continue to accrue interest in accordance with the terms of this Indenture; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Securities accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to any Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if -29- appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day next preceding the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; and (8) the circumstances and relevant facts regarding such Change of Control (including, but not limited to, information with respect to PRO FORMA historical financial information after giving effect to such Change of Control, information regarding the Person or Persons acquiring control and such Person's or Persons' business plans going forward) and any other information that would be material to a decision as to whether to tender a Security pursuant to the Change of Control Offer. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Securities or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered the Change of Control Payment for such Securities, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered, if any; PROVIDED that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities as a result of a Change of Control Triggering Event. SECTION 4.13. CORPORATE EXISTENCE. Subject to Section 4.12 and Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise, or the -30- corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. SECTION 4.14. LINE OF BUSINESS. The Company shall not, and shall not permit any of its Subsidiaries to, engage in any material extent in any business other than the ownership, operation and management of Hospitals and Related Businesses. SECTION 4.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. The Company shall not permit any Subsidiary, directly or indirectly, to Guarantee or secure the payment of any other Indebtedness of the Company or any of its Subsidiaries (except Indebtedness of a Subsidiary of such Subsidiary or Physician Support Obligations) unless such Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture, in substantially the form attached hereto as Appendix B, providing for the Guarantee of the payment of the Securities by such Subsidiary, which Guarantee shall be subordinated to such Subsidiary's Guarantee of or pledge to secure such other Indebtedness to the same extent as the Securities are subordinated to such other Indebtedness under this Indenture. Notwithstanding the foregoing, such Guarantee by a Subsidiary of the Securities shall provide by its terms that it shall be automatically and unconditionally released and discharged upon the sale or other disposition, by way of merger or otherwise, to any Person not an Affiliate of the Company, of all of the Company's stock in, or all or substantially all the assets of, such Subsidiary. The foregoing provisions shall not be applicable to any one or more Guarantees that otherwise would be prohibited of up to $25.0 million in aggregate principal amount of Indebtedness of the Company or its Subsidiaries at any time outstanding. SECTION 4.16. NO SENIOR SUBORDINATED DEBT. The Company shall not incur any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Securities. ARTICLE 5 SUCCESSORS SECTION 5.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation -31- organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the Obligations of the Company under this Indenture and the Securities pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have a Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after giving PRO FORMA effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i) through (iv) above, stating that the proposed transaction and such supplemental indenture comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation), and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person has been named as the Company, herein. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF DEFAULT": -32- (i) default for 30 days in the payment when due of interest on the Securities, whether or not such payment is prohibited by the provisions of Article 10 hereof; (ii) default in payment when due of the principal of or premium, if any, on the Securities, at maturity or otherwise, whether or not such payment is prohibited by the provisions of Article 10 hereof; (iii) failure by the Company to comply with the provisions of Sections 4.07, 4.09 or 4.12 hereof; (iv) failure by the Company to comply with any other covenant or agreement in the Indenture or the Securities for the period and after the notice specified below; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the Closing Date or is created after the Closing Date, which default (a) constitutes a failure to pay principal at final maturity or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness that has not been paid at final maturity or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries if such final judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days after their entry; (vii) the Company or any Significant Subsidiary thereof pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case in which it is the debtor, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing its inability generally to pay its debts as the same become due; and (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: -33- (a) is for relief against the Company or any Significant Subsidiary thereof in an involuntary case in which it is the debtor, (b) appoints a Custodian of the Company or any Significant Subsidiary thereof or for all or substantially all of the property of the Company or any Significant Subsidiary thereof, or (c) orders the liquidation of the Company or any Significant Subsidiary thereof, and the order or decree remains unstayed and in effect for 60 days. The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (iv) is not an Event of Default until the Trustee notifies the Company in writing, or the Holders of at least 25% in principal amount of the then outstanding Securities notify the Company and the Trustee in writing, of the Default and the Company does not cure the Default within 60 days after receipt of such notice. The written notice must specify the Default, demand that it be remedied and state that the notice is a "NOTICE OF DEFAULT." SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare the unpaid principal of, premium, if any, and any accrued and unpaid interest on all the Securities to be due and payable immediately. Upon such declaration the principal, premium, if any, and interest shall be due and payable immediately. If an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof occurs with respect to the Company or any Significant Subsidiary thereof such an amount shall IPSO FACTO become and be immediately due and payable without further action or notice on the part of the Trustee or any Holder. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to Section 3.07 hereof, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. If an Event of Default occurs under this Indenture prior to June 1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of such Securities prior to June 1, 2003 pursuant to Section 3.07 hereof, then a premium with respect thereto (expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence) shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of such Securities if such Event of Default occurs during the twelve-month period beginning on June 1 of the years set forth below: -34-
Year Percentage ---- ---------- 1998..................... % 1999..................... % 2000..................... % 2001..................... % 2002..................... %
Any determination regarding the primary purpose of any such action or inaction, as the case may be, shall be made by and set forth in a resolution of the Board of Directors (including the concurrence of a majority of the independent directors of the Company then serving) delivered to the Trustee after consideration of the business reasons for such action or inaction, other than the avoidance of payment of such premium or prohibition on redemption. In the absence of fraud, each such determination shall be final and binding upon the Holders of Securities. Subject to Section 7.01 hereof, the Trustee shall be entitled to rely on the determination set forth in any such resolutions delivered to the Trustee. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on any Security. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability. The Trustee may take any other action which it deems proper which is not inconsistent with any such direction. -35- SECTION 6.06. LIMITATION ON SUITS. A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the then outstanding Securities do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any other obligor for the whole amount of principal, premium, if any, and interest remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover amounts due the Trustee under Section 7.07 hereof, including the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to -36- pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10 upon five Business Days prior notice to the Company. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. -37- ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (i) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (ii) Except during the continuance of an Event of Default known to the Trustee: (a) the duties of the Trustee shall be determined solely by the express provisions of this Indenture or the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture or the TIA and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provisions hereof are required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (iii) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) this paragraph does not limit the effect of paragraph (ii) of this Section; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (iv) Whether or not therein expressly so provided every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (i), (ii), and (iii) of this Section. (v) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives security and indemnity satisfactory to it against any loss, liability or expense. (vi) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Absent written instruction from the -38- Company, the Trustee shall not be required to invest any such money. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (vii) The Trustee shall not be deemed to have knowledge of any matter unless such matter is actually known to a Responsible Officer. SECTION 7.02. RIGHTS OF TRUSTEE. (i) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (ii) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (iii) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (iv) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. A permissive right granted to the Trustee hereunder shall not be deemed an obligation to act. (v) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (vi) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. (vii) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11 hereof. -39- SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, nor shall it be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision of this Indenture, nor shall it be responsible for the use or application of any money received by any Paying Agent other than the Trustee, nor shall it be responsible for any statement or recital herein or any statement in the Securities or any other document in connection with the sale of the Securities or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each December 31 beginning with the December 31 following the Closing Date, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with the Commission and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange or of delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the Company and Trustee shall agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities, damages, claims or expenses incurred by it arising out of or in connection with the acceptance of its duties and the administration of the trusts under this Indenture, except as set forth below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the -40- claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(vii) or (viii) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal -41- amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC. If the Trustee or any Agent consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee or Agent. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by federal or state authority and shall have a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, with respect to the Securities, elect to have either -42- Section 8.02 or 8.03 hereof be applied to all outstanding Securities subject to compliance with the conditions set forth below in this Article 8. Subject to such compliance, the application of Section 8.02 or 8.03 hereof shall occur on the date of a New Lender Deposit (as defined below) or on the 91st day after the date of a Company Deposit (as defined below), as the case may be. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 8.02, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Article 2 and Section 4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 7.07 hereof, and the Company's obligations in connection therewith and (iv) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof with respect to the Securities. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.14, 4.15, and 4.16 and Article 5 hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(iii) hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, Sections 6.01(iv) through 6.01(vi) hereof shall not constitute Events of Default. -43- SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 8.02 or Section 8.03 hereof to the outstanding Securities: (i) The Company shall irrevocably have deposited or caused to be deposited (a "Company Deposit") or an entity other than the Company (a "New Lender") shall irrevocably have deposited or caused to be deposited (a "New Lender Deposit" and, together with the Company Deposit, the "Deposits") with the Trustee (or another trustee satisfying the requirements of Section 7.10 who shall agree to comply with the provisions of this Article 8 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) cash in U.S. Dollars in an amount, or (b) non-callable Government Securities that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in U.S. Dollars in an amount, or (c) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, interest and liquidated damages, if any, on such outstanding Securities on the stated maturity date or the applicable redemption date, as the case may be. (ii) Simultaneously with any Deposit, the Company shall have delivered to the Trustee (or other qualifying trustee) a notice specifying whether the Company is exercising its option under Section 8.02 or Section 8.03 hereof or both and whether the Securities are being defeased to maturity or to a particular redemption date. (iii) In the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Closing Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred. (iv) In the case of an election under Section 8.03 hereof before the date that is one year prior to the final maturity of the Securities, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. (v) No Default or Event of Default with respect to the Securities shall have occurred and be continuing (a) on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or, (b) in the case of a -44- Company Deposit, insofar as Section 6.01(vii) or 6.01(viii) hereof is concerned, at any time within 90 days after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (vi) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound (other than a breach, violation or default resulting from the borrowing of funds to be applied to such deposit). (vii) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (a) on and after the date of the New Lender Deposit or after the 90th day following the Company Deposit, as the case may be, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and (b) all conditions precedent provided for relating to either the Legal Defeasance under Section 8.02 hereof or the Covenant Defeasance under Section 8.03 hereof (as the case may be) have been complied with as contemplated by this Section 8.04. (viii) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 8.02 or 8.03 hereof was not made by the Company with the intent of preferring the Holders of the Securities over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. (ix) The Company shall have delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 8.02 hereof or the Covenant Defeasance under Section 8.03 hereof (as the case may be) have been complied with as contemplated by this Section 8.04. (x) In the case of a New Lender Deposit, the Company shall have delivered to the Trustee an Officers' Certificate stating that (a) the New Lender made the New Lender Deposit under an agreement (the "New Loan Agreement") with the Company; (b) under the New Loan Agreement, the New Lender Deposit constitutes an unsecured loan (the "New Loan") by the New Lender to the Company; (c) the maturity date of the New Loan is later than the 90th day after the date of the New Lender Deposit; and (d) the New Loan Agreement prohibits prepayment of the New Loan on or before the 90th day after the date of the New Lender Deposit, except in the event of a default thereunder, and the remaining terms of the New Loan Agreement (including the interest rate on the New Loan) are consistent with ordinary business practice. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all -45- sums due and to become due thereon in respect of principal, premium, if any, interest and liquidated damages, if any, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(i) hereof), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, interest or liquidated damages, if any, has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the NEW YORK TIMES and THE WALL STREET JOURNAL National edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any U.S. Dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any payment of principal of, premium, if any, interest or liquidated damages, if any, on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Security to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 -46- AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend or supplement this Indenture or the Securities without the consent of any Holder: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iii) to provide for any supplemental indenture required pursuant to Section 4.15 hereof; (iv) to provide for the assumption of the Company's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 hereof; (v) to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights hereunder of any such Holder; or (vi) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such supplemental indenture which affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS. Except as provided in Section 9.01 and the next succeeding paragraphs, this Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of this Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own -47- rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities. Without the consent of each Holder affected, however, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities (other than provisions relating to the covenants in Section 4.12 hereof); (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in Section 6.04 or 6.07 hereof; (vii) waive a redemption payment with respect to any Security (other than a payment required under Section 4.12 hereof); or (viii) make any change in this sentence of this Section 9.02. Notwithstanding the foregoing, any amendment to the provisions of Article 10 hereof shall require the consent of the Holders of at least 75% in aggregate principal amount of the Securities then outstanding if such amendment would adversely affect the rights of Holders of Securities. SECTION 9.03. COMPLIANCE WITH TIA. Every amendment to this Indenture or the Securities- shall be set forth in a supplemental indenture that complies with the TIA as then in effect. -48- SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.06 hereof or (ii) such other date as the Company shall designate. SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 7.01, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or Supplemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it shall be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. ARTICLE 10 SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Security agrees, that the Indebtedness evidenced by the Security is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the Closing Date or created, incurred, assumed or Guaranteed after the Closing Date), and that the subordination is for the benefit of the holders of Senior Debt. -49- SECTION 10.02. CERTAIN DEFINITIONS. "Designated Senior Debt" means (i) so long as any Obligations are outstanding under the Existing Credit Facility, such Obligations and (ii) thereafter, any other Senior Debt permitted hereunder the principal amount of which is $100.0 million or more and that has been designated by the Company as "Designated Senior Debt". "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Senior Debt" means (i) Indebtedness under the Existing Credit Facility, (ii) the Senior Notes, the Existing Senior Notes and any other Indebtedness permitted to be incurred by the Company under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Securities and (iii) all Obligations with respect to any of the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (v) the Securities, the Company's untendered 2005 Senior Subordinated Notes, the Company's 2007 Senior Subordinated Notes and the 2005 Exchangeable Subordinated Notes, (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture. A distribution may consist of cash, securities or other property, by set-off or otherwise. SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest accruing after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not allowed or allowable as a claim in such proceeding) before the Holders shall be entitled to receive any payment with respect to the Securities, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders would be entitled shall be made to the holders of Senior Debt (except (a) that Holders may receive securities that (i) are subordinated at least to the same extent as the Securities to Senior Debt and any securities issued in exchange for Senior Debt, (ii) are unsecured (except to the extent the Securities are secured), (iii) are not Guaranteed by any Subsidiary of the Company (except to the extent the Securities are so Guaranteed), and (iv) have a Weighted Average Life to Maturity and final maturity that are not shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to holders of Senior Debt under the Existing Credit Facility pursuant to a plan of reorganization or readjustment, and (b) payments made from the trust described in Section 8.04). SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT. The Company may not make any payment upon or in respect of the Securities (except in securities that (i) are subordinated to at least the same extent as the Securities to Senior Debt and any securities issued in exchange for Senior Debt, (ii) are unsecured (except to the extent the Securities are -50- secured), (iii) are not Guaranteed by any Subsidiary of the Company (except to the extent the Securities are so Guaranteed), and (iv) have a Weighted Average Life to Maturity and final maturity that are not shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to Holders of Senior Debt under the Existing Credit Facility pursuant to a plan or reorganization or readjustment or from the trust described in Section 8.04 hereof) if; (i) a default in the payment of the principal of, premium, if any or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice"), for so long as any Obligations are outstanding under the Existing Credit Facility, from the Representative thereunder and, thereafter, from the holders or Representative of any Designated Senior Debt. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on the Securities: (1) in the case of a payment default, upon the date on which such default is cured or waived, and (2) in the case of a nonpayment default referred to in Section 10.04(ii) hereof, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. SECTION 10.05. ACCELERATION OF SECURITIES. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Securities at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Senior Debt may have been issued, as their respect interests may appear, for application for the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. -51- With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Securities to violate this Article, but failure to give such notice shall not affect the subordination of the Securities to the Senior Debt as provided in this Article. SECTION 10.08. SUBROGATION. After all Senior Debt is paid in full and until the Securities are paid in full, Holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Securities) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders is not, as between the Company and Holders, a payment by the Company on the Securities. SECTION 10.09. RELATIVE RIGHTS. This Article defines the relative rights of Holders and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; (2) affect the relative rights of Holders and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders. If the Company fails because of this Article 10 to pay principal of or interest on a Security on the due date, the failure is still a Default or Event of Default. SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. -52- No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provisions of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Securities, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Securities to violate this Article 10. Only the Company or a Representative may give the notice. Nothing to this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of a Security by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. SECTION 10.14. AMENDMENTS. The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Debt. ARTICLE 11 MISCELLANEOUS SECTION 11.01. TIA CONTROLS. -53- If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 11.02. NOTICES. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to the Company: Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Telecopier No.: (805) 563-7070 Attention: Treasurer With a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Telecopier No.: (213) 687-5600 Attention: Thomas C. Janson, Jr. If to the Trustee: The Bank of New York 101 Barclay Street, 21 West New York, New York 10286 Telecopier No.: (212) 815-5915 Attention: Corporate Trust Trustee Administration The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Unless otherwise set forth above, any notice or communication to a Holder shall be mailed by first class mail, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. -54- If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been satisfied; PROVIDED, HOWEVER, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.06. RULES BY TRUSTEE AND AGENTS. -55- The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 11.07. LEGAL HOLIDAYS. A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. SECTION 11.09. DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. SECTION 11.10. GOVERNING LAW. The internal law of the State of New York, shall govern and be used to construe this Indenture and the Securities, without regard to the conflict of laws provisions thereof. SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.12. SUCCESSORS. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.13. SEVERABILITY. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be -56- affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 11.14. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. -57- SIGNATURES Dated as of May 21, 1998 TENET HEALTHCARE CORPORATION By: --------------------------- Name: Title: Attest: - --------------------------- Richard B. Silver Dated as of May 21, 1998 THE BANK OF NEW YORK, as Trustee By: --------------------------- Name: Title: Attest: - --------------------------- By: ------------------------ Authorized Signatory -58- APPENDIX A FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S. PROVISIONS RELATING TO INITIAL SECURITIES AND EXCHANGE SECURITIES 1. DEFINITIONS 1.1 DEFINITIONS For the purposes of this Appendix the following terms shall have the meanings indicated below: "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Exchange Offer" means the exchange and issuance by the Company, pursuant to the Registration Rights Agreement, of a principal amount of Exchange Securities equal to the outstanding principal amount of Initial Securities that are tendered by the Holders in connection with such exchange and issuance. "Exchange Securities" means the 8 1/8% Senior Subordinated Notes due 2008 to be issued pursuant to this Indenture in connection with an Exchange Offer pursuant to the Registration Rights Agreement. "Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, Salomon Brothers Inc, Deutsche Morgan Grenfell Inc. and BancAmerica Robertson Stephens. "Initial Securities" means the 8 1/8% Senior Subordinated Notes due 2008, issued under this Indenture on or about the date hereof. "Purchase Agreement" means the Purchase Agreement, dated May 8, 1998, among the Company and the Initial Purchasers. "QIB" means a "qualified institutional buyer" as defined in Rule 144A of the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement, dated May 21, 1998, among the Company and the Initial Purchasers. "Securities Act" means the Securities Act of 1933, as amended. "Shelf Registration Statement" means the registration statement, if any, filed by the Company, in connection with the offer and sale of Initial Securities, pursuant to the Registration Rights Agreement. "Transfer Restricted Securities" means Securities that bear or are required to bear the legend set forth in Section 2.3(b) hereto. 1.2 OTHER DEFINITIONS
Defined in Term Section: ---- ---------- "Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a) "Regulation S" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a) "Rule 144A". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
2. THE SECURITIES 2.1 FORM AND DATING The Initial Securities are being offered and sold by the Company pursuant to the Purchase Agreement. Initial Securities offered and sold to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities Act ("Regulation S"), in each case as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Trustee, at its New York, New York office, as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee. 2.2 AUTHENTICATION. The Trustee shall authenticate and deliver: (1) Initial Securities for original issue in an aggregate principal amount of $1,005,000,000 and (2) Exchange Securities for issue only in an Exchange Offer pursuant to the Registration Rights Agreement, for a like principal amount of Initial Securities, in each case pursuant to Section 2.03 of this Indenture. The Company Order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities or Exchange Securities. The aggregate principal amount of Securities outstanding at any time may not exceed $1,005,000,000 except as provided in Section 2.09 of this Indenture. 2.3 LEGEND. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: -2- "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE, EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS." -3- (ii) Prior to any sale or transfer of a Transfer Restricted Security, the Holder must complete the Assignment Form and present it to the Registrar. Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, in the case of any Transfer Restricted Security that is represented by a Global Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Security in certificated or global form that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). (iii) After a transfer of any Initial Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities, all requirements pertaining to legends on such Initial Security will cease to apply, and an Initial Security in certificated or global form that does not bear the legend set forth above will be available to the transferee of the Holder of such Initial Securities upon exchange of such transferring Holder's certificated Initial Security or directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of an Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, Exchange Securities in certificated or global form without restrictive legends, in the form set forth in Exhibit 2 hereto, will be available to Holders that exchange such Initial Securities in such Exchange Offer. Initial Securities not exchanged for Exchange Securities shall continue to bear the legend set forth in Exhibit 1 hereto. -4- EXHIBIT 1 to APPENDIX A (Face of Initial Security) [Restricted Securities Legend] THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. 8 1/8% Senior Subordinated Note due December 1, 2008 CUSIP: No. $____________ TENET HEALTHCARE CORPORATION promises to pay to ______________________________________________________________ or its registered assigns, the principal sum of_______________ Dollars on December 1, 2008. Interest Payment Dates: June 1 and December 1, commencing December 1, 1998. Record Dates: May 15 and November 15 (whether or not a Business Day). This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be registered, in the name of any person other than such Depositary or a nominee thereof, except in the limited circumstances described in the Indenture. TENET HEALTHCARE CORPORATION By: ------------------------- (SEAL) Dated: , --------- ---- Trustee's Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture: The Bank of New York, as Trustee By: ------------------------------- Authorized Signatory -2- (Back of Initial Security) 8 1/8% Senior Subordinated Note due December 1, 2008 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. INTEREST/LIQUIDATED DAMAGES. Tenet Healthcare Corporation, a Nevada corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate and in the manner specified below. The Company shall pay interest in cash on the principal amount of this Security at the rate per annum of 8 1/8%. The Company shall pay interest semiannually in arrears on June 1 and December 1 of each year, commencing December 1, 1998 to Holders of record on the immediately preceding May 15 and November 15, respectively, or if any such date of payment is not a Business Day on the next succeeding Business Day (each an "Interest Payment Date"). However, (i) if the Company fails to file a registration statement (the "Exchange Offer Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), registering a security substantially identical to this Security pursuant to an exchange offer (the "Exchange Offer") upon the terms and conditions set forth in the Registration Rights Agreement with the Commission on or prior to the 30th day after the date of the filing of the Company's Annual Report on Form 10-K for the year ending May 31, 1998 (the "Filing Date"), (ii) if the Exchange Offer Registration Statement is not declared effective by the Commission on or prior to the 90th day after the Filing Date, (iii) if the Exchange Offer is not consummated on or before the 30th business day after the Exchange Offer Registration Statement is declared effective, (iv) if the Company is obligated to file the registration statement under the Securities Act registering this Security for resale (the "Shelf Registration Statement") and the Company fails to file the Shelf Registration Statement with the Commission on or prior to the 30th day after such filing obligation arises, (v) if the Company is obligated to file a Shelf Registration Statement and the Shelf Registration Statement is not declared effective on or prior to the 60th day after the obligation to file a Shelf Registration Statement arises, or (vi) if the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is declared effective but thereafter ceases to be effective or useable, for such time of non-effectiveness or non-usability in connection with resales of the Transfer Restricted Securities (as defined below) (each, a "Registration Default"), the Company agrees to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages ("Liquidated Damages") in an amount equal to $0.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the Liquidated Damages shall increase by an additional $0.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $0.35 per week per $1,000 in principal amount of Transfer Restricted Securities. The Company shall not be required to pay Liquidated Damages for more than one Registration Default at any given time. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. All accrued Liquidated Damages shall be paid by the Company to Holders entitled thereto by wire transfer to the accounts specified by them or by mailing checks to their registered address if no such accounts have been specified. -3- Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Securities. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the interest rate then applicable to the Securities; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are canceled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Security to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Principal, premium, if any, and interest shall be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to Securities, the Holders of which have given appropriate written wire transfer instructions, on or before the relevant record date, to the Paying Agent shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of May 21, 1998 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Securities. The Securities are unsecured general obligations of the Company. The Securities are limited to $1,005,000,000 in aggregate principal amount. 5. OPTIONAL REDEMPTION. On or after June 1, 2003, the Company may redeem all or any portion of the Securities at a redemption price (expressed as a percentage of the principal amount thereof), as set forth in the immediately succeeding paragraph, plus accrued and unpaid interest, if any, to the redemption date. The redemption price as a percentage of the principal amount shall be as follows, if the Securities are redeemed during the twelve-month period beginning on June 1 of the following years:
Year Percentage ---- ---------- 2003 104.063% 2004 102.708% 2005 101.354% -------- -------- 2006 and thereafter 100.000%
-4- 6. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days and not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities may be redeemed in part but only in whole multiples of $1,000, unless all of the Securities held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Securities or portions of them called for redemption. 7. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 4.12 of the Indenture (as described in paragraph 8 below), the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. 8. REPURCHASE AT OPTION OF HOLDER. If there is a Change of Control Triggering Event, the Company shall offer to repurchase on the Change of Control Payment Date all outstanding Securities at 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the Change of Control Payment Date. Holders that are subject to an offer to purchase shall receive a Change of Control Offer from the Company prior to any related Change of Control Payment Date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 9. SUBORDINATION. The Securities are subordinated to Senior Debt (as defined in the Indenture), which includes any Indebtedness arising under or in connection with (a) the Existing Credit Facility, (b) the Senior Notes, the Existing Senior Notes and any other Indebtedness permitted by the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Securities and (c) all Obligations of the Company with respect to any of the foregoing. To the extent provided in the Indenture, Senior Debt must be paid before the Securities may be paid. The Company agrees, and each Holder by accepting a Security consents and agrees, to the subordination provided in the Indenture and authorizes the Trustee to give it effect. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons, and in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities between a record date and the corresponding Interest Payment Date. 11. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name this Security is registered as its absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Security and for all other purposes whatsoever, whether or not this Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Security shall be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the next succeeding paragraphs, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of the Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). -5- Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities (other than provisions relating to Section 4.12 of the Indenture); (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities, (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or premium, if any, or interest on the Securities; (vii) waive a redemption payment with respect to any Security (other than a payment required under Section 4.12 of the Indenture); or (viii) make any change in the foregoing amendment and waiver provisions. Any amendment to the provisions of Article 10 of the Indenture shall require the consent of the Holders of at least 75% in principal amount of the Securities then outstanding if such amendment would adversely affect the rights of the Holders of the Securities. Notwithstanding the foregoing, without the consent of any Holder of Securities, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for any supplemental indenture required pursuant to Section 4.15 of the Indenture, to provide for the assumption of the Company's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. 13. DEFAULTS AND REMEDIES. Events of Default under the Indenture include: (i) a default for 30 days in the payment when due of interest on the Securities, whether or not such payment is prohibited by the provisions of Article 10 of the Indenture; (ii) a default in payment when due of the principal of or premium, if any, on the Securities, at maturity or otherwise, whether or not such payment is prohibited by the provisions of Article 10 of the Indenture; (iii) a failure by the Company to comply with the provisions of Sections 4.07, 4.09 or 4.12 of Indenture; (iv) a failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Securities; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the date of the Indenture or is created after the date of the Indenture, which default (a) constitutes a failure to pay principal at final maturity or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness that has not been paid at final maturity or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million, which judgment or judgments are not paid, discharged or stayed for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. -6- If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare all the Securities to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries, all outstanding Securities shall become due and payable without further action or notice. Holders of the Securities may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Securities notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in the Holders' interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. If an Event of Default occurs under the Indenture prior to June 1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of such Securities prior to June 1, 2003, then the premium specified in Section 6.02 of the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of such Securities. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Securities. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, repurchase Equity Interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, issue or sell Equity Interests of the Company's Subsidiaries, issue Guarantees of Indebtedness by the Company's Subsidiaries and enter into certain mergers and consolidations. 15. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 16. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or -7- by reason of, such obligations or their creation. Each Holder of Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 17. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Attention: Treasurer 20. GOVERNING LAW. The internal laws of the State of New York shall govern and be used to construe the Indenture and the Securities, without regard to conflict of laws provisions thereof. -8- ASSIGNMENT FORM To assign this Security, fill in the form below: For value received (I) or (we) hereby sell, assign and transfer this Security to _____________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ (Print or type assignee's name, address and zip code) and do hereby irrevocably constitute and appoint ____________________________ Attorney to transfer this Security on the books of the Company with full power of substitution in the premises. _____________________________________________________________________________ Date: ---------------------------- Your Signature: ------------------------------ (Sign exactly as your name appears on the face of this Security) Signature Guarantee.(*) - -------------------- (*)NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -9- In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) / / to the Company or any Subsidiary thereof; or (2) / / to a person whom the Holder reasonably believes is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) purchasing for its own account or for the account of a qualified institutional buyer in compliance with Rule 144A under the Securities Act; or (3) / / outside the United States in an offshore transaction in compliance with Rule 903 or Rule 904 under the Securities Act; or (4) / / pursuant to the exemption from registration provided by Rule 144 under the Securities Act. (5) / / pursuant to an effective registration statement under the Securities Act; or (6) / / in accordance with another exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (6) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. ----------------------------- Signature Signature Guarantee: - ---------------------------- ----------------------------- Signature must be guaranteed Signature -10- _______________________________________________________________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: -------------------- --------------------- Signature -11- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.12 of the Indenture, check the box below: Section 4.12 (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 4.12 of the Indenture, state the amount you elect to have purchased: $ _______________ Date: ------------ Your Signature: ----------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee.(*) - --------------------- (*) NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -12- [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Amount of decrease Amount of increase in Principal in Principal Principal amount of this Signature of authorized Date of Amount of this Amount of this Global Security following signatory of Trustee or Exchange Global Security Global Security such decrease or increase Depositary
-13- EXHIBIT 2 to APPENDIX A (Face of Exchange Security) 8 1/8% Senior Subordinated Note due December 1, 2008 CUSIP: No. $____________ TENET HEALTHCARE CORPORATION promises to pay to - -------------------------------------------------------------- or its registered assigns, the principal sum of_______________ Dollars on December 1, 2008. Interest Payment Dates: June 1 and December 1, commencing December 1, 1998. Record Dates: May 15 and November 15 (whether or not a Business Day). TENET HEALTHCARE CORPORATION By: ------------------------- (SEAL) Dated: , ------------ ---- Trustee's Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture: The Bank of New York, as Trustee By: --------------------------- Authorized Signatory (Back of Exchange Security) 8 1/8% Senior Subordinated Note due December 1, 2008 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. INTEREST. Tenet Healthcare Corporation, a Nevada corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate and in the manner specified below. The Company shall pay interest in cash on the principal amount of this Security at the rate per annum of 8 1/8%. The Company shall pay interest semiannually in arrears on June 1 and December 1 of each year, commencing December 1, 1998 to Holders of record on the immediately preceding May 15 and November 15, respectively, or if any such date of payment is not a Business Day on the next succeeding Business Day (each an "Interest Payment Date"). Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Securities. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the interest rate then applicable to the Securities; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are canceled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Security to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Principal, premium, if any, and interest shall be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to Securities, the Holders of which have given appropriate written wire transfer instructions, on or before the relevant record date, to the Paying Agent shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of May 21, 1998 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the -2- Securities. The Securities are unsecured general obligations of the Company. The Securities are limited to $1,005,000,000 in aggregate principal amount. 5. OPTIONAL REDEMPTION. On or after June 1, 2003, the Company may redeem all or any portion of the Securities at a redemption price (expressed as a percentage of the principal amount thereof), as set forth in the immediately succeeding paragraph, plus accrued and unpaid interest, if any, to the redemption date. The redemption price as a percentage of the principal amount shall be as follows, if the Securities are redeemed during the twelve-month period beginning on June 1 of the following years:
Year Percentage ---- ---------- 2003 104.063% 2004 102.708% 2005 101.354% -------- -------- 2006 and thereafter 100.000%
6. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days and not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities may be redeemed in part but only in whole multiples of $1,000, unless all of the Securities held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Securities or portions of them called for redemption. 7. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 4.12 of the Indenture (as described in paragraph 8 below), the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. 8. REPURCHASE AT OPTION OF HOLDER. If there is a Change of Control Triggering Event, the Company shall offer to repurchase on the Change of Control Payment Date all outstanding Securities at 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the Change of Control Payment Date. Holders that are subject to an offer to purchase shall receive a Change of Control Offer from the Company prior to any related Change of Control Payment Date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 9. SUBORDINATION. The Securities are subordinated to Senior Debt (as defined in the Indenture), which includes any Indebtedness arising under or in connection with (a) Existing Credit Facility, (b) the Senior Notes, the Existing Senior Notes and any other Indebtedness permitted by the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Securities and (c) all Obligations of the Company with respect to any of the foregoing. To the extent provided in the Indenture, Senior Debt must be paid before the Securities may be paid. The Company agrees, and each Holder by accepting a Security consents and agrees, to the subordination provided in the Indenture and authorizes the Trustee to give it effect. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons, and in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any -3- taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities between a record date and the corresponding Interest Payment Date. 11. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name this Security is registered as its absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Security and for all other purposes whatsoever, whether or not this Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Security shall be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the next succeeding paragraphs, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of the Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities (other than provisions relating to Section 4.12 of the Indenture); (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities, (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or premium, if any, or interest on the Securities; (vii) waive a redemption payment with respect to any Security (other than a payment required under Section 4.12 of the Indenture); or (viii) make any change in the foregoing amendment and waiver provisions. Any amendment to the provisions of Article 10 of the Indenture shall require the consent of the Holders of at least 75% in principal amount of the Securities then outstanding if such amendment would adversely affect the rights of the Holders of the Securities. Notwithstanding the foregoing, without the consent of any Holder of Securities, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for any supplemental indenture required pursuant to Section 4.15 of the Indenture, to provide for the assumption of the Company's obligations to Holders of Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. -4- 13. DEFAULTS AND REMEDIES. Events of Default under the Indenture include: (i) a default for 30 days in the payment when due of interest on the Securities, whether or not such payment is prohibited by the provisions of Article 10 of the Indenture; (ii) a default in payment when due of the principal of or premium, if any, on the Securities, at maturity or otherwise, whether or not such payment is prohibited by the provisions of Article 10 of the Indenture; (iii) a failure by the Company to comply with the provisions of Sections 4.07, 4.09 or 4.12 of Indenture; (iv) a failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Securities; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the date of the Indenture or is created after the date of the Indenture, which default (a) constitutes a failure to pay principal at final maturity or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness that has not been paid at final maturity or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million, which judgment or judgments are not paid, discharged or stayed for a period of 60 days; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare all the Securities to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries, all outstanding Securities shall become due and payable without further action or notice. Holders of the Securities may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Securities notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in the Holders' interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. If an Event of Default occurs under the Indenture prior to June 1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of such Securities prior to June 1, 2003, then the premium specified in Section 6.02 of the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of such Securities. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Securities. -5- The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, repurchase Equity Interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, issue or sell Equity Interests of the Company's Subsidiaries, issue Guarantees of Indebtedness by the Company's Subsidiaries and enter into certain mergers and consolidations. 15. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 16. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 17. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Attention: Treasurer -6- 20. GOVERNING LAW. The internal laws of the State of New York shall govern and be used to construe the Indenture and the Securities, without regard to conflict of laws provisions thereof. -7- ASSIGNMENT FORM To assign this Security, fill in the form below: For value received (I) or (we) hereby sell, assign and transfer this Security to _____________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ (Print or type assignee's name, address and zip code) and do hereby irrevocably constitute and appoint ____________________________ Attorney to transfer this Security on the books of the Company with full power of substitution in the premises. _____________________________________________________________________________ Date: ---------------------------- Your Signature: ------------------------------ (Sign exactly as your name appears on the face of this Security) Signature Guarantee.* - -------------------- *NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -8- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.12 of the Indenture, check the box below: / / Section 4.12 (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 4.12 of the Indenture, state the amount you elect to have purchased: $ _______________ Date: ------------ Your Signature: ------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee.* - -------------------- *NOTICE: The Signature must be guaranteed by an Institution which is a member of one of the following recognized Signature Guaranty Programs: (i) The Securities Transfer Agent Medallion Program (Stamp); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guarantee program acceptable to the Trustee. -9- Appendix B FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, between __________________ (the "Guarantor"), a subsidiary of Tenet Healthcare Corporation (or its successor), a Nevada corporation (the "Company"), and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of May 21, 1998, providing for the issuance of an aggregate principal amount of $1,000,000,000 of 8 1/8% Senior Subordinated Notes due 2008 (the "Securities"); WHEREAS, Section 4.15 of the Indenture provides that under certain circumstances the Company is required to cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall guarantee the payment of the Securities pursuant to a Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company hereunder and thereunder, that: (a) the principal of, premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed for whatever reason the Guarantor shall be obligated to pay the same immediately. An Event of Default under the Indenture or the Securities shall constitute an event of default under this Guarantee, and shall entitle the Holders of Securities to accelerate the Obligations of the Guarantor hereunder in the same manner and to the same extent as the Obligations of the Company. The Guarantor hereby agrees that its Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Guarantee will not be discharged except by complete performance of the Obligations contained in the Securities and the Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantor, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantor, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor agrees that it shall not be entitled to, and hereby waives, any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby. The Guarantor further agrees that, as between the Guarantor, on one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of this Guarantee. 3. EXECUTION AND DELIVERY OF GUARANTEE. To evidence its Guarantee set forth in Section 2, the Guarantor hereby agrees that a notation of such Guarantee substantially in the form of EXHIBIT 1 shall be endorsed by an officer of such Guarantor on each Security authenticated and delivered by the Trustee and that this Supplemental Indenture shall be executed on behalf of such Guarantor, by manual or facsimile signature, by its President or one of its Vice Presidents. The Guarantor hereby agrees that its Guarantee set forth in Section 2 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an Officer whose signature is on this Supplemental Indenture or on the Guarantee no longer holds that office at the time the Trustee authenticates the Security on which a Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors. 4. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Except as set forth in Articles 4 and 5 of the Indenture, nothing contained in this Supplemental Indenture or in the Securities shall prevent any consolidation or merger of the Guarantor with or into the Company or any Subsidiary of the Company that has executed and delivered a supplemental indenture substantially in the form hereof or shall prevent any sale or conveyance of the property of the Guarantor as an entirety or substantially as an entirety, to the Company or any such Subsidiary of the Company. (b) Except as provided in Section 4(a) hereof or in a transaction referred to in Section 5 hereof, the Guarantor shall not consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, another Person unless (1) either (x) the -2- Guarantor shall be the surviving Person of such merger or consolidation or (y) the surviving Person or transferee is a corporation, partnership or trust organized and existing under the laws of the United States, any state thereof or the District of Columbia and such surviving Person or transferee shall expressly assume all the obligations of the Guarantor under this Guarantee and the Indenture pursuant to a supplemental indenture substantially in the form hereof; (2) immediately after giving effect to such transaction (including the incurrence of any Indebtedness incurred or anticipated to be incurred in connection with such transaction) no Default or Event of Default shall have occurred and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the Indenture, that the surviving Person agrees to be bound thereby, and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of the Guarantor, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Guarantor, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Guarantor. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Guarantor in accordance with this Section 4(b) hereof, the successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Guarantees had been issued at the date of the execution hereof. 5. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any sale, lease, conveyance or other disposition (by merger, consolidation or otherwise) of assets of the Guarantor (including, if applicable, disposition of all of the Capital Stock of the Guarantor), any Liens in favor of the Trustee in the assets sold, leased, conveyed or otherwise disposed of shall be released. If the assets sold, leased, conveyed or otherwise disposed of (by merger, consolidation or otherwise) include all or substantially all of the assets of the Guarantor or all of the Capital Stock of the Guarantor in each case, in compliance with the terms of the Indenture, then the Guarantor shall be automatically and unconditionally released from and relieved of its Obligations under its Guarantee. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale, lease, conveyance or other disposition was made by the Company in accordance with the provisions of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guarantor from its Obligations under its Guarantee. 6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (A) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, -3- otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of the Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have executed and delivered a supplemental indenture substantially in the form hereof and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. 7. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under the Indenture, the term "Trustee" as used in this Supplemental Indenture shall in each case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Supplemental Indenture in place of the Trustee. 8. SUBORDINATION. The Obligations of the Guarantor to the Holders of the Securities and to the Trustee pursuant to this Guarantee are subordinated to the Guarantor's Guarantee of or pledge to secure [the Indebtedness giving rise to the requirement to execute this Guarantee pursuant to Section 4.15 of the Indenture] to the same extent as the Securities are subordinated to such other Indebtedness under the Indenture. 9. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantor under the Securities, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 10. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. 11. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 12. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. -4- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: , ----------------- --- ---- [Guarantor] By: ------------------------------ Name: Title: The Bank of New York, as Trustee By: ------------------------------ Name: Title: -5- EXHIBIT 1 TO SUPPLEMENTAL INDENTURE GUARANTEE The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company to the Holders or the Trustee under the Securities or under the Indenture, that: (a) the principal of, and premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee under the Indenture or under the Securities will be promptly paid in full, all in accordance with the terms thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed, for whatever reason, the Guarantor shall be obligated to pay the same immediately. The obligations of the Guarantor to the Holders of Securities and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in a Supplemental Indenture, dated as of _________ __, ____ to the Indenture, and reference is hereby made to the Indenture, as supplemented, for the precise terms of this Guarantee. This is a continuing Guarantee and shall remain in full force and effect and shall be binding upon the Guarantor and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's Obligations under the Securities and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders of Securities and, in the event of any transfer or assignment of rights by any Holder of Securities or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This a Guarantee of payment and not a guarantee of collection. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (A) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have become Guarantors and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. The Obligations of the Guarantor to the Holders of the Securities and to the Trustee pursuant to this Guarantee are subordinated to the Guarantor's Guarantee of or pledge to secure [the Indebtedness giving rise to the requirement to execute this Guarantee pursuant to Section 4.15 of the Indenture] to the same extent as the Securities are subordinated to such other Indebtedness under the Indenture. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. [GUARANTOR] By: ------------------------- Name: Title: -2- EX-10.(K) 4 EXHIBIT 10(K) DEFERRED COMPENSATION AGREEMENT This Deferred Compensation Agreement (the "Agreement"), is made and dated as of May 31, 1997, by and between Tenet Healthcare Corporation (the "Company") and Jeffrey C. Barbakow (the "Executive"). RECITALS A. The Executive is employed as the Chief Executive Officer of the Company and is entitled to remuneration from the Company in connection with such employment. B. The Company and the Executive acknowledge that the payment of remuneration to the Executive during fiscal year 1998 and future years could result in certain amounts being non-tax deductible by the Company as a result of the limitations imposed by section 162(m) of the Internal Revenue Code of 1986, as amended ("Section 162(m)"). C. The parties desire to enter into this Agreement to defer the payment to the Executive of certain amounts that would cause the base salary of the Executive to exceed the limitations of Section 162(m); NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein and for other good, valuable and sufficient consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: AGREEMENT 1. LIMITATION AND DEFERRAL OF PAYMENTS. In the event that all or any portion of the compensation (including base salary and all other amounts that legally are required to be included in the Executive's compensation for purposes of Section 162(m)) to be paid to the Executive during any fiscal year would be disallowed under Section 162(m) as a federal income tax deduction by the Company, then the Executive shall receive payments of his base salary during such fiscal year only to the extent such amounts may be paid without disallowance of the Company's deduction under Section 162(m), as determined in good faith by the Company in its sole discretion, and the balance of the base salary shall be deferred for later payment to the Executive in accordance with paragraph 3 below. For purposes of determining the amount of the base salary that may be paid in any given fiscal year to the Executive in accordance with the foregoing, it shall be assumed that the Executive will remain in the Company's employ through the close of the relevant fiscal year and be paid at the same base salary rate as in effect on the first day of such fiscal year. 2. PRIORITY OF DEFERRALS UNDER COMPANY PLAN. Any amounts to be deferred under the terms of the Company's Executive Deferred Compensation and Supplemental Savings Plan, as the same has been or from time to time may be amended, restated, modified, supplemented, renewed or replaced (the "Plan"), shall be deferred prior to any deferrals being made under the terms of this Agreement. 3. INTEREST CREDITING. Any amounts deferred under the terms of this Agreement shall be held by the Company on behalf of the Executive and shall accrue interest at a rate equal to the interest rate for amounts deferred under, and on the same terms as those set forth in, the Plan. 4. PAYMENT OF DEFERRED AMOUNTS. Any portion of the base salary that is not paid to the Executive as a result of the limitation imposed by paragraph 1 above, together with interest accrued in accordance with paragraph 3 above (collectively, the "Deferred Amounts"), shall be paid to the Executive in full within 10 business days of the earlier of (i) the date on which his employment with the Company terminates for any reason or (ii) the occurrence of a "Change in Control" as defined in the Company's 1995 Stock Incentive Plan (or any successor plan); PROVIDED, HOWEVER, that all or any portion of the Deferred Amounts shall be paid to the Executive in any earlier fiscal year or fiscal years to the extent that (i) such amount, together with all other "applicable employee remuneration" for such fiscal year, would not be disallowed as a federal income tax deduction by the Company for such fiscal year because of the limitation imposed by Section 162(m), as determined in good faith by the Company in its sole discretion and (ii) the fiscal year of payment follows by at least one complete calendar year the fiscal year in which the base salary would have been paid to the Executive but for the provisions of this Agreement. 5. TAX WITHHOLDING. The Company shall be entitled to withhold for the payment of taxes all amounts required to be withheld under federal, state and local income and other tax laws, including, without limitation, all employment taxes that may be required to be paid on the Deferred Amounts. 6. UNSECURED RIGHTS; NONTRANSFERABILITY. The Executive's rights under this Agreement shall be those of a general unsecured creditor of the Company, and all payments to the Executive of the Deferred Amounts shall be made from the general assets of the Company. Notwithstanding the foregoing, the Company may in its discretion set aside funds or assets to satisfy its obligations hereunder through the establishment of a grantor trust subject to the claims of the Company's creditors, or through any other set aside of funds or assets that are held as part of the Company's general assets. The Executive's rights under this Agreement may not be anticipated, alienated, sold, transferred, assigned, pledge, encumbered, attached or garnished by creditors of the Executive. 7. SUCCESSORS; BENEFICIARY. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company upon any sale of all or substantially all of the Company's assets, or upon any merger, consolidation or reorganization of the Company with or into any other corporation, all as though such successors and assigns of the Company and their respective successors and assigns were the Company. This Agreement shall inure to the benefit of and be binding upon the executors, heirs, assigns and/or designees of the Executive. The Executive shall be entitled to designate a beneficiary for the payment upon his death of any Deferred Amounts to which the Executive is entitled under this Agreement. 8. GENERAL. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of California, without giving effect to the choice of law -2- principles thereof. This Agreement constitutes the entire agreement between the Company and the Executive with respect to the subject matter hereof. 9. NO THIRD-PARTY BENEFICIARIES. This Agreement is for the benefit of only the Executive and the Company and, except as expressly provided in paragraph 7, no other person shall be entitled to any benefits hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. THE COMPANY TENET HEALTHCARE CORPORATION /s/ Scott M. Brown ------------------------------- By: Scott M. Brown Title: Sr. Vice President THE EXECUTIVE /s/ Jeffrey C. Barbakow ------------------------ Jeffrey C. Barbakow -3- EX-10.(O) 5 EXHIBIT 10(O) TENET HEALTHCARE CORPORATION BOARD OF DIRECTORS RETIREMENT PLAN Effective January 1, 1985 As Amended August 18, 1993 and April 25, 1994 and July 30, 1997 Section 1 STATEMENT OF PURPOSE -------------------- The Board of Directors Retirement Plan (the "Plan") of Tenet Healthcare Corporation ("Tenet") has been adopted by the members of the Board of Directors of Tenet who are employees of the Company to attract, retain, motivate and provide financial security to members of the Board of Directors who are not employees of the Company (the "Participants"). Section 2 DEFINITIONS ----------- 2.1 AGREEMENT. "Agreement" means a written agreement substantially in the form of Exhibit A between Tenet and a Participant. 2.2 ANNUAL BOARD RETAINER. "Annual Board Retainer" means the total annual retainer paid to the Director by Tenet for service on Tenet's Board of Directors, excluding any separate fees paid for meeting attendance or service on any committees of the Board of Directors. 2.3 COMMITTEE. "Committee" means the members of the Executive Committee of the Board of Directors of Tenet who are employees of the Company. 2.4 COMPANY. "Company" means Tenet Healthcare Corporation and its Subsidiaries. 2.5 CHANGE OF CONTROL. "Change of Control" shall be deemed to have occurred if (a) any person as such terms is used in Sections 13(c) and 14(d)(2) of the Securities Exchange Act of 1934, or as amended, is or becomes the beneficial owner directly or indirectly of securities of Tenet representing thirty percent or more of the combined voting power of Tenet's then outstanding securities, or (b) during any two-year period after January 1, 1985, individuals who at the beginning of such period constitute the Board of Directors of Tenet cease for any reason other than death or disability to constitute a majority of the Board. -2- 2.6 DIRECTOR. A "Director" is any member of the Board of Directors of Tenet who is not an employee of the Company who enters into an Agreement to participate in this Plan. 2.7 ELIGIBLE CHILDREN. "Eligible Children" means all natural or adopted children of a Participant under the age of 21, including any child conceived prior to the death of a Participant. 2.8 FINAL ANNUAL BOARD RETAINER. "Final Annual Board Retainer" means the Annual Board Retainer being paid to a Director at the time of his Termination of Service on the Board of Directors of Tenet. 2.9 NORMAL RETIREMENT. "Normal Retirement" means any Termination of Service during the life of a Participant on or after the date on which the Participant attains age 65 and completes ten Years of Service as a Director, including service before and after January 1, 1985. 2.10 PARTICIPANT. "Participant" shall include any Director who, with the permission of the Committee, enters into an Agreement to participate in this Plan. 2.11 SERVICE. "Service" refers to service as a Director of Tenet. 2.12 SUBSIDIARY. A "Subsidiary" of the Company is any corporation, partnership, venture or other entity in which the Company owns 50% of the capital stock or otherwise has a controlling interest as determined by the Committee, in its sole and absolute discretion. 2.13 SURVIVING SPOUSE. "Surviving Spouse" means the person legally married to the Participant for at least one year prior to the Participant's death or Termination of Service. 2.14 TERMINATION OF SERVICE. "Termination of Service" means the ceasing of the Participant's service as a Director of Tenet for any reason whatsoever, whether voluntarily or involuntarily. 2.15 YEAR. "A "Year" is a period of twelve consecutive calendar months. 2.16 YEAR OF SERVICE. "Year of Service" means each complete year of Service as a Director of Tenet, but shall specifically exclude any year of Service included in the definition of "Service" under Section 2.13 of the Tenet Healthcare Corporation Supplemental Executive Retirement Plan, dated November 1, 1984, as amended. Years of Service shall be deemed to have begun as of the first day of the calendar month of Service and to have ceased on the last day of the calendar month of Service. -3- Section 3 RETIREMENT BENEFITS ------------------- 3.1 NORMAL RETIREMENT BENEFIT. (a) Upon a Participant's Normal Retirement, Tenet agrees to pay to the Participant an annual Normal Retirement Benefit for ten years in an amount equal to his Final Annual Board Retainer, provided the Normal Retirement Benefit shall not exceed $25,000 (Annual Board Retainer in 1985) increased by a compounded rate of six percent per year from 1985 to the year of the Participant's Termination of Service. (b) If a Participant who is receiving a Normal Retirement Benefit dies, his Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.4 and 3.5) the installments of the Participant's Normal Retirement Benefit for the remainder of the ten year period. (c) If a Participant dies while serving as a Director of Tenet, his Surviving Spouse or Eligible Children shall be entitled at Participant's death to receive (in accordance with Section 3.4 and 3.5) the installments of the Normal Retirement Benefit which would have been payable to the Participant in accordance with Section 3.1(a) for a period of ten years. 3.2 VESTING OF RETIREMENT BENEFIT. A Participant's interest in his Retirement Benefit shall, subject to Section 5.5, vest in accordance with the following schedule:
Years of Service After 1/1/85 Vested Benefit ------------ -------------- Less than 5 0% 5 50% 6 60% 7 70% 8 80% 9 90% 10 100%
Years of Service shall only include Service after January 1, 1985. Notwithstanding the foregoing, a Participant who is at least 65 years old and who has completed at least ten Years of Service (including Service before and after January 1, 1985) will, subject to Section 5.5, be fully vested in his Retirement Benefit. -4- 3.3 TERMINATION OF BENEFIT. Upon any Termination of Service of the Participant before Normal Retirement for any reason other than death after the Participant has completed at least five Years of Service subsequent to January 1, 1985, Tenet shall pay to the Participant, commencing upon Termination of Service or at age 65, whichever is later, a Retirement Benefit determined under Sections 3.1 and 3.2, but with the following adjustments: (a) Only the Participant's actual Years of Service (excluding Service before January 1, 1985) as of the date of his Termination of Service shall be used. (b) For purposes of determining the Final Annual Board Retainer, as used in Section 3.1, the Annual Board Retainer in effect on the date of the Participant's Termination of Service shall be used, and the maximum Retirement Benefit shall be determined based on the year of the Participant's Termination of Service. (c) (i) If a Participant dies after commencement of payment of his Retirement Benefit under this Section 3.3, the Surviving Spouse or Eligible Children shall be entitled at Participant's death to receive (in accordance with Sections 3.4 and 3.5) the Participant's Retirement Benefit for the remainder of the ten year period. (ii) If a Participant, who has a vested interest under Section 3.2, dies after Termination of Service but at death is not receiving any Retirement Benefits under this Plan, the Surviving Spouse or Eligible Children shall be entitled at Participant's death to receive (in accordance with Sections 3.4 and 3.5) the installments of the Retirement Benefit which would have been payable to the Participant if he had retired on the day before he died based on his vested interest under Section 3.2 3.4 DURATION OF BENEFIT PAYMENT. Retirement Benefits shall be paid monthly over a period of ten years. Surviving Spouse payments shall be paid monthly over the remainder of the ten year period. Eligible Children Benefit payments shall be paid monthly over the remainder of the ten year period, but not beyond the date when the youngest of the Eligible Children reaches age 21. 3.5 RECIPIENTS OF BENEFITS PAYMENTS. If a Participant dies without a Surviving Spouse but is survived by any Eligible Children, then benefits will be paid to the Eligible Children or their legal guardian, if applicable. The total monthly benefit payment will be equal to the monthly benefit that a Surviving Spouse would -5- have received, which will be paid in equal shares to each of the Eligible Children until the youngest of the Eligible Children attains age 21. If the Surviving Spouse dies after the death of the Participant but is survived by Eligible Children, then the total monthly benefit previously paid to the Surviving Spouse will be paid in equal shares to each of the Eligible Children until the youngest of the Eligible Children attains age 21. When any of the Eligible Children reaches age 21, his share will be reallocated equally to the remaining Eligible Children. 3.6 CHANGE OF CONTROL. In the event of a Change of Control of Tenet while this Plan remains in effect which results in Participant's Termination of Service as a Director of Tenet or a Participant's failure to be re-elected as a Director of Tenet when his term of office expires, (i) a Participant's Retirement Benefit hereunder will be fully vested in the Participant without regard to his Years of Service with Tenet and (ii) notwithstanding any other provisions of this Plan, a Participant will be entitled to receive the full Normal Retirement Benefit commencing at age 65. 3.7 ELECTION OF JOINT AND SURVIVOR ANNUITY. (a) Instead of receiving the benefit under this Plan in monthly installments over a ten-year period as provided in Section 3.1(a), a Participant may elect to receive the benefit in the form a Joint and Survivor Annuity, provided that, subject to Section 3.7(c) below, the Participant elects payment in such form at least one year prior to the date on which the Participant is entitled to commence receiving Plan benefits (the "Benefit Commencement Date"). The election shall be made by providing written notice of the election to the Committee on a form prescribed by the Committee. The election shall be revoked if: (i) the Participant provides written notice of such revocation to the Committee at least one year prior to the Benefit Commencement Date; or (ii) the Participant dies prior to the Benefit Commencement Date. If the Participant fails to make an election, the Participant shall receive the Normal Retirement benefit in monthly installments over a ten-year period as provided in Section 3.1(a). (b) For purposes of this Section 3.7, the term 'Joint and Survivor Annuity' shall mean an annuity for the life of the Participant with a survivor annuity for the life of the Participant's Surviving Spouse. Each Participant electing a Joint and Survivor Annuity shall specify, at the time that the election under Section 3.7(a) above is made, whether the survivor annuity portion of the Joint and Survivor Annuity shall be equal to (i) fifty percent (50%), or (ii) one hundred percent (100%), of the amount of the annuity that is payable monthly to the Participant during the joint lives of the Participant and spouse. Without limiting the generality of the foregoing, if neither the Participant nor the Surviving Spouse survives for at least ten years from the date of the Participant's retirement, following the death of the later to die of the Participant and the Surviving Spouse, the survivor annuity portion of the Joint and Survivor Annuity shall be paid for the remainder of such ten-year period following the Participant's retirement to a beneficiary designated by the -6- Participant or, if no beneficiary is designated by the Participant, to the estate of the later to die of the Participant and the Surviving Spouse; provided, however, that the foregoing provisions in no way shall affect the right of the Surviving Spouse to continue to receive the Joint and Survivor Annuity for the remainder of the Surviving Spouse's life beyond such ten-year period. The Joint and Survivor Annuity shall be actuarially equivalent to the benefit that otherwise would be payable under the foregoing provisions of this Section 3. Actuarial equivalence shall be determined using an interest rate, mortality table and other factors selected by the Committee. Payments under the Joint and Survivor Annuity shall commence on the Benefit Commencement Date. No other benefits shall be paid under this Plan with respect to a Participant who has made the election described in paragraph (a) above. (c) If a Participant, who has a vested interest under Section 3.2, dies after Termination of Service but at death is not receiving any Retirement Benefits under this Plan, the Surviving Spouse shall be entitled following the Participant's death to receive the survivor annuity portion of the Joint and Survivor Annuity for the life of the Surviving Spouse. If the Surviving Spouse dies during the ten-year period following the Participant's retirement, the beneficiary designated by the Participant or, if no beneficiary has been designated by the Participant, the Surviving Spouse's estate, shall be entitled following the Surviving Spouse's death to receive the survivor annuity portion of the Joint and Survivor Annuity for the remainder of such ten-year period following the Participant's retirement. The Participant shall be deemed to have retired on the day before the Participant's death. (d) The provisions of Sections 3.3(c), 3.4 and 3.5 shall not apply to any Participant who makes the Joint and Survivor Annuity election under this Section 3.7. (e) If a Participant's Benefit Commencement Date is within one year after the date on which the Board of Directors adopts the amendment to the Plan which includes this Section 3.7 (the "Adoption Date"), the Participant may make the election described in paragraph (a) above within 30 days following the Adoption Date." Section 4 PAYMENT ------- 4.1 COMMENCEMENT OF PAYMENTS. Payments under this Plan shall begin not later than the first day of the calendar month following the occurrence of an event which entitles a Participant (or his Surviving Spouse or Eligible Children) to payments under this Plan. 4.2 WITHHOLDING; UNEMPLOYMENT TAXES. To the extent required by the law in effect at the time payments are made, Tenet shall report all payments hereunder -7- and shall withhold therefrom any taxes required to be withheld by the Federal or any state or local government. 4.3 RECIPIENTS OF PAYMENTS. All payments made by Tenet under this Plan shall be made to the Participant during the Participant's lifetime. All subsequent payments under the Plan shall be made by Tenet to the Participant's Surviving Spouse. Eligible Children or their guardian, if applicable, or the beneficiary designated by the Participant or the Surviving Spouse's estate, as the case may be. 4.4 NO OTHER BENEFITS. Tenet shall pay no benefits hereunder to the Participant, his Surviving Spouse, Eligible Children or their legal guardian, if applicable, by reason of Termination of Service or otherwise, except as specifically provided herein. Section 5 CONDITIONS RELATED TO BENEFITS. ------------------------------- 5.1 ADMINISTRATION OF PLAN. The Committee has been authorized to administer the Plan and to interpret, construe and apply its provisions in accordance with its terms. The Committee shall administer the Plan and shall establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Committee shall be by vote or written consent of the majority of its members and shall be final and binding. Notwithstanding any provisions of the Plan to the contrary, the Committee further is authorized, in the event of disability or other special circumstances affecting a Participant, (i) to accelerate a Participant's Normal Retirement and entitlement to receive a Normal Retirement Benefit to a date prior to the date on which the Participant completes 10 years of Service as a Director, (ii) to provide that the Participant may be paid the Participant's Normal Retirement Benefit commencing on such Participant's Termination of Service, even if such date is prior to the Participant's attainment of age 65, and (iii) to cause the Participant to be 100% vested in the Participant's Normal Retirement Benefit prior to the date on which the Participant completes 10 years of Service. 5.2 NO RIGHT TO ASSETS. Neither a Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of Tenet and its subsidiaries whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which Tenet, in its sole discretion, may set aside in anticipation of a liability thereunder. A Participant shall have only an unsecured contractual right to the amounts, if any, payable hereunder. Tenet may, in its sole discretion, establish a grantor trust subject to subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, to provide a source of funds to assist Tenet in the meeting of its obligations under the Plan. Any assets held in such trust shall be subject to the claims of general creditors of Tenet in accordance with the terms of such trust. -8- Tenet shall have no obligation to pay any benefits under the Plan to the extent such benefits are provided from such trust. 5.3 NO TENURE RIGHTS. Nothing herein shall constitute a contract of continuing service or in any manner obligate Tenet to continue the Service of a Director, or obligate a Director to continue in the Service of Tenet, and nothing herein shall be construed as fixing or regulating the compensation paid to a Director. 5.4 RIGHT TO TERMINATE OR AMEND. Except during any two year period after any Change of Control of Tenet, Tenet reserves the sole right to terminate the Plan at any time and to terminate an Agreement with the Participant at any time. In the event of termination of the Plan or of a Participant's Agreement, a Participant shall be entitled only to the vested portion of his accrued benefits under Section 3 of the Plan as of the time of termination of the Plan or his Agreement. All further vesting and benefit accrual shall cease on the date of termination of the Plan or his Agreement. Benefits will be paid in the amounts specified and will commence at the time specified in Section 3 as appropriate. Tenet further reserves the right in its sole discretion to amend the Plan in any respect except that Plan benefits cannot be reduced during any two year period after any Change of Control of Tenet. No amendment of the Plan (whether there has or has not been a Change of Control of Tenet) that reduces the value of the benefit theretofore accrued and vested by the Participant shall be effective. 5.5 OFFSET. If at the time payments or installments of payments are to be made hereunder, any Participant or his Surviving Spouse or both are indebted to Tenet or its Subsidiaries, then the payments remaining to be made to the Participant or his Surviving Spouse or both may, at the discretion of the Committee, be reduced by the amount of such indebtedness; provided, however, that an election by the Committee not to reduce any such payment or payments shall not constitute a waiver of any claim for such indebtedness. 5.6 CONDITIONS PRECEDENT. No Retirement Benefits will be payable hereunder to any Participant (i) whose Service with Tenet is terminated because of his willful misconduct or gross negligence in the performance of his duties or (ii) who within three years after Termination of Service becomes an employee, director or consultant to any third party engaged in any line of business in competition with the Company that accounts for more than ten percent of the gross revenues of the Company taken as a whole. Section 6 MISCELLANEOUS ------------- 6.1 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt -9- the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any person's bankruptcy or insolvency. 6.2 GENDER AND NUMBER. Wherever appropriate herein, the masculine may mean the feminine and the singular may mean the plural or vice versa. 6.3 NOTICE. Any notice required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of Tenet, directed to the attention of the Secretary of the Committee. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification. 6.4 VALIDITY. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 6.5 APPLICABLE LAW. This plan shall be governed and construed in accordance with the laws of the State of California. 6.6 SUCCESSORS IN INTEREST. This plan shall inure to the benefit of, be binding upon, and be enforceable by, any corporate successor to Tenet or successor to substantially all of the assets of Tenet. 6.7 NO REPRESENTATION ON TAX MATTERS. Tenet makes no representation to Participants regarding current or future income tax ramifications of the Plan. EXHIBIT A TENET HEALTHCARE CORPORATION BOARD OF DIRECTORS RETIREMENT PLAN AGREEMENT THIS AGREEMENT is made and entered into at Santa Barbara, California as of the _____ day of __________, 19___, by and between Tenet Healthcare Corporation ("Tenet") and _______________________ ("Director"). WHEREAS, Tenet has adopted a Board of Directors Retirement Plan (the "Plan"); and WHEREAS, since he or she presently serves as a member of the Board of Directors of Tenet and is not an employee of the Company, the Director is eligible to participate in the Plan; and WHEREAS, the Plan requires that an agreement be entered into between Tenet and Director setting out certain terms and benefits of the Plan as they apply to the Director; NOW, THEREFORE, Tenet and the Director hereby agree as follows: 1. The Plan, a copy of which is attached, is hereby incorporated into and made a part of this Agreement as though set forth in full herein. The parties shall be bound by, and have the benefit of, each and every provision of the Plan, including but not limited to the non-assignability provisions of Section 6.1 of the Plan. 2. The Director was born on __________, 19___, and his or her present service as a member of the Board of Directors of Tenet began on __________, 19___. 3. This Agreement shall inure to the benefit of, and be binding upon, Tenet, its successors and assigns, and the Director and his or her Surviving Spouse and Eligible Children. IN WITNESS WHEREOF, the parties hereto have signed and entered into this Agreement on and as of the date first above written. TENET HEALTHCARE CORPORATION By -------------------------------- Its -------------------------------- Director -------------------------------- EX-10.(P) 6 EXHIBIT 10(P) TENET HEALTHCARE CORPORATION AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AS OF MAY 31, 1998 ORIGINALLY DATED NOVEMBER 1, 1984 AMENDED MAY 21, 1986 AMENDED APRIL 25, 1994 AMENDED JULY 25, 1994 AMENDED JANUARY 28, 1997 RESTATED AS OF MAY 31, 1998 TABLE OF CONTENTS TENET HEALTHCARE CORPORATION AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PAGE ---- SECTION 1 - STATEMENT OF PURPOSE . . . . . . . . . . . . . . . . . . . . 1 SECTION 2 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Actual Final Average Earnings . . . . . . . . . . . . . . . . 1 2.3 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.4 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.5 Change of Control . . . . . . . . . . . . . . . . . . . . . . 2 2.6 Date of Employment. . . . . . . . . . . . . . . . . . . . . . 2 2.7 Date of Enrollment. . . . . . . . . . . . . . . . . . . . . . 3 2.8 Disability. . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.9 Early Retirement. . . . . . . . . . . . . . . . . . . . . . . 3 2.10 Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.11 Eligible Children . . . . . . . . . . . . . . . . . . . . . . 4 2.12 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.13 Employment or Service . . . . . . . . . . . . . . . . . . . . 4 2.14 Existing Retirement Benefit Plans Adjustment Factor . . . . . 4 2.15 Final Average Earnings. . . . . . . . . . . . . . . . . . . . 5 2.16 Normal Retirement . . . . . . . . . . . . . . . . . . . . . . 5 2.17 Participant . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.18 Prior Service Credit Percentage . . . . . . . . . . . . . . . 6 2.19 Projected Earnings. . . . . . . . . . . . . . . . . . . . . . 6 2.20 Projected Final Average Earnings. . . . . . . . . . . . . . . 6 2.21 Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.22 Surviving . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.23 Termination of Employment . . . . . . . . . . . . . . . . . . 7 2.24 Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.25 Year of Service . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3 - RETIREMENT BENEFITS. . . . . . . . . . . . . . . . . . . . . 8 3.1 Normal Retirement . . . . . . . . . . . . . . . . . . . . . . 8 3.2 Early Retirement Benefit. . . . . . . . . . . . . . . . . . . 9 3.3 Vesting of Retirement Benefit . . . . . . . . . . . . . . . . 11 3.4 Termination Benefit . . . . . . . . . . . . . . . . . . . . . 12 3.5 Duration of Benefit Payment . . . . . . . . . . . . . . . . . 14 3.6 Recipients of Benefit Payments. . . . . . . . . . . . . . . . 14 3.7 Disability. . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.8 Change of Control . . . . . . . . . . . . . . . . . . . . . . 15 3.9 Golden Parachute Cap. . . . . . . . . . . . . . . . . . . . . 17 SECTION 4 - PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.1 Commencement of Payments. . . . . . . . . . . . . . . . . . . 18 4.2 Withholding; Unemployment Taxes . . . . . . . . . . . . . . . 18 4.3 Recipients of Payments. . . . . . . . . . . . . . . . . . . . 18 4.4 No Other Benefits . . . . . . . . . . . . . . . . . . . . . . 19 4.5 Lump Sum Distributions. . . . . . . . . . . . . . . . . . . . 19 SECTION 5 - CONDITIONS RELATED TO BENEFITS . . . . . . . . . . . . . . . 23 5.1 Administration of Plan. . . . . . . . . . . . . . . . . . . . 23 5.2 No Right to Assets. . . . . . . . . . . . . . . . . . . . . . 23 5.3 No Employment Rights. . . . . . . . . . . . . . . . . . . . . 24 5.4 Right to Terminate or Amend . . . . . . . . . . . . . . . . . 24 5.5 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.6 Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.7 Conditions Precedent. . . . . . . . . . . . . . . . . . . . . 25 SECTION 6 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 26 6.1 Non-assignability . . . . . . . . . . . . . . . . . . . . . . 26 6.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . 26 6.3 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 6.4 Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.5 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 27 6.6 Successors in Interest. . . . . . . . . . . . . . . . . . . . 27 6.7 No Representation on Tax Matters. . . . . . . . . . . . . . . 27 TENET HEALTHCARE CORPORATION AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN SECTION 1 - STATEMENT OF PURPOSE The Supplemental Executive Retirement Plan (the "Plan") has been adopted by Tenet Healthcare Corporation ("Tenet") to attract, retain, motivate and provide financial security to highly compensated or management employees (the "Participants") who render valuable services to Tenet and its Subsidiaries. SECTION 2 - DEFINITIONS 2.1 ACQUISITION. "Acquisition" refers to a company of which substantially all of its assets or a majority of its capital stock are acquired by, or which is merged with or into, Tenet or a Subsidiary. 2.2 ACTUAL FINAL AVERAGE EARNINGS. "Actual Final Average Earnings" means the highest average monthly Earnings for any 60 consecutive months during the ten years, or actual employment period if less, preceding Termination of Employment. 2.3 AGREEMENT. "Agreement" means a written agreement substantially in the form of Exhibit A between Tenet and a Participant. 2.4 COMMITTEE. "Committee" means the Compensation and Stock Option Committee of the Board of Directors of Tenet. -1- 2.5 CHANGE OF CONTROL. "Change of Control" of Tenet shall be deemed to have occurred if either (a) any person as such term is used in Sections 13(c) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, is or becomes the beneficial owner directly or indirectly of securities of Tenet representing 20% or more of the combined voting power of Tenet's then outstanding securities or (b) individuals who, as of April 1, 1994, constitute the Board of Directors of Tenet (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that (i) any individual who becomes a director of Tenet subsequent to April 1, 1994, whose election, or nomination for election by the Tenet's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board and (ii) no individual who was elected initially (after April 1, 1994) as a director as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, or any other actual or threatened solicitations of proxies or consents by or on behalf of any person other than the Incumbent Board shall be deemed to have been a member of the Incumbent Board. 2.6 DATE OF EMPLOYMENT. "Date of Employment" means the date on which a person began to perform Services directly for Tenet or a Subsidiary as a result of an Acquisition or becoming an Employee. -2- 2.7 DATE OF ENROLLMENT. "Date of Enrollment" means the date on or after June 1, 1984 on which an Employee first becomes a Participant in the Plan, provided that any Employee who becomes a Participant prior to June 1, 1985 shall be deemed to have a Date of Enrollment of the later of Date of Employment or June 1, 1984. 2.8 DISABILITY. "Disability" means any Termination of Employment during the life of a Participant and prior to Normal Retirement or Early Retirement by reason of a Participant's total and permanent disability, as determined by the Committee, in its sole and absolute discretion. A Participant, who makes application for and qualifies for disability benefits under Tenet's Group Long-Term Disability Plan or under any similar plan provided by Tenet or a Subsidiary, as now in effect or as hereinafter amended (the "LTD Plans"), shall usually qualify for Disability under this Plan, unless the Committee determines that the Participant is not totally and permanently disabled. A Participant who fails to qualify for disability benefits under the LTD Plans (whether or not the Participant makes application for disability benefits thereunder) shall not be deemed to be totally and permanently disabled under this Plan, unless the Committee otherwise determines, based upon the opinion of a qualified physician or medical clinic selected by the Committee to the effect that a condition of total and permanent disability exists. 2.9 EARLY RETIREMENT. "Early Retirement" means any Termination of Employment during the life of a Participant prior to Normal Retirement and after the Participant attains age 55 and has completed ten Years of Service or attains age 62 with no minimum Years of Service. -3- 2.10 EARNINGS. "Earnings" means the base salary paid to a Participant by Tenet or a Subsidiary, excluding bonuses, car and other allowances and other cash and non-cash compensation. However, for all Participants actively at work on or after February 1, 1997 as full-time, regular employees, "Earnings" means the base salary and annual cash bonus paid to a Participant by Tenet or a Subsidiary excluding car and other allowances and other cash and non-cash compensation. 2.11 ELIGIBLE CHILDREN. "Eligible Children" means all natural or adopted children of a Participant under the age of 21, including any child conceived prior to the death of a Participant. 2.12 EMPLOYEE. "Employee" means any person who regularly performs Services on a full-time basis (that is, works a minimum of 32 hours a week) for Tenet or a Subsidiary and receives a salary plus employee benefits normally made available to persons of similar status. 2.13 EMPLOYMENT OR SERVICE. "Employment" or "Service" means any continuous period during which an Employee is actively engaged in performing services for Tenet and its Subsidiaries plus the term of any leave of absence approved by the Committee. 2.14 EXISTING RETIREMENT BENEFIT PLANS ADJUSTMENT FACTOR. "Existing Retirement Benefit Plans Adjustment Factor or Factors" means the assumed benefit the Participant would be eligible for under Social Security and all retirement plans of Tenet and its Subsidiaries whether or not he participates in such plans. This Factor will be used for calculating all benefits under the Plan and is a projection of the benefits payable under the Social Security regulations in effect June 1, 1984, and retirement plans of Tenet in effect on June 1, 1984, or the participant's Date of Enrollment in the Plan, if later. Once established for a Participant this Factor will not thereafter be altered to -4- reflect any reduction in benefits under Social Security. This Factor will be adjusted to reflect changes in benefits under Tenet retirement plans if a Participant is transferred to different retirement plans or the Company contribution to a retirement plan is increased or decreased from the percentage used for original calculation of the Participant's Factor or the Participant becomes eligible for other retirement plans adopted by the Company which would provide benefits greater or less than the Plan considered in calculating the Participant's original Factor, except that such Factor for Participant's who are regular, full-time employees actively at work with the Company on April 1, 1994, with the corporate office or a division or Subsidiary that is not announced as a discontinued operation shall be revised based upon the Participant's actual base salary as of April 1, 1994, but no Factor will be increased as a result of revision of the Factor to use the base salary as of April 1, 1994; provided, however, for a Participant who is a full-time, regular employee actively at work on or after February 1, 1997, the Existing Retirement Benefit Plans Adjustment Factor shall be applied only to the base salary component of Final Average Earnings. 2.15 FINAL AVERAGE EARNINGS. "Final Average Earnings" means the lesser of (i) Actual Final Average Earnings, or (ii) if the Participant has completed at least sixty (60) months of service, Projected Final Average Earnings; however, for a Participant who is actively at work as a full-time, regular employee on or after February 1, 1997 "Final Average Earnings" means Actual Final Average Earnings. 2.16 NORMAL RETIREMENT. "Normal Retirement" means any Termination of Employment during the life of a Participant on or after the date on which the Participant attains age 65. -5- 2.17 PARTICIPANT. "Participant" means any Employee selected to participate in this Plan by the Committee, in its sole and absolute discretion. 2.18 PRIOR SERVICE CREDIT PERCENTAGE. "Prior Service Credit Percentage" means the percentage to be applied to a Participant's Years of Service with Tenet and its Subsidiaries prior to his or her Date of Enrollment in the Plan, in accordance with the following formula:
Years of Service Prior Service Credit After Date of Enrollment Percentage ------------------------ -------------------- During 1st year 25 During 2nd year 35 During 3rd year 45 During 4th year 55 During 5th year 75 After 5th year 100
2.19 PROJECTED EARNINGS. "Projected Earnings" means the (a) actual Earnings of the Participant on the Date of Enrollment plus an assumed increase of eight percent per annum, or (b) for Participants who are regular full-time employees actively at work on April 1, 1994, with the corporate office or a division or a subsidiary that has not been declared to be a discontinued operation, the actual Earnings of the Participant on April 1, 1994, plus an assumed increase of eight percent per annum. 2.20 PROJECTED FINAL AVERAGE EARNINGS. "Projected Final Average Earnings" means the average of a Participant's Projected Earnings during the 60 months preceding Termination of Employment. 2.21 SUBSIDIARY. A "Subsidiary" of the Company is any corporation, partnership, venture or other entity in which the Company owns 50% of the capital stock or otherwise has a controlling interest as determined by the Committee, in its sole and absolute discretion. -6- 2.22 SURVIVING SPOUSE. "Surviving Spouse" means the person legally married to a Participant for at least one year prior to the Participant's death or Termination of Employment. 2.23 TERMINATION OF EMPLOYMENT. "Termination of Employment" means the ceasing of the Participant's Employment for any reason whatsoever, whether voluntarily or involuntarily. 2.24 YEAR. A "Year" is a period of twelve consecutive calendar months. 2.25 YEAR OF SERVICE. "Year of Service" means each complete year (up to a maximum of 20) of continuous Service (up to age 65) as an Employee of Tenet and its Subsidiaries beginning with the Date of Employment with Tenet and its Subsidiaries. Years of Service shall be deemed to have begun as of the first day of the calendar month of Employment and to have ceased on the last day of the calendar month of Employment. -7- SECTION 3 - RETIREMENT BENEFITS 3.1 NORMAL RETIREMENT BENEFIT. a. Upon a Participant's Normal Retirement, the Company agrees to pay to the Participant a monthly Normal Retirement Benefit for the Participant's lifetime which is determined in accordance with the Benefit Formula set forth below, adjusted by the Vesting Percentage in Section 3.3. Except as provided below, the amount of such monthly Normal Retirement Benefit will be determined by using the following formula: X = A x [B1 + [B2 X C]] x [2.7% - D] x E X = Normal Retirement Benefit A = Final Average Earnings B1 = Years of Service After Date of Enrollment B2 = Years of Service Prior to Date of Enrollment C = Prior Service Credit Percentage D = Existing Retirement Benefit Plans Adjustment Factor E = Vesting Percentage Note: B1 and B2 Years of Service combined cannot exceed 20 years. b. In the event of the death or Disability of a Participant at any age or the Normal or Early Retirement of a Participant after age 60, the Normal or Early Retirement Benefit will be determined on the basis of a Prior Service Credit Percentage of 100. -8- c. If a Participant who is receiving a Normal Retirement Benefit dies, his or her Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Normal Retirement Benefit. d. If a Participant who is eligible for Normal Retirement dies while an Employee of the Company after attaining age 65, his or her Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) the installments of the Normal Retirement Benefit which would have been payable to the Surviving Spouse or Eligible Children in accordance with this Section 3.1 as if the Participant had retired on the day before he or she died. 3.2 EARLY RETIREMENT BENEFIT. a. Upon a Participant's Early Retirement, Tenet shall pay the Participant a monthly Early Retirement Benefit for the Participant's lifetime commencing on the first day of the calendar month following the date he or she attains age 65, calculated in accordance with Section 3.1 and Section 3.3 with the following adjustments: (i) Only the Participant's actual Years of Service, adjusted appropriately for the Prior Service Credit Percentage, as of the date of Early Retirement shall be used. -9- (ii) For purposes of determining the Actual Final Average Earnings and Projected Final Average Earnings, only the Participant's Earnings and Projected Earnings as of the date of Early Retirement shall be used. (iii) To arrive at the payments to commence at age 65 for a Participant whose termination occurs prior to February 1, 1997 the amount calculated under paragraphs a(i) and a(ii) of this Section 3.2 will be reduced by 0.42% for each month Early Retirement commences before age 62. To arrive at the payments to commence at age 65 for a Participant who is actively at work as a full-time, regular employee on or after February 1, 1997, the amount calculated under paragraphs a(i) and a(ii) of this Section 3.2 will be reduced by 0.25% for each month Early Retirement commences before age 62. b. Upon the written request of a Participant prior to termination of employment, the Committee, in its sole and absolute discretion, may authorize payment of the Early Retirement Benefit at a date prior to the Participant's attainment of age 65; provided, however, that in such event the amount calculated under paragraphs a(i) and a(iii) of this Section 3.2 shall be further reduced by 0.42% for each month that the date of the commencement of payment precedes the date on which the Participant will attain age 62; however, for a Participant who is actively at work as a full-time, regular employee on or after February 1, 1997, the amount of further reduction under paragraphs a(i) and a(iii) of this Section 3.2 shall be 0.25% for each month that the date of -10- commencement of payment precedes the date on which the Participant will attain age 62. c. If a Participant dies after commencement of payment of his or her Early Retirement Benefit, the Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Early Retirement Benefit. d. If a Participant dies after his or her Early Retirement but before benefits have commenced, or while on Disability, the Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the benefit that would have been payable on the date the Participant elected to have benefits commence. e. If a Participant dies after becoming eligible for Early Retirement but before taking Early Retirement or while on Disability, the Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Early Retirement Benefit determined as if the Participant had retired on the day prior to his or her death with payments commencing on the first of the month following the Participant's death. The benefits payable to a Surviving Spouse or Eligible Children under this paragraph shall be no less than the benefits payable to a Surviving Spouse or Eligible Children under Section 3.4 as if the Participant had died immediately prior to age 55. 3.3 VESTING OF RETIREMENT BENEFIT. A Participant's interest in his or her Retirement Benefit shall, subject to Sections 5.5 and 5.7, vest in accordance with the following schedule: -11-
Vesting Years of Service ------- ---------------- Less than 5 - 0 - 5 but less than 6 25% 6 through 20 5% per year
Notwithstanding the foregoing, a Participant who is at least 60 years old and who has completed at least five years of Service will be fully vested, subject to Sections 5.5 and 5.7, in his or her Retirement Benefits. No Years of Service will be credited for Service after age 65 or for more than 20 years. 3.4 TERMINATION BENEFIT. Upon any Termination of Employment of the Participant before Normal Retirement or Early Retirement for reasons other than death or Disability, Tenet shall pay, commencing at age 65, to the Participant a Retirement Benefit calculated under Section 3.1 and 3.3 but with the following adjustments: a. Only the Participant's actual Years of Service, adjusted appropriately for the Prior Service Credit Percentage, as of the date of Termination of Employment shall be used. b. For purposes of determining the Actual Final Average Earnings and the Projected Final Average Earnings, as used in Section 3.1, only the Participant's Earnings and Projected Earnings prior to the date of his or her Termination of Employment shall be used. -12- c. (i) If a Participant dies after commencement of payment of his or her Retirement Benefit under this Section 3.4, the Surviving Spouse or Eligible Children shall be entitled at Participant's death to receive (in accordance with Sections 3.5 and 3.6) 50% of the Participant's Retirement Benefit. (ii) If a Participant, who has a vested interest under Section 3.3, dies after Termination of Employment but at death is not receiving any Retirement Benefits under this Plan, the Surviving Spouse or Eligible Children shall be entitled to receive (in accordance with Sections 3.5 and 3.6) commencing on the date when the Participant would have attained age 65, 50% of the Retirement Benefit which would have been payable to the Participant at age 65. (iii) If a Participant, who has a vested interest under Section 3.3, dies while still actively employed by Tenet or a Subsidiary or on Disability before he or she was eligible for Early Retirement, his or her Surviving Spouse or Eligible Children shall be entitled at the Participant's death to receive 50% of the Retirement Benefit (in accordance with Sections 3.5 and 3.6) calculated as if the Participant was age 55 and eligible for Early Retirement on the day before the Participant's death; provided, however, that the combined reductions for Early Retirement and early payment shall not exceed 21% of the amount calculated under paragraphs a(i) and a(ii) of Section 3.2. d. To arrive at the payments to commence at age 65, the amount calculated under paragraphs (a), (b), (c)(i) and (c)(ii) of this Section 3.4 will be reduced -13- by the maximum percentage reduction for Early Retirement at age 55 (i.e., 21%). 3.5 DURATION OF BENEFIT PAYMENT. Normal and Early Retirement Benefit payments shall be for the life of the Participant. Surviving Spouse Benefit payments shall be for the Spouse's lifetime. All benefits payable to the Surviving Spouse are subject to actuarial reduction if spouse is more than three years younger than the Participant. Eligible Children Benefit payments shall be made until the youngest of the Eligible Children reaches 21. 3.6 RECIPIENTS OF BENEFIT PAYMENTS. If a Participant dies without a Surviving Spouse but is survived by any Eligible Children, then benefits will be paid to the Eligible Children or their legal guardian, if applicable. The total monthly benefit payable will be equal to the monthly benefit that a Surviving Spouse would have received without actuarial reduction. This benefit will be paid in equal shares to all Eligible Children until the youngest of the Eligible Children attains age 21. If the Surviving Spouse dies after the death of the Participant but is survived by Eligible Children then the total monthly benefit previously paid to the Surviving Spouse will be paid in equal shares to all Eligible Children until the youngest of the Eligible Children attains age 21. When any of the Eligible Children reaches 21, his or her share will be reallocated equally to the remaining Eligible Children. -14- 3.7 DISABILITY. Any Participant, who is under Disability upon reaching age 65 will be paid the Normal Retirement Benefit in accordance with Sections 3.1 and 3.3. Upon a Participant's Disability while an Employee of the Company, the Participant will continue to accrue Years of Service during his or her Disability until the earliest of his or her: a. Recovery from Disability, b. His or her 65th Birthday, or c. Death, If a Participant is receiving Disability payments, he or she shall not be entitled to receive an Early Retirement Benefit. For purposes of calculating the foregoing benefits, the Participant's Actual Final Average Earnings and Projected Final Average Earnings shall be determined using his or her Earnings and Projected Earnings up to the date of Disability. 3.8 CHANGE OF CONTROL. a. In the event of a Change of Control of Tenet while this Plan remains in effect, (i) a Participant's Retirement Benefits hereunder (a) will be determined on the basis of receiving full Prior Service Credit under Sections 3.1 and 3.2 for all Years of Service prior to his or her Date of Enrollment and (b) will be fully vested in the Participant without regard to his or her Years of Service with Tenet and its Subsidiaries and (ii), notwithstanding any other provisions of the Plan, a Participant will be entitled to receive the Normal Retirement Benefit on or after age 60 with no reduction by virtue of paragraphs a(iii) and b of Section 3.2. -15- b. For a Participant who is a regular, full-time employee actively at work on April 1, 1994, with the corporate office or a division or a Subsidiary which has not been declared to be a discontinued operation, who has not yet begun to receive benefit payments under the Plan and whose employment is Terminated without cause or who voluntarily Terminates Employment following (a) a material downward change in the functions, duties, or responsibilities which reduce the rank or position of the Participant, (b) (i) a reduction in the Participant's annual base salary, or (ii) a material reduction in the Participant's annual incentive plan bonus payment other than for financial performance as it broadly applies to all similarly situated active Participants in the same plan, or (iii) a material reduction in the Participant's retirement or supplemental retirement benefits that does not broadly apply to all active Participant's in the same plan, or (c) a transfer of a Participant's office to a location that is more than fifty (50) miles from the Participant's current principal office location, if such Termination of Employment occurs within two years following a Change of Control of Tenet while this Plan remains in effect, the provisions of Section 3.8(a) above shall not apply and (i) a Participant's Early or Normal Retirement Benefits under this Plan (a) will be determined on the basis of (I) receiving full Prior Service Credit under Sections 3.1 and 3.2 for all Years of Service prior to his or her Date of Enrollment and (II) being credited with three additional years to his or her Years of Service (with total Years of Service not to exceed 20 years) and (b) will be fully vested in the Participant without regard to his or her Years of Service with Tenet and its Subsidiaries, (ii) will be determined by replacing -16- the definition of "Earnings" under Section 2.10 hereof with the following "the base salary and the annual cash bonus paid to a Participant by Tenet or a Subsidiary, excluding (A) any cash bonus paid under the LTIP, (B) any car and other allowances and (C) other cash and non-cash compensation", and (iii) notwithstanding any other provision of this Plan to the contrary, a Participant will be entitled to receive the Normal Retirement Benefit on or after the age of 60, without reduction, and after the age of 55 with a reduction of 0.25% per month for each month for which the benefit commences to be paid prior to the Participant's attaining the age of 60 and after the age of 50 with the foregoing reduction from age 60 to age 55 and with a reduction to 0.56% per month for each month for which the benefit commences to be paid prior to the Participant's attaining the age of 55. No other reductions set forth in Sections 3.2(a)(iii) and 3.2(b) will apply. c. For a Participant who (a) is an active, full-time employee, (b) has not yet begun to receive benefit payments under the Plan and (c) is involuntarily terminated from employment without cause or voluntarily terminates employment pursuant to Section 3.8(b) above, within two years following a Change of Control of Tenet while this Plan remains in effect, the provisions of Section 5.7(ii) below shall not apply. 3.9 GOLDEN PARACHUTE CAP. Notwithstanding any provision in this Plan to the contrary, in no event shall the total present value of all payments under this Plan that are payable to a Participant and are contingent upon a Change of Control in accordance with the rules set forth in Section 280G of the Internal Revenue Service Code of 1986, as amended (the "Code") and the Treasury Regulations thereunder, -17- when added to the present value of all other payments, other than payments that are made pursuant to this Plan, that are payable to a Participant and are contingent upon a Change of Control, exceed an amount equal to two hundred and ninety-nine percent (299%) of the Participant's "base amount" as that term is defined in Section 280G of the Code. For purposes of making a calculation under this Section 3.9, the determination of the portion of a payment that shall be treated as contingent upon a Change of Control shall be made in accordance with Proposed Treasury Regulations Section 1.280G-1Q/A-24. SECTION 4 - PAYMENT 4.1 COMMENCEMENT OF PAYMENTS. Payments under this Plan shall begin not later than the first day of the calendar month following the occurrence of an event which entitles a Participant (or a Surviving Spouse or Eligible Children) to payments under this Plan. 4.2 WITHHOLDING; UNEMPLOYMENT TAXES. To the extent required by the law in effect at the time payments are made, Tenet shall withhold from payments made hereunder any taxes required to be withheld by the Federal or any state or local government. 4.3 RECIPIENTS OF PAYMENTS. All payments to be made by Tenet under the Plan shall be made to the Participant during his or her lifetime. All subsequent payments under the Plan shall be made by Tenet to Participant's Surviving Spouse, Eligible Children or their guardian, if applicable. 4.4 NO OTHER BENEFITS. Tenet shall pay no benefits hereunder to the Participant, his or her Surviving Spouse, Eligible Children or their legal guardian, if applicable, by -18- reason of Termination of Employment or otherwise, except as specifically provided herein. 4.5 LUMP SUM DISTRIBUTIONS. At any time following a Termination of Employment which occurs within two (2) years after a Change of Control or following an Early Retirement or a Normal Retirement, a Participant, or the Surviving Spouse of a Participant, who has a vested interest in the Plan may elect to receive a lump sum payment, in an amount determined below, sixty (60) days after giving notice to the Committee of the Participant's, or the Participant's Surviving Spouse's, desire to receive such lump sum benefit. The date of the notice shall be the "Commencement Date." The lump sum payment shall be determined in accordance with the following provisions of this Section 4.5, and then shall be reduced by a penalty equal to ten percent (10%) of such payment which shall be forfeited to Tenet. However, the penalty shall not apply if the Committee determines, based on the advice of counsel or a final determination by the Internal Revenue Service or any court of competent jurisdiction, that by reason of the foregoing elective provisions of this Section 4.5 any Participant, Surviving Spouse or Eligible Children has recognized or will recognize gross income for federal income tax purposes under this Plan in advance of payment to him or her of Plan benefits. Tenet shall notify all Participants (and Surviving Spouses or Eligible Children of deceased Participants) of any such determination. Wherever any such determination is made, Tenet shall refund all penalties which were imposed hereunder on account of making lump sum payments at any time during or after the first year to which such determination applies (i.e., the first year when gross income is recognized for federal income tax purposes). Interest shall be paid on any such refunds based on -19- an interest factor determined under Section 4.5b hereof. The Committee may also reduce or eliminate the penalty if it determines that this action will not cause any Participant to recognize gross income for federal income tax purposes under this Plan in advance of payment to him or her of Plan benefits. Notwithstanding any other provision of this Plan, a penalty shall not apply if a retired Participant or the Surviving Spouse or Eligible Children of a deceased Participant receives a lump sum distribution due to a financial hardship. The Committee shall determine whether a financial hardship exists in its sole discretion, but in good faith and on a uniform, nondiscriminatory and reasonable basis. A hardship distribution shall be a cash payment not to exceed the amount necessary to relieve the hardship. a. When monthly benefit payments have not yet commenced and the Participant is living on the Commencement Date, the lump sum payment (prior to the ten percent (10%) reduction) shall equal the lump sum value of the Participant's Early Retirement Benefit or Normal Retirement Benefit as of the Commencement Date. The amount described in this Section 4.5a shall include, in addition, in the case of a Participant who has a spouse or Eligible Children on the Commencement Date, the lump sum value, determined as of such date, of any benefit payable to a Surviving Spouse or Eligible Children by reason of the Participant's death on or after such date assuming such spouse would qualify as a Surviving Spouse on and after such date. The lump sum amount representing the value of the benefits described in the preceding two sentences shall be computed (i) first by reducing the amount of the Participant's monthly benefit payable under -20- Section 3.2 hereof, if the Participant's Commencement Date occurs before the Participant's Normal Retirement date, (ii) then determining the survivor benefit which would be payable to a Surviving Spouse or Eligible Children in respect of such monthly benefit under Section 3.1c or Section 3.2c whichever is applicable, and (iii) next commuting such benefits to their lump sum equivalent at the Commencement Date by reference to the factor described in Section 4.5b. In computing the Participant's monthly benefit under clause (i) of the preceding sentence, if the Commencement Date occurs before the earliest date when the Participant may commence to receive his or her Early Retirement Benefit, the Participant's Early Retirement Benefit shall be computed as the annual actuarial equivalent of the Early Retirement Benefit which would be payable to him or her at the earliest date when benefits could commence under the Early Retirement provisions of Section 3.2, in the form of a single life annuity. -21- When annual benefits have previously commenced, the lump sum payment (prior to the ten percent (10%) reduction) shall be equal to the difference between (A) minus (B) below, determined as of the Participant's Commencement Date, accumulated to the date of the lump sum payment using the same interest rate which is used in calculating the amounts (A) and (B): (A) The lump sum value of the monthly benefits payable to the Participant (including any benefit payable to the Surviving Spouse or Eligible Children) determined as of the Participant's Commencement Date in the same manner as described in the previous paragraph. (B) The lump sum value of the monthly benefits previously paid to the Participant discounted to the Participant's Commencement Date. When a Surviving Spouse of a deceased Participant elects to receive a lump sum payment, the amount of the lump sum payment shall be determined by the Committee in a manner similar to that used for a Participant, except that the lump sum payment shall only reflect the benefit which would be payable to a Surviving Spouse and Eligible Children. All lump sum equivalents hereunder shall be determined by reference to the factor described in Section 4.5b. b. The factor described in this Section 4.5b is the actuarial equivalence factor of the Pension Benefit Guaranty Corporation applicable to plans terminating on the Commencement Date. -22- SECTION 5 - CONDITIONS RELATED TO BENEFITS 5.1 ADMINISTRATION OF PLAN. The Committee has been authorized to administer the Plan and to interpret, construe and apply its provisions in accordance with its terms. The Committee shall administer the Plan and shall establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. All decisions of the Committee shall be by vote or written consent of the majority of its members and shall be final and binding. Members of the Committee shall not be eligible to participate in the Plan while serving as a member of the Committee. 5.2 NO RIGHT TO ASSETS. Neither a Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of Tenet and its subsidiaries whatsoever including, without limiting the generality of the foregoing, any specific funds or assets which Tenet, in its sole discretion, may set aside in anticipation of a liability hereunder. Tenet has established the 1994 Supplemental Executive Retirement Plan Trust, dated May 25, 1994 and amended and restated on July 25, 1994 (the "Trust"). Without limiting the generality of the foregoing, Section 1(d) of the Trust provides as follows: -23- Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of Tenet. Any rights created under the Plan and this Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. A Participant shall have only an unsecured contractual right to the amounts, if any, payable hereunder. 5.3 NO EMPLOYMENT RIGHTS. Nothing herein shall constitute a contract of continuing employment or in any manner obligate Tenet and its Subsidiaries to continue the service of a Participant, or obligate a Participant to continue in the service of Tenet and its Subsidiaries, and nothing herein shall be construed as fixing or regulating the compensation paid to a Participant. 5.4 RIGHT TO TERMINATE OR AMEND. Except during any two year period after any Change of Control of Tenet, Tenet reserves the sole right to terminate the Plan at any time and to terminate an Agreement with any Participant at any time. In the event of termination of the Plan or of a Participant's Agreement, a Participant shall be entitled to only the vested portion of his or her accrued benefits under Section 3 of the Plan as of the time of the termination of the Plan or his or her Agreement. All further vesting and benefit accrual shall cease on the date of Plan or Agreement termination. Benefit payments would be in the amounts specified and would commence at the time specified in Section 3 as appropriate. Tenet further reserves -24- the right in its sole discretion to amend the Plan in any respect except that Plan benefits cannot be reduced during any two-year period after any Change of Control of Tenet. No amendment of the Plan (whether there has or has not been a Change of Control of Tenet) that reduces the value of the benefits theretofore accrued and vested by the Participant shall be effective. 5.5 ELIGIBILITY. Eligibility to participate in the Plan is expressly conditional upon an Employee's furnishing to Tenet certain information and taking physical examinations and such other relevant action as may be reasonably requested by Tenet. Any Employee Participant who refuses to provide such information or to take such action shall not be enrolled as or cease to be a Participant under the Plan. Any Participant who commits suicide during the two-year period beginning on the date of his or her Agreement, or who makes any material misstatement of information or non-disclosure of medical history, will not receive any benefits hereunder unless, in the sole discretion of the Committee, benefits in a reduced amount are awarded. 5.6 OFFSET. If at the time payments or installments of payments are to be made hereunder, any Participant or his or her Surviving Spouse or both are indebted to Tenet and its Subsidiaries, then the payments remaining to be made to the Participant or his or her Surviving Spouse or both may, at the discretion of the Committee, be reduced by the amount of such indebtedness; provided, however, than an election by the Committee not to reduce any such payment or payments shall not constitute a waiver of any claim for such indebtedness. 5.7 CONDITIONS PRECEDENT. No Retirement Benefits will be payable hereunder to any Participant (i) whose Employment with Tenet or a Subsidiary is terminated because of his or her willful misconduct or gross negligence in the performance of his or her -25- duties or (ii) who within 3 years after Termination of Employment becomes an employee with or consultant to any third party engaged in any line of business in competition with Tenet and its Subsidiaries (a) in a line of business in which Participant has performed Services for Tenet and its Subsidiaries or (b) that accounts for more than ten percent (10%) of the gross revenues of Tenet and its Subsidiaries taken as a whole. SECTION 6 - MISCELLANEOUS. 6.1 NON-ASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance any provision hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any person's bankruptcy or insolvency. Tenet may assign this Plan to any Subsidiary which employs any Participant. 6.2 GENDER AND NUMBER. Wherever appropriate herein, the masculine may mean the feminine and the singular may mean the plural or vice versa. 6.3 NOTICE. Any notice required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of Tenet, directed to the attention of the Secretary of the Committee. Such notice shall be deemed given as of the date of -26- delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification. 6.4 VALIDITY. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 6.5 APPLICABLE LAW. This Plan shall be governed and construed in accordance with the laws of the State of California. 6.6 SUCCESSORS IN INTEREST. This Plan shall inure to the benefit of, be binding upon, and be enforceable by, any corporate successor to Tenet or successor to substantially all of the assets of Tenet. 6.7 NO REPRESENTATION ON TAX MATTERS. Tenet makes no representation to Participants regarding current or future income tax ramifications of the Plan. -27- EX-13 7 EXHIBIT 13 1998 ANNUAL REPORT TENET HEALTHCARE CORPORATION '98 REPORT TENET and its subsidiaries own and operate 122 general hospitals and many related healthcare services. In communities across the U.S., our 116,800 dedicated people--including physicians, nurses and support staff--treated millions of patients last year. Their work embodied the core business philosophy reflected in our name: the importance of shared values among partners providing a full spectrum of quality healthcare. 1 Financial Highlights 3 Letter to Shareholders 8 Financial Summary 9 Management's Discussion and Analysis 19 Report of Independent Auditors 20 Consolidated Balance Sheets 21 Consolidated Statements of Operations 22 Consolidated Statements of Comprehensive Income 23 Consolidated Statements of Changes in Shareholders' Equity 24 Consolidated Statements of Cash Flows 25 Notes to Consolidated Financial Statements 41 Supplementary Financial Information 42 Directors and Management 44 Corporate Information TENET FINANCIAL HIGHLIGHTS HEALTHCARE CORPORATION AND SUBSIDIARIES
(DOLLARS IN MILLIONS) 1994 1995 1996 1997 1998 - ---------------------------------------------------------------------------------------- Admissions 361,377 470,027 714,058 786,887 872,433 Patient days 2,022,109 2,569,427 3,771,928 4,099,709 4,547,312 Net operating revenues $4,218 $5,161 $7,706 $8,691 $9,895 Net income (loss) (484) 236 450 (254) 261 Total assets 5,543 9,787 10,768 11,705 12,833 Shareholders' equity 1,648 2,379 3,277 3,224 3,558
ADMISSIONS (in thousands) - -------------------------------------------------------------------------------- Strengthening our hospital networks -- through operational strategies and acquisitions of additional hospitals -- has generated sizeable yearly increases in admissions. [BAR GRAPH] NET OPERATING REVENUES (Dollars in billions) - -------------------------------------------------------------------------------- We've more than doubled our revenues over the past five years as we've grown to 122 general hospitals nationwide. [BAR GRAPH] SHAREHOLDERS' EQUITY (Dollars in billions) - -------------------------------------------------------------------------------- Our shareholders' equity -- or the net worth of the Company -- has risen 216 percent over the past five years. [BAR GRAPH] 1 FISCAL YEAR '98 HIGHLIGHTS - - Net operating revenues up 14% - - Operating income before special items increased 17% - - Diluted earnings per share from operations up 18%, before special items - - Completed integration of 56 recently acquired hospitals into existing operations - - Created strong St. Louis network through acquisitions of four hospitals - - Named 2nd Most Admired Healthcare Company by FORTUNE MAGAZINE 2 TO OUR SHAREHOLDERS By virtually any measure, fiscal 1998 was a productive year for Tenet, its employees, partners and shareholders. We successfully integrated into our operations the 50 hospitals acquired in the prior year's purchase of OrNda HealthCorp. We completed the acquisition of six additional hospitals, developing a major new market and strengthening our networks in other markets. In the midst of these achievements, our largest customer, the federal government, cut its payments to us in the form of sweeping Medicare changes. Despite this substantial challenge, we continued to perform well, generating solid growth in admissions and profitability. Operating income, excluding the effect of all special items, rose 17 percent on a revenue increase of 14 percent. Diluted earnings per share from continuing operations, excluding all special items, rose 18 percent. The key to our success is innovative management of a strong portfolio of hospitals. Our strategy centers on the development of integrated networks of hospitals and healthcare services. This network approach allows us to consolidate facilities and programs, creating stronger and more efficient ones, while cutting excess administrative overhead. It also allows us to offer a full spectrum of services across a broad geographic area, all with a lower cost structure--which is what payors want from healthcare providers today. Many of our innovations in fiscal 1998 arose out of our acquisition of OrNda in late fiscal 1997. The majority of OrNda's hospitals complemented Tenet's existing hospital networks, strengthening them in important markets. Our Southern California operations provide a case in point. The OrNda acquisition more than doubled our presence in this sprawling, urban area, adding 18 hospitals to Tenet's then-existing 15. We streamlined the combined network, eliminating excess capacity, redundant services and duplicative overhead. Today, the network includes 31 hospitals run by 20 management teams, promoting better coordination among our hospitals and saving approximately $7 million annually in overhead costs. The opportunities for capitalizing on economies of scale in this market are impressive, too. For example, the on-site labs at these hospitals perform nearly 7 million clinical lab tests annually. In January, we signed an agreement with a leading laboratory company to consolidate these separate labs, creating two central, high-volume labs for non-urgent testing and converting the remaining hospital-based labs to rapid-response, urgent testing centers. This initiative alone is expected to save the network $7 million to $9 million each year once it is fully implemented. And that's just one example--we're also flexing our more defined muscle in terms of local purchasing power for services like laundry, security and medical records 3 95% OF ALL TENET PATIENTS AND 97% OF ALL TENET OUTPATIENT SURGERY PATIENTS INTERVIEWED SAID THEY WOULD RETURN TO THE SAME FACILITY. transcription. We expect these types of local initiatives to save an additional $4 million to $6 million per year in Southern California alone. All of these cost-efficiency initiatives are unrelated to direct patient care--a critical distinction. We are cutting overhead, supply costs, and so on--in effect, we are wringing out excess administration. These approaches represent a unique and necessary means to protect quality of care at a time when we must meet payors' demands to cut costs. At the same time, we are using our combined strength to improve our business with insurance companies that offer managed care, which cover about 40 percent of the total population--or about half of the insured population--in Southern California. First, we centralized all our managed care contracting, creating a regional contracting team rather than having each hospital negotiate its own contracts. This offered immediate overhead savings. More importantly, it also enabled us to leverage the strength of the network as a whole. We now negotiate on behalf of the entire network, rather than individual hospitals. As a result, we've been able to negotiate better terms in existing contracts and to gain new contracts that previously were unattainable. Capturing more of the growing managed care market is a critical part of our strategy nationwide. As government programs have continued to cut payments and traditional fee-for-service business has declined, managed care represents a major area for potential growth. Clearly, it's a strategy we've implemented successfully--today, managed care accounts for approximately one-third of our net patient revenues system-wide, up from only one-quarter in 1995. Another area for potential growth is the acquisition of additional hospitals to bolster our existing networks. In fiscal 1998, we acquired six hospitals with 1,871 beds in strategically important markets. Those six facilities generate about $657 million in annual net operating revenues. It's a substantial addition, but still, a bit less than the previous year, when we acquired 11 hospitals with just over $1 billion in annual revenues. There are many reasons for this slower pace of acquisitions. First and foremost, the process simply takes longer today. Several states have passed legislation requiring various state reviews and approvals of any pending sale of a not-for-profit hospital to a for-profit organization. Such processes have never stopped any of our pending acquisitions, but they have definitely drawn out the time necessary to complete a transaction. Additionally, many boards of directors presiding over the sale of their not-for-profit hospitals are being more deliberate in their actions. For our part, we are conducting more intensive due diligence, particularly in terms of the hospital's historical and current compliance with changing healthcare laws and regulations. The acquisitions we want are those where we can create value. Specifically, we look for hospitals that will complement and enhance our existing networks. For example, through two of our fiscal 1998 acquisitions, we developed a major new market: St. Louis. At the beginning of the year, we had only one hospital there--the 408-bed Lutheran Medical Center, which was overshadowed by three local hospital systems that dominated the market. Our 4 CAPTURING MANAGED CARE CONTRACTS (Percent) The growing managed care market now represents approximately one-third of Tenet's net patient revenues. [BAR GRAPH] choice was clear: leave the area or expand. We chose the latter, purchasing two unaffiliated healthcare providers that were also overshadowed. In June 1997, we acquired Deaconess Incarnate Word Health System, a three-hospital, 1,030-bed system. The following February, we acquired the 356-bed Saint Louis University Hospital, a highly respected quaternary academic medical center in the heart of the city. Today, we are a major force in the market, with a five-hospital system offering highly sophisticated medical care. Our St. Louis story demonstrates our basic development philosophy: grow where you know. We focus on strengthening our existing operations by building integrated networks around them. These are the opportunities that provide important market synergies, like those gained in Southern California. We do consider opening new markets, but it is those opportunities that allow us to enter the market in size, or with a significant local partner, that are intriguing to us. We continue to focus our development efforts in large metropolitan areas, the population centers where we can develop integrated healthcare delivery networks and make the largest impact. Forty-six of our hospitals are now located in the 10 fastest growing counties in the nation. Despite our most recent acquisitions, we ended the year with fewer hospitals than when we began -- 122, down from 128 a year ago. This is because we divested 12 nonstrategic facilities from our hospital portfolio, either through consolidation, sale, conversion or closure. We want to be the provider of choice in each community we serve. And if we can't build a premier network in a community, we'll exit that market. We did just that in five states last year. For us, it's not about building a national presence or being the largest hospital services company. It's about building a strong portfolio of hospitals that are valued as providers of choice in their communities. As we've strengthened our portfolio of hospitals, it has posted better results. In 1998, our hospitals generated higher patient volumes, which rose 2.5 percent on a same-facility basis and 10.9 percent in total, compared to the year-ago results. We've built strong integrated networks in Southern California, South Florida, New Orleans, El Paso, St. Louis and areas of Central and Northern California. We continue to build stronger networks in Birmingham, the Carolinas, New England and parts of Texas, Arkansas and Georgia. Holding on to those strong competitive positions demands prudent management. It certainly demands more than just growing revenues and cutting costs. At the heart of it, healthcare is not just another business -- it is a vital service to the community. We must meet our patients' needs. If not, they will go elsewhere. That's why we regularly survey patients after they are discharged to find out what they thought about their stay in our hospitals. We ask them about everything from the quality of the nursing care they received to the temperature and flavor of the food they were 5 IN 1998, WE INVESTED MORE THAN $400 MILLION IN NEARLY 170 CAPITAL PROJECTS TO MAINTAIN, ENHANCE AND EXPAND OUR EXISTING HOSPITALS AND SERVICES. served. This year, of the more than 87,000 people surveyed, 95 percent said that they would return to that Tenet hospital. That's a good score--a solid 'A' by most standards. Further, it's a score that all of our hospital management teams are motivated to improve, because their compensation is based in part upon their individual hospital's score. Maintaining strong competitive positions in our markets also demands ongoing capital investments. In 1998, we invested more than $400 million to maintain, expand and enhance our existing hospitals and services. For example, we invested more than $13 million to enhance the cardiology program at Piedmont Healthcare System in Rock Hill, S.C. Piedmont, a 268-bed tertiary hospital, is the sole hospital serving a growing bedroom community of Charlotte. Since the early 1990s, the hospital's cardiology and cardiac catheterization programs have grown extensively. By offering more sophisticated services--like open heart surgery--locally, patients are no longer forced to leave the community for their care, and the hospital enjoys a new source of revenues. As for other highlights in the year, a FORTUNE MAGAZINE survey of healthcare executives, outside directors and analysts, named Tenet the second-most-admired healthcare company in the nation. We joined the American Hospital Association to solidify ranks with our not-for-profit colleagues. And we established the Tenet Healthcare Foundation, a new charitable arm of our company, to contribute to the communities where our patients and employees live and work. Our accomplishments throughout the year are due to the hard work and dedication of the 116,800 people working in our hospitals, treatment centers and support offices across the country. Some companies can revolutionize systems or products to ensure their continued success. We are a service business and our continued success rests squarely with the people we employ. So we'd like to take this opportunity to publicly thank them for their constant diligence and innovation. Looking Ahead The 1990s have been marked by intense regulatory scrutiny of healthcare providers. We fully expect this to continue in the foreseeable future. At Tenet, we have sophisticated compliance and ethics programs designed to help ensure that all of our employees know the appropriate rules and guidelines, and consistently apply them in their daily responsibilities. But, with 116,800 employees nationwide, it is impossible for us to eliminate the risk that problems may arise. We can only say that we take these matters extremely seriously, consistently encourage our employees to do the right thing, and work diligently to identify and correct any potential problems as quickly as possible. 6 TENET RANKED AS 2ND MOST ADMIRED HEALTHCARE COMPANY COMPANY - -------------------------------------------------------------------------------- FORTUNE MAGAZINE surveyed top executives, outside directors and securities analysts to determine the most admired healthcare companies in America. The companies were measured by eight criteria: 1. Innovativeness 2. Quality of Management 3. Employee Talent 4. Quality of Products/Services 5. Long-term Investment Value 6. Financial Soundness 7. Social Responsibility 8. Use of Corporate Assets As we look to the future, we also expect continued cuts in reimbursement. The Medicare cuts passed as part of the Balanced Budget Act of 1997 will continue to phase in over the next five years. None of the specific changes are expected to be significant to Tenet, but taken together, in sum, they represent a sizeable reduction. We have already taken action to mitigate the impact of these cuts. As the Medicare cuts signal, there are significant challenges in healthcare today. Only strong providers with a culture of continuous improvement in quality and efficiency will withstand these pressures. Indeed, this latest round of cuts may spur additional consolidation within the hospital industry. There remains substantial over-capacity among U.S. hospitals, and tremendous, ingrained inefficiency in how hospitals have traditionally been managed. And therein lies the future opportunity for Tenet. We believe that these growing pressures may increase the number of acquisition opportunities in the future. And we believe we have much to offer hospitals seeking a strategic partner. As our results demonstrate, we've developed a strategy to reduce inefficiencies, eliminate excess capacity, ensure quality and meet the specific healthcare needs of each community we serve. This is an extraordinary time in the healthcare industry, now a $1 trillion-plus business and growing. The elderly--the highest users of healthcare services--numbered one in eight Americans in 1994. The aging of the Baby Boomer generation over the next 20 to 30 years is expected to drive that ratio to one in every five. With healthcare a fundamental necessity, this demographic shift represents both the challenge and the opportunity for Tenet and all healthcare providers in the years ahead. Sincerely, /s/ Jeffrey C. Barbakow Jeffrey C. Barbakow CHAIRMAN AND CHIEF EXECUTIVE OFFICER /s/ Michael H. Focht Sr. Michael H. Focht Sr. PRESIDENT AND CHIEF OPERATING OFFICER 7 FINANCIAL SUMMARY TENET HEALTHCARE CORPORATION AND SUBSIDIARIES Selected Financial Data Continuing Operations
YEARS ENDED MAY 31, -------------------------------------------------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1994 1995 1996 1997 1998 -------------------------------------------------- OPERATING RESULTS: Net operating revenues $ 4,218 $ 5,161 $ 7,706 $ 8,691 $ 9,895 Operating expenses: Salaries and benefits 1,868 2,170 3,130 3,574 4,052 Supplies 498 668 1,056 1,197 1,375 Provision for doubtful accounts 193 260 431 494 588 Other operating expenses 942 1,178 1,646 1,829 2,071 Depreciation 199 232 319 335 347 Amortization 25 44 100 108 113 Merger, facility consolidation and other charges 110 37 86 740 221 -------------------------------------------------- Operating income 383 572 938 414 1,128 Interest expense, net of capitalized portion (157) (251) (425) (417) (464) Investment earnings 31 32 27 26 22 Equity in earnings of unconsolidated affiliates 27 43 25 1 -- Minority interests in income of consolidated subsidiaries (12) (10) (30) (27) (22) Net gains (losses) on disposals of facilities and long-term investments 42 31 346 (18) (17) -------------------------------------------------- Income (loss) from continuing operations before income taxes 314 417 881 (21) 647 Taxes on income (145) (151) (383) (52) (269) -------------------------------------------------- Income (loss) from continuing operations $ 169 $ 266 $ 498 $ (73) $ 378 -------------------------------------------------- -------------------------------------------------- Diluted earnings (loss) per common share from continuing operations $0.75 $1.07 $ 1.70 $ (0.24) $ 1.22 -------------------------------------------------- -------------------------------------------------- Cash dividends per common share $0.12 -- -- -- -- -------------------------------------------------- -------------------------------------------------- AS OF MAY 31, -------------------------------------------------- 1994 1995 1996 1997 1998 -------------------------------------------------- BALANCE SHEET DATA: Working capital (deficit) $ (190) $ 273 $ 499 $ 522 $ 1,123 Total assets 5,543 9,787 10,768 11,705 12,833 Long-term debt, net of current portion 1,290 4,287 4,421 5,022 5,829 Shareholders' equity 1,648 2,379 3,277 3,224 3,558 Book value per common share $ 7.33 $ 9.13 $ 11.13 $ 10.65 $ 11.50
8 TENET MANAGEMENT'S DISCUSSION AND ANALYSIS OF HEALTHCARE FINANCIAL CONDITION AND RESULTS OF OPERATIONS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS The healthcare industry continues to undergo tremendous change, driven primarily by (1) cost-containment pressures by government payors, managed care providers and others, and (2) technological advances that require increased capital expenditures. To address these changes, Tenet has implemented various cost-control programs and overhead-reduction plans, and continues to create strong integrated healthcare delivery systems. The Company reported income from continuing operations before income taxes of $881 million in 1996, a pretax loss from continuing operations of $21 million in 1997 and income from continuing operations before income taxes of $647 million in 1998. The most significant transactions affecting the results of continuing operations in the last three years have been: (1) a series of acquisitions and divestitures (See Note 3 of Notes to Consolidated Financial Statements herein), and (2) merger, facility consolidation and impairment charges (See Note 4 of Notes to Consolidated Financial Statements herein). Fiscal 1996 also includes gains from sales of the Company's interests in its hospitals and related healthcare businesses in Singapore, Australia, Malaysia and Thailand, its interest in Westminster Health Care Holdings, PLC ("Westminster"), the sale of the Company's investment in preferred stock of The Hillhaven Corporation ("Hillhaven"), and the exchange of its interest in the common stock of Hillhaven for common stock of Ventas, Inc., formerly known as Vencor, Inc. ("Ventas"). Fiscal 1997 includes a noncash charge relating to increases in the index value of certain of the Company's long-term debt. Fiscal 1998 includes losses on the disposition of shares of common stock in unconsolidated affiliates and a reversal of the noncash charge taken in fiscal 1997. The pretax impact of these items is shown below:
(DOLLARS IN MILLIONS) 1996 1997 1998 ----------------------------- Gain (loss) on sales of facilities and long-term investments, net $ 346 $ (18) $ (17) Merger, facility consolidation and impairment charges (86) (740) (221) ----------------------------- Net pretax impact (after tax, diluted per share: $0.43 in 1996, ($1.70) in 1997 and $0.51 in 1998) $ 260 $ (758) $ (238) ----------------------------- -----------------------------
Excluding the items in the table above, income from continuing operations before income taxes would have been $621 million in 1996, $737 million in 1997 and $885 million in 1998. FOCUSING EMPLOYEE RESOURCES IN OUR HOSPITALS ----------------------------------------------------------------
Number of % of Total Employees Workforce Hospital and other businesses 115,670 99.03% Operations Center and support offices 1,000 0.86% Corporate 130 0.11% ---------------------------------------------------------------- ---------------------------------------------------------------- Total 116,800 100.00%
9 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES The following is a summary of continuing operations for the past three fiscal years:
(DOLLARS IN MILLIONS) (PERCENTAGE OF NET OPERATING REVENUES) -------------------------------- -------------------------------------- 1996 1997 1998 1996 1997 1998 -------------------------------- ----------------------------- Net operating revenues: Domestic general hospitals $ 7,183 $ 7,932 $ 8,997 93.2% 91.3% 90.9% Other domestic operations(1) 472 759 898 6.1% 8.7% 9.1% International operations 51 -- -- 0.7% -- -- -------------------------------- ----------------------------- $ 7,706 $ 8,691 $ 9,895 100.0% 100.0% 100.0% -------------------------------- ----------------------------- Operating expenses: Salaries and benefits (3,130) (3,574) (4,052) 40.6% 41.1% 41.0% Supplies (1,056) (1,197) (1,375) 13.7% 13.8% 13.9% Provision for doubtful accounts (431) (494) (588) 5.6% 5.7% 5.9% Other operating expenses (1,646) (1,829) (2,071) 21.4% 21.0% 20.9% Depreciation (319) (335) (347) 4.1% 3.9% 3.5% Amortization (100) (108) (113) 1.3% 1.2% 1.2% -------------------------------- ----------------------------- Operating income before merger, facility consolidation and impairment charges 1,024 1,154 1,349 13.3% 13.3% 13.6% Merger, facility consolidation and impairment charges (86) (740) (221) 1.1% 8.5% 2.2% -------------------------------- ----------------------------- Operating income $ 938 $ 414 $ 1,128 12.2% 4.8% 11.4% -------------------------------- ----------------------------- -------------------------------- -----------------------------
(1) NET OPERATING REVENUES OF OTHER DOMESTIC OPERATIONS CONSIST PRIMARILY OF REVENUES FROM (i) PHYSICIAN PRACTICES; (ii) REHABILITATION HOSPITALS, LONG-TERM-CARE FACILITIES, PSYCHIATRIC AND SPECIALITY HOSPITALS THAT ARE LOCATED ON OR NEAR THE SAME CAMPUSES AS THE COMPANY'S GENERAL HOSPITALS; (iii) HEALTHCARE JOINT VENTURES OPERATED BY THE COMPANY; AND (iv) SUBSIDIARIES OF THE COMPANY OFFERING MANAGED CARE AND INDEMNITY PRODUCTS. The table below sets forth certain selected historical operating statistics for the Company's domestic general hospitals:
INCREASE (DECREASE) 1996 1997 1998 1997 TO 1998 --------------------------------------- ------------------ Number of hospitals (at end of period) 122 128 122 (6)* Licensed beds (at end of period) 25,699 27,959 27,867 (0.3)% Net inpatient revenues (in millions) $4,744 $5,227 $5,843 11.8% Net outpatient revenues (in millions) $2,283 $2,515 $2,978 18.4% Admissions 714,058 786,887 872,433 10.9% Equivalent admissions(1) 1,017,514 1,124,397 1,268,264 12.8% Average length of stay (days) 5.3 5.2 5.2 -- Patient days 3,771,928 4,099,709 4,547,312 10.9% Equivalent patient days(1) 5,432,612 5,817,251 6,557,525 12.7% Net inpatient revenues per patient day $1,258 $1,275 $1,285 0.8% Net inpatient revenues per admission $6,643 $6,643 $6,697 0.8% Utilization of licensed beds 41.6% 42.5% 44.0% 1.5%* Outpatient visits 8,174,002 9,997,266 10,402,957 4.1%
* THE CHANGE IS THE DIFFERENCE BETWEEN THE 1997 AND 1998 AMOUNTS SHOWN. (1) EQUIVALENT ADMISSIONS/PATIENT DAYS REPRESENTS ACTUAL ADMISSIONS/PATIENT DAYS ADJUSTED TO INCLUDE OUTPATIENT AND EMERGENCY ROOM SERVICES BY MULTIPLYING ACTUAL ADMISSIONS/PATIENT DAYS BY THE SUM OF GROSS INPATIENT REVENUES AND OUTPATIENT REVENUES AND DIVIDING THE RESULT BY GROSS INPATIENT REVENUES. 10 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES The table below sets forth certain selected operating statistics for the Company's domestic general hospitals, on a same-facility basis:
1997 1998 INCREASE (DECREASE) ------------------------ ------------------- Average licensed beds 24,500 24,465 (0.1)% Patient days 3,927,037 4,000,874 1.9% Net inpatient revenue per patient day $1,277 $1,290 1.0% Admissions 752,336 771,443 2.5% Net inpatient revenue per admission $6,667 $6,689 0.3% Outpatient visits 9,582,056 9,129,446 (4.7)% Average length of stay (days) 5.2 5.2 --
The Company continues to experience increases in inpatient acuity and intensity of services as less intensive services shift from an inpatient to an outpatient basis or to alternative healthcare delivery services because of technological and pharmaceutical improvements and continued pressures by payors to reduce admissions and lengths of stay. In spite of the historical shifts from inpatient to outpatient services, the Company experienced a 4.7% decline in the number of same-facility outpatient visits during 1998 compared to 1997. This decline was due to (1) fewer home health care visits, primarily due to the effect of new Medicare reimbursement rules which restrict the number and types of visits for which Medicare will pay, and (2) the Company's subsequent efforts to respond to them. In response to these changes, the Company is consolidating certain home health care agencies and closing others and has begun to focus on increasing the numbers of higher intensity home visits. The Medicare program accounted for approximately 40% of the net patient revenues of the Company's domestic general hospitals in 1996 and 1997. The percentage in 1998 was approximately 38%. Changes in Medicare payments mandated by the Balanced Budget Act of 1997 (the "1997 Act"), which became effective October 1, 1997, as well as certain proposed changes to various states' Medicaid programs, have and will continue to significantly reduce payments as the changes are phased in over the next five years. The 1997 Act also contains various provisions that allow providers such as Tenet to contract directly with the federal government for the provision of medical care to Medicare beneficiaries on a fully capitated basis. Under capitation, the Company receives a certain amount for each person enrolled in its plans and assumes the risks and rewards of meeting the healthcare needs of those enrolled persons. The Company may purchase insurance to cover a portion of the cost of meeting the healthcare needs of those covered. The Company cannot predict at this time what the ultimate effect of capitated arrangements with the federal government, if any, will be. Pressures to control healthcare costs have resulted in an increase in the number of patients choosing managed care plans for their healthcare coverage. The percentage of net patient revenues of the Company's domestic general hospitals attributable to managed care increased from approximately 27.6% in 1996 to approximately 29.5% in 1997 and 33.7% in 1998. The Company anticipates that its managed care business will continue to increase in the future. The Company generally receives lower payments per patient from managed care payors than it does from traditional indemnity insurers. The Company also is assuming a greater share of risk by entering into capitated arrangements with managed care payors and employers. The Company estimates that approximately 5.0% of its revenues were derived from capitated arrangements in the year ended May 31, 1998. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES To address the effect of reduced payments for services, while continuing to provide quality care to patients, the Company has implemented strategies to reduce inefficiencies, create synergies, obtain additional business and control costs. Such strategies include hospital cost-control programs and overhead reduction plans and the formation of integrated healthcare delivery systems. Further consolidations or implementation of additional cost-control programs may be necessary in the future to offset the reduced payments under the 1997 Act. Net operating revenues from the Company's other domestic operations were $472 million in 1996, $759 million in 1997 and $898 million in 1998. These increases primarily relate to the growth of its physician practices, most of which were acquired as part of hospital acquisitions. The Company does not expect to acquire any significant additional physician practices unless they are included in a hospital acquisition. Salaries and benefits expense as a percentage of net operating revenues has remained essentially flat at 40.6% in 1996, 41.1% in 1997 and 41.0% in 1998. Supplies expense as a percentage of net operating revenues was 13.7% in 1996, 13.8% in 1997 and 13.9% in 1998. These increases relate primarily to greater patient acuity. The Company expects to continue to focus on reducing supplies expense by incorporating acquired facilities into the Company's existing group-purchasing program, and by developing and expanding various other programs designed to improve the purchasing and utilization of supplies. The provision for doubtful accounts as a percentage of net operating revenues was 5.6% in 1996, 5.7% in 1997 and 5.9% in 1998. The increases are partially attributable to a shift in revenues from Medicare and Medicaid to managed care. Also, they relate to recent acquisitions and payment delays by various payors. Other operating expenses as a percentage of net operating revenues were 21.4% in 1996, 21.0% in 1997, and 20.9% in 1998. The improvement in the current year is the result of the continued emphasis on cost-control and overhead reduction plans. Depreciation and amortization expense was $419 million in 1996, $443 million in 1997 and $460 million in 1998. The increases in 1997 and 1998 are primarily due to the effects of facility additions offset by the effect of the May 1997 write-down for impairment of the carrying values of long-lived assets of certain general hospitals and medical office buildings and the write-off of goodwill and other long-lived assets related to the Company's physician practices. Goodwill amortization is approximately $90 million annually or $0.27 per share. Merger, facility consolidation and impairment charges of $86 million, $740 million and $221 million were recorded in fiscal 1996, 1997 and 1998, respectively. Fiscal 1996 and 1997 include impairment losses of $86 million and $413 million, respectively, in which certain facilities owned by the Company in 1996 and certain facilities acquired in the OrNda Merger were written down to their estimated fair values. The 1997 charge included losses related to the planned closure, sale or conversion to alternate uses of certain of the Company's facilities and services in order to eliminate duplication of services and excess capacity following the OrNda Merger and the write-off of goodwill and other assets related to the Company's physician practices. In fiscal 1997, the Company recorded other charges in connection with the OrNda Merger of $309 million, which included: investment LAST YEAR, MORE THAN 138,000 BABIES WERE BORN IN OUR HOSPITALS. 12 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES banking and other professional fees, other transaction costs, severance payments for substantially all of OrNda's corporate and regional employees, costs to terminate or convert employee benefit programs, closure of OrNda's corporate office and other regional offices, reorganization of operations, information systems consolidation, primarily related to the buy-out of vendor contracts and the write-down of computer equipment and capitalized software, estimated costs to settle a government investigation of an OrNda facility and other OrNda litigation, and other expenses, primarily related to conforming accounting practices of the two companies used for estimating the allowance for doubtful accounts and self-insurance reserves. In the year ended May 31, 1998, the Company recorded additional facility consolidation and impairment charges totaling $221 million. These charges consisted of asset impairment losses related primarily to (1) the planned closure or sale of three additional general hospitals, two specialty hospitals and several home health agencies, (2) the write-down of the carrying values of certain long-lived assets of one additional general hospital to their fair values and (3) the write-off of goodwill and other assets and additional costs to terminate contracts related to physician practices. Interest expense, net of capitalized interest, was $425 million in 1996, $417 million in 1997 and $464 million in 1998. The reduction in 1997 compared to 1996 is primarily due to the refinancing of debt at lower interest rates in connection with the OrNda Merger. The increase in 1998 is primarily due to increased borrowings for acquisitions. Investment earnings were $27 million in 1996, $26 million in 1997, and $22 million in 1998 and were derived primarily from notes receivable and investments in debt securities. Equity in earnings of unconsolidated affiliates declined from $25 million in 1996 to approximately $1 million in 1997 and approximately $5 million in 1998. The principal reasons for the decline from 1996 include the purchase of a majority interest in a hospital and the sale of the Company's investment in Westminster. In 1998, because the amounts had become immaterial, the Company began classifying its equity in earnings of unconsolidated affiliates as a part of net operating revenues in its Consolidated Statement of Operations. Minority interests in income of consolidated subsidiaries decreased in 1997 and 1998 primarily due to reduced operating results at consolidated but not wholly owned facilities. Minority interest expense was $30 million in 1996, $27 million in 1997 and $22 million in 1998. The $17 million net losses from the disposals of facilities and other long-term investments in the current year is comprised of $35 million in losses on the disposals of the Company's investments in the common stock of Vencor, Inc. (received as a dividend from Ventas) and Total Renal Care Holdings, Inc. ("TRC"), and an $18 million gain from changes in the index value of the Company's 6% Subordinated Exchangeable Notes. The Company's tax provision in 1996 includes the benefit of the realization of certain prior-year operating losses of OrNda, nondeductible amortization of certain goodwill and gains from prior years' sales of international operations. The goodwill amortization is a noncash charge that provides no income tax benefits. The tax provision in 1997 includes certain nondeductible merger costs and impairment charges that provide no tax benefits, partially offset by the benefit of prior years' operating losses of OrNda. The tax provision in 1998 includes a benefit for the charitable contribution of TRC common stock, offset by nondeductible amortization of goodwill. The Company's tax rate in 1998 before the effect of nonrecurring items was 39%. The Company expects its tax rate in 1999 also to be approximately 39%. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity for the year ended May 31, 1998 was derived principally from the proceeds from the sale of public debt, borrowings under the Company's bank credit agreements and net cash proceeds from operating activities. Net cash provided by operating activities for the years ended May 31, 1996, 1997 and 1998 was $446 million, $512 million and $788 million, respectively, before net expenditures for discontinued operations, merger, facility consolidation and impairment charges of $97 million in 1996, $108 million in 1997 and $385 million in 1998. The expenditures in 1998 include the settlement of significant litigation related to the Company's discontinued psychiatric business. In January 1997, in connection with the OrNda Merger, the Company entered into a new five-year, $2.8 billion unsecured revolving credit agreement (the "1997 Credit Agreement") with Morgan Guaranty Trust Company of New York, Bank of America NT&SA, The Bank of New York and the Bank of Nova Scotia and a syndicate of other lenders. Borrowings under the 1997 Credit Agreement are unsecured and will mature on January 31, 2002. The Company generally may repay or prepay loans made under the 1997 Credit Agreement and may reborrow at any time prior to the maturity date. Management believes that future cash provided by operating activities, along with the availability of credit under the 1997 Credit Agreement, should be adequate to meet debt-service requirements and to finance planned capital expenditures and other known operating needs for the next three years. Proceeds from borrowings under the Company's bank credit agreements amounted to $2.1 billion in 1996, $3.1 billion in 1997 and $2.0 billion in 1998. Loan repayments under the credit agreements were $1.3 billion in 1996, $1.9 billion during 1997 and $1.3 billion in 1998. Net proceeds from the sales of facilities, investments and other assets were $551 million in 1996, compared to $50 million during 1997 and $170 million during 1998. In May 1998, the Company sold $350 million of 7-5/8% Senior Notes due 2008 and $1.005 billion of 8-1/8% Senior Subordinated Notes due 2008. The aggregate proceeds to the Company were $1.32 billion, after underwriting discounts and commissions. These proceeds were used to redeem $286 million of the Company's 9-5/8% Senior Notes due 2002 and $897 million of its 10-1/8% Senior Subordinated Notes due 2005. In connection with the OrNda Merger and related refinancing, in January 1997, the Company sold $400 million of 7-7/8% Senior Notes due January 15, 2003, $900 million of 8% Senior Notes due January 15, 2005 and $700 million of 8-5/8% Senior Subordinated Notes due January 15, 2007. The proceeds to the Company were $1.95 billion, after underwriting discounts and commissions. Cash payments for property and equipment were $472 million in fiscal 1996, $406 million in fiscal 1997 and $534 million in fiscal 1998. The Company expects to spend approximately $400-$500 million annually on capital expenditures, before any significant acquisitions of facilities and other healthcare operations and before an estimated $293 million commitment to complete construction of two new hospitals over the next three years. Such capital expenditures relate primarily to the development of healthcare service networks in selected geographic areas, design and construction of new buildings, expansion and renovation of existing facilities, equipment additions and replacements, introduction of new medical technologies and various other capital improvements. During fiscal 1997 and 1998, the Company spent $787 million and $679 million, respectively, for purchases of new businesses, net of cash acquired. These include 17 general hospitals and a number of other healthcare-related businesses. These acquisitions were financed primarily by borrowings under the Company's credit agreements. 14 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES The Company's strategy includes the development of integrated healthcare systems, including the acquisition of general hospitals and related ancillary healthcare businesses or joining with others to develop integrated healthcare delivery networks. All or portions of this growth may be financed through available credit under the 1997 Credit Agreement or, depending on capital market conditions, the sale of additional debt or equity securities or other bank borrowings. The Company's unused borrowing capacity under the 1997 Credit Agreement was $1.2 billion at May 31, 1998. The Company's 1997 Credit Agreement and the indentures governing its senior and senior subordinated notes have, among other requirements, affirmative, negative and financial covenants with which the Company must comply. These covenants include, among other requirements, limitations on other borrowings, liens, investments, the sale of all or substantially all assets and prepayment of subordinated debt, a prohibition against the Company declaring or paying a dividend or purchasing its common stock unless its senior long-term unsecured debt securities are rated BBB- or higher by Standard and Poors' Rating Services and Baa3 or higher by Moody's Investors Service, Inc., and covenants regarding maintenance of specified levels of net worth, debt ratios and fixed charge coverages. Current debt ratings on the Company's senior debt securities are BB+ by Standard and Poors and Ba1 by Moody's. The Company is in compliance with its loan covenants. MARKET RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS The table below presents information about certain of the Company's market-sensitive financial instruments, including long-term debt and interest rate swaps as of May 31, 1998. The fair values of long-term debt and interest rate swaps were determined based on quoted market prices for the same or similar debt issues. The Company utilizes, to a limited extent, interest rate swaps and foreign currency forward exchange contracts to manage certain of its interest rate and currency exchange rate risk exposures. Those foreign currency forward exchange contracts are not included in the tables below because the Company's exposure under those instruments is immaterial in the aggregate. The interest rate swaps and foreign currency contracts are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company does not hold or issue derivative instruments for trading purposes and is not a party to any instruments with leverage or prepayment features. In entering into these contracts, the Company has assumed the risk, which it considers slight, that might arise from the possible failure of the counter parties to perform. Because the other parties are creditworthy financial institutions, generally commercial banks, the Company does not expect any losses as a result of counter party defaults.
MATURITY DATE, FISCAL YEAR ENDING MAY 31, --------------------------------------------------------- (DOLLARS IN MILLIONS, EXCEPT RATES) 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE -------------------------------------------------------------------------------- Long-term debt: Fixed rate long-term debt $10 $33 $ 6 $ 6 $ 464 $3,840 $4,359 $4,415 Average interest rates 12.5% 12.7% 12.9% 12.9% 8.6% 8.3% 8.4% Variable rate long-term debt -- -- -- $1,587 -- -- $1,587 $1,587 Average interest rates -- -- -- 6.2% -- -- 6.2% -- Interest rate swaps: Notional amounts -- $18 $50 -- -- -- $ 68 $ (4) Average fixed rate paid -- 8.8% 8.6% -- -- -- 8.6% -- Average variable rate received -- 5.6% 5.6% -- -- -- 5.6% --
15 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES At May 31, 1998, the Company had the following long-term investments that are sensitive to changes in market price. They are carried at market value on the Company's consolidated balance sheet:
DESCRIPTION OF INVESTMENT (DOLLARS IN MILLIONS) NUMBER OF SHARES MARKET VALUE - ------------------------------------------------------------------------------- Ventas, Inc. common stock 8,301,067 $134 Total Renal Care Holdings, Inc. common stock 2,865,000 88 Investment portfolio of debt securities n.a. 77 ------------------------------- Total $299 ------------------------------- -------------------------------
At May 31, 1998, the investment portfolio in the table above consisted of investments in U.S. Treasury Bills, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, with an average maturity of 180 days. The Company's market risk associated with its short-term investments in debt securities is substantially mitigated by the frequent turnover of the portfolio. Included in the Company's fixed rate long-term debt are 6% Exchangeable Subordinated Notes due 2005 with an aggregate principal balance of $320 million. These notes are exchangeable at the option of the holder for 25.9403 shares of Ventas, Inc. common stock plus $239.36 in cash per $1,000 principal amount of the notes, subject to the Company's right to pay an amount in cash equal to the market price of the Ventas shares in lieu of delivery of such shares. To the extent that the fair market value of the Company's investment in Ventas common stock and the related portfolio of debt securities exceeds the carrying value of the notes, the Company must adjust the carrying value of the notes to such fair market value through a charge or credit to earnings. Corresponding adjustments to the carrying values of the investments are credited or charged directly to other comprehensive income. BUSINESS OUTLOOK The general hospital industry in the United States and the Company's general hospitals continue to have significant unused capacity, and thus there is substantial competition for patients. Inpatient utilization continues to be negatively affected by payor-required pre-admission authorization and by payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill patients. Increased competition, admission constraints and payor pressure are expected to continue. The ongoing challenge facing the Company and the healthcare industry as a whole is to continue to provide quality patient care in an environment of rising costs, strong competition for patients and a general reduction of reimbursement rates by both private and government payors. Because of national, state and private industry efforts to reform healthcare delivery and payment systems, the healthcare industry as a whole faces increased uncertainty. The Company is unable to predict whether any new healthcare legislation at the federal and/or state level will be passed in the future and what action it may take in response to such legislation, but it continues to monitor all proposed legislation and analyze its potential impact in order to formulate the Company's future business strategies. 16 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES THE YEAR 2000 ISSUE Many existing computer systems and programs process transactions using a two-digit rather than a four-digit code for the year of a transaction. Unless they have been or are modified, a significant number of those computer systems and programs may process a transaction with a date of 2000 as the year "00", which could cause the system or program to fail or create erroneous results before, on or after January 1, 2000. The Company has initiated a six-phase program in order to assess the effect of this problem (the "Year 2000 Issue") on the Company's computer systems and programs, including the embedded systems that control certain medical and other equipment, and address the Year 2000 Issues that are discovered. In addition, as part of the program the Company is contacting its principal suppliers, other vendors and payors to assess whether their Year 2000 Issues, if any, will affect the Company. The Company's financial and general ledger systems already are substantially Year 2000 compliant. Furthermore, changes to the Company's payroll and patient accounting systems are underway, testing of those changes is expected to be substantially completed by the end of fiscal 1999 and implementation of those changes is expected to be completed during the fall of calendar 1999. The cost to bring these systems into Year 2000 compliance has not been and is not expected to be material. The first phase of the program, conducting an inventory of what systems and programs may be affected by the Year 2000 Issues, has been substantially completed. The second phase, assessment of how the Year 2000 Issues may affect each piece of equipment and system, has begun and is expected to be substantially completed by the second quarter of fiscal 1999. The third phase involves planning how to correct any Year 2000 Issues that are discovered and is expected to be substantially completed by the third quarter of fiscal 1999. The fourth phase will entail executing the plans developed during the third phase and correcting the Year 2000 Issues. During the fifth phase the Company will test the corrections made during the fourth phase to make sure that the Year 2000 Issues have been properly corrected. The sixth phase will involve implementing the corrections of the Year 2000 Issues across all of the Company's systems and programs. Different systems and programs will be subject to the fourth and fifth phases of the program concurrently through the end of fiscal 1999, by which time those phases are expected to be substantially completed. The sixth phase of the program is expected to run through the fall of calendar 1999, by which time the program is expected to be substantially completed. NEARLY 40% OF OUR HOSPITALS ARE IN THE 10 FASTEST GROWING U.S. COUNTIES ---------------------------------------------------------------------------
Number of Number of Rank County Tenet Hospitals Rank County Tenet Hospitals 1 Maricopa, Arizona 4 6 Harris, Texas 4 2 Los Angeles, California 18 7 Riverside, California 2 3 Clark, Nevada 1 8 Broward, Florida 3 4 Orange, California 10 9 Dallas, Texas 3 5 San Diego, California 1 10 Collin, Texas 0
Source: U.S. Census, as reported in March 18, 1998 LOS ANGELES TIMES 17 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES In addition to the six-phase remediation program, the Company is preparing general contingency plans to address unforeseen Year 2000 Issues. These contingency plans include preparing the Company's hospitals for any increased service demands that may occur as a result of problems at non-Year 2000 compliant hospitals owned by others. Since the Company has not yet completed its assessment of the scope of the Year 2000 Issues facing most of its systems and programs, it is unable at this time to estimate the costs to correct any Year 2000 Issues that may be discovered. Although the costs incurred by the Company to date have not been material, the Company is unable to estimate at this time whether or not future costs will be material. Furthermore, as noted above, the Company is contacting its principal suppliers, other vendors and payors, including Federal and State governments, Medicare fiscal intermediaries, insurance companies and managed care companies, concerning the state of their Year 2000 compliance. The Company is not aware at this time whether those other systems are or will be Year 2000 compliant and is unable to estimate at this time the impact on the Company if one or more of those systems is not Year 2000 compliant. For the foregoing reasons, the Company is not able to determine at this time whether the Year 2000 Issue will materially affect its future financial results or financial condition. FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report, including, without limitation, statements containing the words "believes", "anticipates", "expects", "will", "may", "might", and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current expectations and involve known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both national and in the regions in which the Company operates; industry capacity; demographic changes; existing laws and government regulations and changes in, or the failure to comply with laws and governmental regulations; legislative proposals for healthcare reform; the ability to enter into managed care provider arrangements on acceptable terms; a shift from fee-for-service payment to capitated and other risk-based payment systems; changes in Medicare and Medicaid reimbursement levels; liability and other claims asserted against the Company; competition; the loss of any significant customers; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, healthcare; changes in business strategy or development plans; the ability to attract and retain qualified personnel, including physicians; the significant indebtedness of the Company; the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities; and the impact of the Year 2000 Issues. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. Tenet disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. 18 TENET REPORT OF INDEPENDENT AUDITORS HEALTHCARE CORPORATION AND SUBSIDIARIES The Board of Directors Tenet Healthcare Corporation: We have audited the accompanying consolidated balance sheets of Tenet Healthcare Corporation and subsidiaries as of May 31, 1997 and 1998, and the related consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended May 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 financial position of Tenet Healthcare Corporation and subsidiaries as of May 31, 1997 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Los Angeles, California July 24, 1998 19 CONSOLIDATED BALANCE SHEETS TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
MAY 31, --------------------------- (DOLLARS IN MILLIONS) 1997 1998 --------------------------- ASSETS Current assets: Cash and cash equivalents $ 35 $ 23 Short-term investments in debt securities 116 132 Accounts receivable, less allowance for doubtful accounts ($224 in 1997 and $191 in 1998) 1,346 1,742 Inventories of supplies, at cost 193 214 Deferred income taxes 294 275 Other current assets 407 504 --------------------------- Total current assets 2,391 2,890 --------------------------- Investments and other assets 678 515 Property and equipment, net 5,490 6,014 Costs in excess of net assets acquired, less accumulated amortization ($180 in 1997 and $272 in 1998) 3,072 3,332 Other intangible assets, at cost, less accumulated amortization ($46 in 1997 and $55 in 1998) 74 82 --------------------------- $11,705 $12,833 --------------------------- --------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 28 $ 10 Accounts payable 540 657 Employee compensation and benefits 309 355 Accrued interest payable 144 106 Reserves related to discontinued operations, merger, facility consolidation and impairment charges 423 189 Other current liabilities 425 450 --------------------------- Total current liabilities 1,869 1,767 --------------------------- Long-term debt, net of current portion 5,022 5,829 Other long-term liabilities and minority interests 1,282 1,256 Deferred income taxes 308 423 Commitments and contingencies Shareholders' equity: Common stock, $0.075 par value; 700,000,000 shares authorized; 305,501,379 shares issued at May 31, 1997 and 313,044,417 shares issued at May 31, 1998 23 23 Additional paid-in capital 2,311 2,475 Accumulated other comprehensive income 110 50 Retained earnings 819 1,080 Less common stock in treasury, at cost, 2,676,091 shares at May 31, 1997 and 3,754,891 shares at May 31, 1998 (39) (70) --------------------------- Total shareholders' equity 3,224 3,558 --------------------------- $11,705 $12,833 --------------------------- ---------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20 TENET CONSOLIDATED STATEMENTS OF OPERATIONS HEALTHCARE CORPORATION AND SUBSIDIARIES
YEARS ENDED MAY 31, ------------------------------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 ------------------------------ Net operating revenues $7,706 $8,691 $9,895 ------------------------------ Operating expenses: Salaries and benefits 3,130 3,574 4,052 Supplies 1,056 1,197 1,375 Provision for doubtful accounts 431 494 588 Other operating expenses 1,646 1,829 2,071 Depreciation 319 335 347 Amortization 100 108 113 Merger, facility consolidation and impairment charges 86 740 221 ------------------------------ Operating income 938 414 1,128 ------------------------------ Interest expense, net of capitalized portion (425) (417) (464) Investment earnings 27 26 22 Equity in earnings of unconsolidated affiliates 25 1 -- Minority interests in income of consolidated subsidiaries (30) (27) (22) Net gains (losses) on disposals of facilities and long-term investments 346 (18) (17) ------------------------------ Income (loss) from continuing operations before income taxes 881 (21) 647 Taxes on income (383) (52) (269) ------------------------------ Income (loss) from continuing operations 498 (73) 378 Discontinued operations (25) (134) -- Extraordinary charges from early extinguishment of debt (23) (47) (117) ------------------------------ Net income (loss) $ 450 $ (254) $ 261 ------------------------------ ------------------------------ Earnings (loss) per common and common equivalent share: Basic: Continuing operations $ 1.77 $(0.24) $ 1.23 Discontinued operations (0.09) (0.44) -- Extraordinary charges (0.08) (0.16) (0.38) ------------------------------ $ 1.60 $(0.84) $ 0.85 ------------------------------ ------------------------------ Diluted: Continuing operations $ 1.70 $(0.24) $ 1.22 Discontinued operations (0.08) (0.44) -- Extraordinary charges (0.08) (0.16) (0.38) ------------------------------ $ 1.54 $(0.84) $ 0.84 ------------------------------ ------------------------------ Weighted shares and dilutive securities outstanding (in thousands): Basic 281,664 303,947 306,255 Diluted 294,796 303,947 312,113
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
YEARS ENDED MAY 31, ------------------------ (DOLLARS IN MILLIONS) 1996 1997 1998 ------------------------ Net income (loss) $450 $(254) $261 Other comprehensive income (loss): Unrealized gains (losses) on securities held as available for sale: Unrealized net holding gains (losses) arising during period 40 134 (56) Less: elimination of unrealized gains upon acquisition of controlling equity interest in unconsolidated affiliate (47) -- -- Less: reclassification adjustment for gains included in net income -- -- (40) ------------------------ Other comprehensive income (loss), before income taxes (7) 134 (96) Income tax benefit (expense) related to items of other comprehensive income (17) (52) 36 ------------------------ Other comprehensive income (loss) (24) 82 (60) ------------------------ Comprehensive income (loss) $426 $(172) $201 ------------------------ ------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 22 TENET CONSOLIDATED STATEMENTS OF HEALTHCARE CHANGES IN SHAREHOLDERS' EQUITY CORPORATION AND SUBSIDIARIES
COMMON STOCK CONVERTIBLE PREFERRED STOCK ACCUMULATED --------------------- --------------------------- ADDITIONAL OTHER (DOLLARS IN MILLIONS, OUTSTANDING ISSUED ISSUED PAID-IN COMPREHENSIVE RETAINED TREASURY SHARE AMOUNTS IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME EARNINGS STOCK --------------------------------------------------------------------------------------------------- BALANCES, MAY 31, 1995 260,523 $ 21 1,330 $ 20 $1,912 $ 52 $ 646 $(272) Net income 450 Other comprehensive loss (24) Performance investment plan options exercised 13,499 39 196 Paid-in-kind dividends 33 Issuance of common stock 15,588 1 191 Conversion of convertible preferred stock 1,831 (1,356) (20) 20 Redemption of preferred stock (7) Stock options exercised 3,120 9 36 --------------------------------------------------------------------------------------------------- BALANCES, MAY 31, 1996 294,561 22 -- -- 2,171 28 1,096 (40) Net loss (254) Other comprehensive income 82 Issuance of common stock 1,171 22 1 Stock options exercised 7,093 1 118 Pooling adjustment related to the OrNda Merger (23) --------------------------------------------------------------------------------------------------- BALANCES, MAY 31, 1997 302,825 23 -- -- 2,311 110 819 (39) Net income 261 Other comprehensive loss (60) Issuance of common stock 997 26 Stock options exercised 5,468 138 (31) --------------------------------------------------------------------------------------------------- BALANCES, MAY 31, 1998 309,290 $ 23 -- $ -- $2,475 $ 50 $1,080 $ (70) --------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23 CONSOLIDATED STATEMENTS OF CASH FLOWS TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
YEARS ENDED MAY 31, ------------------------------------- (DOLLARS IN MILLIONS) 1996 1997 1998 ------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 450 $ (254) $ 261 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 419 443 460 Provision for doubtful accounts 431 494 588 Deferred income taxes 247 (219) 131 Net loss (gain) on disposals of facilities and long-term investments (346) 18 17 Additions to reserves for discontinued operations, merger, facility consolidation and impairment charges 127 955 221 Extraordinary charges from early extinguishment of debt 23 47 117 Other items 35 26 21 Increases (decreases) in cash from changes in operating assets and liabilities, net of effects from purchases of new businesses: Accounts receivable (709) (791) (988) Inventories and other current assets (91) (7) (100) Accounts payable, accrued expenses and other current liabilities (100) (141) 143 Other long-term liabilities and minority interests (40) (59) (83) Net expenditures for discontinued operations, merger, facility consolidation and impairment charges (97) (108) (385) ------------------------------------- Net cash provided by operating activities 349 404 403 ------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (472) (406) (534) Purchases of new businesses, net of cash acquired (841) (787) (679) Proceeds from sales of facilities, long-term investments and other assets 551 50 170 Other items (38) 18 (40) ------------------------------------- Net cash used in investing activities (800) (1,125) (1,083) ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 3,278 5,117 3,349 Loan payments (3,307) (4,512) (2,762) Proceeds from exercises of performance investment plan options 203 -- -- Proceeds from exercises of stock options 37 59 80 Proceeds from sales of common stock 192 12 17 Other items (5) (23) (16) ------------------------------------- Net cash provided by financing activities 398 653 668 ------------------------------------- Net decrease in cash and cash equivalents (53) (68) (12) Cash and cash equivalents at beginning of year 160 107 35 Pooling adjustment related to the OrNda Merger -- (4) -- ------------------------------------- Cash and cash equivalents at end of year $ 107 $ 35 $ 23 ------------------------------------- -------------------------------------
SUPPLEMENTAL DISCLOSURES: The Company paid interest (net of amounts capitalized) of $386 million, $346 million and $489 million for the years ended May 31, 1996, 1997 and 1998, respectively. Income taxes paid, net of refunds received, during the same years amounted to $57 million, $147 million and $11 million, respectively. The fair value of common stock issued for acquisitions of hospitals and other assets was $11 million in 1997 and $9 million in 1998. During 1998, the Company received 1,078,800 shares of common stock having a fair market value of $31 million as payment for a note and the exercise of stock options. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24 TENET NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HEALTHCARE CORPORATION AND SUBSIDIARIES - ------- NOTE 1. BASIS OF PRESENTATION The accounting and reporting policies of Tenet Healthcare Corporation (together with its subsidiaries, "Tenet" or the "Company") conform to generally accepted accounting principles and prevailing practices for investor-owned entities within the healthcare industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. On January 30, 1997, the Company acquired OrNda HealthCorp (together with its subsidiaries, "OrNda"), a provider of healthcare services operating general hospitals, surgery centers, outpatient and specialty clinics, a psychiatric hospital and a managed healthcare Medicaid plan, when a subsidiary of the Company was merged into OrNda (the "OrNda Merger"), leaving OrNda and all of its subsidiaries as direct and indirect wholly owned subsidiaries of the Company. The OrNda Merger was accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements and all statistical data shown herein prior to the OrNda Merger were restated in fiscal 1997 to include the accounts and results of operations of OrNda for all periods presented. Prior to the OrNda Merger, OrNda's fiscal year ended August 31. In recording the pooling-of-interests combination, OrNda's consolidated financial statements for the year ended August 31, 1996 have been combined with Tenet's consolidated financial statements for the year ended May 31, 1996. OrNda's consolidated financial statements for the 12 months ended May 31, 1997 have been combined with Tenet's consolidated financial statements for the same period and an adjustment has been made to shareholders' equity as of May 31, 1997, to eliminate the effect of including OrNda's results of operations for the three months ended August 31, 1996 in both years ended May 31, 1997 and 1996. OrNda's unaudited results of operations for the three months ended August 31, 1996 included net operating revenues of $552 million and net income of $23 million. - ------- NOTE 2. SIGNIFICANT ACCOUNTING POLICIES A. THE COMPANY Tenet is an investor-owned healthcare services company that owns or operates, through its subsidiaries and affiliates (collectively, "subsidiaries"), general hospitals and related healthcare facilities serving urban and rural communities in 18 states and holds investments in other healthcare companies. At May 31, 1998, the Company's subsidiaries operated 122 domestic general hospitals, with a total of 27,867 licensed beds. The Company's subsidiaries also owned or operated various ancillary healthcare businesses, as well as a small number of rehabilitation hospitals, specialty hospitals, long-term-care facilities and psychiatric facilities located on the same campus as, or nearby, the Company's general hospitals. The Company's largest concentrations of general hospital beds are in California with 28.1%, Texas with 16.2% and Florida with 15.7%. The concentrations of hospital beds in these three states increases the risk that any adverse economic, regulatory or other developments that may occur in such states may adversely affect the Company's results of operations or financial condition. The Company is subject to changes in government legislation that could impact Medicare and Medicaid payment levels and is also subject to increased levels of managed care penetration and changes in payor patterns that may impact the level and timing of payments for services rendered. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES B. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Tenet and its wholly owned and majority-owned subsidiaries. Significant investments in other affiliated companies generally are accounted for using the equity method. Intercompany accounts and transactions are eliminated in consolidation. The results of operations of acquired businesses in purchase transactions are included from their respective acquisition dates. C. COMPREHENSIVE INCOME The Company has adopted, for its fiscal year ended May 31, 1998, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), issued in June 1997 by the Financial Accounting Standards Board. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income includes net income and other comprehensive income. Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those from investments by owners and distributions to owners. All prior-period financial statements have been restated to reflect the adoption of this accounting standard. D. NET OPERATING REVENUES Net operating revenues consist primarily of net patient service revenues, which are based on the hospitals' established billing rates less allowances and discounts, principally for patients covered by Medicare, Medicaid and other contractual programs. Payments under these programs are based on either predetermined rates or the costs of services. Settlements for retrospectively determined rates are estimated in the period the related services are rendered and are adjusted in future periods as final settlements are determined. Management believes that adequate provision has been made for adjustments that may result from final determination of amounts earned under these programs. Such adjustments have not been material during the years presented herein. These contractual allowances and discounts are deducted from accounts receivable in the accompanying consolidated balance sheets. Approximately 45% of consolidated net operating revenues were from participation of the Company's hospitals in Medicare and Medicaid programs in each of 1996 and 1997. It was approximately 42% in 1998. The Company provides care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than its established rates. Because the Company does not pursue collection of amounts determined to qualify as charity care, they are not reported in net operating revenues or in operating and administrative expenses. E. CASH EQUIVALENTS The Company treats highly liquid investments with an original maturity of three months or less as cash equivalents. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate fair value. 26 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES F. INVESTMENTS IN DEBT AND EQUITY SECURITIES Investments in debt and equity securities are classified as available-for-sale, held-to-maturity or as part of a trading portfolio. At May 31, 1997 and 1998, the Company had no significant investments in securities classified as either held-to-maturity or trading. Securities classified as available-for-sale are carried at fair value if unrestricted and their unrealized gains and losses, net of tax, are reported as other comprehensive income. Realized gains or losses are included in net income on the specific identification method. G. LONG-LIVED ASSETS Property and Equipment: The Company uses the straight-line method of depreciation for buildings, building improvements and equipment over their estimated useful lives as follows: buildings and improvements, 25 to 40 years; equipment, three to 15 years. Capital leases are recorded at the beginning of the lease term as assets and liabilities at the lower of the present value of the minimum lease payments or the fair value of the assets, and such assets, including improvements, are amortized over the shorter of the lease term or their useful life. The Company capitalizes interest costs related to construction projects. Capitalized interest was $12 million in each of 1996 and 1997, and $16 million in 1998. Intangible Assets: Costs in excess of the fair value of the net assets of purchased businesses (goodwill) generally are amortized over 20 to 40 years. The straight-line method is used to amortize most intangible assets. Deferred financing costs are amortized over the lives of the related loans using the interest method. Impairment of long-lived assets, including goodwill related to such assets, is recognized whenever events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be fully recoverable from estimated future cash flows. The Company also assesses the recoverability of goodwill at the enterprise level in a similar manner. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or estimates of future discounted cash flows resulting from use and ultimate disposition of the asset. H. INDEXED DEBT INSTRUMENTS Changes in liability resulting from increases or decreases in the index value of the Company's 6% Exchangeable Subordinated Notes are accounted for as adjustments of the carrying amount of the notes with corresponding charges (or credits) to earnings. I. EARNINGS PER SHARE The Company adopted, during the quarter ended February 28, 1998, Statement of Financial Accounting Standards No. 128, "Earnings per Share," issued by the Financial Accounting Standards Board. This statement establishes new, simplified standards for computing and presenting earnings per share. It replaces the traditional presentation of primary earnings per share and fully diluted earnings per share with presentations of basic earnings per share and diluted earnings per share, respectively. For the Company, the differences between earnings per share calculated under the former standard and the new standard are negligible. All prior periods have been restated for the new standard. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES The following is a reconciliation of the numerators and the denominators of the Company's basic and diluted earnings (loss) per share computations for income or loss from continuing operations for each of the five years ended May 31. Income or loss, adjusted for preferred stock dividends of $2 million in 1994 and 1995, is expressed in millions and weighted average shares are expressed in thousands:
INCOME WEIGHTED (LOSS) AVERAGE SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------------------------------------- 1994 Basic earnings per share $167 217,047 $ 0.77 Effect of dilutive securities: Stock options and warrants -- 1,878 Convertible notes and debentures 8 13,966 ----------------------------------------- Diluted earnings per share $175 232,891 $ 0.75 ----------------------------------------- ----------------------------------------- 1995 Basic earnings per share $264 234,415 $ 1.12 Effect of dilutive securities: Stock options and warrants -- 6,422 Convertible notes and debentures 9 13,119 ----------------------------------------- Diluted earnings per share $273 253,956 $ 1.07 ----------------------------------------- ----------------------------------------- 1996 Basic earnings per share $498 281,664 $ 1.77 Effect of dilutive securities: Stock options and warrants -- 6,242 Convertible notes and debentures 4 6,890 ----------------------------------------- Diluted earnings per share $502 294,796 $ 1.70 ----------------------------------------- ----------------------------------------- 1997 Basic loss per share $(73) 303,947 $(0.24) Effect of dilutive stock options and warrants -- -- -- ----------------------------------------- Diluted loss per share $(73) 303,947 $(0.24) ----------------------------------------- ----------------------------------------- 1998 Basic earnings per share $378 306,255 $ 1.23 Effect of dilutive stock options and warrants -- 5,858 ----------------------------------------- Diluted earnings per share $378 312,113 $1.22 ----------------------------------------- -----------------------------------------
Outstanding options to purchase 3,393,436 shares of common stock were not included in the computation of earnings per share for fiscal 1996 because the options' exercise prices were greater than the average market price of the common stock. J. INCOME TAXES The Company accounts for income taxes under the asset and liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. 28 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES - ------- NOTE 3. ACQUISITIONS AND DISPOSALS OF FACILITIES On January 30, 1997, the Company acquired OrNda by issuing 81,439,910 shares of its common stock in a tax-free exchange for all of OrNda's outstanding common stock in a transaction accounted for as a pooling-of-interests. Tenet's subsidiaries, including OrNda, acquired seven general hospitals in fiscal 1996, 11 general hospitals in fiscal 1997 and six general hospitals in fiscal 1998. During the past three years, the Company also acquired a number of physician practices, home health agencies and other healthcare operations. All of these transactions have been accounted for as purchases. The results of operations of the acquired businesses, which are not material in the aggregate with respect to any single fiscal year, have been included in the Company's consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash flows from the dates of acquisition. During the year ended May 31, 1998, the Company sold or closed 10 general hospitals, exchanged its ownership interest in one hospital for a minority interest in a joint venture, combined the operations of two other general hospitals, and sold certain ancillary healthcare operations. The results of operations of the sold or closed businesses were not significant. - ------- NOTE 4. MERGER, FACILITY CONSOLIDATION AND IMPAIRMENT CHARGES In the fourth quarter of the year ended May 31, 1998, the Company recorded charges of $221 million relating to (in millions): - - The Company's 1998 Plan to close or sell three general hospitals, two specialty hospitals and several home health agencies and to increase the estimate for losses from the 1997 Plan described below $160 - - Write-offs of goodwill and other assets and additional costs to terminate contracts related to the Company's physician practices 41 - - Impairment of the carrying value of long-lived assets of one additional general hospital to their estimated fair values 20 ---- Total $221 ---- ----
In the third and fourth quarters of the year ended May 31, 1997, the Company recorded charges totaling $740 million. These charges consisted of: (1) $309 million in connection with the OrNda Merger, which included: investment banking and professional fees, other transaction costs, severance payments for substantially all of OrNda's corporate and regional employees, costs to terminate or convert employee benefit programs, closure of OrNda's corporate office and other regional offices, reorganization of operations, information systems consolidation, primarily related to the buy-out of vendor contracts and the write-down of computer equipment and capitalized software, estimated costs to settle a government investigation of an OrNda facility and other OrNda litigation, and other expenses, primarily related to conforming accounting practices of the two companies used for estimating the allowance for doubtful accounts and self-insurance reserves; (2) $18 million for charges relating to the Company's physician practices which included severance, write-off of computer equipment and software, physician contract terminations, and the costs to reorganize regional management service organizations; and (3) $413 million for asset impairment losses. Details of the asset impairment losses are set forth below (in millions): - - The Company's 1997 Plan to close seven general hospitals and to sell eight general hospitals and one other healthcare business, in order to eliminate the duplication of services and excess capacity following the OrNda Merger $219 - - Impairment of the carrying values of long-lived assets of four general hospitals and nine medical office buildings acquired from OrNda to their estimated fair values 134 - - Write-off of goodwill and other long-lived assets related to some of the Company's physician practices which are not deemed fully recoverable based on the trend of operating results 60 ---- Total $413 ---- ----
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES In the fourth quarter of the year ended May 31, 1996, the Company recorded an impairment charge of approximately $86 million. The assets deemed to be impaired consisted of three rehabilitation hospitals, four general hospitals and a parcel of undeveloped land. The Company expects to have substantially completed its consolidation plans by May 31, 1999. See Note 3 for a discussion of dispositions in 1998. The asset impairments resulted primarily from declining patient volumes and adverse changes in payor mix, and, in 1998, by the reduction in Medicare payments resulting from the Balanced Budget Act of 1997, at the general hospitals and excess capacity in the medical office buildings. In determining the amount of asset impairment losses, the related assets' fair values were determined by specific market appraisals, reference to definitive agreements or recent sales prices of comparable facilities, either on a per-bed or earnings multiple basis or by discounted expected future cash flows. During the year ended May 31, 1998, the Company made cash payments of $120 million against the reserves set up in 1997 and further reduced those reserves by $190 million for asset write-offs and other noncash transactions as facilities were closed, sold or converted to alternate use. - ------- NOTE 5. OTHER CURRENT ASSETS Other current assets consist of the following:
(DOLLARS IN MILLIONS) 1997 1998 -------------- Other receivables $314 $361 Prepaid expenses and other current items 35 110 Assets held for sale, at fair value, less estimated costs to sell 58 33 -------------- $407 $504 -------------- --------------
- ------- NOTE 6. PROPERTY AND EQUIPMENT Property and equipment is stated at cost and consists of the following:
(DOLLARS IN MILLIONS) 1997 1998 ---------------- Land $ 443 $ 524 Buildings and improvements 4,176 4,541 Construction in progress 345 410 Equipment 1,958 2,304 ---------------- 6,922 7,779 Less accumulated depreciation and amortization 1,432 1,765 ---------------- Net property and equipment $5,490 $6,014 ---------------- ----------------
30 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES - ------- NOTE 7. LONG-TERM DEBT AND LEASE OBLIGATIONS A. LONG-TERM DEBT Long-term debt consists of the following:
(DOLLARS IN MILLIONS) 1997 1998 --------------- Loans payable to banks - unsecured $ 779 $1,587 8-5/8% Senior Notes due 2003, $500 million face value, net of $9 million unamortized discount 489 491 7-7/8% Senior Notes due 2003, $400 million face value, net of $6 million unamortized discount 392 394 8% Senior Notes due 2005, $900 million face value, net of $21 million unamortized discount 877 879 7-5/8% Senior Notes due 2008, $350 million face value, net of $7 million unamortized discount -- 343 9-5/8% Senior Notes due 2002, $300 million face value, net of $5 million unamortized discount at May 31, 1997, substantially redeemed in May 1998 295 14 8-5/8% Senior Subordinated Notes due 2007, $700 million face value, net of $15 million unamortized discount 684 685 8-1/8% Senior Subordinated Notes due 2008, $1,005 million face value, net of $26 unamortized discount -- 979 10-1/8% Senior Subordinated Notes due 2005, $900 million face value at May 31, 1997 net of $20 million unamortized discount, substantially redeemed in May 1998 880 3 6% Exchangeable Subordinated Notes due 2005, $320 million face value, stated at indexed value at May 31, 1997 and face value at May 31, 1998, both net of $8 million unamortized discount 330 312 Zero-coupon guaranteed bonds due 1997 and 2002 110 30 Notes and capital lease obligations, secured by property and equipment, payable in installments to 2028 188 121 Other notes, primarily unsecured 26 1 --------------- Long-term debt 5,050 5,839 Less current portion (28) (10) --------------- Long-term debt, excluding current portion $5,022 $5,829 --------------- ---------------
LOANS PAYABLE TO BANKS -- In January 1997, in connection with the OrNda Merger, the Company entered into a new revolving credit agreement (the "1997 Credit Agreement") with a syndicate of banks that allows the Company to borrow, repay and reborrow up to $2.8 billion prior to the agreement's January 31, 2002 maturity date. This agreement replaced the Company's $1.55 billion unsecured revolving credit agreement with a syndicate of banks. As a result of this refinancing, as well as the refinancing of OrNda's then-existing credit facility, its 12-1/4% Senior Subordinated Notes and its 11-3/8% Senior Subordinated Notes, the Company recorded an extraordinary charge from early extinguishment of debt in the amount of $47 million, net of taxes of $29 million. Loans under the 1997 Credit Agreement are unsecured and generally bear interest at a base rate equal to the prime rate or, if higher, the federal funds rate plus 0.50%, or, at the option of the Company, an adjusted London interbank offered rate ("LIBOR") for one-, two-, three-, or six-month periods plus an interest margin of from 22.50 to 68.75 basis points. The Company has agreed to pay the lenders an annual facility fee on the total loan commitment at rates ranging from 12.50 to 31.25 basis points. The interest margins and facility fee rates are based on the ratio of the Company's consolidated total debt to net earnings before interest, taxes, depreciation, amortization and certain other similar noncash charges. During the four months ended May 31, 1997, the weighted average interest rate on loans payable to banks was 6.1%. During the year ended May 31, 1998 it was 6.2%. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES SENIOR NOTES AND SENIOR SUBORDINATED NOTES -- On May 21, 1998, the Company sold $350 million of 7-5/8% Senior Notes due 2008 and $1.005 billion of 8-1/8% Senior Subordinated Notes due 2008. The senior notes are redeemable at any time at the option of the Company. The senior subordinated notes are not redeemable by the Company prior to June 1, 2003. The net proceeds from the sales of these notes were used to redeem $286 million of the Company's 9-5/8% Senior Notes due 2002 and $897 million of 10-1/8% Senior Subordinated Notes due 2005. In connection with this redemption, the Company recorded an extraordinary charge from early extinguishment of debt in the amount of $117 million, net of tax benefits of $72 million. In connection with the OrNda Merger and related refinancing, the Company issued, on January 30, 1997, $400 million of 7-7/8% Senior Notes due January 15, 2003, $900 million of 8% Senior Notes due January 15, 2005 and $700 million of 8-5/8% Senior Subordinated Notes due January 15, 2007. The proceeds to the Company were $1.95 billion, after underwriting discounts and commissions. The senior notes are not redeemable by the Company prior to maturity. Subject to certain limitations in the 1997 Credit Agreement, the senior subordinated notes are redeemable at the option of the Company, in whole or from time to time in part, at any time on or after January 15, 2002. The senior notes are unsecured obligations of the Company ranking senior to all subordinated indebtedness of the Company, including the senior subordinated notes, and equally in right of payment with all other indebtedness of the Company, including borrowings under the 1997 Credit Agreement described above. The senior subordinated notes also are unsecured obligations of the Company and are subordinated in right of payment to all existing and future senior debt, including the senior notes and borrowings under the 1997 Credit Agreement. 6% EXCHANGEABLE SUBORDINATED NOTES -- The 6% Exchangeable Subordinated Notes due 2005 are exchangeable at the option of the holder for shares of common stock of Ventas, Inc., formerly known as Vencor, Inc. ("Ventas"), at an exchange rate of 25.9403 shares and $239.36 in cash (see Note 14) per $1,000 principal amount of the notes, subject to the Company's right to pay an amount in cash equal to the market price of the shares of Ventas common stock in lieu of delivery of such shares. Subject to certain limitations in the 1997 Credit Agreement, the notes are redeemable at the option of the Company at any time on or after January 15, 1999. The notes also are unsecured obligations of the Company subordinated in right of payment to all existing and future senior and senior subordinated debt and borrowings under the 1997 Credit Agreement. In May 1998, Ventas, in connection with a plan of reorganization, split into two public companies: a self-administered, self-managed realty company (Ventas), and an operating company now known as Vencor, Inc. ("Vencor"), which leases hospitals and nursing facilities from Ventas. In May 1998, the Company sold its Vencor common stock and invested the proceeds in a portfolio of investments in U.S. government and U.S. government-sponsored agency securities. These investments are treated as available for sale with changes in value recorded in other comprehensive income. To the extent that the fair market value of the Company's investment in the common stock of Ventas and, from May 1998, the related investment portfolio, exceeds the carrying value of the notes at the end of any accounting period, the Company adjusts the carrying value of the notes to the fair market value of the investments through a charge or credit to earnings. Corresponding adjustments to the carrying value of the investments are credited or charged directly to other comprehensive income as unrealized gains or losses. At May 31, 1997, the market price of Ventas' common stock was $40.75 per share, or $2.20 per share over the then-existing exchange price of the stock. The Company accordingly recognized a noncash charge to earnings in the amount of $18 million. This charge 32 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES was included with the net gain (or loss) on disposals of facilities and long-term investments in the accompanying consolidated statement of operations for the year ended May 31, 1997. At the end of the Company's second quarter in fiscal 1998, the Company reversed that charge because the market price of Ventas' common stock had dropped below the exchange price. The combined value of the Ventas common stock and the investment portfolio has remained below the exchange price through May 31, 1998. LOAN COVENANTS -- The 1997 Credit Agreement and the indentures governing the Company's outstanding public debt have, among other requirements, limitations on borrowings by, and liens on the assets of, the Company or its subsidiaries, investments, the sale of all or substantially all assets and prepayment of subordinated debt, a prohibition against the Company declaring or paying dividends on or purchasing its stock unless its senior long-term unsecured debt securities are rated BBB- or higher by Standard and Poors' Rating Services and Baa3 or higher by Moody's Investors Service, Inc., and covenants regarding maintenance of specified levels of net worth, debt ratios and fixed-charge coverage ratios. Because of the dividend restrictions, all of the Company's retained earnings are restricted. The Company is in compliance with its loan covenants. There are no compensating balance requirements for any credit line or borrowing. B. LONG-TERM DEBT MATURITIES AND LEASE OBLIGATIONS Future long-term debt cash maturities and minimum operating lease payments are as follows:
(DOLLARS IN MILLIONS) 1999 2000 2001 2002 2003 LATER YEARS ----------------------------------------------------------- Long-term debt $ 10 $ 33 $ 6 $1,593 $464 $3,840 Long-term leases 171 127 118 102 89 549
Rental expense under operating leases, including short-term leases, was $239 million in 1996, $253 million in 1997 and $283 million in 1998. - ------- NOTE 8. INCOME TAXES Taxes on income from continuing operations consist of the following amounts:
(DOLLARS IN MILLIONS) 1996 1997 1998 ---------------------------------- Currently payable: Federal $217 $131 $66 State 44 27 28 Foreign 5 -- -- ---------------------------------- 266 158 94 Deferred: Federal 80 (132) 112 State 14 (6) 19 ---------------------------------- 94 (138) 131 ---------------------------------- Other 23 32 44 ---------------------------------- Total taxes on income from continuing operations $383 $52 $269 ---------------------------------- ----------------------------------
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) TENET HEALTHCARE CORPORATION AND SUBSIDIARIES A reconciliation between the amount of reported income tax expense (benefit) and the amount computed by multiplying income (loss) before tax by the statutory Federal income tax rate is shown below:
(DOLLARS IN MILLIONS) 1996 1997 1998 ---------------------------------- Tax provision at statutory federal rate of 35% $308 $ (7) $227 State income taxes, net of federal income tax benefit 37 15 27 Goodwill amortization 27 26 26 Donation of TRC common stock -- -- (25) Gain on sale of foreign operations 30 -- -- Nondeductible OrNda Merger costs -- 14 -- Nondeductible asset impairment charges -- 29 12 Benefit of prior-year net operating losses (24) (19) -- Other 5 (6) 2 ---------------------------------- Taxes on income from continuing operations $383 $52 $269 ---------------------------------- ----------------------------------
Deferred tax assets and liabilities as of May 31, 1997 and 1998 relate to the following:
1997 1998 --------------------------------------------------- (DOLLARS IN MILLIONS) ASSETS LIABILITIES ASSETS LIABILITIES --------------------------------------------------- Depreciation and fixed-asset basis differences $ -- $661 $ -- $830 Reserves related to discontinued operations, merger, facility consolidation and impairment charges 203 -- 79 -- Receivables, doubtful accounts and adjustments 112 -- 50 -- Accruals for insurance risks 103 -- 121 -- Intangible assets 1 -- -- 13 Other long-term liabilities 50 -- 230 -- Benefit plans 91 -- 80 -- Other accrued liabilities 40 -- 130 -- Investments and other assets -- 43 -- 63 Federal and state net operating loss carryforwards 58 -- 87 -- Other items 31 -- -- 19 ------------------------------------------------- $689 $704 $777 $925 ------------------------------------------------- -------------------------------------------------
Management believes that realization of the deferred tax assets is more likely than not to occur as temporary differences reverse against future taxable income. 34 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES The following schedule summarizes approximate tax carryforwards that are available to offset future federal net taxable income:
(DOLLARS IN MILLIONS) AMOUNT EXPIRATION PERIODS Net operating loss carryforwards $249 1999-2013 General business credits 1 1998-2009 Alternative minimum tax 9 None
Allowable federal deductions relating to net operating losses of OrNda and certain of its subsidiaries are subject to annual limitations. These limitations are not expected to significantly affect the ability of the Company to ultimately recognize the benefit of these net operating loss deductions in future years. - ------- NOTE 9. CLAIMS AND LAWSUITS A. PROFESSIONAL AND GENERAL LIABILITY INSURANCE In its normal course of business, the Company is subject to claims and lawsuits relating to patient treatment. The Company believes that its liability for damages resulting from such claims and lawsuits is adequately covered by insurance or is adequately provided for in its consolidated financial statements. The Company insures substantially all of its professional and comprehensive general liability risks in excess of self-insured retentions through a majority-owned insurance subsidiary. These self-insured retentions currently are $1 million per occurrence and in prior years varied by hospital and by policy period from $500,000 to $3 million per occurrence. A significant portion of these risks is, in turn, reinsured with major independent insurance companies. Prior to fiscal 1995, the Company insured its professional and comprehensive general liability risks related to its psychiatric and rehabilitation hospitals through a wholly owned insurance subsidiary, which reinsured risks in excess of $500,000 per occurrence with major independent insurance companies. The Company has reached the policy limits provided by this insurance subsidiary related to the psychiatric hospitals in most of its coverage years. In addition, damages, if any, arising from fraud and conspiracy claims in psychiatric malpractice cases (described under Legal Proceedings below) may not be insured. In addition to the reserves recorded by the above insurance subsidiaries, the Company maintains an unfunded reserve based on actuarial estimates for the self-insured portion of its professional liability risks. Reserves for losses and related expenses are estimated using expected loss-reporting patterns and have been discounted to their present value. Adjustments to the reserves are included in results of operations. 35 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) B. SIGNIFICANT LEGAL PROCEEDINGS The Company has been involved in significant legal proceedings of an unusual nature related principally to its discontinued psychiatric business. In prior years, the Company recorded provisions to estimate the cost of the ultimate disposition of all of these proceedings and to estimate the legal fees that it expected to incur. The Company has settled the most significant of these matters. The remaining reserves are for unusual litigation costs that relate to matters that had not been settled as of May 31, 1998 and an estimate of the legal fees to be incurred subsequent to May 31, 1998. These reserves represent management's estimate of the remaining net costs of the ultimate disposition of these matters. There can be no assurance, however, that the ultimate liability will not exceed such estimates. Although, based upon information currently available to it, management believes that the amount of damages, if any, in excess of its reserves for unusual litigation costs that may be awarded in any of the following unresolved legal proceedings cannot reasonably be estimated, management does not believe it is likely that any such damages will have a material adverse effect on the Company's results of operations, liquidity or capital resources. All of the costs associated with these legal proceedings are classified in discontinued operations. The Company continues to defend a greater-than-normal level of civil litigation relating to certain of its subsidiaries' discontinued psychiatric operations. The majority of the lawsuits filed contain allegations of medical malpractice as well as allegations of fraud and conspiracy against the Company and certain of its subsidiaries and former employees. Also named as defendants are numerous doctors and other healthcare professionals. The Company believes that this litigation has arisen primarily from advertisements by certain lawyers seeking former psychiatric patients in order to file claims against the Company and certain of its subsidiaries. The advertisements focus, in many instances, on the settlement of past disputes involving the operations of the subsidiaries' discontinued psychiatric business. Many of the cases alleging fraud and conspiracy that have been filed to date against the Company and certain of its subsidiaries have been resolved. The number of advertisements has increased and the Company expects that additional lawsuits with similar allegations will be filed. The Company believes it has a number of defenses to each of these actions and will defend these and any additional lawsuits vigorously. Until the lawsuits are resolved, however, the Company will continue to incur substantial legal expenses. Two federal securities class actions filed in August 1993 were consolidated into one action. This consolidated action was on behalf of a purported class of shareholders who purchased or sold stock of the Company between January 14, 1993 and August 26, 1993, and alleged violations of the securities laws by the Company and certain of its executive officers. On March 2, 1998, the Company signed a definitive settlement agreement, pursuant to which the Company paid $11,650,000 to settle all claims. - ------- NOTE 10. SHAREHOLDERS' EQUITY A. PREFERRED STOCK PURCHASE RIGHTS AND PREFERRED STOCK In 1988, Tenet distributed Preferred Stock Purchase Rights to holders of Tenet's common stock and authorized the issuance of additional rights for common stock issued after that date. The rights expire in December 1998 unless previously exercised or redeemed and do not entitle the holders thereof to vote as shareholders or receive dividends. The rights may be replaced by new rights. The Company may redeem the rights at $0.025 per right at any time up to the 10th business day after a public announcement that a person has acquired 20% or more of the Company's common stock in a transaction or transactions not approved by the 36 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES Board of Directors. The rights are not exercisable until after the date on which the Company's right to redeem the rights has expired. When exercisable, each right entitles the holder thereof to purchase from the Company one two-thousandth of a share of Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a price of $40.61, subject to adjustment. Subject to the foregoing, in the event the Company is acquired in a merger or other business combination transaction in which shares of the Company's common stock are exchanged for shares of another company or more than 50% of the Company's assets are sold, each holder of a right generally will be entitled upon exercise to purchase, for the then-current exercise price of the right, common stock of the surviving company having a market value equal to two times the exercise price of the rights. In the event of certain other mergers or business combinations, certain self-dealing transactions or the acquisition by a person of stock having 30% or more of the Company's general voting power (in each case without the approval of the Board of Directors), each holder of a right generally will be entitled to purchase upon exercise, for the then-current exercise price of the right, the number of shares of Series A Preferred Stock having a market value equal to two times the exercise price of the rights. The Series A Preferred Stock for which the Preferred Stock Purchase Rights may be exchanged is nonredeemable and has a par value of $0.15 per share. On January 27, 1997, in connection with the OrNda Merger, the Board of Directors approved an increase in the number of preferred shares authorized from 225,000 to 350,000. None of the 350,000 authorized shares are issued or outstanding. B. WARRANTS At May 31, 1998, there were warrants outstanding to purchase 124,064 shares of common stock at an exercise price of $13.25 per share. These warrants may be exercised through April 30, 2000. - ------- NOTE 11. STOCK BENEFIT PLANS The Company has stock-based compensation plans, which are described below. The Company has elected to continue to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for stock options under the plans because the exercise prices for all options granted during 1996, 1997 and 1998 were the quoted market prices on the option grant dates. At May 31, 1998, there were 18,571,845 shares of common stock available for future grants of stock options and performance-based incentive awards to the Company's key employees, advisors and consultants. The exercise price of each option generally equals the market price of the Company's stock on the date of grant and options are normally exercisable at the rate of one-third per year beginning one year from the date of grant. Stock options generally expire 10 years from the date of grant. No performance-based incentive stock awards have been made since fiscal 1994. The Company has a Directors Stock Option Plan that makes available for issuance to nonemployee directors options to purchase shares of common stock. At May 31, 1998 there were 267,500 shares available for future grant. Under this plan each nonemployee director receives a stock option for 7,500 common shares upon initially being elected to the Board of Directors and on the fourth Thursday of each January thereafter. Awards have an exercise price equal to the fair market value of the Company's shares on the date of grant, vest one year after the date of grant and expire 10 years after the date of grant. In October 1997, the shareholders approved an amendment to the Directors Stock Option Plan increasing the initial annual grant of options under the plan from 5,000 to 7,500 options. 37 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) All awards granted under the foregoing plans will vest under circumstances defined in the plans or under certain employment arrangements, including a change in control of the Company without the approval of the Board of Directors. The following table summarizes certain information about the Company's stock options outstanding at May 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------------- ------------------------------- WEIGHTED-AVERAGE NUMBER OF REMAINING WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE - --------------------------------------------------------------------------------- ------------------------------- $4.69 to $9.88 2,568,961 5.5 years $9.38 2,568,961 $9.38 $10.55 to $15.88 5,296,954 6.4 $13.42 5,283,250 $13.42 $16.25 to $20.88 3,132,357 7.3 $20.33 2,048,246 $20.16 $21.00 to $26.38 6,758,041 7.6 $23.78 2,268,950 $23.73 $31.00 to $35.13 5,528,259 9.5 $33.07 -- -- ------------------------------------------------------ ------------------------------- 23,284,572 7.5 $21.58 12,169,407 $15.63 ------------------------------------------------------ ------------------------------- ------------------------------------------------------ -------------------------------
A summary of the status of the Company's stock option plans as of May 31, 1996, 1997 and 1998, and changes during the years ending on those dates is presented below:
1996 1997 1998 --------------------------------------------------------------------------- ------------------------------ NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE --------------------------------------------------------------------------- ------------------------------ Outstanding at beginning of year 25,742,932 $14.22 26,299,166 $14.20 24,850,790 $17.25 Granted 5,782,921 $19.23 6,436,800 $24.07 5,608,259 $33.07 Exercised (3,120,462) $11.69 (7,093,224) $13.85 (6,547,332) $14.89 Forfeited (2,106,225) $20.05 (791,952) $19.92 (627,145) $22.27 --------------------------------------------------------------------------- ------------------------------ Outstanding at end of year 26,299,166 $14.20 24,850,790 $17.25 23,284,572 $21.58 --------------------------------------------------------------------------- ------------------------------ --------------------------------------------------------------------------- ------------------------------ Options exercisable at end of year 13,403,495 $14.12 14,450,670 $14.08 12,169,407 $15.63 --------------------------------------------------------------------------- ------------------------------ --------------------------------------------------------------------------- ------------------------------ Weighted average fair value of options granted during the year $10.12 $11.62 $14.66 --------------------------------------------------------------------------- ------------------------------ --------------------------------------------------------------------------- ------------------------------
The fair values of the option grants in the table above, and for purposes of the pro forma disclosures below, have been estimated as of the date of each grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
1996 1997 1998 ------------------------ Expected volatility 39% 40% 33% Risk-free interest rates 5.7% 6.5% 5.9% Expected lives, in years 6.2 5.8 6.1 Expected dividend yield 0% 0% 0%
38 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES Had compensation cost for the Company's stock options been determined based on these fair values for awards granted during the past three years, the Company's net income (loss) and earnings (loss) per share would have been reduced (increased) to the pro forma amounts indicated below:
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 --------------------------- Net income: As reported $ 450 $ (254) $ 261 Pro forma $ 447 $ (270) $ 231 Basic earnings per share: As reported $1.60 $(0.84) $0.85 Pro forma $1.60 $(0.89) $0.76 Diluted earnings per share: As reported $1.54 $(0.84) $0.84 Pro forma $1.53 $(0.89) $0.75
These pro forma disclosures are not likely to be representative of the pro forma results for future years, because the options vest over three years and additional awards are generally made each year. - ------- NOTE 12. EMPLOYEE STOCK PURCHASE PLAN The Company has an Employee Stock Purchase Plan under which it is authorized to issue up to 5 million shares of common stock to eligible employees of the Company or its designated subsidiaries. Under the terms of the plan, eligible employees can elect to have between 1% and 10% of their base earnings withheld each calendar quarter to purchase, on the last day of the quarter, shares of the Company's common stock at a purchase price equal to 85% of the lower of the closing price on the first day of the quarter or its closing price on the last day of the quarter. Under the plan, the Company sold 727,954 shares to employees in the year ended May 31, 1997 at a weighted average price of $17.64 per share and 703,832 shares in the year ended May 31, 1998 at a weighted average price of $24.87 per share. - ------- NOTE 13. EMPLOYEE RETIREMENT PLANS Substantially all domestic employees who are employed by the Company or its subsidiaries, upon qualification, are eligible to participate in a defined contribution 401(k) plan. Employees who elect to participate generally make mandatory contributions from 1% to 16% of their eligible compensation, and the Company matches such contributions up to a maximum percentage. Company contributions to the plans were approximately $32 million for each of fiscal years 1996 and 1997, and $39 million for fiscal 1998. - ------- NOTE 14. INVESTMENTS The Company's principal long-term investments in unconsolidated affiliates include 8,301,067 shares of common stock of Ventas and 2,865,000 shares of TRC. Also included in the Company's long-term investments at May 31, 1998 is an investment portfolio of U.S. government securities aggregating $77 million, which resulted from the investment of the proceeds from the Company's sale of 8,301,067 shares of Vencor common stock that it received as a dividend from Ventas in May 1998. This sale resulted in a pretax loss to the Company of $30 million. The portfolio is being held in an escrow account for the benefit of the holders of the Company's 6% Exchangeable Notes (See Note 7). The Company classifies all these investments as "available for sale" whereby the carrying values of the shares and debt instruments are adjusted to market value at the end of each accounting period through a credit or charge, net of income taxes, to other comprehensive income. At May 31, 1997 and 1998, the aggregate market value of these investments was approximately $446 million and $299 million, respectively. 39 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In March 1998, the Company contributed 2,135,000 shares of its TRC common stock, with a fair market value of $75 million and an original cost basis of $4 million, to the newly created Tenet Healthcare Foundation, a charitable foundation through which Tenet intends to conduct substantially all of the Company's philanthropic grant making. The effect of the contribution to the foundation, less the gain on the disposition of the TRC shares, has been reflected in net gains (losses) on disposals of facilities and long-term investments in the 1998 Consolidated Statement of Operations. - ------- NOTE 15. DISCONTINUED OPERATIONS -- PSYCHIATRIC HOSPITAL BUSINESS In fiscal 1996, the Company recorded $16 million (less income tax benefits of $6 million) for additional estimated legal costs and $25 million (less tax benefits of $10 million) to increase the reserves of the Company's wholly owned insurance subsidiary for professional liability claims, all of which related to the former psychiatric hospitals. In fiscal 1997, the Company recorded $215 million (less income tax benefits of $81 million) to reflect the recent settlements of patient and other litigation and to record the estimated future costs to settle the remaining litigation related to certain of its former psychiatric hospitals and to increase the reserves of its wholly owned insurance subsidiary by an additional $42 million. - ------- NOTE 16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, current portion of long-term debt, accounts payable and accrued interest payable approximate fair value because of the short maturity of these instruments. The carrying values of investments, both short-term and long-term (excluding investments accounted for by the equity method), long-term receivables and long-term debt are not materially different from the estimated fair values of these instruments. - -------- NOTE 17. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective for financial statements for fiscal years beginning after June 15, 1999, and which will apply to the Company beginning June 1, 2000. SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company does not believe that the new standard will have any significant effect on its future results of operations. In March and in April, 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued two Statements of Position ("SOPs") that are effective for financial statements for fiscal years beginning after December 15, 1998, which will apply to the Company beginning with its fiscal year ended May 31, 2000. SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," provides guidance on the circumstances under which the costs of certain computer software should be capitalized and/or expensed. SOP 98-5, "Reporting on the Costs of Start-Up Activities," requires such costs to be expensed as incurred instead of capitalized and amortized. The Company does not expect the adoption of either of these SOPs to have any material effect on its future results of operations. 40 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES SUPPLEMENTARY FINANCIAL INFORMATION SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL 1997 QUARTERS FISCAL 1998 QUARTERS ---------------------------------------- --------------------------------------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH ---------------------------------------- --------------------------------------- Net operating revenues $1,991 $2,112 $2,237 $2,351 $2,331 $2,429 $2,564 $2,571 Income (loss) from continuing operations $ 96 $ 103 $ (66) $ (206) $ 116 $ 138 $ 148 $ (24) Net income (loss) $ 96 $ 103 $ (113) $ (340) $ 116 $ 138 $ 148 $ (141) ---------------------------------------- --------------------------------------- ---------------------------------------- --------------------------------------- Earnings (loss) per share from continuing operations: Basic $ 0.32 $ 0.35 $(0.21) $(0.67) $ 0.38 $ 0.45 $ 0.48 $(0.08) Diluted $ 0.32 $ 0.34 $(0.21) $(0.67) $ 0.38 $ 0.44 $ 0.47 $(0.08) ---------------------------------------- --------------------------------------- ---------------------------------------- ---------------------------------------
Quarterly operating results are not necessarily representative of operations for a full year. For example, fiscal 1997 includes expenses of $272 million recorded in the third quarter and $37 million recorded in the fourth quarter in connection with the OrNda Merger, and other charges of $18 million, impairment losses of $413 million and an $18 million loss for the additional liability related to the Company's indexed debt instruments, recorded in the fourth quarter, as well as a $47 million extraordinary charge from early extinguishment of debt in the third quarter and a $134 million charge to discontinued operations in the fourth quarter. Fiscal 1998 includes an $18 million gain recorded in the second quarter related to a change in the index value of the Company's 6% Exchangeable Notes, and a $35 million loss from disposal of long-term investments, impairment losses and other charges of $221 million, as well as a $117 million extraordinary charge from early extinguishment of debt in the fourth quarter. COMMON STOCK INFORMATION (UNAUDITED)
FISCAL 1997 QUARTERS FISCAL 1998 QUARTERS ---------------------------------------- --------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH ---------------------------------------- --------------------------------------- Price range: High 22-5/8 23-1/4 28-7/8 29-5/8 31-1/2 33-1/4 37-1/2 40-15/16 Low 18-1/2 20-3/8 21-3/8 23-1/4 25-1/2 26-7/16 30-3/8 34-3/4
At May 31, 1998, there were approximately 16,800 holders of record of the Company's common stock. The Company's common stock is listed and traded on the New York and Pacific stock exchanges. The stock prices above are the high and low sales prices as reported in the NYSE Composite Tape for the last two fiscal years. The Company's credit facility prohibits the declaration or payment of dividends unless its senior long-term unsecured debt securities are rated BBB- or higher by Standard and Poors Rating Services and Baa3 or higher by Moody's Investors Services, Inc. 41 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES DIRECTORS AND MANAGEMENT BOARD OF DIRECTORS Jeffrey C. Barbakow(1,4) CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TENET HEALTHCARE CORPORATION Michael H. Focht Sr.(1,5) PRESIDENT AND CHIEF OPERATING OFFICER, TENET HEALTHCARE CORPORATION Lawrence Biondi, S.J.(7) PRESIDENT, ST. LOUIS UNIVERSITY Bernice B. Bratter(1,3,4) PRESIDENT, LOS ANGELES WOMEN'S FOUNDATION Sanford Cloud Jr.(8) PRESIDENT, NATIONAL CONFERENCE FOR COMMUNITY AND JUSTICE Maurice J. DeWald(1,2,3) CHAIRMAN, VERITY FINANCIAL GROUP, INC. Edward Egbert, M.D.(4,5,6) RETIRED PHYSICIAN Raymond A. Hay(2,4,5) CHAIRMAN, ABERDEEN ASSOCIATES Lester B. Korn(1,3,6) CHAIRMAN, KORN TUTTLE CAPITAL GROUP Richard S. Schweiker(2,5) RETIRED PRESIDENT, AMERICAN COUNCIL OF LIFE INSURANCE BOARD COMMITTEES (1)Executive Committee (2)Audit Committee (3)Compensation and Stock Option Committee (4)Nominating Committee (5)Ethics and Quality Assurance Committee (6)Pension Committee (7)Appointment to Nominating and Audit Committees Pending (8)Appointment to Pension and Ethics Committees Pending PRINCIPAL MANAGEMENT Jeffrey C. Barbakow CHAIRMAN AND CHIEF EXECUTIVE OFFICER Michael H. Focht Sr. PRESIDENT AND CHIEF OPERATING OFFICER Trevor Fetter EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Thomas B. Mackey EXECUTIVE VICE PRESIDENT, WESTERN DIVISION David R. Mayeux EXECUTIVE VICE PRESIDENT, ACQUISITION & DEVELOPMENT Barry P. Schochet EXECUTIVE VICE PRESIDENT, OPERATIONS W. Randolph Smith EXECUTIVE VICE PRESIDENT, EASTERN DIVISION Norman S. Bobes, M.D. SENIOR VICE PRESIDENT AND CHIEF MEDICAL OFFICER Scott M. Brown SENIOR VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY Stephen F. Brown SENIOR VICE PRESIDENT AND CHIEF INFORMATION OFFICER Alan R. Ewalt SENIOR VICE PRESIDENT, HUMAN RESOURCES T. Dennis Jorgensen SENIOR VICE PRESIDENT, ADMINISTRATION Raymond L. Mathiasen SENIOR VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER Christi R. Sulzbach SENIOR VICE PRESIDENT, PUBLIC AFFAIRS, AND ASSOCIATE GENERAL COUNSEL SENIOR VICE PRESIDENTS, OPERATIONS S. James Biltz TEXAS REGION William L. Bradley CENTRAL STATES REGION Dennis M. Brown NORTHERN REGION Michael W. Gallo FINANCE, WESTERN DIVISION Reynold J. Jennings SOUTHEAST REGION Ben F. King FINANCE, EASTERN DIVISION Neil M. Sorrentino CHIEF EXECUTIVE OFFICER, SOUTHERN CALIFORNIA REGION Don S. Steigman FLORIDA REGION VICE PRESIDENTS William A. Barrett ASSISTANT GENERAL COUNSEL Steven R. Blake FINANCE, NORTHERN REGION Sanford M. Bragman RISK MANAGEMENT Samuel I. Brandt, M.D. MEDICAL INFORMATICS AND CLINICAL PROCESSES Mark H. Bryan OPERATIONS, FLORIDA REGION Thomas E. Casaday OPERATIONS, TEXAS REGION 42 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES Alan N. Cranford INFORMATION SYSTEMS David S. Dearman FINANCE, TEXAS REGION Lee Domanico OPERATIONS, LOS ANGELES COUNTY, SOUTHERN CALIFORNIA REGION Steven Dominguez GOVERNMENT PROGRAMS William R. Durham FINANCE, SOUTHEAST REGION Deborah J. Ettinger BUSINESS DEVELOPMENT, WESTERN DIVISION Stephen D. Farber FINANCE Richard W. Fiske ACQUISITION & DEVELOPMENT Richard S. Freeman OPERATIONS, SOUTHEAST REGION Neil B. Hadley ETHICS & BUSINESS CONDUCT Lynn S. Hart GOVERNMENT RELATIONS Jeffrey S. Heinemann PHYSICIAN SERVICES Robert S. Hendler, M.D. MEDICAL EDUCATION AND TECHNOLOGY ASSESSMENT Lawrence G. Hixon CORPORATE REPORTING Michael S. Hongola INFORMATION SYSTEMS Joseph L. Jackson HUMAN RESOURCES Bruce L. Johnson AUDIT SERVICES Matthew A. Kurs OPERATIONS, ST. LOUIS MARKET, CENTRAL STATES REGION David W. Layne ASSOCIATE GENERAL COUNSEL William W. Leyhe INTEGRATED DELIVERY SYSTEMS, WESTERN DIVISION William Loorz CONSTRUCTION AND DESIGN Kenneth B. Love, Jr. FINANCE, SOUTHERN CALIFORNIA REGION John A. Lynn COMPENSATION Deborah A. Maicach INFORMATION SYSTEMS David S. McAdam COMMUNICATIONS Terence P. McMullen TREASURER Paul O'Neill ACQUISITION & DEVELOPMENT Suzanne T. Porter BUSINESS DEVELOPMENT, EASTERN DIVISION Timothy L. Pullen CONTROLLER Douglas E. Rabe TAXATION J. Scott Richardson FINANCE, EASTERN DIVISION David C. Ricker MATERIEL RESOURCE MANAGEMENT Jacqueline D. Rissotto EMPLOYEE BENEFITS Leonard H. Rosenfeld QUALITY MANAGEMENT C. David Ross FINANCE, FLORIDA REGION Paul J. Russell INVESTOR RELATIONS Richard B. Silver ASSOCIATE GENERAL COUNSEL Charles R. Slaton OPERATIONS, CENTRAL STATES REGION Gerald L. Stevens STRATEGIC PROJECTS Donald W. Thayer ACQUISITION & DEVELOPMENT Jacinta E. Titialii ACQUISITION & DEVELOPMENT Michael E. Tyson FINANCE, CENTRAL STATES REGION Davis L. Watts BUSINESS OFFICE SERVICES Kenneth K. Westbrook OPERATIONS, ORANGE COUNTY, SOUTHERN CALIFORNIA REGION William R. Wilson FINANCE, WESTERN DIVISION Barry A. Wolfman OPERATIONS, QUAD COUNTY, SOUTHERN CALIFORNIA REGION SUBSIDIARIES Michael H. Ford PRESIDENT, INTERNATIONAL Jay A. Silverman PRESIDENT, SYNDICATED OFFICE SYSTEMS 43 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES CORPORATE INFORMATION COMMON STOCK TRANSFER AGENT AND REGISTRAR The Bank of New York (800) 524-4458 shareowner-svcs@bankofny.com Holders of National Medical Enterprises, Inc. (NME) stock certificates who would like to exchange them for Tenet certificates may do so by contacting the transfer agent. Former shareholders of American Medical Holdings, Inc. (AMI) and OrNda HealthCorp who have not yet redeemed their AMI or OrNda stock for cash and Tenet stock should also contact the transfer agent. Please send certificates for transfer and address changes to: Receive and Deliver Department - 11W P.O. Box 11002 Church Street Station New York, NY 10286 Please address other inquiries for the transfer agent to: Shareholder Relations Department - 11E P.O. Box 11258 Church Street Station New York, NY 10286 For all other shareholder inquiries, please contact Paul J. Russell, Vice President, Investor Relations, at (805) 563-7188. CORPORATE HEADQUARTERS Tenet Healthcare Corporation 3820 State Street Santa Barbara, CA 93105 (805) 563-7000 www.tenethealth.com COMMON STOCK LISTING The Company's common stock is listed under the symbol THC on the New York and Pacific stock exchanges. Debt securities listed on the New York Stock Exchange: 9-5/8% Senior Notes due 2002 7-7/8% Senior Notes due 2003 8-5/8% Senior Notes due 2003 6% Exchangeable Subordinated Notes due 2005 8% Senior Notes due 2005 10-1/8% Senior Subordinated Notes due 2005 8-5/8% Senior Subordinated Notes due 2007 TRUSTEE/REGISTRAR The Bank of New York 101 Barclay Street New York, NY 10286 (800) 524-4458 ANNUAL MEETING The annual meeting of the shareholders of Tenet Healthcare Corp. will be held at 10 a.m. on Wednesday, Oct. 7, 1998, at the Regent Beverly Wilshire Hotel, 9500 Wilshire Boulevard, Beverly Hills, California. FORM 10-K The company reports annually to the Securities and Exchange Commission on Form 10-K. You may obtain a copy at no charge by writing to Tenet Investor Relations or by telephoning (805) 563-6969. 44 [LOGO] 3820 State Street, Santa Barbara, California 93105 805.563.7000 www.tenethealth.com EX-21 8 EXHIBIT 21 Tenet HealthSystem Holdings, Inc. (a) Tenet HealthSystem Medical, Inc. (b) Tenet Management Services, Inc. (c) Tenet Health Integrated Services, Inc. (c) Quality Medical Management, Inc. (c) Mid-Orange Medical Management, Inc. (c) Alexa Integrated Medical Management, Inc. (b) AHS Management Company, Inc. (b) Alabama Health Connection, Inc. (b) Alabama Medical Group, Inc. (b) American Medical (Central), Inc. (c) Amisub (Heights), Inc. (c) Tenet Texas Employment, Inc. (c) Amisub of Texas, Inc. OWNERSHIP - LIFEMARK HOSPITAL, INC. (63.68%) TENET HEALTHSYSTEM MEDICAL, INC. (19.75%) BROOKWOOD HEALTH SERVICES, INC. (5.10%) AMI INFORMATION SYSTEMS GROUP, INC. (.42%) AMERICAN MEDICAL (CENTRAL), INC. (11.05%) (c) Amisub (Twelve Oaks), Inc. (c) Lifemark Hospitals, Inc. (d) Tenet Healthcare, Ltd. - OWNERSHIP - LIFEMARK HOSPITALS, GP (1%) AMISUB OF TEXAS, INC., LP (70.1%) AMISUB (HEIGHTS), INC., LP (10.3%) AMISUB (TWELVE OAKS), INC., LP (18.6%) (e) Odessa Hospital, Ltd. - OWNERSHIP- TENET HEALTHCARE LTD., GP (78.125%); INDIVIDUAL PHYSICIANS, LP (21.875%) (d) Texas Healthcare Physician Services, Inc. (d) 6103 Webb Road Ltd. - OWNERSHIP - LIFEMARK HOSPITALS, INC.(88%) PHYSICIANS DEVELOPMENT, INC. + EPP (9%) DR. ROBERT SHERRILL (3%) (d) Lifemark Hospitals of Florida, Inc. (e) Palmetto Medical Plan, Inc. (e) Pain Management Center of Tampa, Inc. (e) T&C and USF Ob/Gyn Center, Inc. (e) Hospital Constructors - OWNERSHIP - LIFEMARK HOSPITALS OF FLORIDA, INC. (88%) EASTERN PROFESSIONAL PROPERTIES, INC. (12%) (d) Lifemark Hospitals of Louisiana, Inc. (e) Kenner Regional Clinical Services, Inc. (d) Lifemark Hospitals of Missouri, Inc. (e) Lifemark RMP Joint Venture - OWNERSHIP - LIFEMARK HOSPITALS OF MISSOURI, INC. (50%), RMP, L.L.C. (50%) (e) Procare Network II, Inc. (d) Regional Alternative Health Services, Inc. (e) Mid-Missouri Lithotripter Center - OWNERSHIP - PHYSICIANS (68.33%) REGIONAL ALTERNATIVE HEALTH SERVICES, INC. (31.67%) (d) Houston Specialty Hospital, Inc. (d) Memphis Specialty Hospital, Inc. (d) Tenet Investments-Kenner, Inc. (d) Tenet HealthSystem RMA, Inc. (c) Texas Southwest Healthservices, Inc. (d) Diagnostic and Theraputic Cardiology Services, L.P. - OWNERSHIP - PHYSICIANS (7.143%) TEXAS SOUTHWEST HEALTHSERVICES, INC. (92.857%) (b) American Medical Finance Company (b) American Medical Home Care, Inc. (b) American Purchasing Services, Inc. (b) AMI Ambulatory Centres, Inc. (c) Surgical Services, Inc. (d) Ambulatory Care - Broward Development Corp. 1 (d) Surgical Services of West Dade, Inc. (e) Am-Med Associates - OWNERSHIP - SURGICAL SERVICES OF WEST DADE, INC. (50%) PALMED ASSOCIATES (50%) (b) AMI Arkansas, Inc. (c) Healthstar Properties Limited Partnership - OWNERSHIP- AMI ARKANSAS, INC., G.P (1%), LP (49%) ST. VINCENT TOTALHEALTH CORPORATION, G.P (1%), L.P. (49%) (d) Healthstar Ultima, L.L.C.- OWNERSHIP - HEALTHSTAR PROPERTIES LIMITED PARTNERSHIP (70 UNITS) ARKANSAS CHILDREN'S HOSPITAL (1 UNIT) QUORUM HEALTH RESOURCES, INC. (1 UNIT) NORTHWEST MEDICAL CENTER (1 UNIT) REBSAM REGIONAL MEDICAL CENTER (1 UNIT) (b) AMI Brokerage Services, Inc. (b) AMI Diagnostic Services, Inc. (c) UCSD Medical Center Magnetic Resonance Diagnostic Center - OWNERSHIP - AMI DIAGNOSTIC SERVICES, INC. (50%) THE REGENTS OF THE UNIVERSTIY OF CALIFORNIA (50%) (b) AMI Information Systems Group, Inc. (c) American Medical International B.V. (d) American Medical International N.V. (b) AMI/HTI Tarzana Encino Joint Venture - OWNERSHIP - TENET HEALTHSYSTEM MEDICAL, INC. (30%) AMISUB OF CALIFORNIA, INC. (26%) NEW H ACUTE, INC. (12%) AMI INFORMATION SYSTEMS GROUP, INC. (7%) ENCINO HOSPITAL CORPORATION (25%) (b) Tenet System Services, Inc. (b) Amisub (American Hospital), Inc. (b) Amisub (Culver Union Hospital), Inc. (c) Choice Care Network, Inc. (b) Tenet Physician Services - Hilton Head, Inc. (c) Hilton Head Clinics, Inc. (c) Hilton Head Health Systems, L.P. - OWNERSHIP - TENET PHYSICIAN SERVICES - HILTON HEAD, INC. (21%) AMISUB (HILTON HEAD), INC.(49%) HILTON HEAD HEALTH FOUNDATION (30%) (d) Beaufort Hilton Head Healthcare System, L.L.C. - OWNERSHIP - HILTON HEAD HEALTH SYSTEM, L.P. (50%) BROAD RIVER HEALTHCARE, INC. (50%) (d) Hilton Head Home Care Services, Inc. (c) Piedmont Medical Equipment, G.P. - OWNERSHIP - AMISUB OF SOUTH CAROLINA, INC. (50%) AMERICA HOME PATIENT, INC. (50%) (c) Rock Hill Surgery Center, L.P. - OWNERSHIP - AMISUB OF SOUTH CAROLINA, INC. (72%) SURGICAL CENTER OF ROCK HILL (28%) (b) Amisub (Florida Ventures), Inc. (c) PBG Outpatient Services, Inc. (c) Brookwood Diagnostic Center of Tampa, Inc. (c) Clinical Services, Inc. (c) Ft. Lauderdale Surgery Center, Inc. (c) Tampa MOB 107, Inc. (c) Tampa MOB 104, Inc. (c) Tampa 8313 West Hillsborough, Inc. (c) Tampa 4802 Gunn Highway, Inc. (c) Center for Quality Care, Inc. (c) Tampa 418 W. Platt St., Inc. (b) Amisub (GTS), Inc. (b) Amisub (Hilton Head), Inc. (b) Amisub (Irvine Medical Center), Inc. (b) Tenet HealthSystem Spalding, Inc. (c) Tenet Physician Services - FMC, Inc. (c) Tenet Physician Services - Spalding, Inc. 2 (c) Spalding Health System, L.L.C. - OWNERSHIP - TENET HEALTHSYSTEM SPALDING, INC. (50%) PHYSICIANS (50%) (c) Tenet EMS/Spalding 911, LLC - OWNERSHIP - TENET HEALTHSYSTEM SPALDING, INC. (64.1%) SPALDING COUNTY (35.9%) (b) Amisub (North Ridge Hospital), Inc. (c) FL Health Complex, Inc. (c) North Ridge Carenet, Inc. (c) North Ridge Partners, Inc. (d) SFHCA Walk-In Centers, G.P. - OWNERSHIP - NORTHRIDGE PARTNERS, INC. (50%) SOUTH FLORIDA HEALTH CARE ASSOCIATES (50 %) (b) Amisub of California, Inc. (c) Valley Doctors' Hospital (d) Family Medical Services (d) L.A. Surgery Center, Ltd. - OWNERSHIP - VALLEY DOCTORS' HOSPITAL (30.3%) OTHERS (69.7%) (d) Cypress Specialty Hospital, Inc. (c) Physician Practice Management Corporation (c) Park Plaza Retail Pharmacy, Inc. (c) Tarzana Regional Medical Center MRI Center - OWNERSHIP - AMISUB OF CALIFORNIA, INC. (7.8%) NON-TENET ENTITY (92.2%) (c) AMI (Canada), Ltd. (b) Amisub of North Carolina, Inc. (b) Central Carolina Management Services Organization, Inc. (b) Amisub (SMHS), Inc. (b) Amisub of South Carolina, Inc. (c) Piedmont Medical Services Company (c) Tenet Physician Services - Piedmont, Inc. (c) Piedmont Seven, Inc. (c) Tenet Piedmont West Urgent Care Center, Inc. (b) Amisub (Saint Joseph Hospital), Inc. (c) Creighton Saint Joseph Regional HealthCare System, L.L.C. - OWNERSHIP - AMISUB (SAINT JOSEPH HOSPITAL), INC. (73.82%) CREIGHTON HEALTHCARE, INC. (26.18%) (d) Home-based Psychiatric Services, Inc.- OWNERSHIP - CREIGHTON SAINT JOSEPH REGIONAL HEALTHCARE SYSTEM, L.L.C. (75%) JAMES T. WHITE PH.D. (25%) (c) Saint Joseph Mental Health Plans, Inc. (c) Saint Joseph Mental Health Physicians, Inc. (b) Amisub (SFH), Inc. (c) Tenet HealthSystem SF-SNF, Inc. (b) Amisub (Sierra Vista), Inc. (c) MRI of San Louis Obispo, G.P. - OWNERSHIP - AMISUB (SIERRA VISTA), INC. (45%) MEDIQ (55%) (b) Tenet Finance Corp. (b) Arkansas Healthcare Services, Inc. (b) Brookwood Center Development Corporation (c) BWP Associates, Ltd. - OWNERSHIP- BROOKWOOD CENTER DEVELOPMENT CORPORATION (80%) W+R, INC. (20%) (c) Med Plex Land Associates - OWNERSHIP - BROOKWOOD CENTER DEVELOPMENT CORPORATION (49%) HOOVER DOCTORS' GROUP II (51%) (c) Medplex Outpatient Surgery Center, Ltd. - OWNERSHIP - BROOKWOOD CENTER DEVELOPMENT CORPORATION (83%) OTHERS (17%) (c) Hoover Doctors Group, Inc. (c) Medplex Outpatient Medical Centers, Inc. (b) Brookwood Development, Inc. (c) Alabama Health Services, Inc. - OWNERSHIP - BROOKWOOD DEVELOPMENT, INC. (50%) EASTERN HEALTH SYSTEM, INC. (50%) 3 (c) Alabama Health Services (St. Clair), L.L.C. - OWNERSHIP - BROOKWOOD DEVELOPMENT, INC. (50%) HEALTH SERVICES EAST, INC. (50%) (b) Brookwood Health Services, Inc. (c) Brookwood Medical Center of Tampa, Inc. (d) Memorial Hospital of Tampa, L.P. - OWNERSHIP - BROOKWOOD MEDICAL CENTER OF TAMPA, INC. (76%) EASTERN PROFESSIONAL PROPERTIES, INC. (24%) (c) Brookwood - Riverchase Primary Care Center, Inc. (c) Estes Health Care Centers, Inc. (b) Central Arkansas Hospital, Inc. (c) Amisub (Central Arkansas), Inc. (b) Central Care, Inc. (b) Columbia Land Development, Inc. (b) Culver Health Network, Inc. (b) Cumming Medical Ventures, Inc. (b) East Cooper Community Hospital, Inc. (c) Charleston Health Services Organization, Inc. (b) Eastern Professional Properties, Inc. (b) Florida Health Network, Inc. (b) Frye Regional Medical Center, Inc. (c) Frye Home Infusion, Inc. (c) Piedmont Health Alliance, Inc. - OWNERSHIP - FRYE REGIONAL MEDICAL CENTER, INC. (50%); PHYSICIANS (50%) (c) Tenet Claims Processing, Inc. (c) Ten Broeck/Frye Partnership - OWNERSHIP - FRYE REGIONAL MEDICAL CENTER, INC. (50%) UNITED MED CORP. OF NC (50%) (c) Unifour Infusion Care, L.L.C. - OWNERSHIP - FRYE REGIONAL MEDICAL CENTER, INC. (33%) CALDWELL MEMORIAL HOSPITAL, INC. (67%) (b) Georgia Health Services, Inc. (b) Heartland Corporation (c) Prairie Medical Clinic, Inc. (c) Heartland Physicians, Inc. (b) Kenner Regional Medical Center, Inc. (b) Lucy Lee Hospital, Inc. (c) HMS, L.P. - OWNERSHIP - LUCY LEE HOSPITAL, INC. (35%); HOME MEDICAL OF P.B. (65%) (b) Medical Center of Garden Grove (c) Orange County Kidney Stone Center, L.P. - OWNERSHIP - MEDICAL CENTER OF GARDEN GROVE, INC. (42.5805%) OCKSC ASSOC. + INC. + 11 OTHERS (57.4195%) (c) Orange County Kidney Stone Center Assoc., G. P. - OWNERSHIP - PHYSICIANS (67.9%) MEDICAL CENTER OF GARDEN GROVE (32.1%) (b) Medical Collections, Inc. (b) Mid-Continent Medical Practices, Inc. (b) Missouri Health Services, Inc. (b) National Medical Services III, Inc. (b) National Park Medical Center, Inc. (c) NPMC Healthcenter - The Heart Clinic, Inc. (c) NPMC Healthcenter - National park Surgery Clinic, Inc. (c) NPMC Healthcenter - Cardiology Services, Inc. (c) NPMC Healthcenter - Physicians for Women, Inc. (c) NPMC Healthcenter - Cardiology Care Center, Inc. (c) NPMC Healthcenter - Hot Springs Village, Inc. (c) NPMC Heatlhcenter - Malvern, Inc. (c) NPMC Healthcenter - Family Healthcare Clinic, Inc. (c) NPMC Healthcenter - Gastroenterology Center of Hot Springs, Inc. (c) NPMC Healthcenter - Physician Services, Inc. (c) Tenet HealthSystem NPMC Hamilton West, Inc. 4 (c) Hot Springs Outpatient Surgery, G.P. - OWNERSHIP - NATIONAL PARK MEDICAL CENTER, INC. (50%) HOT SPRINGS OUTPATIENT SURGERY (50%) (b) New H Holdings Corp. - OWNERSHIP - TENET HEALTHSYSTEM MEDICAL, INC. (99%) AMISUB OF CALIFORNIA, INC. (.5%) BROOKWOOD HEALTH SERVICES, INC. (.5%) (c) New H Acute, Inc. (d) New H South Bay, Inc. (b) North Carolina Health Services, Inc. (b) North Fulton Imaging Ventures, Inc. (b) North Fulton Medical Center, Inc. (c) North Fulton Health Care Associates, Inc. (c) North Fulton Regional Cancer Center, Inc. (c) North Fulton 002, Inc. (c) Tenet Physician Services - North Fulton, Inc. (c) North Fulton 008, Inc. (c) North Fulton 009, Inc. (c) North Fulton 010, Inc. (b) North Fulton MOB Ventures, Inc. (c) North Fulton Professional Building I, L.P. - OWNERSHIP - NORTH FULTON MOB VENTURES, INC. (15.4917%) NORTH FULTON MEDICAL VENTURES, INC. (84.5083%) (b) North Point Medical Ventures, Inc. (b) Occupational Health Medical Services of Florida, Inc. (b) Palm Beach Gardens Community Hospital, Inc. (b) Partners in Service, Inc. (b) Physicians Development, Inc. (b) Piedmont Home Health, Inc. (b) Pinnacle Healthcare Services, Inc. (b) Professional Healthcare Systems Licensing Corporation (b) ProMed Pharmicenter, Inc. (b) Roswell Medical Ventures, Inc. (c) North Fulton Parking Deck, L.P. - OWNERSHIP - ROSWELL MEDICAL VENTURES, INC. (89.9361%) NORTH FULTON PROFESSIONAL BUILDING I, L.P. (10.1639%) (b) Saint Joseph Mental Health Physicians, Inc. (b) San Dimas Community Hospital (b) SEMO Medical Management Company, Inc. (b) Sierra Vista Hospital, Inc. (c) Tenet HealthSystem Sierra Vista Venture I, Inc. (c) Tenet HealthSystem Sierra Vista Ventures II, Inc. (b) South Carolina Health Services, Inc. (b) Southern Medical Holding Corporation (c) Bio Medical Resources, Inc. (b) St. Mary's Regional Medical Center, Inc. (c) Amisub (St Mary's), Inc. (d) Priority Industrial Physical Therapy Sports Rehab, G.P. - OWNERSHIP - AMISUB (ST. MARY'S), INC. (51%) DANNY LYONS (43%); LARRY ENGLA (6%) (c) St. Mary's Medical Group, Inc. (c) Dedicated Health PHO, Inc. (b) Tenet (Brookwood Development), Inc. (c) Health Advantage Plans, Inc. - OWNERSHIP - TENET (BROOKWOOD DEVELOPMENT), INC. (33 1/3%) TENET HEALTHSYSTEM LLOYD NOLAND PROPERTIES, INC. (33 1/3%) EASTSIDE VENTURES, INC. (33 1/3%) (d) Group Administrators, Inc. (b) Tennessee Health Services, Inc. (b) Texas Healthcare Services, Inc. (b) Texas Professional Properties, Inc. (b) Tenet Ashley River OB/GYN, Inc. 5 (b) Tenet Caldwell Family Physicians, Inc. (b) Tenet Catawba Nurse Midwives, Inc. (b) Tenet Choices, Inc. - OWNERSHIP - TENET HEALTHSYSTEM MEDICAL, INC. 5,000 SHARES RICHARD FREEMAN - 1 SHARE; ROGER FRIEND- 1 SHARE NOTE: Total issued and outstanding - 5,002 shares. (b) Tenet DeLaine Adult Medical Care, Inc. (b) Tenet East Cooper Spine Center, Inc. (b) Tenet Health Network, Inc. (b) Tenet HealthSystem GB, Inc. (b) Tenet HeatlhSystem Hilton Head, Inc. (b) Tenet HealthSystem Lloyd Noland Medical, Inc. (b) Tenet HealthSystem Lloyd Noland Properties, Inc. (b) Tenet HealthSystem North Shore, Inc. (c) Tenet HealthSystem North Shore (BME), Inc. (b) Tenet HealthSystem OHH, Inc. (b) Tenet HealthSystem Partners, Inc. (b) Tenet HealthSystem SGH, Inc. (b) Tenet HealthSystem SL, Inc. (b) Tenet HealthSystem SL-HLC, Inc. (b) Tenet HomeCare Information Systems, Inc. (b) Tenet Home Care of South Florida, Inc. (b) Tenet Home Care Tampa/St. Pete, Inc. (b) Tenet Physician Services - Frye Regional, Inc. (b) Tenet Physician Services - Georgia Baptist, Inc. (c) Tenet Fayette Medical Group, Inc. (b) Tenet Physician Services - East Cooper, Inc. (b) Tenet Physician Services of the Southeast, Inc. (b) Tenet Physician Partners, L.L.C. (b) Brookwood Parking Associates, Ltd. - OWNERSHIP - TENET HEALTHSYSTEM MEDICAL, INC. (99%) BROOKWOOD PARKING, INC. (1%) (b) Northwind Medical Building Associcates, Ltd. - OWNERSHIP - TENET HEALTHSYSTEM MEDICAL INC. (1.44%) OTHERS (98.56%) HUG Services, Inc. (77%) Assured Investors Life Company (a) Stanislaus Investment Corporation H.F.I.C. Management Company, Inc. (a) Health Facilities Insurance Corp., Ltd. -Bermuda International-NME, Inc. (a) N.M.E. International (Cayman) Limited - Cayman Islands, B.W.I. (b) B.V. Hospital Management - Netherlands (b) Pacific Medical Enterprises Sdn. Bhd. - Malaysia (c) Hyacinth Sdn. Bhd. (a) Medicalia International, B.V. - Netherlands (a) NME Spain, S.A. (a) NME UK Properties Limited NME Headquarters, Inc. (a) Ortega Development Group Tenet HealthSystem Hospitals, Inc. (a) Brookhaven Hospital, Inc. (b) Brookhaven Pavilion, Inc. (a) Manteca Medical Management, Inc. (a) Tenetsub Texas, Inc. (a) Tenet D.C., Inc. (a) Tenet Hospitals Limited - OWNERSHIP - TENET HEALTHSYSTEM HOSPITALS, INC. G.P. (1%) TENETSUB TEXAS, INC., L.P. (99%) (b) Sierra Providence Healthcare Enterprises (b) Sierra Providence Health Network (b) Greater El Paso Healthcare Enterprises 6 (a) National Managed Med, Inc. (a) National Med, Inc. (a) National Medical Hospital of Tullahoma, Inc. (b) Harton Medical Group, Inc. (a) National Medical Hospital of Wilson County, Inc. (b) Wilson County Management Services, Inc. (a) National Medical Services, Inc. (b) Barron, Barron & Roth, Inc. (a) National Medical Services II, Inc. (a) National Medical Ventures, Inc. (b) Litho I - LP - OWNERSHIP - NATIONAL MEDICAL VENTURES, INC. (63.75%); PHYSICIANS (36.75%) (b) McHenry Surgery Center Partners, Ltd - LP - OWNERSHIP - NATIONAL MEDICAL VENTURES, INC. (49.75%) PHYSICIANS (50.25%) (b) Redding Surgicenter - LP - OWNERSHIP - NATIONAL MEDICAL VENTURES, INC.(52.857%) PHYSICIANS (47.143%) (a) Tenet El Mirador Surgical Center, Inc. (a) Tenet Hialeah HealthSystem, Inc. (b) Hialeah Real Properties, Inc. (b) Tenet Hialeah (H.H.A.) HealthSystem, Inc. (b) Tenet Hialeah (ASC) HealthSystem, Inc. (b) Edgewater Provider Insurance Company, Ltd. (25%) (a) NM Ventures of North County, Inc. (b) North County Outpatient Surgery Center, Ltd. - OWNERSHIP - PHYSICIANS (35.47%) NM VENTURES OF NORTH COUNTY, INC. (64.53%) (a) Tenet HealthSystem Hospitals Dallas, Inc. (a) NME Medical de Mexico, S.A. de C.V. (a) NMV Hollywood, Inc. (a) NMV - Tennessee, Inc. (a) Physician Network Corporation of Louisiana (a) Jefferson County Surgery, Inc. (b) Jefferson City ASC, LLC - OWNERSHIP - JEFFERSON COUNTY SURGERY; TENET HEALTHSYSTEM DI, INC. (a) Laughlin Pavilion, Inc. (a) NMV- II, Inc. (b) Delray Outpatient Surgery and Care Center, Ltd. - OWNERSHIP - NMV-II, INC. (10%); OTHERS (90%) (a) Preferred Medical Systems of California, Inc. (a) Rehabilitative Driving Resources, Inc. (a) West Coast PT Clinic, Inc. (a) Tenet HealthSystem CFMC, Inc. (a) Tenet HealthSystem Desert, Inc. (a) Tenet HealthSystem DI, Inc. (b) Deaconess College of Nursing Student Government Association (b) Deaconess Family Medicine Residency Program (a) Tenet HealthSystem DI-SNF, Inc. (a) Tenet HealthSystem DI-TPS, Inc. (a) Tenet HealthSystem Hernando, Inc. (a) Tenet HealthSystem Memorial Medical Center, Inc. (a) Tenet HealthSystem Metroplex Hospitals, Inc. (a) Tenet HeatlhSystem Roswell, Inc. (a) Tenet Healthcare-Florida, Inc. (a) Tenet Beaumont Healthsystem, Inc. (b) Baptist/Tenet JV - OWNERSHIP - TENET BEAUMONT HEALTHSYSTEM, INC. (50%) BAPTIST HEALTHCARE SYSTEM, L.L.C. (50%) (a) Tenet Network Management, Inc. (a) South Bay Practice Administrators, Inc. (a) Tenet Missouri JV, Inc. (a) Tenet Birmingham Management, Inc. (a) Practice Partners, Inc. (a) MHJ, Inc. 7 (b) Jonesboro Health Services, L.L.C. - OWNERSHIP - MHJ, INC. (95%) ST. VINCENT TOTAL HEALTH CORPORATION (5%) (c) Starcare of Jonesboro, Inc. (a) Tenet California Medical Ventures I, Inc. (a) LMC Physician Clinics, Inc. (a) Diagnostic Imaging Services, Inc. (a) Metro Physicians Management Organization, Inc. (a) Tenet Louisiana Medical Ventures I, Inc. (a) Tenet Rehab Venture I, Inc. (a) Northeast Texas Healthcare Enterprises (a) Mid-Tennessee Health Partners, L.L.C. - OWNERSHIP - TENET HEALTHSYSTEM HOSPITALS, INC. (50%) SMITHVILLE HEALTHCARE VENTURES, L.P. (50%) NME Properties Corp. (a) Cascade Insurance Company, Ltd. (a) NME Properties, Inc. (b) Lake Health Care Facilities, Inc. (b) NME Properties West, Inc. (a) NME Property Holding Co., Inc. (a) Tenet HealthSystem SNF-LA, Inc. NME Rehabilitation Properties, Inc. (a) R.H.S.C. Prosthetics, Inc. (a) Rehabilitation Facility at San Ramon, Inc. (a) Rehabilitation Facility at San Diego, Inc. (a) R.H.S.C. Modesto, Inc. (a) Pinecrest Rehabilitation Hospital, Inc. (a) R.H.S.C. El Paso, Inc. (a) Tenet HealthSystem Pinecrest Rehab, Inc. NME Specialty Hospitals, Inc. (a) National Medical Specialty Hospital of Redding (a) NME Management Services, Inc. (a) NME New Beginnings, Inc. (b) Addiction Treatment Centers of Maryland, Inc. (b) Alcoholism Treatment Centers of New Jersey, Inc. (b) Health Institutes,Inc. (c) Fenwick Hall, Inc. (c) Health Insitutes Investments, Inc. (b) NME New Beginnings-Western, Inc. (c) Norquest/RCA-W Bitter Lake Partnership (a) NME Partial Hospital Services Corporation (a) NME Psychiatric Hospitals, Inc. (b) The Huron Corporation (a) NME Rehabilitation Hospitals, Inc. (a) Psychiatric Management Services Company NME Psychiatric Properties, Inc. (a) Alvarado Parkway Institute, Inc. (a) Baywood Hospital, Inc. (a) Brawner Hospital, Inc. (a) Contemporary Psychiatric Hospitals, Inc. (a) Elmcrest Manor Psychiatric Hospitals, Inc. (a) Gwinnett Psychiatric Institute, Inc. (a) Jefferson Hospital, Inc. (a) Lake Hospital and Clinic, Inc. - OWNERSHIP - NME PSYCHIATRIC PROPERTIES, INC. (97.875%) RALPH MOLLYCHECK, M.D. (2.125%) (a) Lakewood Psychiatric Hospitals, Inc. (a) Laurel Oaks Residential Treatment Center, Inc. (a) Leesburg Institute, Inc. (a) Manatee Palms Residential Treatment Center, Inc. (a) Manatee Palms Therapeutic Group Home, Inc. 8 (a) Medfield Residential Treatment Center, Inc. (a) Modesto Psychiatric Hospitals, Inc. (a) Modesto Psychiatric Realty, Inc. (a) Nashua Brookside Hospital, Inc. (a) North Houston Healthcare Campus, Inc. (a) Northeast Behavioral Health, Inc. (a) Northeast Psychiatric Associates - 2, Inc. (a) Outpatient Recovery Centers, Inc. (a) P.D. at New Baltimore, Inc. (a) P.I.A. Alexandria, Inc. (a) P.I.A. Canoga Park, Inc. (a) P.I.A. Cape Girardeau, Inc. (a) P.I.A. Capital City, Inc. (a) P.I.A. Central Jersey, Inc. (a) P.I.A. Colorado, Inc. (a) P.I.A. Connecticut Development Company, Inc. (a) P.I.A. Cook County, Inc. (a) P.I.A. Denton, Inc. (a) P.I.A. Detroit, Inc. (b) Psychiatric Facility at Michigan Limited Partnership (a) P.I.A. Educationsl Institute, Inc. (a) P.I.A. of Fort Worth, Inc. (a) P.I.A. Green Bay, Inc. (a) P.I.A. Highland, Inc. (b) Highland Psychiatric Associates - OWNERSHIP - P.I.A. HIGHLAND, INC. (50%) PSYCHIATRIC FACILITY AT ASHEVILLE, INC. (50%) (a) P.I.A. Highland Realty, Inc. (b) Highland Realty Associates - OWNERSHIP - (LIMITED PARTNERSHIP) - P.I.A. HIGHLAND REALTY, INC. (49%) PSYCHIATRIC FACILITY AT ASHEVILLE, INC. (49%) (GENERAL PARTNERSHIP) - P.I.A. HIGHLAND REALTY, INC. (1%) PSYCHIATRIC FACILITY AT ASHEVILLE, INC. (1%) (a) P.I.A. Indianapolis, Inc. (a) P.I.A. Kansas City, Inc. (a) P.I.A. Lincoln, Inc. (a) P.I.A. Long Beach, Inc. (a) P.I.A. Maryland, Inc. (a) P.I.A. Michigan City, Inc. (a) P.I.A. Milwaukee, Inc. (a) P.I.A. Modesto, Inc. (a) P.I.A. Naperville, Inc. (a) P.I.A. New Jersey, Inc. (a) P.I.A. North Jersey, Inc. (a) P.I.A. Northern New Mexico, Inc. (a) P.I.A. Panama City, Inc. (a) P.I.A. Randolph, Inc. (a) P.I.A. Rockford, Inc. (a) P.I.A. of Rocky Mount, Inc. (a) P.I.A. Salt Lake City, Inc. (a) P.I.A. San Antonio, Inc. (a) P.I.A. San Ramon, Inc. (a) P.I.A. Sarasota Palms, Inc. (a) P.I.A. Seattle, Inc. (a) P.I.A. Slidell, Inc. (a) P.I.A. Solano, Inc. (a) P.I.A. Specialty Press, Inc. (a) P.I.A. Stafford, Inc. (a) P.I.A. Stockton, Inc. 9 (a) P.I.A. Tacoma, Inc. (a) P.I.A. Tidewater Reatly, Inc. (b) I.P.T. Associates (a) P.I.A. Topeka, Inc. (a) P.I.A. Visalia, Inc. (a) P.I.A. Waxahachie, Inc. (a) P.I.A. Westbank, Inc. (a) P.I.A.C. Realty Company, Inc. (a) PIAFCO, Inc. (a) Pinewood Hospital, Inc. (a) Potomac Ridge Treatment Center, Inc. (a) Psychiatric Facility at Amarillo, Inc. (a) Psychiatric Facility at Asheville, Inc. (a) Psychiatric Facility at Azusa, Inc. (a) Psychiatric Facility at Evansville, Inc. (a) Psychiatric Facility at Lafayette, Inc. (a) Psychiatric Facility at Lawton, Inc. (a) Psychiatric Facility at Medfield, Inc. (a) Psychiatric Facility at Memphis, Inc. (a) Psychiatric Facility at Palm Springs, Inc. (a) Psychiatric Facility at Yorba Linda, Inc. (a) Psychiatric Institute of Alabama, Inc. (a) Psychiatric Institute of Atlanta, Inc. (a) Psychiatric Institute of Bedford, Inc. (a) Psychiatric Institute of Bucks County, Inc. (a) Psychiatric Institute of Chester County, Inc. (a) Psychiatric Institute of Columbus, Inc. (a) Psychiatric Institute of Delray, Inc. (a) Psychiatric Institute of Northern Kentucky, Inc. (a) Psychiatric Institute of Northern New Jersey, Inc. (a) Psychiatric Institute of Orlando, Inc. (a) Psychiatric Institute of Richmond, Inc. (a) Psychiatric Institute of San Jose, Inc. (a) Psychiatric Institute of Sherman, Inc. (a) Psychiatric Institute of Washington, D.C., Inc. (a) Residential Treatment Center of Memphis, Inc. (a) Residential Treatment Center of Mongtomery County, Inc. (a) The Residential Treatment Center of the Palm Beaches, Inc. (a) River Wood Center, Inc. (a) Sandpiper Company, Inc. (a) Southern Crescent Psychiatric Institute, Inc. (a) Southwood Psychiatric Centers, Inc. (a) Springwood Residential Treatment Centers, Inc. (a) Tidewater Psychiatric Institute, Inc. (a) The Treatment Center at Bedford, Inc. (a) Tucson Psychiatric Institute, Inc. (a) Tulsa County Health Services, Inc. Northshore Hospital Management Corporation (LA) Tenet Healthcare Foundation Tenet HealthSystem HealthCorp (a) OrNda Hospital Corporation (b) AHM Acquisition Co., Inc. (c) OrNda Investments, Inc. (d) AHM CGH, Inc. (d) AHM GEMCH, Inc. (d) AHM Jackson Hospital, Inc. (d) AHM JV, Inc. (d) AHM Minden Hospital, Inc. 10 (d) AHM SMC, Inc. (d) AHM WCH, Inc. (d) American Healthcare Management Development Company (d) CHHP, Inc. (d) EGH, Inc. (d) GCH, Inc. (d) HCW, Inc. (d) LBPG, Inc. (d) LCMH, Inc. (d) Lake Mead Holdings - OWNERSHIP - ORNDA INVESTMENTS, INC., GP (25%) DOCTORS GROUP, LP (75%). (d) Monterey Park Hospital (d) MPC, Inc. (d) NLVH, Inc. (e) Pollamead Partnership - OWNERSHIP - NLVH, INC., GP (50%) DOCTORS GROUP, LP (50%) (e) Pollamead Partnership II - OWNERSHIP - NLVH, INC., GP (50%) DOCTORS GROUP, LP (50%) (d) NLVPG of Nevada, Inc. (d) OrNda Management Services, Inc. (d) PSH, Inc. (e) Foot and Ankle Specialty Institute of Tacoma -OWNERSHIP - PSH, INC., GP (50%) INTEGRATED HEALTHCARE ALLIANCE, LP (50%) (d) RHCP, Inc. (d) STH Corporation (d) USDHC, Inc. (d) WCH Management Services, Inc. (d) WPH Management Services, Inc. (d) Tenet HealthSystem WP, Inc. (b) CFMC LP, Inc. (b) CGH Realty Holding, Inc. (b) Coastal Communities Health Systems, Inc. (c) Coastal Communities Hospital, L.P. - OWNERSHIP - COASTAL COMMUNITIES HEALTH SYSTEMS, INC., GP (50%) DOCTORS GROUP, LP(50%) (b) Commonwealth Continental Health Care, Inc. (b) Commonwealth Continental Health Care III, Inc. (b) Coral Gables Hospital, Inc. (c) CGH Hospital, Ltd. - OWNERSHIP - CORAL GABLES HOSPITAL, INC., GP (94.25%) GREATER MIAMI MEDICAL GROUP, LTD., LP (5.75%) (b) Coral Gables Hospital Partners, Inc. (c) South Florida Physicians Services, Inc. (b) CVHS Hospital Corporation (b) Cypress Fairbanks Medical Center, Inc. (c) New Medical Horizons II, Ltd. - OWNERSHIP - CYPRESS FAIRBANKS MEDICAL CENTER, INC., GP (99%) ORNDA HOSPITAL CORPORATION, LP (1%) (b) Tenet HealthSystem DMC, Inc. (c) The Davenport Clinic, Inc. (b) DHPG of Georgia, Inc. (b) Doctors' Hospital Medical Center, Inc. (b) FMC Acquisition, Inc. (c) FMC Hospital, Ltd. - OWNERSHIP - FMC ACQUISITION, INC., GP (85%) FLORIDA INSTITUTE OF HEALTH, LTD., LP (15%) (b) FMC Medical, Inc. (b) Fountain Valley Health Care, Inc. (c) Fountain Valley Outpatient Surgery Center, Ltd. - OWNERSHIP - FOUNTAIN VALLEY HEALTH CARE, INC., GP (1%) ORNDA HOSPITAL CORPORATION, LP (99%) 12 (b) Fountain Valley Imaging Corporation (c) Fountain Valley Imaging Center - OWNERSHIP - FOUNTAIN VALLEY IMAGING CORP., GP (1%) ORNDA HOSPITAL CORPORATION, LP (99%) (b) Fountain Valley Pharmacy, Inc. (b) Fountain Valley Regional Hospital and Medical Center (b) GCPG, Inc. (c) Garland Community Hospital, Ltd. - OWNERSHIP - GCPG, INC., GP (1%) REPUBLIC HEALTH CORPORATION OF MESQUITE, LP (99%) (b) General Hospital of Sequatchie, Inc. (b) Harbor View Health Systems, Inc. (c) Harbor View Physician Services, Inc. (c) Harbor View Health Partners, L.P. - OWNERSHIP - HARBOR VIEW HEALTH SYSTEMS, INC. GP (50%) REPUBLIC HEATLH CORPORATION OF SAN BERNARDINO, LP (50%) (b) Harbor View Medical Center, Inc. (b) Health Choice Arizona, Inc. (b) Health Holding Company, Inc. (c) Tenet HealthSystem Biltmore, Inc. (c) OrNda Healthcorp of Phoenix, Inc. (d) Biltmore Surgery Center, Inc. (d) CHR Service Corp. (b) Health Resources Corporation of America - California (b) Health Resources Corporation of America - Florida (c) RHC Florida, Inc. (d) RHC Parkway, Inc. (e) Republic Health Corporation of North Miami, Inc. (f) OrNda of South Florida Services Corporation (g) San Juan Medical Center, Inc. (b) Houston Northwest Medical Center, Inc. (c) HNMC, Inc. (d) C.T. Joint Venture - OWNERSHIP - HNMC, INC., GP (50%) DOCTORS GROUP, LP (50%) (d) Houston Northwest Radiotherapy, L.L.C. - OWNERSHIP - HNMC, INC., MANAGING MEMBER(6.79%) DOCTORS GROUP, MEMBER (93.21%) (d) Houston Rehabilitation Associates - OWNERSHIP - HNMC, INC., GP (20%) DOCTORS GROUP, LP (80%) (d) MRI-North Houston Venture - OWNERSHIP - HNMC, INC., GP (12%) DOCTORS GROUP, LP (88%) (d) HNW GP, Inc. (d) HNW Holdings, Inc. (d) HNW Lessor GP, Inc. (e) Houston Northwest Lessor, Ltd. - OWNERSHIP - HNW LESSOR GP, INC., GP HNW HOLDINGS, INC. LP (d) Houston Northwest Management Services, Inc. (c) Northwest Houston Providers Alliance, Inc. (b) Indianapolis Health Systems, Inc. (c) MMC Cardiology Venture - OWNERSHIP - INDIANAPOLIS HEALTH SYSTEMS, INC., GP (50%) REPUBLIC HEALTH CORPORATION OF INDIANAPOLIS, LP (50%) (b) La Hacienda Treatment Center, Inc. (b) Lewisburg Community Hospital, Inc. (b) Managed Health Alliance (b) MCF, Inc. (c) Bone Marrow/Stem Cell Transplant Institute of Florida, Inc. (d) Bone Marrow/Stem Cell Transplant Institute of Florida, Ltd. - OWNERSHIP - BONE MARROW/STEM CELL TRANSPLANT INSTITUTE OF FLORIDA, INC., GP (51%) STEM CELL, INC., LP (49%) (c) Florida Medical Center, Ltd. - OWNERSHIP - MCF, INC., GP (50%) ORNDA HOSPITAL CORPORATION, LP (50%) 12 (b) MCS Administrative Services, Inc. (b) Meridian Regional Hospital, Inc. (b) Mesa General Hospital Medical Center, Inc. (b) Midway Hospital Medical Center, Inc. (c) Midway Surgery Center, Ltd. - OWNERSHIP - MIDWAY HOSPITAL MEDICAL CENTER (100%) (c) Westside Hospital, L.L.C. - OWNERSHIP - MIDWAY HOSPITAL MEDICAL CENTER, INC. - MANAGING MEMBER ORNDA HOSPITAL CORPORATION - PARTICIPATING MEMBER (b) NAI Community Hospital of Phoenix, Inc. (b) OrNda Access, Inc. (b) OrNda Ambulatory Network, Inc. (c) Central Coast Surgery Center, Ltd.- OWNERSHIP - ORNDA AMBULATORY NETWORK, INC., GP (69.8%) DOCTORS GROUP, LP (30.2%) (c) Magnolia Ambulatory Surgi-Center, L.P. - OWNERSHIP - ORNDA AMBULATORY NETWORK, INC., GP (71.8%) DOCTORS GROUP, LP (28.2%) (c) Metro Ambulatory Surgery Center, L.P. - OWNERSHIP - ORNDA AMBULATORY NETWORK, INC., GP (75%) DOCTORS GROUP, LP (25%) (b) OrNda Health Initiatives, Inc. (b) OrNda Health Choice, Inc. (c) Health Choice HMO (c) Health Choice Partners, Inc. (b) OrNda Healthcorp of Florida, Inc. (b) OrNda Healthcorp of Massachusetts, Inc. (c) OrNda Hospital Investment Corp. (d) Saint Vincent Hospital, L.L.C. - OWNERSHIP - ORNDA HOSPITAL INVESTMENT CORP. - MANAGING MEMBER (c) Clini-Tech Laboratories, Inc. (c) OHM Health Initiatives, Inc. (c) Provident Nursing Homes, Inc. (c) Fallon Clinic, Inc. - OWNERSHIP - ORNDA HEALTHCORP OF MASSACHUSETTS, INC. (35%) SAINT VINCENT HOSPITAL, L.L.C. (10%), INDIVIDUAL PHYSICIANS (55%) (b) OrNda HomeCare, Inc. (b) OrNda of South Florida, Inc. (c) OrNda FMC, Inc. (c) TriLink Provider Services Organization, Inc. (b) OrNda of South Florida Holdings, Inc. (b) OrNda Physicians Services, Inc. (b) OrNda Receivables Co. (b) Portland Health Centers, Inc. (b) PoWay Health Systems, Inc. (b) Qualicare of Mississippi, Inc. (c) Gulf Coast Community Health Care Systems, Inc. (c) Gulf Coast Community Hospital, Inc. (b) Tenet HealthSystem QA, Inc. (b) Republic Health Corporation of Arizona (b) Republic Health Corporation of California (b) Republic Health Corporation of Central Georgia (b) Republic Health Corporation of Hayward (b) Republic Health Corporation of Indianapolis (c) Indianapolis Physician Services, Inc. (c) Winona Memorial Hospital, Ltd. - OWNERSHIP - REPUBLIC HEALTH CORPORATION OF INDIANAPOLIS, INC., GP (99%) ORNDA HEALTHCORP, LP (1%) (b) Republic Health Corporation of Meridian (b) Republic Health Corporation of Mesquite 13 (b) Republic Health Corporation of North Miami (c) North Miami Medical Center, Ltd. - OWNERSHIP - REPUBLIC HEALTH CORPORATION OF NORTH MIAMI, GP (60.845%) DOCTORS GROUP, LP (b) Republic Health Corporation of Rockwall County (b) Republic Health Corporation of San Bernardino (b) Republic Health Corporation of Texas (b) Republic Health of North Texas (b) Republic Health Partners, Inc. (c) Lake Pointe Medical Center, Ltd. - OWNERSHIP - REPUBLIC HEALTH PARTNERS, INC., GP (1%) REPUBLIC HEALTH CORPORATION OF ROCKWALL COUNTY, INC., LP (99%) (b) RHC Texas, Inc. (b) RHCMS, Inc. (b) S.C. Cal, Inc. (c) Tenet HealthSystem CM, Inc. (b) S.C. Management, Inc. (b) S.C. San Antonio, Inc. (c) Southwest Physician Management Services, Inc. (b) Sacramento Community Hospital (b) Santa Ana Hospital Medical Center, Inc. (b) SHL/O Corp. (b) South Park Medical Center, Inc. (b) St. Luke Medical Center (b) Tenet HealthSystem MCS-AZ, Inc. (b) Tucson General Hospital, Inc. (b) UWMC Hospital Corporation (b) UWMC Anaheim Hospital Corporation (b) UWMC Bartlett Hospital Corporation (b) Valley Community Hospital (b) West Los Angeles Health Systems, Inc. (c) Brotman Partners, L.P. - OWNERSHIP - WEST LOS ANGELES HEALTH SYSTEMS, INC. GP (55.75%) ORNDA INVESTMENTS, INC., LP (44.25%) (d) Foot and Ankle Specialty Institute of Culver City - OWNERSHIP - BROTMAN PARTNERS, L.P., GP (50%) INTEGRATED HEALTHCARE ALLIANCE, INC., LP (50%) (d) Gynecological Specialty Institute of Culver City - OWNERSHIP - BROTMAN PARTNERS, L.P., GP (50%) INTEGRATED HEALTHCARE ALLIANCE, INC., LP (50%) (b) Westcenter Rehabilitation Facility, Inc. (b) Whittier Hospital Medical Center, Inc. (c) Head & Neck Specialty Institute of Whittier - OWNERSHIP - WHITTIER HOSPITAL MEDICAL CENTER, INC. GP (50%) INTEGRATED HEALTHCARE ALLIANCE, LP (50%) (a) Horizon Health Group, Inc. (a) Tenet HealthSystem LM Home Health, Inc. (a) Tenet HealthSystem LM Rehab, Inc. (a) Tenet HealthSystem LM, Inc. (a) Tenet HealthSystem LMC, Inc. (a) Tenet HealthSystem Occupational Medicine, Inc. (a) Tenet HealthSystem Sub, Inc. Tenet HealthSystem Investments, Inc. (a) Proton Therapy Corporation of America, Inc. (b) Proton Therapy Center of St. Louis, Inc. Syndicated Office Systems Wilshire Rental Corp. 14 EX-23.(A) 9 EXHIBIT 23(A) EXHIBIT 23(a) ACCOUNTANTS' CONSENT AND REPORT ON CONSOLIDATED SCHEDULE The Board of Directors Tenet Healthcare Corporation: Under date of July 24, 1998, we reported on the consolidated balance sheets of Tenet Healthcare Corporation and subsidiaries as of May 31, 1998 and 1997, and the related consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended May 31, 1998, as contained in the 1998 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for fiscal year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the index of exhibits to the Annual Report on Form 10-K for the fiscal year 1998. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth herein. We consent to the incorporation by reference of our report dated July 24, 1998, in the Company's Registration Statements on Form S-3 (Nos. 33-57801, 33-57057, 33-55285, 33-62591, 33-63451, 333-17907, 333-24955, 333-21867, 333-26621 and 333-41907), Registration Statements on Form S-4 (Nos. 33-57485 and 333-18185) and Registration Statements on Form S-8 (Nos. 2-87611, 33-11478, 33-35688, 33-50182, 33-57375, 333-00709, 333-01183, 333-38299 and 333-41903). /s/ KPMG Peat Marwick LLP Los Angeles, California August 26, 1998 EX-27.1 10 EXHIBIT 27.1
5 1,000 12-MOS MAY-31-1998 MAY-31-1998 23,000 132,000 1,933,000 191,000 214,000 2,890,000 7,779,000 1,765,000 12,833,000 1,767,000 5,829,000 0 0 23,000 3,535,000 12,833,000 0 9,895,000 0 7,958,000 221,000 588,000 464,000 647,000 269,000 378,000 0 (117,000) 0 261,000 0.85 0.84
EX-27.2 11 EXHIBIT 27.2
5 1,000 12-MOS 12-MOS 12-MOS 12-MOS MAY-31-1994 MAY-31-1995 MAY-31-1996 MAY-31-1997 MAY-31-1994 MAY-31-1995 MAY-31-1996 MAY-31-1997 331,000 160,000 107,000 35,000 60,000 139,000 112,000 116,000 1,080,000 1,042,000 1,245,000 1,570,000 135,000 242,000 205,000 224,000 83,000 151,000 170,000 193,000 1,716,000 1,950,000 2,040,000 2,391,000 3,810,000 5,500,000 6,304,000 6,922,000 995,000 1,113,000 1,320,000 1,432,000 5,543,000 9,787,000 10,768,000 11,705,000 1,906,000 1,677,000 1,541,000 1,869,000 1,290,000 4,287,000 4,421,000 5,022,000 0 0 0 0 20,000 20,000 0 0 18,000 21,000 22,000 23,000 1,611,000 2,338,000 3,255,000 3,201,000 5,543,000 9,787,000 10,768,000 11,705,000 0 0 0 0 4,218,000 5,161,000 7,706,000 8,691,000 0 0 0 0 3,532,000 4,292,000 6,251,000 7,043,000 110,000 37,000 86,000 740,000 193,000 260,000 431,000 494,000 157,000 251,000 425,000 417,000 314,000 417,000 881,000 (21,000) 145,000 151,000 383,000 52,000 169,000 266,000 498,000 (73,000) (701,000) (10,000) (25,000) (134,000) (12,000) (20,000) (23,000) (47,000) 60,000 0 0 0 (484,000) 236,000 450,000 (254,000) (2.19) 1.05 1.60 (0.84) (2.04) 0.96 1.54 (0.84)
-----END PRIVACY-ENHANCED MESSAGE-----