-----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, GmJuZQkgWXIPZnIKlLBhpjCI7+8TjKwGaKsta5MQZ2AQRFqWGb8uCrPalXBJTQ4Q KvTqPUk4012A05SYmjb+Xw== 0000912057-97-029143.txt : 19970828 0000912057-97-029143.hdr.sgml : 19970828 ACCESSION NUMBER: 0000912057-97-029143 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970827 SROS: NYSE SROS: PSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07293 FILM NUMBER: 97670149 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-K 1 FORM 10K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1997. 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 (I.R.S. Employer jurisdiction of Identification incorporation or No.) organization) 3820 STATE STREET SANTA BARBARA, CALIFORNIA 93105 (Address of principal (Zip Code) executive offices)
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 7 3/8% Medium Term Notes due 1997 New York Stock Exchange 9 5/8% Senior Notes due 2002 New York Stock Exchange 8 5/8% Senior Notes due 2003 New York Stock Exchange 7 7/8% Senior Notes due 2003 New York Stock Exchange 8% Senior Notes due 2005 New York Stock Exchange 6% Exchangeable Subordinated 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 (Section229.405 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. / / As of July 31, 1997, there were 304,733,190 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 $9,116,106,163. 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, 1997, have been incorporated by reference into Parts I, II and IV of this Report. Portions of the definitive Proxy Statement for the Registrant's 1997 Annual Meeting of Shareholders have been incorporated by reference into Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS FORM 10-K ANNUAL REPORT--1997 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
PAGE ----- PART I Item 1. Business................................................................................... 1 Item 2. Properties................................................................................. 19 Item 3. Legal Proceedings.......................................................................... 19 Item 4. Submission of Matters to a Vote of Security Holders........................................ 20 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 20 Item 6. Selected Financial Data.................................................................... 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 20 Item 8. Financial Statements and Supplementary Data................................................ 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 20 PART III Item 10. Directors and Executive Officers of the Registrant......................................... 21 Item 11. Executive Compensation..................................................................... 21 Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 21 Item 13. Certain Relationships and Related Transactions............................................. 21 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.......................... 21
- ------------------------ 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, 1997, or the definitive Proxy Statement for the Registrant's 1997 Annual Meeting of Shareholders. The required information is incorporated into this Report by reference to those documents and is not repeated herein. 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, 1997, Tenet's subsidiaries owned or operated 128 general hospitals with 27,959 licensed beds and related healthcare facilities serving urban and rural communities in 22 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, psychiatric facilities and medical office buildings located on the same campus as, or nearby, its general hospitals, as well as various ancillary healthcare businesses, including outpatient surgery centers, home healthcare programs, ambulatory, occupational and rural healthcare clinics, health maintenance organizations, a preferred provider organization and a managed care insurance company. 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 systems. On January 30, 1997, the Company acquired OrNda HealthCorp ("OrNda"). The acquisition was accomplished when a subsidiary of Tenet was merged with and into OrNda (the "Merger"), leaving OrNda and all of its subsidiaries as wholly-owned subsidiaries of Tenet. OrNda now is known as Tenet HealthSystem HealthCorp. The Merger was accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements incorporated herein by reference and all statistical data shown herein prior to the Merger have been restated to include the accounts and results of operations of OrNda for all periods presented. Prior to the Merger, OrNda was the third largest investor-owned provider of healthcare services in the United States. The Merger joined Tenet's then-existing 77 hospitals and related healthcare operations with OrNda's then-existing 50 general hospitals and related healthcare operations. As discussed in more detail under Domestic General Hospitals on page 2 below, Tenet's subsidiaries, including OrNda, acquired 11 general hospitals during fiscal 1997 and four general hospitals during the first quarter of fiscal 1998. In addition, Tenet sold one general hospital and closed one general hospital during fiscal 1997. Tenet also sold one general hospital and closed one general hospital during the first quarter of fiscal 1998. At May 31, 1997, Tenet's subsidiaries also owned or operated various ancillary healthcare operations, discussed in more detail under Other Domestic Operations on page 7 below, and held as investments interests in Vencor, Inc. ("Vencor"), Total Renal Care Holdings, Inc. ("TRC") and Health Care Property Partners ("HCPP"). These investments are discussed in more detail under Investments on page 8 below. In connection with the Merger, Tenet issued $400 million of 7 7/8% Senior Notes due 2003, $900 million of 8% Senior Notes due 2005 and $700 million of 8 5/8% Senior Subordinated Notes due 2007, and entered into a new revolving credit agreement that allows Tenet to borrow, repay and reborrow up to $2.8 billion prior to its January 31, 2002, maturity date. The Company had approximately $2.0 billion available under its new revolving credit agreement at May 31, 1997. 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 1997 Annual Report to Shareholders. 1 OPERATIONS DOMESTIC GENERAL HOSPITALS All of Tenet's operations are conducted through its subsidiaries and affiliates. Tenet's general hospital and other healthcare operations are conducted primarily through the following three subsidiaries and their subsidiaries and affiliates: (i) Tenet HealthSystem Hospitals, Inc., (ii) Tenet HealthSystem Medical, Inc. and (iii) Tenet HealthSystem HealthCorp. At May 31, 1997, Tenet's subsidiaries and affiliates operated 128 general hospitals (27,959 licensed beds) serving urban and rural communities in 22 states. Of those general hospitals, 100 are owned by Tenet's subsidiaries and affiliates and 28 are owned by and leased from third parties (including two leased from HCPP, as discussed on page 8 below, and two owned facilities that are on leased land). During fiscal 1997, Tenet's subsidiaries, including OrNda, acquired the ownership of (or interests in) the following 11 general hospitals: (i) the 378-bed Hialeah Hospital in Hialeah, Florida, (ii) the 136-bed Cypress Fairbanks Medical Center in Houston, Texas, (iii) the 68-bed Westside Medical Center in Los Angeles, California, (iv) the 400-bed Centinela Hospital Medical Center in Inglewood, California, (v) the 329-bed St. Vincent Hospital in Worcester, Massachusetts, (vi) the 319-bed Lloyd Noland Hospital in Birmingham, Alabama, (vii) the 296-bed Western Medical Center in Santa Ana, California, (viii) the 193-bed Western Medical Center - Anaheim in Anaheim, California, (ix) the 357-bed North Shore Medical Center in Miami, Florida, (x) the 312-bed Brookside Hospital in San Pablo, California, and (xi) the 398-bed Desert Hospital in Palm Springs, California. In addition, Tenet sold one general hospital and closed one general hospital during fiscal 1997. In the first quarter of fiscal 1998, Tenet acquired the three-hospital 1,030-bed Deaconess Incarnate Word Health System in St. Louis, Missouri, and the 28-bed Sylvan Grove Hospital in Jackson, Georgia, and announced that the construction of a new hospital in Weston, Florida, under a joint venture with the Cleveland Clinic has been approved by the State of Florida. During the first quarter of fiscal 1998, the Company also entered a definitive agreement with Eastern Health System, Inc. ("Eastern") to form a joint venture, which will be managed by Tenet, to operate four general hospitals and substantially all of their related operations in the greater Birmingham, Alabama area. In addition, Tenet sold one facility and closed one facility during the first quarter of fiscal 1998. Tenet also entered into a definitive agreement to sell the 90-bed Plateau Medical Center in Oak Hill, West Virginia. Each of Tenet's general hospitals offers acute care services and most offer operating and recovery rooms, radiology services, intensive care and coronary care nursing units, pharmacies, clinical laboratories, respiratory therapy services, physical therapy services and outpatient facilities. A number of the hospitals also offer tertiary care services such as open heart surgery, neonatal intensive care, neuroscience, orthopedic services and oncology services. Three of the Company's hospitals, Memorial Medical Center, USC University Hospital and Sierra Medical Center, offer quaternary care in such areas as heart, lung, liver and kidney transplants and USC University Hospital and Sierra Medical Center also offer gamma knife brain surgery. With the exception of one general hospital that was acquired in fiscal 1996 and one general hospital acquired in the first quarter of fiscal 1998, 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 (in the case of rehabilitation hospitals) or another appropriate accreditation agency. Both of the unaccredited general hospitals referred to above are in the process of becoming accredited for the first time. With such accreditation, the Company's hospitals are eligible to participate in the Medicare and Medicaid programs. 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 2 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 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 Merger allowed Tenet to acquire a substantial portfolio of hospitals providing quality care responsive to the current managed care environment. Many of the general hospitals acquired in the Merger are located in geographic areas where Tenet already operated hospitals, including southern California and south Florida. The Merger has allowed Tenet to coordinate the services provided by all of its subsidiaries, including OrNda, in these geographic areas, which Tenet believes has accelerated its development of integrated healthcare delivery systems in these areas. The Merger also expanded Tenet's operations into several new geographic areas, including Arizona, Iowa, Massachusetts, Mississippi, Nevada, Oregon, Washington, West Virginia and Wyoming. The largest concentrations of the Company's hospitals now are in California (35.2%), Texas (15.6%) and Florida (13.3%). The concentrations of hospitals 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 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 has and will continue to analyze ways in which such assets may best be used to maximize shareholder value. To that end, the Company plans to 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. 3 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, 1997:
GEOGRAPHIC LICENSED AREA/STATE FACILITY LOCATION 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 (1) Mesa 138 Leased St. Luke's Medical Center (1) Phoenix 280 Leased Tempe St. Luke's Hospital (1) Tempe 106 Leased Tucson General Hospital Tucson 129 Owned Arkansas Central Arkansas Hospital Searcy 193 Owned Methodist Hospital of Jonesboro (2) Jonesboro 104 Owned National Park Medical Center Hot Springs 166 Owned St. Mary's Regional Medical Center Russellville 170 Owned California Alvarado Hospital Medical Center San Diego 231 Owned (Southern) Brotman Medical Center Culver City 438 Owned Centinela Hospital Medical Center Inglewood 400 Owned Century City Hospital (1) Los Angeles 190 Leased Chapman Medical Center (1) Orange 135 Leased Coastal Communities Hospital (3) Santa Ana 177 Owned Community Hospital of Huntington Park (1) Huntington Park 81 Leased Desert Hospital (1) Palm Springs 388 Leased Encino Hospital (1)(4) Encino 151 Leased Fountain Valley Regional Hospital and Medical Fountain Valley 395 Owned Center 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 Harbor View Medical Center (5) San Diego 156 Owned Irvine Medical Center (1) 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 Medical Center of North Hollywood 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 102 Owned Placentia Linda Hospital Placentia 114 Owned San Dimas Community Hospital San Dimas 93 Owned Santa Ana Hospital Medical Center (1) Santa Ana 90 Leased South Bay Medical Center (1) Redondo Beach 201 Leased Saint Luke Medical Center Pasadena 165 Owned Suburban Medical Center (1) Paramount 182 Leased Tarzana Regional Medical Center (1)(4) Tarzana 233 Leased USC University Hospital (6) Los Angeles 285 Leased Western Medical Center--Anaheim Anaheim 193 Owned Western Medical Center Santa Ana 296 Owned Whittier Hospital Medical Center Whittier 159 Owned Woodruff Community Hospital Long Beach 96 Owned California Brookside Hospital (1) San Pablo 233 Leased (Northern) Community Hospital of Los Gatos (1) Los Gatos 153 Leased Doctors Hospital of Manteca Manteca 73 Owned Doctors Medical Center of Modesto Modesto 397 Owned Doctors Hospital of Pinole (1) Pinole 137 Leased French Hospital Medical Center (7) San Luis Obispo 147 Owned Redding Medical Center Redding 185 Owned San Ramon Regional Medical Center San Ramon 123 Owned Sierra Vista Regional Medical Center San Luis Obispo 199 Owned Twin Cities Community Hospital Templeton 84 Owned Valley Community Hospital (1) Santa Maria 70 Leased
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GEOGRAPHIC LICENSED AREA/STATE FACILITY LOCATION BEDS STATUS - -------------------- --------------------------------------------------- ------------------- --------- --------- Florida Coral Gables Hospital Coral Gables 273 Owned (Southern) Delray Medical Center Delray Beach 211 Owned Florida Medical Center (8) Ft. Lauderdale 459 Owned Florida Medical Center, South (8) Plantation 202 Owned Hialeah Hospital Hialeah 378 Owned Hollywood Medical Center Hollywood 324 Owned North Ridge Medical Center Ft. Lauderdale 391 Owned North Shore Medical Center Miami 357 Owned Palm Beach Gardens Medical Center (1) Palm Beach Gardens 204 Leased Palmetto General Hospital Hialeah 360 Owned Parkway Regional Medical Center North Miami 689 Owned West Boca Medical Center Boca Raton 185 Owned Florida Memorial Hospital of Tampa Tampa 174 Owned (Tampa/St. North Bay Medical Center New Port Richey 122 Owned Petersburg) Palms of Pasadena Hospital St. Petersburg 310 Owned Seven Rivers Community Hospital Crystal River 128 Owned Town & Country Hospital Tampa 201 Owned Georgia North Fulton Regional Hospital (1) Roswell 167 Leased Spalding Regional Hospital Griffin 160 Owned Indiana Culver Union Hospital Crawfordsville 120 Owned Winona Memorial Hospital Indianapolis 317 Owned Iowa Davenport Medical Center Davenport 150 Owned Louisiana Doctors Hospital of Jefferson (1) Metairie 138 Leased Kenner Regional Medical Center Kenner 300 Owned Meadowcrest Hospital Gretna 200 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 (1) Slidell 174 Leased St. Charles General Hospital New Orleans 173 Owned Massachusetts Saint Vincent Hospital Worcester 398 Owned Mississippi Gulf Coast Medical Center Biloxi 189 Owned Missouri Columbia Regional Hospital Columbia 265 Owned Lucy Lee Hospital (1) Poplar Bluff 201 Leased Lutheran Medical Center St. Louis 408 Owned Twin Rivers Regional Medical Center Kennett 118 Owned Nebraska Saint Joseph Hospital (9) 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 (1) Hickory 355 Leased Oregon Eastmoreland Hospital Portland 100 Owned Woodland Park Hospital (6) Portland 209 Leased South Carolina East Cooper Regional Medical Center Mount Pleasant 100 Owned Hilton Head Hospital (10) Hilton Head 64 Owned Piedmont Medical Center Rock Hill 268 Owned Tennessee John W. Harton Regional Medical Center Tullahoma 137 Owned Medical Center of Manchester (1) Manchester 49 Leased Saint Francis Hospital Memphis 693 Owned University Medical Center Lebanon 261 Owned
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GEOGRAPHIC LICENSED AREA/STATE FACILITY LOCATION BEDS STATUS - -------------------- --------------------------------------------------- ------------------- --------- --------- Texas Doctors Hospital Dallas 268 Owned (Dallas) Garland Community Hospital Garland 113 Owned Lake Pointe Medical Center (11) Rowlett 92 Owned RHD Memorial Medical Center (1) Dallas 190 Leased Trinity Medical Center (1) Carrollton 149 Leased Texas Cypress Fairbanks Medical Center Houston 136 Owned (Houston) Houston Northwest Medical Center (12) Houston 498 Owned Park Plaza Hospital Houston 468 Owned Sharpstown General Hospital Houston 190 Owned Twelve Oaks Hospital Houston 336 Owned Texas Brownsville Medical Center Brownsville 177 Owned (Other) Mid-Jefferson Hospital Nederland 138 Owned Nacogdoches Medical Center Nacogdoches 150 Owned Odessa Regional Hospital (13) Odessa 100 Owned Park Place Medical Center Port Arthur 236 Owned Providence Memorial Hospital El Paso 501 Owned Sierra Medical Center El Paso 365 Owned South Park Hospital and Medical Center Lubbock 101 Owned Southwest General Hospital San Antonio 286 Owned Trinity Valley Medical Center Palestine 150 Owned Washington Puget Sound Hospital Tacoma 160 Owned West Virginia Plateau Medical Center Oak Hill 90 Owned Wyoming Lander Valley Medical Center Lander 102 Owned
- ------------------------------ (1) Leased from a third party. (2) Owned by a limited liability company of which a Tenet subsidiary owns 95% and is the managing member. (3) Owned by a partnership in which a Tenet subsidiary owns 50% and is the managing general partner. (4) Leased by a partnership in which Tenet's subsidiaries own a 75% interest. (5) This hospital was closed during the first quarter of fiscal year 1998. (6) On leased land. (7) Independently managed and being held for sale as of May 31, 1997. This hospital was sold during the first quarter of fiscal year 1998. (8) Owned by a partnership in which Tenet's subsidiaries own an 85% interest. Tenet is in the process of repurchasing the minority interest in the partnership. (9) Owned by a limited liability company in which a Tenet subsidiary owns a 74% interest and is the managing member. (10) Owned by a partnership in which Tenet's subsidiaries own a 90% interest. (11) This hospital is owned by a partnership in which Tenet's subsidiaries own an 80% interest. The partnership leases the land on which the facility is located from a wholly owned Tenet subsidiary. (12) This hospital is owned by a partnership in which Tenet's subsidiaries own a 70% interest. The partnership leases the land on which the facility is located from a wholly owned Tenet subsidiary. (13) Owned by a partnership in which Tenet's subsidiaries own a 78% interest. 6 The following table shows certain information about the general hospitals owned or leased domestically by Tenet's subsidiaries, including OrNda, for the fiscal years ended May 31:
1995 1996 1997 --------- --------- --------- Total number of facilities....................................... 116 123 128 Total number of licensed beds.................................... 23,691 26,265 27,959 Average occupancy during the period.............................. 41.6% 42.7% 42.6%
The above tables do not include rehabilitation hospitals, long-term care facilities, psychiatric facilities, outpatient surgery centers or other ancillary facilities. BUSINESS STRATEGY The Company's strategic objective is to provide quality healthcare services responsive to 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 improving 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. INTERNATIONAL HOSPITALS At May 31, 1997, a subsidiary of the Company continued to operate a 184-bed tertiary-care hospital in Barcelona, Spain. A subsidiary of the Company also is developing a 56-bed hospital in Cham, Canton Zug, Switzerland. The opening of that hospital, which had been scheduled for the second quarter of fiscal 1997, has been postponed indefinitely due to a decision by the Cantonal Health Authority. Although an appeal of that decision has been denied, the Company is exploring alternatives to open the facility. OTHER DOMESTIC OPERATIONS At May 31, 1997, Tenet's subsidiaries owned or operated a small number of rehabilitation hospitals, specialty hospitals, long-term care facilities, psychiatric facilities and medical office buildings located on the same campus as, or nearby, its general hospitals, as well as various ancillary healthcare businesses, including outpatient surgery centers, home healthcare programs, ambulatory, occupational and rural healthcare clinics, health maintenance organizations, a preferred provider organization and a managed care insurance company. 7 INVESTMENTS At May 31, 1997, Tenet held as investments (i) 8,301,067 shares, an approximately 12.0% interest, in Vencor, a healthcare services provider primarily focusing on the needs of the elderly, (ii) 3,000,000 shares, an approximately 11.3% interest, in TRC, which operates kidney dialysis units and certain related healthcare businesses and (iii) an approximately 23.0% interest in HCPP, a partnership originally formed by the Company and Health Care Property Investors, Inc. for the purpose of acquiring from and leasing back to the Company 21 long-term care facilities, two general hospitals and one psychiatric facility. Since that time, the Company has assigned to Vencor (as successor to The Hillhaven Corporation) and other third parties its leasehold interests in the 21 long-term care facilities and the psychiatric hospital, but remains contingently liable for the lease payments on those facilities. The Company continues to lease the two general hospitals from HCPP. HCPP does not own any properties other than those originally purchased from the Company. In January 1996, Tenet sold $320 million principal amount of its 6% Exchangeable Subordinated Notes due 2005, which Notes are exchangeable into Tenet's 8,301,067 shares of Vencor common stock at any time on or after November 6, 1997, at an exchange rate of 25.9403 shares 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 Vencor common stock in lieu of delivery of such shares. The exchange price equivalent to the exchange rate is $38.55 per share. 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 its operations center in Dallas, Texas. At May 31, 1997, 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 4 through 6 above. As of May 31, 1997, Tenet had approximately $128 million of outstanding loans secured by real property and approximately $60 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. 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 often also 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 specialities 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 8 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 future results of operations. The number of Tenet's employees (of which approximately 32% were part-time employees) at May 31, 1997, was approximately as follows: General Hospitals and Other Businesses(1).......................... 104,200 Dallas Operations Center and Regional and Support Offices.......... 698 Corporate Headquarters............................................. 102 --------- Total.............................................................. 105,000 --------- ---------
- ------------------------ (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 subsidiaries, other domestic healthcare operations, and the international hospitals. 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 currently is not experiencing a shortage of 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. 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 such competitive factors as the quality of care provided, including the number, quality and specialties of the physicians, nurses and other healthcare professionals on its staff, the quality of services provided by such facility to patients and their physicians, its reputation, its managed care contracting relationships, the extent to which it is part of an integrated network, the number of competitive facilities, the state of its buildings and improvements, the quality and the state of the art of its medical equipment, its location 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. The length of time a facility has been a part of the community and the availability of other healthcare alternatives also are competitive factors. 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, 9 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 such contracts is affected by many factors, such as the competitive factors referred to above, the scope, breadth and quality of services a hospital offers in a given geographic area, its ability to form its own, or to join with other healthcare providers to form, integrated healthcare delivery systems and the scope, breadth and quality of services offered by competing healthcare providers and/or systems. 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 systems, such as Tenet South Florida HealthSystem in south Florida, Sierra Providence Health Network in El Paso, Texas, Tenet Louisiana HealthSystem in the greater New Orleans area, Tenet California HealthSystem in California and Tenet Houston HealthSystem in Houston, Texas, that actively pursue and enter into managed care contracts. Tenet's integrated healthcare delivery systems also compete for traditional fee-for-service patients and contracts with traditional healthcare insurers and employers. As discussed more fully on page 14, recent changes in the Federal Medicare laws permit providers to create Provider Service 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 Medicare 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 throughout the country. 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. 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 systems, including those with other healthcare providers and physician practice groups, while continuing to provide quality, cost-effective care. 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 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 an inpatient to an outpatient basis or to alternative 10 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 has been reducing its costs, for example, through the implementation of 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, there can be no assurance that these measures will be successful or, if successful, will serve to compensate for the reduction in 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 these changes 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) having the Company join 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 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, using governing boards for each hospital, the members of which primarily are 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, and otherwise creating an environment within which physicians prefer to practice. 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. 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. Tenet and its hospitals strive, on terms favorable to the Company, to attract and retain physicians to their staffs, enter into managed care contracts, organize and structure integrated healthcare delivery systems, acquire hospitals or other healthcare facilities and acquire or assume the management of 11 physician practices. Other healthcare companies with greater financial resources, with more facilities in a given geographic area or offering a wider range of services may be competing in each of these areas. These competitive factors may result in Tenet and its hospitals being less successful than they would hope to be in accomplishing one or more of these goals. MEDICARE, MEDICAID AND OTHER REVENUES Tenet receives payments for patient care from private insurance carriers, Federal Medicare programs for elderly and disabled patients, health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), state Medicaid programs for indigent and cash grant patients, the Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS"), employers and patients directly. General hospital inpatient services are reimbursed under Medicare based on a prospective payment system ("PPS"), as discussed below. Historically, Medicare payments for outpatient services provided by general hospitals, all services provided by rehabilitation hospitals and home healthcare services have been based on the lower of charges or allowable costs, subject to certain limits. The Balanced Budget Act of 1997 (the "1997 Act") mandates that the historical method of reimbursement for those services be changed to a PPS, which will be phased in over time as discussed below. 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 retail rates for Tenet facilities. Payments from other sources usually are based on the hospital's established charges, a percentage discount or all-inclusive per diem rates. 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 OrNda, are as follows:
YEARS ENDED MAY 31, ----------------------------------------------------- 1993 1994 1995 1996 1997 --------- --------- --------- --------- --------- Medicare........................................... 36.2% 39.0% 38.7% 39.6% 42.2% Medicaid........................................... 11.9 10.1 8.9 8.6 8.6 Private and Other.................................. 51.9 50.9 52.4 51.8 51.2 --------- --------- --------- --------- --------- Totals............................................. 100.0% 100.0% 100.0% 100.0% 100.0% --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Medicare payments for general hospital inpatient care are based on a PPS (the "DRG-PPS"), which generally has been applicable to Tenet's facilities since 1984. Under the DRG-PPS, a general hospital receives as reimbursement for its operating costs related to each Medicare patient discharged from the hospital a fixed amount based on the Medicare patient's assigned diagnostic related group ("DRG"). DRG payments do not consider a specific hospital's operating costs, but are adjusted for area wage differentials. As discussed below, DRG payments exclude the reimbursement of (a) capital costs, including depreciation, interest relating to capital expenditures, property tax and lease expenses and (b) outpatient services. These reimbursements are made in advance based on estimates and later are increased or decreased, as the case may be. 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, 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, the amount of reimbursement received by general hospitals under the DRG-PPS has not kept up with the cost of goods and services. Moreover, the 1997 Act freezes 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, 2000, and (c) 1.1% from October 1, 2000 through September 30, 2003. 12 Medicare reimburses 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. During Tenet's fiscal year ended May 31, 1997, Tenet's general hospitals received, in the aggregate, reimbursement for substantially all of their actual capital costs under the PPS-CC. The 1997 Act provides that the amount of reimbursement that Tenet's general hospitals otherwise would have received for their capital costs under the PPS-CC will be reduced by approximately 18% effective October 1, 1997. Outpatient services provided at general hospitals, physical rehabilitation hospitals and psychiatric facilities historically have been reimbursed by Medicare at the lower of customary charges or 94.2% of actual cost. In addition, Congress historically has established additional limits on the reimbursement of operating costs for the following outpatient services: (a) clinical laboratory services, which have been reimbursed based on a fee schedule, and (b) ambulatory surgery procedures and certain imaging and other diagnostic procedures, which have been reimbursed based on a blend of the hospital's specific cost and the rate paid by Medicare to non-hospital providers for such services. Under the 1997 Act, reimbursement for outpatient services provided at general hospitals will be converted from the cost-based system to a PPS, which will be phased in over a three-year period beginning January 1, 1999. The 1997 Act also 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 reimbursement to general hospitals for outpatient services performed by them being reduced even further below the cost of providing those services. Hospitals and hospital units currently exempt from the DRG-PPS, such as qualified psychiatric facilities and physical rehabilitation hospitals ("Exempt Hospitals/Units"), traditionally have been reimbursed 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, Exempt Hospitals/Units will receive no increase to their target rates for cost reporting periods from October 1, 1997 through September 30, 1998. Increases in target rates after that date 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 base rates. The 1997 Act also provides that reimbursement for rehabilitation hospitals will change from the existing cost-based system to a PPS, which change will be phased in over three years beginning October 1, 1997. Home health services historically have been exempt from the DRG-PPS and have been reimbursed 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 beginning October 1, 2000. In the interim, reimbursement rates in effect under the current system will be reduced. The 1997 Act provides that rates in effect on September 30, 1999 will be reduced by 15% under the PPS. The 1997 Act further provides that rates in effect on September 30, 1999 will be reduced by 15% effective October 1, 1999, even if HCFA has not yet begun to implement the PPS. As a result of these changes, the Company expects that its hospitals will receive significantly lower reimbursement 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 reimbursement 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. 13 A general hospital historically has been reimbursed its full DRG payment for patients discharged from an acute-care setting regardless of whether the patient received home health services or services in a rehabilitation hospital, rehabilitation unit or skilled nursing facility (collectively, a "post-acute setting") after being discharged from the general hospital. Under the 1997 Act, if a patient is discharged from a general hospital to a post-acute setting prior to being in the general hospital for the mean length of stay for the patient's DRG, which mean length of stay varies for each DRG, 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 will become effective for discharges after October 1, 1998, but will apply only with respect to the DRG's that account for the top 10 discharges from general hospitals to a post acute setting. HCFA is charged with the responsibility of identifying the 10 DRG's to which the foregoing will apply. 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 reimbursed 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 reimbursed will be reduced: 25% beginning October 1, 1997, 40% beginning October 1, 1998, and 45% beginning October 1, 1999. As discussed above, the 1997 Act dramatically changes the manner in which the Company will be reimbursed for all services provided to Medicare beneficiaries. While none of the changes individually is expected to have a significant impact on the amount of reimbursement received by the Company, the changes taken as a whole are expected to significantly reduce the amount of reimbursement 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 the Company's overall results of operations. The purpose of the 1997 Act is to balance the Federal budget by Federal fiscal year 2002. The Company believes that while the 1997 Act is a good start towards assuring the solvency of the Social Security system for the near term, if the Federal budget is not balanced by Federal fiscal year 2002 and the Federal deficit is not reduced thereafter, reimbursement rates are likely to 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 reimbursement rates in future years and, if there are further reductions, how significant those reductions will be. The 1997 Act also contains various provisions that create new opportunities for the Company. Certain of those provisions, such as those allowing for the creation of Provider Service Organizations, 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 from the Federal government for each Medicare beneficiary enrolled in its plans and assumes the risks and rewards of meeting the healthcare needs of those enrolled in its plans. The Company may purchase insurance to cover all or a portion of the cost of meeting the healthcare needs of those covered. The Medicare, Medicaid and CHAMPUS 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. 14 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. Medicare, Medicaid, mandatory and other public and private hospital cost-containment programs, proposals to limit healthcare spending, proposals to limit prices and industry 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. As discussed under Medicare, Medicaid and Other Revenues on pages 12 through 14 above, the 1997 Act has the effect of reducing payments that will be made to the Company under the Federal Medicare program. In addition, there continue to be Federal and state proposals that would, and actions that do, impose more limitations on government and private payments to providers such as Tenet and proposals to increase co-payments and deductibles from government-program and private 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 has implemented such a program and Texas has passed a law mandating the State to apply for such a waiver. 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 limits the amount by which a hospital's net revenues per admission may be increased each year, 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 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 presently are uninsured. 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 once again 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, 1997, Tenet operated hospitals in 18 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. 15 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 reimbursable under Medicare, Medicaid or 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. In addition, Section 1877 of the Social Security Act, which 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, 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. The Federal government has issued regulations that describe some of the conduct and business relationships permissible under the Antikickback Amendments and the Physician Self-Referral Laws ("Safe Harbors"). The fact that a given business arrangement does not fall within a Safe Harbor does not render the arrangement per se illegal. Business arrangements of healthcare service providers that fail to satisfy the applicable Safe Harbor criteria, however, risk increased scrutiny by enforcement authorities. Because Tenet may be less willing than some of its competitors to enter into business arrangements that do not clearly satisfy the Safe Harbors, it could be at a competitive disadvantage in entering into certain transactions and arrangements with physicians and other healthcare providers. The Company systematically reviews all of its operations to ensure that it complies with the Social Security Act and similar state statutes. Both Federal and state government agencies have announced heightened and coordinated civil and criminal enforcement efforts. One project, Operation Restore Trust, is focused on investigating healthcare providers in the home health and nursing home industries as well as on medical suppliers to these providers in California, Florida, Illinois, New York and Texas. Over the next two years, the project will be expanded to Arizona, Colorado, Georgia, Louisiana, Massachusetts, Missouri, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia and Washington and may be expanded to include healthcare providers in additional industries. Eventually, the project is intended to include all 50 states. The Company provides home health and/or nursing home care in each of the states in which it operates general hospitals, including Arizona, California, Florida, Georgia, Louisiana, Massachusetts, Missouri, Texas and Washington. 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. 16 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. 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. With the exception of one general hospital that was acquired in fiscal 1996 and one general hospital acquired in the first quarter of fiscal 1998, each of Tenet's facilities that is eligible for accreditation is fully accredited by the JCAHO, the Commission on Accreditation of Rehabilitation Facilities (in the case of rehabilitation hospitals) or another appropriate accreditation agency. Both of the unaccredited facilities referred to above are in the process of becoming accredited for the first time. With such accreditation, the Company's hospitals are eligible to participate in government-sponsored provider programs such as the Medicare and Medicaid programs. 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. 17 MANAGEMENT The executive officers of the Company who also are not Directors as of August 22, 1997 are:
NAME POSITION AGE - -------------------------- -------------------------------------------------------------------------------- --- Scott M. Brown Senior Vice President, General Counsel and Secretary 52 Trevor Fetter Executive Vice President and Chief Financial Officer 37 Raymond L. Mathiasen Senior Vice President and Chief Accounting Officer 54
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, which vary by hospital and by policy period from $500,000 to $3.0 million per occurrence, through a majority-owned insurance subsidiary. 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 with major independent insurance companies. The Company has reached the policy limits provided by this insurance subsidiary related to the psychiatric hospitals in several 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. FORWARD-LOOKING STATEMENTS Certain statements contained in this Form 10-K, including, without limitation, statements containing the words "believes," "anticipates," "expects" 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 involve known and unknown risks, uncertainties and other factors 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 18 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 lack of assurance that the synergies expected from the OrNda Merger will be achieved; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. 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. ITEM 3. LEGAL PROCEEDINGS. The Company has been involved in significant legal proceedings of an unusual nature related principally to its discontinued psychiatric business. During the years ended May 31, 1995, 1996 and 1997, 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 for unusual litigation costs that relate to matters that had not been settled as of May 31, 1997, and an estimate of the fees to be incurred subsequent to May 31, 1997, 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. Tenet continues to defend a greater-than-normal level of litigation relating to certain of its subsidiaries' former 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 the increase in litigation arose primarily from advertisements by certain lawyers seeking former psychiatric patients in order to file claims against Tenet and certain of its subsidiaries. The advertisements focused, in many instances, on Tenet's settlement of past disputes involving the operations of its discontinued psychiatric business subsidiaries, including Tenet's 1994 resolution of the Federal government's investigation and a corresponding criminal plea agreement involving such discontinued psychiatric business of Tenet. From June 1, 1994 to the present, approximately 1,000 cases alleging fraud and conspiracy have been filed against the Company and certain of its subsidiaries. Most of the cases have been filed in Texas and Washington, D.C. To date, the Company has resolved approximately 700 of these cases. 19 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 class actions filed in August 1993 were consolidated into one action pending in U.S. District Court in the Central District of California captioned In re: National Medical Enterprises Securities Litigation II. This consolidated action is on behalf of a purported class of shareholders who purchased or sold stock of Tenet between January 14, 1993 and August 26, 1993, and alleges violations of the securities laws by the Company and certain of its executive officers. Based on these claims, plaintiffs seek compensatory damages, injunctive relief, attorneys' fees, interest and costs. After unsuccessful mediation, the parties agreed in May 1995 to proceed with the litigation. In June 1995, the defendants filed a motion to dismiss and to strike plaintiffs' complaint. Although in March 1997 the defendants' motion was denied, the Company believes it has meritorious defenses to this action and will continue to defend this litigation vigorously. An agreement has been executed with the Department of Justice resolving the investigation related to certain physician relationships at 12 of the hospitals acquired by OrNda in its April 1994 acquisition of Summit Health Ltd. ("Summit") and one OrNda hospital outside of the group acquired from Summit. 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. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The response to this item is included on page 43 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1997. The required information hereby is incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA. The response to this item is included on page 7 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1997. 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 8 through 16 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1997. The required information hereby is incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The response to this item is included on pages 17 through 40 and page 43 of the Registrant's Annual Report to Shareholders for the year ended May 31, 1997. The required information hereby is incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 20 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 5 of the definitive Proxy Statement for Registrant's 1997 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 18 above. Information regarding compensation of executive officers and Directors of the Registrant is included on pages 7 through 16 and pages 22 through 27 of the definitive Proxy Statement for the Registrant's 1997 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 27 of the definitive Proxy Statement for the Registrant's 1997 Annual Meeting of Shareholders. The required information hereby is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 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 1997 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 (4) Instruments Defining the Rights of Security Holders, Including Indentures (a) Indenture, dated as of March 1, 1991, between the Registrant and The Bank of New York, as Trustee, relating to Medium Term Notes (Incorporated by reference to Exhibit 4(a) to Registrant's Annual Report on Form 10-K, dated August 26, 1996, for the fiscal year ended May 31, 1996) 21 (b) 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) (c) 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 (d) 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 (e) 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) (f) 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 (g) 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 (h) 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) (i) 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 (j) 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 (k) 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) (l) 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) (m) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 7 7/8% Senior Notes due 2003 (n) Indenture, dated January 15, 1997, between Tenet and The Bank of New York, as Trustee, relating to 8% Senior Notes due 2005 (o) 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 (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 22 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 (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 (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) 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) (l) 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) 23 (m) 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) (n) Board of Directors Retirement Plan, effective January 1, 1985 (Incorporated by reference to Exhibit 10(x) to Registrant's Annual Report on Form 10-K, dated as of August 26, 1996, for the fiscal year ended May 31, 1996) (o) First Amendment to Board of Directors Retirement Plan, effective as of August 18, 1993 (Incorporated by reference to Exhibit 10(xx) to Registrant's Annual Report on Form 10-K, dated August 30, 1993, for the fiscal year ended May 31, 1993) (p) Amendment to Directors Retirement Plan, dated as of April 25, 1994 (Incorporated by reference to Exhibit 10(oo) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (q) Third Amendment to the Board of Directors Retirement Plan, effective as of July 30, 1997 (r) Supplemental Executive Retirement Plan, as amended May 21, 1986 (Incorporated by reference to Exhibit 10(o) to Registrant's Annual Report on Form 10-K, dated August 21, 1992, for the fiscal year ended May 31, 1992) (s) Amendment to Supplemental Executive Retirement Plan, dated as of April 25, 1994 (Incorporated by reference to Exhibit 10(ss) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (t) Amendment to Supplemental Executive Retirement Plan, dated as of July 25, 1994 (Incorporated by reference to Exhibit 10(tt) to Registrant's Annual Report on Form 10-K, dated August 25, 1994, for the fiscal year ended May 31, 1994) (u) Third Amendment to Supplemental Executive Retirement Plan, dated as of January 28, 1997 (v) 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) (w) 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) (x) 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) (y) 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) (z) 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) (aa) 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) 24 (bb) 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) (cc) Agreement, dated October 30, 1996, between Tenet and United State 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) (dd) 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) (ee) 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) (ff) 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) (gg) 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) (11) Statement Re: Computation of Per Share Earnings, page 26 (13) 1997 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 1997 (included only in the EDGAR filing) (27.2) Restated Financial Data Schedule for fiscal year 1996 (included only in the EDGAR filing) (B) REPORTS ON FORM 8-K (1) On April 11, 1997, the Company filed with the Commission a Current Report on Form 8-K, dated April 10, 1997, for Item 5, Other Events, and Item 7, Financial Statements, Pro Forma Financial Information and Exhibits. The Form 8-K was filed to report the Company's earnings for the fiscal quarter ended February 28, 1997. (2) On April 17, 1997, the Company filed with the Commission a Current Report on Form 8-K, dated April 16, 1997, for Item 5 Other Events, and Item 7, Financial Statements, Pro Forma Financial Information and Exhibits. The Form 8-K included the following supplemental financial information required as a result of the Merger: (i) Selected Supplemental Financial Information, (ii) Management's Discussion and Analysis of Supplemental Financial Condition and Results of Operations, (iii) Supplemental Consolidated Balance Sheets of Tenet and Subsidiaries as of May 31, 1995 and 1996, and the Related Supplemental Consolidated Statements of Operations, Changes in Shareholders' Equity and Cash Flows for Each of the Three Years in the Period Ended May 31, 1996, (iv) the Notes to Supplemental Consolidated Financial Statements, and (v) the Report of KPMG Peat Marwick LLP. The supplemental consolidated financial statements give retroactive effect to the Merger. 25 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (EXHIBIT 11)
1993 1994 1995 1996 1997 --------- --------- --------- --------- --------- PRIMARY EARNINGS PER SHARE Weighted average number of shares of common stock outstanding......... 213 213 234 282 304 Dilutive effect of common stock equivalents (stock options and warrants)........................................................... 1 5 4 5 -- --------- --------- --------- --------- --------- TOTAL................................................................. 214 218 238 287 304 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) from continuing operations, adjusted for preferred stock dividends........................................................... $ 276 $ 167 $ 264 $ 498 $ (73) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Earnings (loss) per common and common equivalent share-- continuing operations.......................................................... $ 1.29 $ 0.77 $ 1.10 $ 1.73 $ (0.24) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- FULLY DILUTED EARNINGS PER SHARE Weighted average number of shares used in primary calculation......... 214 218 238 287 304 Additional dilutive effect of common stock equivalents................ 1 1 1 1 -- Assumed conversion of dilutive convertible notes and debentures....... 14 14 13 7 -- Assumed conversion of redeemable preferred stock...................... -- -- 2 -- -- --------- --------- --------- --------- --------- TOTAL................................................................. 229 233 254 295 304 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) from continuing operations used in primary calculation......................................................... $ 276 $ 167 $ 264 $ 498 $ (73) Adjustments: Interest expense on convertible debentures.......................... 9 11 14 9 -- Reduced reimbursement of above interest expense by Medicare......... (1) (1) (2) (2) -- Income tax on interest less Medicare reimbursement.................. (3) (4) (5) (3) -- Preferred stock dividends........................................... 1 2 2 -- -- --------- --------- --------- --------- --------- Adjusted income (loss) from continuing operations..................... $ 282 $ 175 $ 273 $ 502 $ (73) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Earnings (loss) per common and common equivalent share-- continuing operations.......................................................... $ 1.24 $ 0.75 $ 1.08 $ 1.70 $ (0.24) --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
26 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 26, 1997. TENET HEALTHCARE CORPORATION By: /s/ TREVOR FETTER By: ---------------------------------------- Trevor Fetter EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) By: /s/ RAYMOND L. MATHIASEN ---------------------------------------- Raymond L. Mathiasen SENIOR VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER (PRINCIPAL ACCOUNTING OFFICER)
By: /s/ SCOTT M. BROWN ---------------------------------------- Scott M. Brown SENIOR VICE PRESIDENT By:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on August 26, 1997, 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 Director (Principal Jeffrey C. Barbakow Executive Officer) /s/ MICHAEL H. FOCHT, SR. ------------------------------------------- President, Chief Operating Officer and Director Michael H. Focht, Sr. /s/ BERNICE BRATTER ------------------------------------------- Director Bernice Bratter /s/ MAURICE J. DEWALD ------------------------------------------- Director Maurice J. DeWald /s/ PETER DE WETTER ------------------------------------------- Director Peter de Wetter /s/ EDWARD EGBERT, M.D. ------------------------------------------- Director Edward Egbert, M.D.
27
SIGNATURE TITLE - ------------------------------------------------------ --------------------------------------------------------- /s/ RAYMOND A. HAY ------------------------------------------- Director Raymond A. Hay /s/ LESTER B. KORN ------------------------------------------- Director Lester B. Korn /s/ RICHARD S. SCHWEIKER ------------------------------------------- Director Richard S. Schweiker
28 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MAY 31, 1995, 1996 AND 1997 (IN MILLIONS) ALLOWANCE FOR DOUBTFUL ACCOUNTS
ADDITIONS CHARGED TO: BALANCE AT -------------------------------- BEGINNING CONTINUING DISCONTINUED DEDUCTIONS OTHER BALANCE AT OF PERIOD OPERATIONS (1) OPERATIONS (2) ITEMS (3) END OF PERIOD ----------- --------------- --------------- ------------- ----------- ------------- 1995.................... $ 122 $ 245 $ 25 $ (283) $ 103 $ 212 1996.................... 212 431 -- (471) 33 205 1997.................... 205 499 -- (474) (6) 224
- ------------------------ (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 both years ended May 31, 1996 and 1997. F-1 EX-3.(B) 2 EXHIBIT 3(B) BY LAWS RESTATED BY-LAWS OF TENET HEALTHCARE CORPORATION A NEVADA CORPORATION AS AMENDED OCTOBER 16, 1996 ARTICLE I SHAREHOLDERS' MEETINGS SECTION 1.1 PLACE OF MEETINGS. All meetings of the shareholders shall be held at the principal office of the Corporation in the State of California, or at any other place within or without the State of Nevada as may be designated for that purpose from time to time by the Board of Directors. SECTION 1.2 ANNUAL MEETINGS. The Annual meeting of the shareholders shall be held not later than 210 days after the close of the fiscal year, on the date and at the time set by the Board of Directors, at which time the shareholders shall elect by plurality vote an annual Class of the Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting. SECTION 1.3 SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the Chief Executive Officer or by the Board of Directors. SECTION 1.4 NOTICE OF MEETINGS. 1.4.1. Notice of each meeting of shareholders, whether annual or special, shall be given at least 10 and not more than 60 days prior to the day thereof by the Secretary or any Assistant Secretary causing to be delivered to each shareholder of record entitled to vote at such meeting a written notice stating the time and place of the meeting and the purpose or purposes for which the meeting is called. Such notice shall be signed by the Chief Executive Officer, the President, the Secretary or any Assistant Secretary and shall be mailed postage prepaid to each shareholder at his address as it appears on the stock books of the Corporation. If any shareholder has failed to supply an address, notice shall be deemed to have been given if mailed to the address of the principal office of the Corporation, or published at least once in a newspaper having general circulation in the county in which the principal office is located. -2- 1.4.2. It shall not be necessary to give any notice of the adjournment of or the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken; provided that when a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. SECTION 1.5 CONSENT BY SHAREHOLDERS. Any action which may be taken at a regular meeting of the shareholders, except election of directors, may be taken without a meeting, if authorized by a writing signed by holders of the number of shares required under the law to give their approval for such purpose. SECTION 1.6 QUORUM. 1.6.1. The presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting constitutes a quorum for the transaction of business. Shares shall not be counted in determining the number of shares represented or required for a quorum or in any vote at a meeting, if voting of them at the meeting has been enjoined or for any reason they cannot be lawfully voted at the meeting. 1.6.2. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. 1.6.3. In the absence of a quorum, a majority of the shares present in person or by proxy and entitled to vote may adjourn any meeting from time to time, but not for a period of more than 30 days at any one time, until a quorum shall attend. SECTION 1.7 VOTING RIGHTS. 1.7.1. Every shareholder of record of the Corporation shall be entitled at each meeting of the shareholders to one vote for each share of stock standing in his name on the books of the Corporation. Except as otherwise provided by law, or by the Articles of Incorporation or any amendment thereto, or by the By-Laws, if a quorum is present, the majority of votes cast in person or by proxy shall be binding upon all shareholders of the Corporation. 1.7.2. The Board of Directors shall designate a day not more than 60 days prior to any meeting of the shareholders as the day as of which shareholders entitled to notice of and to vote at such meetings shall be determined. -3- SECTION 1.8 PROXIES. Every shareholder entitled to vote or to execute consents may do so either in person or by written proxy executed in accordance with the provisions of Section 78.355 of the Nevada Revised Statutes and filed with the Secretary of the Corporation. SECTION 1.9 MANNER OF CONDUCTING MEETINGS. To the extent not in conflict with the provisions of the law relating thereto, the Articles of Incorporation, or express provisions of these By-Laws, meetings shall be conducted pursuant to such rules as may be adopted by the chairman presiding at, or a majority of the shares represented at, the meeting. ARTICLE II DIRECTORS - MANAGEMENT SECTION 2.1 POWERS. Subject to the limitation of the Articles of Incorporation, of the By-Laws, and of the laws of the State of Nevada as to action to be authorized or approved by the shareholders, all corporate powers shall be exercised by or under authority of, and the business and affairs of this Corporation shall be controlled by, a Board of Directors. SECTION 2.2 NUMBER AND QUALIFICATION. The authorized number of directors of this Corporation shall be not less than nine nor more than 15, with the exact number to be established from time to time by resolution of the Board of Directors of this Corporation. All directors of this Corporation shall be at least 21 years of age and at least a majority shall be citizens of the United States. SECTION 2.3 CLASSIFICATION AND ELECTION. The Board of Directors shall be classified into three annual Classes, with four directors in Class 1, four directors in Class 2, and five directors in Class 3. Each Class of directors shall be elected for terms of three years. Each term shall continue for the number of years stated and until their successors are elected and have qualified. Their term of office shall begin immediately after election. These By-Laws are being adopted subsequent to the initial classification of directors in 1975. The directors in office as of the date of adoption hereof shall continue to serve the terms for which they have been previously elected. SECTION 2.4 INCREASE IN THE NUMBER OF DIRECTORS. -4- The Board of Directors may change the number of directors from time to time; provided, however, neither the Board of Directors nor the shareholders may ever increase the number of directorships by more than one during any twelve-month period, except upon the affirmative vote of two-thirds of the directors of each Class, or the affirmative vote of the holders of two-thirds of all outstanding shares voting together and not by class. This provision may not be amended except by a like vote. SECTION 2.5 VACANCIES. 2.5.1. Any vacancies in the Board of Directors, except vacancies first filled by the shareholders, may be filled by the affirmative vote of two-thirds of the remaining directors of each Class, though less than a quorum, or by a sole remaining director. Each director so elected shall hold office for the balance of the term of the resigning director and until his successor is elected. The power to fill vacancies shall in no event be delegated to any committee appointed in accordance with these By-Laws. 2.5.2. The shareholders may at any time elect a director to fill any vacancy not filled by the directors, and may elect the additional directors at the meeting at which an amendment of the By-Laws is voted authorizing an increase in the number of directors. 2.5.3. A vacancy or vacancies shall be deemed to exist in case of the death, resignation, or removal of any director, or if the directors or shareholders shall increase the authorized number of directors but shall fail at a meeting at which such increase is authorized or at an adjournment thereof to elect the additional director so provided for, or in case the shareholders fail at any time to elect the full number of authorized directors. 2.5.4. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders shall have power to immediately elect a successor who shall take office when the resignation shall become effective. 2.5.5. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his term of office. SECTION 2.6 REMOVAL OF DIRECTORS. The entire Board of Directors or any individual director may be removed from office, with or without cause, by the vote or written consent of shareholders representing two-thirds of the issued and outstanding capital stock entitled to vote. -5- SECTION 2.7 RESIGNATIONS. Any director of the Corporation may resign at any time either by oral tender of resignation at any meeting of the Board or by giving written notice thereof to the Secretary, the Chief Executive Officer or the President. Such resignation shall take effect at the time it specifies, and the acceptance of such resignation shall not be necessary to make it effective. SECTION 2.8 PLACE OF MEETINGS. Meetings of the Board of Directors shall be held at the principal office of the Corporation in the State of California, or at such other place within or without the State of Nevada as may be designated for that purpose by the Board of Directors. Any meeting shall be valid, wherever held, if held by the written consent of all members of the Board of Directors, given before or after the meeting and filed with the Secretary of the Corporation. SECTION 2.9 MEETINGS AFTER ANNUAL SHAREHOLDERS' MEETING. The first meeting of the Board of Directors held after the annual shareholders' meeting shall be held at such time and place within or without the State of Nevada as shall be fixed by announcement of the Chief Executive Officer or the President given at the annual shareholders' meeting, and no other notice of such meeting shall be necessary, provided a majority of the whole Board shall be present. Alternatively, such meeting may be held at such time and place as shall be fixed pursuant to notice given under other provisions of these By-Laws. SECTION 2.10 OTHER REGULAR MEETINGS. 2.10.1. Regular meetings of the Board of Directors shall be held at such time and place within or without the State of Nevada as may be agreed upon from time to time by the Board. 2.10.2. No notice need be given of regular meetings, except that a written notice shall be given to each director of the resolution establishing specific meeting dates or a regular meeting date, which notice shall set forth the date of the month, the time, and the place of the meetings. SECTION 2.11 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by the Chief Executive Officer or the President or by two-thirds of the directors of each Class. Notice of any such meeting shall be mailed to each director not later than three days before the day on which the meeting is to be held, or shall be sent to him by telegraph, or delivered personally or by telephone, not later than midnight of the day before the day of the meeting. Any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given, if each -6- director consents to the holding thereof or waives notice by a writing filed with the Secretary, or is present thereat and their oral consents are entered on the minutes, or they take part in the deliberations thereat without objection. Except as otherwise provided in the By-Laws or as may be indicated in the notice thereof, any and all business may be transacted at any special meeting. SECTION 2.12 WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, notice of any meeting of directors shall not be required as to any director who shall waive notice in writing (including telex, facsimile telephonic transmission, telegram, cablegram or radiogram) before or after such meeting. SECTION 2.13 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place is fixed at the meeting adjourned. SECTION 2.14 QUORUM. A majority of the number of directors as fixed by the Articles of Incorporation or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided, that a minority of the directors, in the absence of a quorum, may adjourn from time to time or fill vacant directorships in accordance with Section 2.5 but may not transact any business. SECTION 2.15 ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing thereto. Such written consent shall be filed with the minutes of the proceedings of the Board and shall have the same force and effect as a unanimous vote of such directors. SECTION 2.16 COMPENSATION. The directors may be paid their expenses of attendance at each meeting of the Board of Directors. Additionally, the Board of Directors may from time to time, in its discretion, pay to directors either or both a fixed sum for attendance at each meeting of the Board of Directors or a stated salary for services as a director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like reimbursement and compensation for attending committee meetings. -7- SECTION 2.17 TRANSACTIONS INVOLVING INTERESTS OF DIRECTORS. In the absence of fraud, no contract or other transaction of the Corporation shall be affected or invalidated by the fact that any of the directors of the Corporation are in any way interested in, or connected with, any other party to, such contract or transaction or are themselves parties to such contract or transaction, provided that such transaction satisfies Section 78.140 of the Nevada Revised Statutes; and each and every person who may become a director of the Corporation is hereby relieved, to the extent permitted by law, from any liability that might otherwise exist from contracting in good faith with the Corporation for the benefit of himself or any person in which he may be in any way interested or with which he may be in any way connected. Any director of the Corporation may vote and act upon any matter, contract or transaction between the Corporation and any other person without regard to the fact that he is also a stockholder, director or officer of, or has any interest in, such other person. SECTION 2.18 EMERITUS POSITIONS. The Board of Directors may authorize parties to serve in an emeritus position with respect to the Board of Directors, included by way of example but not by way of limitation, as an Emeritus Director, as a Chairman Emeritus of the Board of Directors or as a Vice-Chairman Emeritus of the Board of Directors. These positions shall be honorary positions and parties elected to those positions may be asked to attend meetings of the board of directors and meeting of the shareholders from time to time. A party holding an emeritus position shall not be an officer or director of the Company, shall have no vote at a director's meeting, shall receive no fees for service in that position and shall not be given access to material, non-published information pertaining, to the Company. A party filling an emeritus position shall be requested to do so because of his or her experience with and contributions to the Company. ARTICLE III OFFICERS SECTION 3.1 EXECUTIVE OFFICERS. The executive officers of the Corporation shall be a Chairman, a Vice Chairman, a Chief Executive Officer, a President, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, one or more Group Presidents and Chief Executive Officers, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, and a Treasurer. Any person may hold two or more offices. The executive officers of the Corporation shall be elected annually by the Board of Directors and shall hold office for one year or until their respective successors shall be elected and shall qualify. -8- SECTION 3.2 APPOINTED OFFICERS: TITLES. 3.2.1. The Chief Executive Officer or the Secretary in the case of Assistant Secretaries or the Treasurer in the case of Assistant Treasurers may appoint one or more Assistant Secretaries or one or more Assistant Treasurers, each of whom shall hold such title at the pleasure of the appointing officer, have such authority and perform such duties as are provided in the By-Laws, or as the Chief Executive Officer or the appointing officer may determine from time to time. Any person appointed under this Section 3.2.1 to serve in any of the foregoing positions shall be deemed by reason of such appointment or service in such capacity to be an "officer" of the corporation. 3.2.2. The Chief Executive Officer or a person designated by the Chief Executive Officer may also appoint a president, one or more executive vice presidents, one or more senior vice presidents, one or more vice presidents and one or more assistant vice presidents for each operating group and division of the Corporation and one or more senior vice presidents, one or more vice presidents and one or more assistant vice presidents for each corporate staff function and a corporate controller and one or more assistant controllers. Each of such persons will hold such title at the pleasure of the Chief Executive Officer and have authority to act for and shall perform duties with respect to only the group, division or corporate staff function for which the person is appointed. Any person appointed under this Section 3.2.2 to serve in any of the foregoing positions shall not be deemed by reason of such appointment or service in such capacity to be an "officer" of the Corporation. SECTION 3.3 REMOVAL AND RESIGNATION. 3.3.1. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board. Any appointed person may be removed from such position at any time by the person making such appointment or his successor. 3.3.2. Any officer may resign at any time, by giving written notice to the Board of Directors, the Chief Executive Officer, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice, or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.4 VACANCIES. -9- A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. SECTION 3.5 CHAIRMAN AND VICE CHAIRMAN. The Chairman shall preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors. The Vice Chairman shall, in the absence of the Chairman, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors. SECTION 3.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and affairs of the Corporation. He shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board and the Vice Chairman of the Board, at all meetings of the Board of Directors. He shall be ex officio a member of the Executive Committee and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and such other powers and duties as may be prescribed by the Board of Directors. SECTION 3.7 PRESIDENT. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all the restrictions upon the Chief Executive Officer, including the power to sign all instruments and to take all actions which the Chief Executive Officer is authorized to perform by the Board of Directors or the By-Laws. The President shall have the general powers and duties usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Chief Executive Officer or the Board of Directors. SECTION 3.8 SENIOR EXECUTIVE VICE PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENT AND VICE PRESIDENT. In the absence or disability of the Chief Executive Officer and the President, a Senior Executive Vice President, an Executive Vice President or a Group President and Chief Executive Officer, in the order of his rank and seniority shall perform all of the duties of the Chief Executive Officer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer, including the power to sign all instruments and to take all actions which the Chief Executive Officer is authorized to perform by the Board of Directors or the By-Laws. The Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall have the general powers and duties usually -10- vested in the office of a vice president of a corporation; the Group Presidents and Chief Executive Officers shall have the general powers and duties of a principal executive officer of an operating group of a corporation; and each of them shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, the Executive Committee of the Board of Directors, the Chief Executive Officer or the By-Laws. SECTION 3.9 SECRETARY AND ASSISTANT SECRETARIES. 3.9.1. The Secretary shall (1) attend all sessions of the Board and all meetings of the shareholders; and (2) record and keep, or cause to be kept, all votes and the minutes of all proceedings in a book to be kept for that purpose at the principal office of the Corporation, or at such other place as the Board of Directors may from time to time determine, specifying therein (i) the time and place of holding, (ii) whether regular or special, and if special, how authorized, (iii) the notice thereof given, (iv) the names of those present at directors' meetings, (v) the number of shares present or represented at shareholders' meetings, and (vi) the proceedings thereof; and (3) perform like duties for the Executive and other standing committees, when required. In addition, he shall keep or cause to be kept, at the principal office of the Corporation in the State of Nevada, those documents required to be kept thereat by Section 5.2 of the By-Laws and Section 78.105 of the Nevada Revised Statutes. 3.9.2. The Secretary shall give, or cause to be given, notice of meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation, and, when authorized by the Board, affix the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. The Secretary is hereby authorized to issue certificates, to which the corporate seal may be affixed, attesting to the incumbency of officers of this Corporation or to actions duly taken by the Board of Directors or the shareholders. 3.9.3. The Assistant Secretaries, in the order of their seniority, shall in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Chief Executive Officer or the Secretary shall prescribe. SECTION 3.10 TREASURER AND ASSISTANT TREASURERS. 3.10.1. The Treasurer shall deposit all moneys and other valuables in the name, and to the credit, of the Corporation, with such depositories as may be ordered by the -11- Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer and directors, whenever they request it, an account of all his transactions as Treasurer, and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. 3.10.2. The Assistant Treasurers, in the order of their seniority, shall in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer, and shall perform such other duties as the Chief Executive Officer or the Treasurer shall prescribe. SECTION 3.11 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS. In addition to the foregoing powers and duties specifically prescribed for the respective officers, the Board of Directors may from time to time by resolution (i) impose or confer upon any of the officers such additional duties and powers as the Board of Directors may see fit, (ii) determine the order of seniority among the officers, and/or (iii) except as otherwise provided above, provide that in the absence of any officer or officers, any other officer or officers shall substitute for and assume the duties, powers and authority of the absent officer or officers. Any such resolution may be final, subject only to further action by the Board of Directors, or the resolution may grant such discretion, as the Board of Directors deems appropriate, to the Chairman, the Vice Chairman, the Chief Executive Officer, the President (or in his absence the Senior Executive Vice President or the Executive Vice President serving in his place) to impose or confer additional duties and powers, to determine the order of seniority among officers, and/or to provide for substitution of officers as above described. SECTION 3.12 COMPENSATION. The officers of the Corporation shall receive such compensation as shall be fixed from time to time by the Board of Directors. No officer shall be prohibited from receiving such salary by reason of the fact that he is also a director of the Corporation. SECTION 3.13 TRANSACTION INVOLVING INTEREST OF OFFICER. In the absence of fraud, no contract or other transaction of the Corporation shall be affected or invalidated by the fact that any of the officers of the Corporation are in any way interested in, or connected with, any other party to such contract or transaction, or are themselves parties to such contract or transaction, provided that such transaction complies with Section 78.140 of the Nevada Revised Statutes; and each and every person who is or may become an officer of the Corporation is hereby relieved, to the extent permitted by law, when acting in good faith, from any liability that might otherwise exist from contracting with the Corporation for the benefit of himself or any person in which he may be in any way interested or with which he may be in any way connected. -12- ARTICLE IV EXECUTIVE AND OTHER COMMITTEES SECTION 4.1 STANDING COMMITTEES. The Board of Directors shall appoint an Executive Committee, an Audit Committee and a Compensation and Stock Option Committee, consisting of such number of its members as it may designate, consistent with the Articles of Incorporation, the By-Laws and the laws of the State of Nevada. 4.1.1. The Executive Committee shall have and may exercise, when the Board is not in session, all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, but the Executive Committee shall not have the power to fill vacancies on the Board, or to change the membership of or to fill vacancies in the Executive Committee or any other Committee of the Board, or to adopt, amend or repeal the By-Laws, or to declare dividends. 4.1.2. The Audit Committee shall select and engage on behalf of the Corporation, subject to the consent of the shareholders, and fix the compensation of, a firm of certified public accountants whose duty it shall be to audit the books and accounts of the Corporation and its subsidiaries for the fiscal year in which they are appointed, and who shall report to such Committee. The Audit Committee shall confer with the auditors and shall determine, and from time to time shall report to the Board of Directors upon, the scope of the auditing of the books and accounts of the Corporation and its subsidiaries. The Audit Committee shall also be responsible for determining that the business practices and conduct of employees and other representatives of the Corporation and its subsidiaries comply with the policies and procedures of the Corporation. None of the members of the Audit Committee shall be officers or employees of the Corporation. 4.1.3. The Compensation and Stock Option Committee shall establish a general compensation policy for the Corporation and shall have responsibility for the approval of increases in directors' fees and in salaries paid to officers and senior employees earning in excess of an annual salary to be determined by the Committee. The Compensation and Stock Option Committee shall have all of the powers of administration under all of the Corporation's employee benefit plans, including any stock option plans, long-term incentive plans, bonus plans, retirement plans, stock purchase plans and medical, dental and insurance plans. In connection therewith, the Compensation and Stock Option Committee shall determine, subject to the provisions of the Corporation's plans, the directors, officers and employees of the Corporation eligible to participate in any of the plans, the extent of such participation and the terms and conditions under which benefits may be vested, received or exercised. None of the members of -13- the Compensation and Stock Option Committee shall be officers or employees of the Corporation. SECTION 4.2 OTHER COMMITTEES. Subject to the limitations of the Articles of Incorporation, the By-Laws and the laws of the State of Nevada as to action to be authorized or approved by the shareholders, or duties not delegable by the Board of Directors, any or all of the corporate powers may be exercised by or under authority of, and the business and affairs of this Corporation may be controlled by, such other committee or committees as may be appointed by the Board of Directors. The powers to be exercised by any such committee shall be designated by the Board of Directors. SECTION 4.3 PROCEDURES. Subject to the limitations of the Articles of Incorporation, the By-Laws and the laws of the State of Nevada regarding the conduct of business by the Board of Directors and its appointed committees, any committee created under this Article may use any procedures for conducting its business and exercising its powers, including but not limited to actions by the unanimous written consent of its members in the manner set forth in Section 2.15. A majority (but not less than two members) shall constitute a quorum. Notices of meetings may be in any reasonable manner and may be waived as for meetings of directors. ARTICLE V CORPORATE RECORDS AND REPORTS - INSPECTION SECTION 5.1 RECORDS. The Corporation shall maintain adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal place of business in the State of California, as fixed by the Board of Directors from time to time. SECTION 5.2 ARTICLES, BY-LAWS AND STOCK LEDGER. The Corporation shall maintain and keep the following documents at its principal place of business in the State of Nevada: (i) a certified copy of the Articles of Incorporation and all amendments thereto; (ii) a certified copy of the By-Laws and all amendments thereto; and (iii) a statement setting forth the following: "The Secretary of the Corporation, whose address is 2700 -14- Colorado Avenue, Santa Monica California 90404, is the custodian of the duplicate stock ledger of the Corporation." SECTION 5.3 INSPECTION. Any person who has been a shareholder of record for at least six months immediately preceding his demand, or any person holding, or thereunto authorized in writing by the holders of, at least five percent of all of the Corporation's outstanding shares, upon at least five days' written demand, or any judgment creditor without prior demand, shall have the right to inspect in person or by agent or attorney, during usual business hours, the duplicate stock ledger of the Corporation and to make extracts therefrom; provided, however, that such inspection may be denied to any shareholder or other person upon his refusal to furnish to the Corporation an affidavit that such inspection is not desired for a purpose which is in the interest of a business or object other than the business of the Corporation and that he has not at any time sold or offered for sale any list of shareholders of any corporation or aided or abetted any person in procuring any such record of shareholders for any such purpose. SECTION 5.4 CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of, or payable to, the Corporation, shall be signed or endorsed by such person or persons, and in such manner as shall be determined from time to time by resolution of the Board of Directors. ARTICLE VI OTHER AUTHORIZATIONS SECTION 6.1 EXECUTION OF CONTRACTS. The Board of Directors, except as the By-Laws otherwise provide, may authorize any officer or officers or agent or agents to enter into any contract or execute any instrument in the name of and on behalf of the Corporation. Such authority may be general, or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority, except in the ordinary course of business, to bind the Corporation by any contract or engagement or to pledge its credit, or to render it liable for any purpose or in any amount. SECTION 6.2 REPRESENTATION OF OTHER CORPORATIONS. All shares of any other corporation, standing in the name of the Corporation, shall be voted, represented, and all rights incidental thereto exercised as directed by written consent or -15- resolution of the Board of Directors expressly referring thereto. In general, such rights shall be delegated by the Board of Directors under express instructions from time to time as to each exercise thereof to the Chief Executive Officer, the President, any Senior Executive Vice President, any Executive Vice President, any Senior Vice President, any Vice President, the Treasurer or the Secretary of this Corporation, or any other person expressly appointed by the Board of Directors. Such authority may be exercised by the designated officers in person, or by any other person authorized so to do by proxy, or power of attorney, duly executed by such officers. SECTION 6.3 DIVIDENDS. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and on the terms and conditions provided by the laws of the State of Nevada, and the Articles of Incorporation, subject to any contractual restrictions to which the Corporation is then subject. ARTICLE VII CERTIFICATES FOR AND TRANSFER OF SHARES SECTION 7.1 CERTIFICATES FOR SHARES. 7.1.1. Certificates for shares shall be of such form and device as the Board of Directors may designate and shall be numbered and registered as they are issued. Each shall state the name of the record holder of the shares represented thereby; its number and date of issuance; the number of shares for which it is issued; the par value; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to rights of redemption or conversion, if any; and a statement of liens or restrictions upon transfer or voting, if any, or, alternatively, a statement that certificates specifying such matters may be obtained from the Secretary of the Corporation. 7.1.2. Every certificate for shares must be signed by the Chief Executive Officer or the President and the Secretary or an Assistant Secretary, or must be authenticated by facsimiles of the signatures of the Chief Executive Officer or the President and the Secretary or an Assistant Secretary. Before it becomes effective, every certificate for shares authenticated by a facsimile or a signature must be countersigned by a transfer agent or transfer clerk, and must be registered by an incorporated bank or trust company, either domestic or foreign, as registrar of transfers. 7.1.3. Even though an officer who signed, or whose facsimile signature has been written, printed, or stamped on a certificate for shares ceases, by death, resignation, or otherwise, to be an officer of the Corporation before the certificate is delivered by the -16- Corporation, the certificate shall be as valid as though signed by a duly elected, qualified and authorized officer, if it is countersigned by the signature or facsimile signature of a transfer clerk or transfer agent and registered by an incorporated bank or trust company, as registrar of transfers. 7.1.4. Even though a person whose facsimile signature as, or on behalf of, the transfer agent or transfer clerk has been written, printed or stamped on a certificate for shares ceases, by death, resignation, or otherwise, to be a person authorized to so sign such certificate before the certificate is delivered by the Corporation, the certificate shall be deemed countersigned by the facsimile signature of a transfer agent or transfer clerk for purposes of meeting the requirements of this section. SECTION 7.2 TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 7.3 LOST OR DESTROYED CERTIFICATES. The Board of Directors may direct, or may authorize the Secretary to direct, a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate for shares so lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors or Secretary may, in its or his discretion, and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 7.4 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, who may be the same person, and may be the Secretary of the Corporation, or an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the Corporation may necessitate and the Board of Directors may designate. SECTION 7.5 FIXING RECORD DATE FOR DIVIDENDS, ETC. -17- The Board of Directors may fix a time, not exceeding 50 days preceding the date fixed for the payment of any dividend or distribution, or for the allotment of rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the shareholders entitled to receive any such dividend or distribution, or any such allotment of rights, or to exercise the rights in respect to any such change, conversion, or exchange of shares, and, in such case, only shareholders of record on the date so fixed shall be entitled to receive such dividend, distribution, or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed as aforesaid. SECTION 7.6 RECORD OWNERSHIP. The Corporation shall be entitled to recognize the exclusive right of a person registered as such on the books of the Corporation as the owner of shares of the Corporation's stock to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VIII AMENDMENTS TO BY-LAWS SECTION 8.1 BY SHAREHOLDERS. New or restated by-laws may be adopted, or these By-Laws may be repealed or amended, at the annual shareholders' meeting or at any other meeting of the shareholders called for that purpose, by a vote of shareholders entitled to exercise a majority of the voting power of the Corporation. SECTION 8.2 BY DIRECTORS. Subject to the right of the shareholders to adopt, amend, or repeal by-laws, as provided in Section 8.1, the Board of Directors may adopt, amend, or repeal any of these By-Laws by the affirmative vote of two-thirds of the directors of each Class except as otherwise provided in Section 2.4. This power may not be delegated to any committee appointed in accordance with these By-Laws. SECTION 8.3 RECORD OF AMENDMENTS. -18- Whenever an amendment or a new By-Law is adopted, it shall be copied in the book of minutes with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted, or written assent was filed, shall be stated in said book. ARTICLE IX INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 9.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 9.3 of this Article IX, each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding") (other than an action by or in the right of the Corporation), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee, fiduciary or agent shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Nevada, as the same exist or may hereafter be amended, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, employee benefit plan exercise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with such proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 9.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 9.3 of this Article IX, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, -19- employee, fiduciary or agent of enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee, fiduciary or agent, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. SECTION 9.3 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this Article IX (unless ordered by a court or advanced pursuant to Section 9.6 hereof) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 9.1 or Section 9.2 of this Article IX, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion, or (iii) if such a quorum is not obtainable, by independent legal counsel in a written opinion, or (iv) by the shareholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. SECTION 9.4 GOOD FAITH DEFINED. For purposes of any determination under Section 9.3 of this Article IX, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used -20- in this Section 9.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 9.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 9.1 or 9.2 of this Article IX, as the case may be. SECTION 9.5 INDEMNIFICATION BY A COURT. If a claim under Sections 9.1 or 9.2 is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Nevada law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including the Board, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he has met such standard of conduct, nor an actual determination by the Corporation (including the Board, independent legal counsel, or its shareholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct. SECTION 9.6 EXPENSES PAYABLE IN ADVANCE. The right to indemnification conferred in this Article IX shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Nevada General Corporation Law required, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to any employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director of officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 9.6 or otherwise. SECTION 9.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article IX shall not be exclusive -21- of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, By-Law, agreement, vote of shareholders or disinterested directors or otherwise. SECTION 9.8 INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, fiduciary or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Nevada law. SECTION 9.9 CERTAIN DEFINITIONS. For purposes of this Article IX, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article IX, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article IX. SECTION 9.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by or granted pursuant to, this Article IX shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, fiduciary or agent and shall inure to the benefit of his heirs, executors and administrators. SECTION 9.11 LIMITATION ON INDEMNIFICATION. -22- Notwithstanding anything contained in this Article IX to the contrary, except as provided in Section 9.3, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized or consented to by the Board. SECTION 9.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, by action of the Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. SECTION 9.13 INDEMNIFICATION OF WITNESSES. To the extent that any director, officer, employee, fiduciary or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he shall be indemnified against all costs and expenses actually and reasonably incurred by him or on his behalf in connection therewith. SECTION 9.14 INDEMNIFICATION AGREEMENTS. The Corporation may enter into agreements with any director, officer, employee, fiduciary or agent of the Corporation providing for indemnification to the full extent permitted by Nevada law. SECTION 9.15 DEFINITION OF BOARD. For purposes of this Article IX, the term "Board" shall mean the Board of Directors of the Corporation or, to the extent permitted by the laws of Nevada, as the same exist or may hereafter be amended, its Executive Committee. On vote of the Board, the Corporation may assent to the adoption of this Article IX by any subsidiary, whether or not wholly owned. SECTION 9.16 ACTIONS PRIOR TO ADOPTION OF ARTICLE IX. The rights provided by this Article IX shall be available whether or not the claim asserted against the director, officer, employee, fiduciary or agent is based on matters which antedate the adoption of this Article IX. SECTION 9.17 SEVERABILITY. If any provision of this Article IX shall for any reason be determined to be invalid, the remaining provisions hereof shall not be affected thereby but shall remain in full force and effect. SECTION 9.18 APPLICABILITY TO FEDERAL ELECTION CAMPAIGN ACT OF 1971, AS AMENDED. -23- The rights provided by this Article IX shall be applicable to the officers (including without limitation the Chairman, Vice Chairman, treasurer and assistant treasurer) appointed from time to time by the Chief Executive Officer of the Corporation or his designee to serve in the administration and management of any separate, segregated fund established for purposes of collecting and distributing voluntary employee political contributions to federal election campaigns pursuant to the Federal Election Campaign Act of 1971, as amended. ARTICLE X CORPORATE SEAL The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation, and the date of its incorporation, and the word "Nevada". ARTICLE XI INTERPRETATION Reference in these By-Laws to any provision of the Nevada Revised Statutes shall be deemed to include all amendments thereto and the effect of the construction and determination of validity thereof by the Nevada Supreme Court. ARTICLE XII APPLICABILITY OF CONTROL SHARE ACT The provisions of Nevada Revised Statutes Sections 78.378 to 78.3792, inclusive, shall not apply to any acquisition of a controlling interest by OrNda Healthcorp in the Corporation pursuant to the terms of that certain Stock Option Agreement between the Corporation and OrNda Healthcorp, as the same may be amended, modified, supplemented or otherwise changed. EX-4.(C) 3 EXHIBIT 4(C) FIRST SUPPLEMENTAL 9 5/8% INDENTURE FIRST SUPPLEMENTAL INDENTURE TENET HEALTHCARE CORPORATION, as Issuer AND THE BANK OF NEW YORK, as Trustee Dated as of October 30, 1995 Supplemental to Indenture, dated as of March 1, 1995, relating to the Issuer's 9-5/8% Senior Notes Due 2002 TABLE OF CONTENTS PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE ONE - DEFINITIONS AND OTHER GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.2 Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . SECTION 1.4 Separability Clause . . . . . . . . . . . . . . . . . . . . SECTION 1.5 Benefits of First Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.7 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . ARTICLE TWO - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE THREE - NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . SECTION 3.1 Replacement of Exhibits . . . . . . . . . . . . . . . . . . SECTION 3.2 Notation on Securities. . . . . . . . . . . . . . . . . . . SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 FIRST SUPPLEMENTAL INDENTURE, dated as of October 30,1995 (the "First Supplemental Indenture"), between TENET HEALTHCARE CORPORATION, a Nevada corporation (hereinafter called the "Company"), and THE BANK OF NEW YORK, as trustee (hereinafter called the "Trustee"), under the Indenture (the "Indenture"), dated as of March 1, 1995, between the Company and the Trustee relating to the Company's 9-5/8% Senior Notes due 2002 (the "Securities"). RECITALS OF THE COMPANY The Company proposes to offer (the "Offering") Exchangeable Subordinated Notes due 2007 which are exchangeable for shares of common stock of Vencor, Inc. (the "Exchangeable Notes"). In connection with the Offering, the Company is soliciting consents to the amendments to the Indenture (the "Amendments") (all as described in the Solicitation of Consents, dated October 20, 1995 (the "Consent Solicitation"). In accordance with Section 8.02 of the Indenture the Holders of a majority of the outstanding principal amount of the Securities then outstanding have consented to such Amendments. The Board of Directors of the Company has duly authorized the execution and delivery of this First Supplemental Indenture. The Company has delivered an Officers' Certificate and an Opinion of Counsel to the Trustee pursuant to Section 8.06 of the Indenture and has done all other things necessary to make this First Supplemental Indenture a valid agreement of the Company in accordance with the terms hereof and of the Indenture. WHEREFORE, each party agrees as follows for the benefit of the other party and for the equal or ratable benefit of the Holders of the Securities: 3 ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 DEFINITIONS. For all purposes of the Indenture and this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the words "herein," "hereof" and "hereunder" and other words of similar import refer to the Indenture and this First Supplemental Indenture as a whole and not to any particular Article, Section or subdivision; and (2) certain capitalized terms used but not defined herein shall have the meanings assigned to them in the Indenture. SECTION 1.2 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings and the Table of Contents are for convenience only and shall not affect the construction hereof. All references to Sections in the Indenture shall remain unchanged. SECTION 1.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this First Supplemental Indenture by the Company shall bind its successors and assigns, or any other obligor on the Securities, whether expressed or not. SECTION 1.4 SEPARABILITY CLAUSE. In case any provision in this First Supplemental Indenture 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. 4 SECTION 1.5 BENEFITS OF FIRST SUPPLEMENTAL INDENTURE. Nothing in this First Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this First Supplemental Indenture. SECTION 1.6 GOVERNING LAW. This First Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies shall be governed by such law without reference to its conflict of laws provision. SECTION 1.7 EFFECTIVENESS. This First Supplemental Indenture shall take effect on the date (the "Effective Date") that each of the following conditions shall have been satisfied: (a) the Trustee shall have received an Opinion of Counsel and an Officers' Certificate from the Company each dated the Effective Date and in the form set forth in Section 8.06 of the Indenture. (b) each of the parties hereto shall have executed and delivered this First Supplemental Indenture. ARTICLE II THE AMENDMENTS 1. Section 1.01 of the Indenture is hereby amended, by including the following between the definition of "Specified Assets" and the definition of "Stockholders' Equity": "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 there- 5 to 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, whether or not such right is subject to the Company's ability to pay an amount in cash in lieu thereof. 2. Subsection (iii) of the first paragraph of Section 3.07 of the Indenture is hereby amended and restated, in its entirety, to state the following: (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; ARTICLE III NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES SECTION 3.1 NOTICE TO SECURITYHOLDERS. After the Amendments become effective, the Company shall mail to Securityholders a notice briefly describing such Amendments in accordance with Section 8.02 of the Indenture. SECTION 3.2 NOTATION ON SECURITIES. (a) Securities authenticated and delivered after the effectiveness of this First Supplemental Indenture shall be affixed by the Trustee with the following notation: "The Company and the Trustee have entered into a First Supplemental Indenture, dated as of October 30, 1995, which amended the covenant regarding limitations on restricted payments. Reference is hereby made to such First Supplemental Indenture, copies of which are on file with The Bank of New York, Trustee." 6 The Trustee may require holders of Securities authenticated and delivered prior to the effectiveness of this First Supplemental Indenture to deliver such Securities to the Trustee so that the Trustee may affix them with the aforementioned notation. (b) If the Company or the Trustee so determines, the Company, in exchange for the Securities, shall issue and the Trustee shall authenticate new Securities that reflect the changed terms. * * * * * 7 This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one in the same instrument. Dated as of October 30, 1995 TENET HEALTHCARE CORPORATION By: /s/ Maris Andersons ---------------------------- Name: Maris Andersons Title: Senior Vice President Attest: (Seal) /s/ Alan Lundgren ---------------------------- Name: Alan Lundgren Title: Assistant Secretary Dated as of October 30, 1995 THE BANK OF NEW YORK, as Trustee By: /s/ Vivian Georges ---------------------------- Name: Vivian Georges Title: Assistant Vice President Attest: (Seal) /s/ Paul Schmalzel ---------------------------- Name: Paul Schmalzel Title: Assistant Treasurer 8 EX-4.(D) 4 EXHIBIT 4(D) SECOND SUPPLEMENTAL 9 5/8% INDENTURE SECOND SUPPLEMENTAL INDENTURE TENET HEALTHCARE CORPORATION, as Issuer AND THE BANK OF NEW YORK, as Trustee Dated as of August 21, 1997 Supplemental to Indenture, dated as of March 1, 1995, relating to the Issuer's 9-5/8% Senior Notes Due 2002 TABLE OF CONTENTS PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE - DEFINITIONS AND OTHER GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.2 Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.3 Successors and Assigns. . . . . . . . . . . . . . . . . . 2 SECTION 1.4 Separability Clause . . . . . . . . . . . . . . . . . . . 2 SECTION 1.5 Benefits of Second Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.7 Effectiveness . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE TWO - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 2.1 Amendments to Section 1.01. . . . . . . . . . . . . . . . 3 SECTION 2.2 Amendment to Section 1.02 . . . . . . . . . . . . . . . . 8 SECTION 2.3 Amendment to Section 2.15 . . . . . . . . . . . . . . . . 8 SECTION 2.4 Amendment to Section 3.07 . . . . . . . . . . . . . . . . 8 SECTION 2.5 Amendment to Section 3.08 . . . . . . . . . . . . . . . .11 SECTION 2.6 Amendment to Section 3.09 . . . . . . . . . . . . . . . .13 SECTION 2.7 Amendment to Section 3.10 . . . . . . . . . . . . . . . .15 i SECTION 2.8 Amendment to Section 3.16 . . . . . . . . . . . . . . . .15 SECTION 2.9 Amendment to Section 9.02 . . . . . . . . . . . . . . . .15 ARTICLE THREE - NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES . . . . . . . . . . . . . . . . . . . . . .16 SECTION 3.1 Notice to Securityholders . . . . . . . . . . . . . . . .16 SECTION 3.2 Notation on Securities. . . . . . . . . . . . . . . . . .16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 ii SECOND SUPPLEMENTAL INDENTURE, dated as of August 21, 1997 (the "SECOND SUPPLEMENTAL INDENTURE"), between TENET HEALTHCARE CORPORATION, a Nevada corporation (hereinafter called the "COMPANY"), and THE BANK OF NEW YORK, as trustee (hereinafter called the "TRUSTEE"), under the Indenture (the "INDENTURE"), dated as of March 1, 1995, between the Company and the Trustee relating to the Company's 9-5/8% Senior Notes Due 2002 (the "SECURITIES"). RECITALS OF THE COMPANY WHEREAS, the Company proposes to amend (the "AMENDMENTS") the Indenture to conform the restrictive covenants contained therein to those contained in the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 7-7/8% Senior Notes due 2003, the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 8% Senior Notes due 2005, and the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 8-5/8% Senior Subordinated Notes due 2007. WHEREAS, the Company has solicited consents to the Amendments from the holders of record of the Securities outstanding at the close of business on August 7, 1997. WHEREAS, in accordance with Section 8.02 of the Indenture, the Holders of a majority of the principal amount of the Securities then outstanding (other than any Securities owned by the Company or any Affiliate of the Company) have consented to such Amendments. WHEREAS, the Board of Directors of the Company has duly authorized the execution and delivery of this Second Supplemental Indenture, the Company has delivered an Officers' Certificate and an Opinion of Counsel to the Trustee pursuant to Section 8.06 of the Indenture and the Company has done all other things necessary to make this Second Supplemental Indenture a valid agreement of the Company in accordance with the terms hereof and of the Indenture. NOW THEREFORE, the Company and Trustee agree as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 DEFINITIONS. For all purposes of the Indenture and this Second Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the words "herein," "hereof" and "hereunder" and other words of similar import refer to the Indenture and this Second Supplemental Indenture as a whole and not to any particular Article, Section or subdivision; and (2) certain capitalized terms used but not defined herein shall have the meanings assigned to them in the Indenture. SECTION 1.2 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings and the Table of Contents of this Second Supplemental Indenture are for convenience only and shall not affect the construction hereof. Except as otherwise specifically set forth herein, all references to Sections in the Indenture shall remain unchanged. SECTION 1.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Second Supplemental Indenture by the Company shall bind its successors and assigns, or any other obligor on the Securities, whether expressed or not. SECTION 1.4 SEPARABILITY CLAUSE. In case any provision in this Second Supplemental Indenture 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. 2 SECTION 1.5 BENEFITS OF SECOND SUPPLEMENTAL INDENTURE. Nothing in this Second Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Second Supplemental Indenture. SECTION 1.6 GOVERNING LAW. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies shall be governed by such law without reference to its conflict of laws provision. SECTION 1.7 EFFECTIVENESS. This Second Supplemental Indenture shall take effect on the date (the "EFFECTIVE DATE") that each of the following conditions shall have been satisfied: (a) the Trustee shall have received an Opinion of Counsel and an Officers' Certificate from the Company each dated the Effective Date and in accordance with Section 8.06 of the Indenture; and (b) each of the parties hereto shall have executed and delivered this Second Supplemental Indenture. ARTICLE II THE AMENDMENTS SECTION 2.1 AMENDMENTS TO SECTION 1.01. (a) The Definition of "ASSET SALE" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 3 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 another Subsidiary, (b) the issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 3.07 hereof and (d) a Hospital Swap shall not be deemed to be an Asset Sale." (b) The definition of "EXISTING INDEBTEDNESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on January 30,1997, until such amounts are repaid, including all reimbursement obligations with respect to letters of credit outstanding as of January 30, 1997." (c) The definition of "HOSPITAL" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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." (d) Section 1.01 of the Indenture is hereby amended by adding the definition of "NEW CREDIT FACILITY" to read in its entirety as follows: ""NEW 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, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time." 4 (e) The definition of "PERMITTED LIENS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 January 30, 1997; (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." (f) The definition of "PERMITTED REFINANCING INDEBTEDNESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: 5 ""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 the 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." (g) The definition of "REFINANCING" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""REFINANCING" has the meaning ascribed to it in the Prospectus dated January 27, 1997 relating to the Senior Notes and the Senior Subordinated Notes." (h) The definition of "RELATED BUSINESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: 6 ""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." (i) Section 1.01 of the Indenture is hereby amended by adding the definition of "SENIOR NOTES" to read in its entirety as follows: ""SENIOR NOTES" means the 7 7/8% Senior Notes due 2003 and the 8% Senior Notes due 2005 of the Company in an aggregate principal amount of $1.3 billion, issued pursuant to the indentures 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." (j) The definition of "SENIOR SUBORDINATED NOTES" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 Senior Subordinated Note Indenture." (k) The definition of "SENIOR SUBORDINATED NOTE INDENTURE" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""SENIOR SUBORDINATED NOTE INDENTURE" means 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, under which the Senior Subordinated Notes were issued." (l) Section 1.01 of the Indenture is hereby amended by adding the definition of "SPECIFIED EXCHANGE" to read in its entirety as follows: ""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 7 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." (m) Section 1.01 of the Indenture is hereby amended, by including the following definitions at the end thereof: ""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." SECTION 2.2 AMENDMENT TO SECTION 1.02. Section 1.02 of the Indenture is hereby amended to delete the references therein to "Commencement Date," "Excess Proceeds," "Offer Amount," "Offer Period," "Purchase Price," and "Senior Asset Sale Offer." SECTION 2.3 AMENDMENT TO SECTION 2.15. Section 2.15 of the Indenture is hereby deleted in its entirety. SECTION 2.4 AMENDMENT TO SECTION 3.07. Section 3.07 of the Indenture is hereby amended to read in its entirety as follows: "SECTION 3.07. 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) divi- 8 dends 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 3.09 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 9 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) $20.0 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 January 30, 1997 in an aggregate amount not to exceed the cash received by the Company since January 30, 1997 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 10 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 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; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $15.0 million in any twelve-month period; and (vi) the making and consummation of a Change of Control Offer with respect to the Senior Subordinated Notes, 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 2.5 AMENDMENT TO SECTION 3.08. Section 3.08 of the Indenture is hereby amended to read in its entirety as follows: "SECTION 3.08. 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 January 30, 1997, 11 (b) this Indenture and the indentures related to the Senior Notes and the Senior Subordinated Notes, (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 3.09 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 New Credit Facility and related documentation as the same is in effect on January 30, 1997 and as amended or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the New Credit Facility and related documentation as in effect on January 30, 1997." 12 SECTION 2.6 AMENDMENT TO SECTION 3.09. Section 3.09 of the Indenture is hereby amended to read in its entirety as follows: "SECTION 3.09 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 January 30, 1997 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 l, 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 New 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 Senior Notes and the Senior Subordinated Notes; 13 (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 (l) only, the Fixed Charge Coverage Ratio for the Company's most recently ended four full 14 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 $250.0 million." SECTION 2.7 AMENDMENT TO SECTION 3.10. Section 3.10 of the Indenture is hereby deleted in its entirety. SECTION 2.8 AMENDMENT TO SECTION 3.16. Section 3.16 of the Indenture is amended by replacing the amount "$10 million" in the last sentence with the amount "$25 million". SECTION 2.9 AMENDMENT TO SECTION 9.02. The address of the Company in Section 9.02 of the Indenture is hereby amended to read in its entirety as follows: "Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Telecopier No.: (805) 563-6846 Attention: Treasurer" 15 ARTICLE III NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES SECTION 3.1 NOTICE TO SECURITYHOLDERS. After the Effective Date, the Company shall mail to Securityholders a notice briefly describing the Amendments in accordance with Section 8.02 of the Indenture. SECTION 3.2 NOTATION ON SECURITIES. Securities authenticated and delivered after the Effective Date shall, at the Company's expense, be affixed by the Trustee with the following notation: "The Company and the Trustee have entered into a Second Supplemental Indenture, dated as of August 21, 1997, which amended certain covenants and eliminated the Company's obligation to offer to repurchase Securities with the proceeds from certain asset sales. Reference is hereby made to such Second Supplemental Indenture, copies of which are on file with The Bank of New York, as Trustee." The Trustee may, but shall not be required to, require holders of Securities authenticated and delivered prior to the Effective Date to deliver such Securities to the Trustee so that the Trustee may affix them with the aforementioned notation. * * * * * 16 This Second Supplemental Indenture may be executed in counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Dated as of August 21, 1997 TENET HEALTHCARE CORPORATION By: /s/ Raymond L. Mathiasen ------------------------------ Name: Raymond L. Mathiasen Title: Senior Vice President THE BANK OF NEW YORK, AS TRUSTEE By: /s/ Vivian Georges ------------------------------ Name: Vivian Georges Title: Assistant Vice President 17 EX-4.(F) 5 EXHIBIT 4(F) FIRST SUPPLEMENTAL 10 1/8% INDENTURE FIRST SUPPLEMENTAL INDENTURE TENET HEALTHCARE CORPORATION, as Issuer AND THE BANK OF NEW YORK, as Trustee Dated as of October 27, 1995 Supplemental to Indenture, dated as of March 1, 1995, relating to the Issuer's 10-1/8% Senior Subordinated Notes Due 2005 TABLE OF CONTENTS PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE ONE - DEFINITIONS AND OTHER GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.2 Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . SECTION 1.4 Separability Clause . . . . . . . . . . . . . . . . . . . . SECTION 1.5 Benefits of First Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.7 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . ARTICLE TWO - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE THREE - NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . SECTION 3.1 Replacement of Exhibits . . . . . . . . . . . . . . . . . . SECTION 3.2 Notation on Securities. . . . . . . . . . . . . . . . . . . SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 FIRST SUPPLEMENTAL INDENTURE, dated as of October 27,1995 (the "First Supplemental Indenture"), between TENET HEALTHCARE CORPORATION, a Nevada corporation (hereinafter called the "Company"), and THE BANK OF NEW YORK, as trustee (hereinafter called the "Trustee"), under the Indenture (the "Indenture"), dated as of March 1, 1995, between the Company and the Trustee relating to the Company's 10-1/8% Senior Subordinated Notes Due 2005 (the "Securities"). RECITALS OF THE COMPANY The Company proposes to offer (the "Offering") Exchangeable Subordinated Notes due 2007 which are exchangeable for shares of common stock of Vencor, Inc. (the "Exchangeable Notes"). In connection with the Offering, the Company is soliciting consents to the amendments to the Indenture (the "Amendments") (all as described in the Solicitation of Consents, dated October 20, 1995 (the "Consent Solicitation"). In accordance with Section 8.02 of the Indenture the Holders of a majority of the outstanding principal amount of the Securities then outstanding have consented to such Amendments. The Board of Directors of the Company has duly authorized the execution and delivery of this First Supplemental Indenture. The Company has delivered an Officers' Certificate and an Opinion of Counsel to the Trustee pursuant to Section 8.06 of the Indenture and has done all other things necessary to make this First Supplemental Indenture a valid agreement of the Company in accordance with the terms hereof and of the Indenture. WHEREFORE, each party agrees as follows for the benefit of the other party and for the equal or ratable benefit of the Holders of the Securities: 3 ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 DEFINITIONS. For all purposes of the Indenture and this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the words "herein," "hereof" and "hereunder" and other words of similar import refer to the Indenture and this First Supplemental Indenture as a whole and not to any particular Article, Section or subdivision; and (2) certain capitalized terms used but not defined herein shall have the meanings assigned to them in the Indenture. SECTION 1.2 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings and the Table of Contents are for convenience only and shall not affect the construction hereof. All references to Sections in the Indenture shall remain unchanged. SECTION 1.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this First Supplemental Indenture by the Company shall bind its successors and assigns, or any other obligor on the Securities, whether expressed or not. SECTION 1.4 SEPARABILITY CLAUSE. In case any provision in this First Supplemental Indenture 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. 4 SECTION 1.5 BENEFITS OF FIRST SUPPLEMENTAL INDENTURE. Nothing in this First Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this First Supplemental Indenture. SECTION 1.6 GOVERNING LAW. This First Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies shall be governed by such law without reference to its conflict of laws provision. SECTION 1.7 EFFECTIVENESS. This First Supplemental Indenture shall take effect on the date (the "Effective Date") that each of the following conditions shall have been satisfied: (a) the Trustee shall have received an Opinion of Counsel and an Officers' Certificate from the Company each dated the Effective Date and in the form set forth in Section 8.06 of the Indenture. (b) each of the parties hereto shall have executed and delivered this First Supplemental Indenture. ARTICLE II THE AMENDMENTS 1. Section 1.01 of the Indenture is hereby amended, by including the following between the definition of "Specified Assets" and the definition of "Stockholders' Equity": "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 there- 5 to 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, whether or not such right is subject to the Company's ability to pay an amount in cash in lieu thereof. 2. Subsection (iii) of the first paragraph of Section 3.07 of the Indenture is hereby amended and restated, in its entirety, to state the following: (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; ARTICLE III NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES SECTION 1 NOTICE TO SECURITYHOLDERS. After the Amendments become effective, the Company shall mail to Securityholders a notice briefly describing such Amendments in accordance with Section 8.02 of the Indenture. SECTION 2 NOTATION ON SECURITIES. (a) Securities authenticated and delivered after the effectiveness of this First Supplemental Indenture shall be affixed by the Trustee with the following notation: "The Company and the Trustee have entered into a First Supplemental Indenture, dated as of October 27, 1995, which amended the covenant regarding limitations on restricted payments. Reference is hereby made to such First Supplemental Indenture, copies of which are on file with The Bank of New York, Trustee." 6 The Trustee may require holders of Securities authenticated and delivered prior to the effectiveness of this First Supplemental Indenture to deliver such Securities to the Trustee so that the Trustee may affix them with the aforementioned notation. (b) If the Company or the Trustee so determines, the Company, in exchange for the Securities, shall issue and the Trustee shall authenticate new Securities that reflect the changed terms. * * * * * 7 This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one in the same instrument. Dated as of October 27, 1995 TENET HEALTHCARE CORPORATION By: /s/ Scott M. Brown ---------------------------- Name: Scott M. Brown Title: Senior Vice President Attest: (Seal) /s/ Alan Lundgren ---------------------------- Name: Alan Lundgren Title: Assistant Secretary Dated as of October 27, 1995 THE BANK OF NEW YORK, as Trustee By: /s/ Vivian Georges ---------------------------- Name: Vivian Georges Title: Assistant Vice President Attest: (Seal) /s/ Paul Schmalzel ---------------------------- Name: Paul Schmalzel Title: Assistant Treasurer 8 EX-4.(G) 6 EXHIBIT 4(G) SECOND SUPPLEMENTAL 10 1/8 INDENTURE SECOND SUPPLEMENTAL INDENTURE TENET HEALTHCARE CORPORATION, as Issuer AND THE BANK OF NEW YORK, as Trustee Dated as of August 21, 1997 Supplemental to Indenture, dated as of March 1, 1995, relating to the Issuer's 10-1/8% Senior Subordinated Notes Due 2005 TABLE OF CONTENTS ----------------- PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE - DEFINITIONS AND OTHER GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.2 Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.3 Successors and Assigns. . . . . . . . . . . . . . . . . . 2 SECTION 1.4 Separability Clause . . . . . . . . . . . . . . . . . . . 2 SECTION 1.5 Benefits of Second Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.7 Effectiveness . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE TWO - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 2.1 Amendments to Section 1.01. . . . . . . . . . . . . . . . 3 SECTION 2.2 Amendment to Section 1.02 . . . . . . . . . . . . . . . . 8 SECTION 2.3 Amendment to Section 3.09 . . . . . . . . . . . . . . . . 8 SECTION 2.4 Amendment to Section 4.07 . . . . . . . . . . . . . . . . 8 SECTION 2.5 Amendment to Section 4.08 . . . . . . . . . . . . . . . .11 SECTION 2.6 Amendment to Section 4.09 . . . . . . . . . . . . . . . .12 SECTION 2.7 Amendment to Section 4.10 . . . . . . . . . . . . . . . .15 i SECTION 2.8 Amendment to Section 4.16 . . . . . . . . . . . . . . . .15 SECTION 2.9 Amendment to Section 11.02. . . . . . . . . . . . . . . .15 ARTICLE THREE - NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES . . . . . . . . . . . . . . . . . . . . . .16 SECTION 3.1 Notice to Securityholders . . . . . . . . . . . . . . . .16 SECTION 3.2 Notation on Securities. . . . . . . . . . . . . . . . . .16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 ii SECOND SUPPLEMENTAL INDENTURE, dated as of August 21, 1997 (the "SECOND SUPPLEMENTAL INDENTURE"), between TENET HEALTHCARE CORPORATION, a Nevada corporation (hereinafter called the "COMPANY"), and THE BANK OF NEW YORK, as trustee (hereinafter called the "TRUSTEE"), under the Indenture (the "INDENTURE"), dated as of March 1, 1995, between the Company and the Trustee relating to the Company's 10-1/8% Senior Subordinated Notes Due 2005 (the "SECURITIES"). RECITALS OF THE COMPANY WHEREAS, the Company proposes to amend (the "AMENDMENTS") the Indenture to conform the restrictive covenants contained therein to those contained in the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 7 7/8% Senior Notes due 2003, the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 8% Senior Notes due 2005, and the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 8-5/8% Senior Subordinated Notes due 2007. WHEREAS, the Company has solicited consents to the Amendments from the holders of record of the Securities outstanding at the close of business on August 7, 1997. WHEREAS, in accordance with Section 9.02 of the Indenture, the Holders of a majority of the principal amount of the Securities then outstanding (other than any Securities owned by the Company or any Affiliate of the Company) have consented to such Amendments. WHEREAS, the Board of Directors of the Company has duly authorized the execution and delivery of this Second Supplemental Indenture, the Company has delivered an Officers' Certificate and an Opinion of Counsel to the Trustee pursuant to Section 9.06 of the Indenture and the Company has done all other things necessary to make this Second Supplemental Indenture a valid agreement of the Company in accordance with the terms hereof and of the Indenture. NOW THEREFORE, the Company and Trustee agree as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 DEFINITIONS. For all purposes of the Indenture and this Second Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the words "herein," "hereof" and "hereunder" and other words of similar import refer to the Indenture and this Second Supplemental Indenture as a whole and not to any particular Article, Section or subdivision; and (2) certain capitalized terms used but not defined herein shall have the meanings assigned to them in the Indenture. SECTION 1.2 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings and the Table of Contents of this Second Supplemental Indenture are for convenience only and shall not affect the construction hereof. Except as otherwise specifically set forth herein, all references to Sections in the Indenture shall remain unchanged. SECTION 1.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Second Supplemental Indenture by the Company shall bind its successors and assigns, or any other obligor on the Securities, whether expressed or not. SECTION 1.4 SEPARABILITY CLAUSE. In case any provision in this Second Supplemental Indenture 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. 2 SECTION 1.5 BENEFITS OF SECOND SUPPLEMENTAL INDENTURE. Nothing in this Second Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Second Supplemental Indenture. SECTION 1.6 GOVERNING LAW. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies shall be governed by such law without reference to its conflict of laws provision. SECTION 1.7 EFFECTIVENESS. This Second Supplemental Indenture shall take effect on the date (the "EFFECTIVE DATE") that each of the following conditions shall have been satisfied: (a) the Trustee shall have received an Opinion of Counsel and an Officers' Certificate from the Company each dated the Effective Date and in accordance with Section 8.06 of the Indenture; and (b) each of the parties hereto shall have executed and delivered this Second Supplemental Indenture. ARTICLE II THE AMENDMENTS SECTION 2.1 AMENDMENTS TO SECTION 1.01. (a) The Definition of "ASSET SALE" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 3 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 another Subsidiary, (b) the issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 3.07 hereof and (d) a Hospital Swap shall not be deemed to be an Asset Sale." (b) The definition of "EXISTING INDEBTEDNESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on January 30, 1997, until such amounts are repaid, including all reimbursement obligations with respect to letters of credit outstanding as of January 30, 1997." (c) The definition of "HOSPITAL" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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." (d) Section 1.01 of the Indenture is hereby amended by adding the definition of "NEW CREDIT FACILITY" to read in its entirety as follows: ""NEW 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, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time." 4 (e) The definition of "PERMITTED LIENS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 January 30, 1997; (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." (f) The definition of "PERMITTED REFINANCING INDEBTEDNESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: 5 ""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 the 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." (g) The definition of "REFINANCING" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""REFINANCING" has the meaning ascribed to it in the Prospectus dated January 27, 1997 relating to the Senior Notes and the Senior Subordinated Notes." (h) The definition of "RELATED BUSINESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: 6 ""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." (i) The definition of "SENIOR NOTES" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""SENIOR NOTES" means the 7 7/8% Senior Notes due 2003 and the 8% Senior Notes due 2005 of the Company in an aggregate principal amount of $1.3 billion, issued pursuant to the indentures 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." (j) Section 1.01 of the Indenture is hereby amended by adding the definition of "SENIOR SUBORDINATED NOTES" to read in its entirety as follows: ""SENIOR SUBORDINATED NOTES" means the 85/8% Senior Subordinated Notes due 2007 of the Company in an aggregate principal amount of $700.0 million, issued pursuant to the Senior Subordinated Note Indenture." (k) Section 1.01 of the Indenture is hereby amended by adding the definition of "SENIOR SUBORDINATED NOTE INDENTURE" to read in its entirety as follows: ""SENIOR SUBORDINATED NOTE INDENTURE" means 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, under which the Senior Subordinated Notes were issued." (j) Section 1.01 of the Indenture is hereby amended by adding the definition of "SPECIFIED EXCHANGE" to read in its entirety as follows: ""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 7 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." (k) Section 1.01 of the Indenture is hereby amended, by including the following definitions at the end thereof: ""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 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." SECTION 2.2 AMENDMENT TO SECTION 1.02. Section 1.02 of the Indenture is hereby amended to delete the references therein to "Commencement Date," "Excess Proceeds," "Offer Amount," "Offer Period," "Purchase Price," and "Senior Asset Sale Offer." SECTION 2.3 AMENDMENT TO SECTION 3.09. Section 3.09 of the Indenture is hereby deleted in its entirety. SECTION 2.4 AMENDMENT TO SECTION 4.07. Section 4.07 of the Indenture is hereby amended to read in its entirety as follows: "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) divi- 8 dends 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 9 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) $20.0 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 January 30, 1997 in an aggregate amount not to exceed the cash received by the Company since January 30, 1997 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 10 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 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; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $15.0 million in any twelve-month period; and (vi) the making and consummation of a Change of Control Offer with respect to the Senior Subordinated Notes, 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 2.5 AMENDMENT TO SECTION 4.08. Section 4.08 of the Indenture is hereby amended to read in its entirety as follows: "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 January 30, 1997, 11 (b) this Indenture and the indentures related to the Senior Notes and the Senior Subordinated Notes, (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 New Credit Facility and related documentation as the same is in effect on January 30, 1997 and as amended or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the New Credit Facility and related documentation as in effect on January 30, 1997." 12 SECTION 2.6 AMENDMENT TO SECTION 4.09. Section 4.09 of the Indenture is hereby amended to read in its entirety as follows: "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 January 30, 1997 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 l, 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 New 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 Senior Notes and the Senior Subordinated Notes; 13 (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 (l) only, the Fixed Charge Coverage Ratio for the Company's most recently ended four full 14 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 $250.0 million." SECTION 2.7 AMENDMENT TO SECTION 4.10. Section 4.10 of the Indenture is hereby deleted in its entirety. SECTION 2.8 AMENDMENT TO SECTION 4.16. Section 4.16 of the Indenture is amended by replacing the amount "$10 million" in the last sentence with the amount "$25 million". SECTION 2.9 AMENDMENT TO SECTION 11.02. The address of the Company in Section 11.02 of the Indenture is hereby amended to read in its entirety as follows: "Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Telecopier No.: (805) 563-6846 Attention: Treasurer" 15 ARTICLE III NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES SECTION 3.1 NOTICE TO SECURITYHOLDERS. After the Effective Date, the Company shall mail to Securityholders a notice briefly describing the Amendments in accordance with Section 8.02 of the Indenture. SECTION 3.2 NOTATION ON SECURITIES. Securities authenticated and delivered after the Effective Date shall, at the Company's expense, be affixed by the Trustee with the following notation: "The Company and the Trustee have entered into a Second Supplemental Indenture, dated as of August 21, 1997, which amended certain covenants and eliminated the Company's obligation to offer to repurchase Securities with the proceeds from certain asset sales. Reference is hereby made to such Second Supplemental Indenture, copies of which are on file with The Bank of New York, as Trustee." The Trustee may, but shall not be required to, require holders of Securities authenticated and delivered prior to the Effective Date to deliver such Securities to the Trustee so that the Trustee may affix them with the aforementioned notation. * * * * * 16 This Second Supplemental Indenture may be executed in counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Dated as of August 21, 1997 TENET HEALTHCARE CORPORATION By: /s/ R. L. Mathiasen ------------------------ Name: Raymond L. Mathiasen Title: Senior Vice President THE BANK OF NEW YORK, AS TRUSTEE By: /s/ Vivian Georges ------------------------ Name: Vivian Georges Title: Assistant Vice President EX-4.(I) 7 EXHIBIT 4(I) FIRST SUPPLEMENTAL 8 5/8% INDENTURE FIRST SUPPLEMENTAL INDENTURE TENET HEALTHCARE CORPORATION, as Issuer AND THE BANK OF NEW YORK, as Trustee Dated as of October 30, 1995 Supplemental to Indenture, dated as of October 16, 1995, relating to the Issuer's 8-5/8% Senior Notes Due 2003 TABLE OF CONTENTS PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE ONE - DEFINITIONS AND OTHER GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.2 Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . SECTION 1.4 Separability Clause . . . . . . . . . . . . . . . . . . . . SECTION 1.5 Benefits of First Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . SECTION 1.7 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . ARTICLE TWO - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE THREE - NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . SECTION 3.1 Replacement of Exhibits . . . . . . . . . . . . . . . . . . SECTION 3.2 Notation on Securities. . . . . . . . . . . . . . . . . . . SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 FIRST SUPPLEMENTAL INDENTURE, dated as of October 30,1995 (the "First Supplemental Indenture"), between TENET HEALTHCARE CORPORATION, a Nevada corporation (hereinafter called the "Company"), and THE BANK OF NEW YORK, as trustee (hereinafter called the "Trustee"), under the Indenture (the "Indenture"), dated as of October 16, 1995, between the Company and the Trustee relating to the Company's 8-5/8% Senior Notes due 2003 (the "Securities"). RECITALS OF THE COMPANY The Company proposes to offer (the "Offering") Exchangeable Subordinated Notes due 2007 which are exchangeable for shares of common stock of Vencor, Inc. (the "Exchangeable Notes"). In connection with the Offering, the Company is soliciting consents to the amendments to the Indenture (the "Amendments") (all as described in the Solicitation of Consents, dated October 20, 1995 (the "Consent Solicitation"). In accordance with Section 8.02 of the Indenture the Holders of a majority of the outstanding principal amount of the Securities then outstanding have consented to such Amendments. The Board of Directors of the Company has duly authorized the execution and delivery of this First Supplemental Indenture. The Company has delivered an Officers' Certificate and an Opinion of Counsel to the Trustee pursuant to Section 8.06 of the Indenture and has done all other things necessary to make this First Supplemental Indenture a valid agreement of the Company in accordance with the terms hereof and of the Indenture. WHEREFORE, each party agrees as follows for the benefit of the other party and for the equal or ratable benefit of the Holders of the Securities: 3 ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 DEFINITIONS. For all purposes of the Indenture and this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the words "herein," "hereof" and "hereunder" and other words of similar import refer to the Indenture and this First Supplemental Indenture as a whole and not to any particular Article, Section or subdivision; and (2) certain capitalized terms used but not defined herein shall have the meanings assigned to them in the Indenture. SECTION 1.2 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings and the Table of Contents are for convenience only and shall not affect the construction hereof. All references to Sections in the Indenture shall remain unchanged. SECTION 1.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this First Supplemental Indenture by the Company shall bind its successors and assigns, or any other obligor on the Securities, whether expressed or not. SECTION 1.4 SEPARABILITY CLAUSE. In case any provision in this First Supplemental Indenture 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. 4 SECTION 1.5 BENEFITS OF FIRST SUPPLEMENTAL INDENTURE. Nothing in this First Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this First Supplemental Indenture. SECTION 1.6 GOVERNING LAW. This First Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies shall be governed by such law without reference to its conflict of laws provision. SECTION 1.7 EFFECTIVENESS. This First Supplemental Indenture shall take effect on the date (the "Effective Date") that each of the following conditions shall have been satisfied: (a) the Trustee shall have received an Opinion of Counsel and an Officers' Certificate from the Company each dated the Effective Date and in the form set forth in Section 8.06 of the Indenture. (b) each of the parties hereto shall have executed and delivered this First Supplemental Indenture. 5 ARTICLE II THE AMENDMENTS 1. Section 1.01 of the Indenture is hereby amended, by including the following between the definition of "Specified Assets" and the definition of "Stockholders' Equity": "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, whether or not such right is subject to the Company's ability to pay an amount in cash in lieu thereof. 2. Subsection (iii) of the first paragraph of Section 3.07 of the Indenture is hereby amended and restated, in its entirety, to state the following: (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; ARTICLE III NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES SECTION 3.1 NOTICE TO SECURITYHOLDERS. 6 After the Amendments become effective, the Company shall mail to Securityholders a notice briefly describing such Amendments in accordance with Section 8.02 of the Indenture. SECTION 3.2 NOTATION ON SECURITIES. (a) Securities authenticated and delivered after the effectiveness of this First Supplemental Indenture shall be affixed by the Trustee with the following notation: "The Company and the Trustee have entered into a First Supplemental Indenture, dated as of October 30, 1995, which amended the covenant regarding limitations on restricted payments. Reference is hereby made to such First Supplemental Indenture, copies of which are on file with The Bank of New York, Trustee." The Trustee may require holders of Securities authenticated and delivered prior to the effectiveness of this First Supplemental Indenture to deliver such Securities to the Trustee so that the Trustee may affix them with the aforementioned notation. (b) If the Company or the Trustee so determines, the Company, in exchange for the Securities, shall issue and the Trustee shall authenticate new Securities that reflect the changed terms. * * * * * 7 This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one in the same instrument. Dated as of October 30, 1995 TENET HEALTHCARE CORPORATION By: /s/ Maris Andersons -------------------------- Name: Maris Andersons Title: Senior Vice President Attest: (Seal) /s/ Alan Lundgren -------------------------- Name: Alan Lundgren Title: Assistant Secretary Dated as of October 30, 1995 THE BANK OF NEW YORK, as Trustee By: /s/ Vivian Georges -------------------------- Name: Vivian Georges Title: Assistant Vice President Attest: 8 (Seal) /s/ Paul Schmalzel -------------------------- Name: Paul Schmalzel Title: Assistant Treasurer 9 EX-4.(J) 8 EXHIBIT 4(J) SECOND SUPPLEMENTAL 8 5/8% INDENTURE SECOND SUPPLEMENTAL INDENTURE TENET HEALTHCARE CORPORATION, as Issuer AND THE BANK OF NEW YORK, as Trustee Dated as of August 21, 1997 Supplemental to Indenture, dated as of October 16, 1995, relating to the Issuer's 8-5/8% Senior Notes Due 2003 TABLE OF CONTENTS PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE - DEFINITIONS AND OTHER GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.2 Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.3 Successors and Assigns. . . . . . . . . . . . . . . . . . 2 SECTION 1.4 Separability Clause . . . . . . . . . . . . . . . . . . . 2 SECTION 1.5 Benefits of Second Supplemental Indenture . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.7 Effectiveness . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE TWO - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 2.1 Amendments to Section 1.01. . . . . . . . . . . . . . . . 3 SECTION 2.2 Amendment to Section 1.02 . . . . . . . . . . . . . . . . 8 SECTION 2.3 Amendment to Section 2.15 . . . . . . . . . . . . . . . . 8 SECTION 2.4 Amendment to Section 3.07 . . . . . . . . . . . . . . . . 8 SECTION 2.5 Amendment to Section 3.08 . . . . . . . . . . . . . . . .11 SECTION 2.6 Amendment to Section 3.09 . . . . . . . . . . . . . . . .13 SECTION 2.7 Amendment to Section 3.10 . . . . . . . . . . . . . . . .15 i SECTION 2.8 Amendment to Section 3.16 . . . . . . . . . . . . . . . .15 SECTION 2.9 Amendment to Section 9.02 . . . . . . . . . . . . . . . .15 ARTICLE THREE - NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES . . . . . . . . . . . . . . . . . . . . . .16 SECTION 3.1 Notice to Securityholders . . . . . . . . . . . . . . . .16 SECTION 3.2 Notation on Securities. . . . . . . . . . . . . . . . . .16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 ii SECOND SUPPLEMENTAL INDENTURE, dated as of August 21, 1997 (the "SECOND SUPPLEMENTAL INDENTURE"), between TENET HEALTHCARE CORPORATION, a Nevada corporation (hereinafter called the "COMPANY"), and THE BANK OF NEW YORK, as trustee (hereinafter called the "TRUSTEE"), under the Indenture (the "INDENTURE"), dated as of October 16, 1995, between the Company and the Trustee relating to the Company's 8-5/8% Senior Notes Due 2003 (the "SECURITIES"). RECITALS OF THE COMPANY WHEREAS, the Company proposes to amend (the "AMENDMENTS") the Indenture to conform the restrictive covenants contained therein to those contained in the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 7-7/8% Senior Notes due 2003, the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 8% Senior Notes due 2005, and the Indenture, dated as of January 15, 1997, between the Company and the Bank of New York, as Trustee, relating to the Company's 8-5/8% Senior Subordinated Notes due 2007. WHEREAS, the Company has solicited consents to the Amendments from the holders of record of the Securities outstanding at the close of business on August 7, 1997. WHEREAS, in accordance with Section 8.02 of the Indenture, the Holders of a majority of the principal amount of the Securities then outstanding (other than any Securities owned by the Company or any Affiliate of the Company) have consented to such Amendments. WHEREAS, the Board of Directors of the Company has duly authorized the execution and delivery of this Second Supplemental Indenture, the Company has delivered an Officers' Certificate and an Opinion of Counsel to the Trustee pursuant to Section 8.06 of the Indenture and the Company has done all other things necessary to make this Second Supplemental Indenture a valid agreement of the Company in accordance with the terms hereof and of the Indenture. NOW THEREFORE, the Company and Trustee agree as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 DEFINITIONS. For all purposes of the Indenture and this Second Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the words "herein," "hereof" and "hereunder" and other words of similar import refer to the Indenture and this Second Supplemental Indenture as a whole and not to any particular Article, Section or subdivision; and (2) certain capitalized terms used but not defined herein shall have the meanings assigned to them in the Indenture. SECTION 1.2 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings and the Table of Contents of this Second Supplemental Indenture are for convenience only and shall not affect the construction hereof. Except as otherwise specifically set forth herein, all references to Sections in the Indenture shall remain unchanged. SECTION 1.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Second Supplemental Indenture by the Company shall bind its successors and assigns, or any other obligor on the Securities, whether expressed or not. SECTION 1.4 SEPARABILITY CLAUSE. In case any provision in this Second Supplemental Indenture 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. 2 SECTION 1.5 BENEFITS OF SECOND SUPPLEMENTAL INDENTURE. Nothing in this Second Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Second Supplemental Indenture. SECTION 1.6 GOVERNING LAW. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York and all rights and remedies shall be governed by such law without reference to its conflict of laws provision. SECTION 1.7 EFFECTIVENESS. This Second Supplemental Indenture shall take effect on the date (the "EFFECTIVE DATE") that each of the following conditions shall have been satisfied: (a) the Trustee shall have received an Opinion of Counsel and an Officers' Certificate from the Company each dated the Effective Date and in accordance with Section 8.06 of the Indenture; and (b) each of the parties hereto shall have executed and delivered this Second Supplemental Indenture. ARTICLE II THE AMENDMENTS SECTION 2.1 AMENDMENTS TO SECTION 1.01. (a) The Definition of "ASSET SALE" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 3 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 another Subsidiary, (b) the issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 3.07 hereof and (d) a Hospital Swap shall not be deemed to be an Asset Sale." (b) The definition of "EXISTING INDEBTEDNESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on January 30, 1997, until such amounts are repaid, including all reimbursement obligations with respect to letters of credit outstanding as of January 30, 1997." (c) The definition of "HOSPITAL" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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." (d) Section 1.01 of the Indenture is hereby amended by adding the definition of "NEW CREDIT FACILITY" to read in its entirety as follows: ""NEW 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, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time." 4 (e) The definition of "PERMITTED LIENS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 January 30, 1997; (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." (f) The definition of "PERMITTED REFINANCING INDEBTEDNESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: 5 ""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 the 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." (g) The definition of "REFINANCING" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""REFINANCING" has the meaning ascribed to it in the Prospectus dated January 27, 1997 relating to the Senior Notes and the Senior Subordinated Notes." (h) The definition of "RELATED BUSINESS" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: 6 ""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." (i) Section 1.01 of the Indenture is hereby amended by adding the definition of "SENIOR NOTES" to read in its entirety as follows: ""SENIOR NOTES" means the 7 7/8% Senior Notes due 2003 and the 8% Senior Notes due 2005 of the Company in an aggregate principal amount of $1.3 billion, issued pursuant to the indentures 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." (j) The definition of "SENIOR SUBORDINATED NOTES" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""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 Senior Subordinated Note Indenture." (k) The definition of "SENIOR SUBORDINATED NOTE INDENTURE" in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: ""SENIOR SUBORDINATED NOTE INDENTURE" means 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, under which the Senior Subordinated Notes were issued." (l) Section 1.01 of the Indenture is hereby amended by adding the definition of "SPECIFIED EXCHANGE" to read in its entirety as follows: ""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 7 thereof, whether or not such right is subject to the Company's ability to pay an amount in cash in lieu thereof." (m) Section 1.01 of the Indenture is hereby amended, by including the following definitions at the end thereof: ""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." SECTION 2.2 AMENDMENT TO SECTION 1.02. Section 1.02 of the Indenture is hereby amended to delete the references therein to "Commencement Date," "Excess Proceeds," "Offer Amount," "Offer Period," "Purchase Price," and "Senior Asset Sale Offer." SECTION 2.3 AMENDMENT TO SECTION 2.15. Section 2.15 of the Indenture is hereby deleted in its entirety. SECTION 2.4 AMENDMENT TO SECTION 3.07. Section 3.07 of the Indenture is hereby amended to read in its entirety as follows: "SECTION 3.07. 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 Compa- 8 ny, (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 3.09 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 Consoli- 9 dated 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) $20.0 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 January 30, 1997 in an aggregate amount not to exceed the cash received by the Company since January 30, 1997 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 acqui- 10 sition shall be excluded from clause (c)(2) of the preceding paragraph; (v) the repurchase, redemption or other acquisition or retirement for value of 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; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $15.0 million in any twelve-month period; and (vi) the making and consummation of a Change of Control Offer with respect to the Senior Subordinated Notes, 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 2.5 AMENDMENT TO SECTION 3.08. Section 3.08 of the Indenture is hereby amended to read in its entirety as follows: "SECTION 3.08. 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 January 30, 1997, 11 (b) this Indenture and the indentures related to the Senior Notes and the Senior Subordinated Notes, (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 3.09 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 New Credit Facility and related documentation as the same is in effect on January 30, 1997 and as amended or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the New Credit Facility and related documentation as in effect on the January 30, 1997." 12 SECTION 2.6 AMENDMENT TO SECTION 3.09. Section 3.09 of the Indenture is hereby amended to read in its entirety as follows: "SECTION 3.09 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 January 30, 1997 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 l, 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 New 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 Senior Notes and the Senior Subordinated Notes; 13 (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 (l) only, the Fixed Charge Coverage Ratio for the Company's most recently ended four full 14 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 $250.0 million." SECTION 2.7 AMENDMENT TO SECTION 3.10. Section 3.10 of the Indenture is hereby deleted in its entirety. SECTION 2.8 AMENDMENT TO SECTION 3.16. Section 3.16 of the Indenture is amended by replacing the amount "$10 million" in the last sentence with the amount "$25 million". SECTION 2.9 AMENDMENT TO SECTION 9.02. The address of the Company in Section 9.02 of the Indenture is hereby amended to read in its entirety as follows: "Tenet Healthcare Corporation 3820 State Street Santa Barbara, California 93105 Telecopier No.: (805) 563-6846 Attention: Treasurer" 15 ARTICLE III NOTICE, ENDORSEMENT AND CHANGE OF FORM OF SECURITIES SECTION 3.1 NOTICE TO SECURITYHOLDERS. After the Effective Date, the Company shall mail to Securityholders a notice briefly describing the Amendments in accordance with Section 8.02 of the Indenture. SECTION 3.2 NOTATION ON SECURITIES. Securities authenticated and delivered after the Effective Date shall, at the Company's expense, be affixed by the Trustee with the following notation: "The Company and the Trustee have entered into a Second Supplemental Indenture, dated as of August 21, 1997, which amended certain covenants and eliminated the Company's obligation to offer to repurchase Securities with the proceeds from certain asset sales. Reference is hereby made to such Second Supplemental Indenture, copies of which are on file with The Bank of New York, as Trustee." The Trustee may, but shall not be required to, require holders of Securities authenticated and delivered prior to the Effective Date to deliver such Securities to the Trustee so that the Trustee may affix them with the aforementioned notation. * * * * * 16 This Second Supplemental Indenture may be executed in counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Dated as of August 21, 1997 TENET HEALTHCARE CORPORATION By: /s/ Raymond Mathiasen --------------------------------- Name: Raymond L. Mathiasen Title: Senior Vice President THE BANK OF NEW YORK, AS TRUSTEE By: /s/ Vivian Georges --------------------------------- Name: Vivian Georges Title: Assistant Vice President 17 EX-4.(M) 9 EXHIBIT 4(M) INDENTURE TENET HEALTHCARE CORPORATION ------------------------------- $400,000,000 7 7/8 % SENIOR NOTES due 2003 ------------------------------- ------------------------------- INDENTURE Dated as of January 15, 1997 ------------------------------- ------------------------------- 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 . . . . . . . . . . . . . . . . . . . . 10 SECTION 1.03. INCORPORATION BY REFERENCE OF TIA . . . . . . . . . . . . 10 SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . 11 ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY. . . . . . . . . . . . 12 SECTION 2.03. EXECUTION AND AUTHENTICATION. . . . . . . . . . . . . . . 12 SECTION 2.04. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . . . . 12 SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . . 13 SECTION 2.06. HOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 2.07. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . 13 SECTION 2.08. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . . . 14 SECTION 2.09. REPLACEMENT SECURITIES. . . . . . . . . . . . . . . . . . 15 SECTION 2.10. OUTSTANDING SECURITIES. . . . . . . . . . . . . . . . . . 15 SECTION 2.11. TREASURY SECURITIES . . . . . . . . . . . . . . . . . . . 15 SECTION 2.12. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . . 15 SECTION 2.13. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 2.14. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . 16 SECTION 2.15. RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 2.16. CUSIP NUMBER. . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 3 COVENANTS SECTION 3.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . . . . . 17 SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . 17 SECTION 3.03. COMMISSION REPORTS. . . . . . . . . . . . . . . . . . . . 17 SECTION 3.04. COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . 18 SECTION 3.05. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.06. STAY, EXTENSION AND USURY LAWS. . . . . . . . . . . . . . 19 SECTION 3.07. LIMITATIONS ON RESTRICTED PAYMENTS. . . . . . . . . . . . 19 SECTION 3.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES . . . . . . . . . . . 21 SECTION 3.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK . . . . . . . . . . . . . 22 SECTION 3.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES . . . . . . . 23 SECTION 3.11. LIMITATIONS ON LIENS. . . . . . . . . . . . . . . . . . . 24 SECTION 3.12. CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . 24 -i- SECTION 3.13. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . 26 SECTION 3.14. LINE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . 26 SECTION 3.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. . . . . . . . . . . . . . . 26 SECTION 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED NOTE INDENTURE. . . . . . . . . . . . 26 ARTICLE 4 SUCCESSORS SECTION 4.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. . . . . . . . . . . . . . . . . . . . 27 SECTION 4.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . . 27 ARTICLE 5 DEFAULTS AND REMEDIES SECTION 5.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 28 SECTION 5.02. ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 5.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . . 30 SECTION 5.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . 30 SECTION 5.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . 30 SECTION 5.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . 31 SECTION 5.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. . . . . . . . . . . 31 SECTION 5.08. COLLECTION SUIT BY TRUSTEE. . . . . . . . . . . . . . . . 31 SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . . 31 SECTION 5.10. PRIORITIES. . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 5.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . 32 ARTICLE 6 TRUSTEE SECTION 6.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . 32 SECTION 6.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . 33 SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . 34 SECTION 6.04. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . . . . . 34 SECTION 6.05. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . 34 SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . . . . . 34 SECTION 6.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . . . . . 35 SECTION 6.08. REPLACEMENT OF TRUSTEE. . . . . . . . . . . . . . . . . . 35 SECTION 6.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC.. . . . . . . . 36 SECTION 6.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . . 36 SECTION 6.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . . 37 ARTICLE 7 DISCHARGE OF INDENTURE SECTION 7.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES. . . . . . . . . . . . . . . . . . . . 37 SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE. . . . . . . . . . . . . . 37 -ii- SECTION 7.03. COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . 37 SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. . . . . . . . 38 SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. . . . . 39 SECTION 7.06. REPAYMENT TO COMPANY. . . . . . . . . . . . . . . . . . . 40 SECTION 7.07. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE 8 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 8.01. WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . . . . . 40 SECTION 8.02. WITH CONSENT OF HOLDERS . . . . . . . . . . . . . . . . . 41 SECTION 8.03. COMPLIANCE WITH TIA . . . . . . . . . . . . . . . . . . . 42 SECTION 8.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . . 42 SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . . . 42 SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.. . . . . . . . . . . . . 43 ARTICLE 9 MISCELLANEOUS SECTION 9.01. TIA CONTROLS. . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 9.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS . . . . . . . 44 SECTION 9.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 9.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . 45 SECTION 9.06. RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . . . . . 45 SECTION 9.07. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . 45 SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . 45 SECTION 9.09. DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . . . . 45 SECTION 9.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . 46 SECTION 9.12. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 9.13. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 9.14. COUNTERPART ORIGINALS . . . . . . . . . . . . . . . . . . 46 SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . 46 SIGNATURES EXHIBIT A FORM OF SECURITY EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE -iii- CROSS-REFERENCE TABLE* TRUST INDENTURE ACT SECTION INDENTURE SECTION ----------- ----------------- 310 (a)(1). . . . . . . . . . . . . . . . . . . . 6.10 (a)(2). . . . . . . . . . . . . . . . . . . . 6.10 (a)(3). . . . . . . . . . . . . . . . . . . . N.A. (a)(4). . . . . . . . . . . . . . . . . . . . N.A. (a)(5). . . . . . . . . . . . . . . . . . . . 6.10 (b) . . . . . . . . . . . . . . . . . . . . 6.08; 6.10 (c) . . . . . . . . . . . . . . . . . . . . N.A. 311 (a) . . . . . . . . . . . . . . . . . . . . 6.11 (b) . . . . . . . . . . . . . . . . . . . . 6.11 (c) . . . . . . . . . . . . . . . . . . . . N.A. 312 (a) . . . . . . . . . . . . . . . . . . . . 2.06 (b) . . . . . . . . . . . . . . . . . . . . 9.03 (c) . . . . . . . . . . . . . . . . . . . . 9.03 313 (a) . . . . . . . . . . . . . . . . . . . . 6.06 (b)(1). . . . . . . . . . . . . . . . . . . . N.A. (b)(2). . . . . . . . . . . . . . . . . . . . 6.06 (c) . . . . . . . . . . . . . . . . . . . . 6.06; 9.02 (d) . . . . . . . . . . . . . . . . . . . . N.A. 314 (a) . . . . . . . . . . . . . . . . . . . . 3.03; 9.02 (b) . . . . . . . . . . . . . . . . . . . . N.A. (c)(1). . . . . . . . . . . . . . . . . . . . 9.04 (c)(2). . . . . . . . . . . . . . . . . . . . 9.04 (c)(3). . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . 9.05 (f) . . . . . . . . . . . . . . . . . . . . N.A. 315 (a) . . . . . . . . . . . . . . . . . . . . 6.01(iii)(b) (b) . . . . . . . . . . . . . . . . . . . . 6.05; 9.02 (c) . . . . . . . . . . . . . . . . . . . . 6.01(i) (d) . . . . . . . . . . . . . . . . . . . . 6.01(iii) (e) . . . . . . . . . . . . . . . . . . . . 5.11 316 (a)(last sentence). . . . . . . . . . . . . . 2.11 (a)(1)(A) . . . . . . . . . . . . . . . . . . 5.05 (a)(1)(B) . . . . . . . . . . . . . . . . . . 5.04 (a)(2). . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . 5.07 (c) . . . . . . . . . . . . . . . . . . . . 2.15; 8.04 317 (a)(1). . . . . . . . . . . . . . . . . . . . 5.08 (a)(2). . . . . . . . . . . . . . . . . . . . 5.09 (b) . . . . . . . . . . . . . . . . . . . . 2.05 - --------------------- *This Cross-Reference Table is not part of the identure. -iv- 318 (a) . . . . . . . . . . . . . . . . . . . . 9.01 (b) . . . . . . . . . . . . . . . . . . . . N.A. (c) . . . . . . . . . . . . . . . . . . . . 9.01 N.A. means not applicable -v- INDENTURE dated as of January 15, 1997 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 7-7/8% Senior Notes due 2003 (the "SECURITIES"): 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 3.07 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 January 30, 1997. "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 4 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 (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), PLUS (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, PLUS (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, PLUS (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. 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. -2- "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 9.02 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. "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 January 15, 2003. "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. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the Closing Date, until such amounts are -3- 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 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 -4- 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 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. "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) -5- any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "NEW 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, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "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. "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 -6- 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. "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 S&P or Moody's or both shall not 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. -7- "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). "REFINANCING" has the meaning ascribed to it in the prospectus dated January 27, 1997 relating to the Company's 8% Senior Notes due 2005, 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 5/8% Senior Subordinated Notes due 2007 of the Company in an aggregate principal amount of $700.0 million, issued pursuant to the Senior Subordinated Note Indenture. "SENIOR SUBORDINATED NOTE INDENTURE" means 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, under which the Senior Subordinated Notes were issued. -8- "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 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 8.03 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. -9- "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 10c% 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. SECTION 1.02. OTHER DEFINITIONS. DEFINED IN TERM SECTION - ---- ---------- "Affiliate Transaction". . . . . . . . . . . . . . 3.10 "Bankruptcy Law" . . . . . . . . . . . . . . . . . 5.01 "Change of Control Offer". . . . . . . . . . . . . 3.12 "Change of Control Payment". . . . . . . . . . . . 3.12 "Change of Control Payment Date" . . . . . . . . . 3.12 "Covenant Defeasance". . . . . . . . . . . . . . . 7.03 "Custodian". . . . . . . . . . . . . . . . . . . . 5.01 "Event of Default" . . . . . . . . . . . . . . . . 5.01 "incur". . . . . . . . . . . . . . . . . . . . . . 3.09 "Legal Defeasance" . . . . . . . . . . . . . . . . 7.02 "Legal Holiday". . . . . . . . . . . . . . . . . . 9.07 "Notice of Default". . . . . . . . . . . . . . . . 5.01 "Paying Agent" . . . . . . . . . . . . . . . . . . 2.03 "Registrar". . . . . . . . . . . . . . . . . . . . 2.03 "Restricted Payments". . . . . . . . . . . . . . . 3.07 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; -10- "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. ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. 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." -11- 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 Exhibit A hereto. 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 6.07 hereof. -12- 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 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 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 8.05 hereof, which shall be paid by the Company). -13- 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. If required by the Trustee or the Company, 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 -14- 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 3.01 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 -15- 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 3.01 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 COVENANTS SECTION 3.01. 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. -16- SECTION 3.02. 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 3.03. 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 3.03(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. -17- (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 3.03(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 3.03. (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 3.04. 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 3.03 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 3 or of Article 4 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. -18- (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 5.01(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 3.05. 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 3.06. 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 3.07. 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 -19- $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 3.09 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) $20.0 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 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; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $15.0 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 -20- 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 3.08. 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 3.09 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 New Credit Facility and related documentation as the same is in effect on the Closing Date and as amended or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the New Credit Facility and related documentation as in effect on the Closing Date. -21- SECTION 3.09. 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 New 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 -22- 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 $250.0 million. SECTION 3.10. 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 3.07 hereof, in each case, shall not be deemed to be Affiliate Transactions. SECTION 3.11. 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. -23- SECTION 3.12. 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 3.12 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 -24- (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 3.13. CORPORATE EXISTENCE. Subject to Section 3.12 and Article 4 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 3.14. 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 3.15. 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 -25- simultaneously executes and delivers a supplemental indenture to this Indenture, in substantially the form attached hereto as Exhibit 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 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED NOTE INDENTURE. The Company shall not amend, modify or alter the Senior Subordinated Note Indenture or the indentures relating to the 2005 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 2005 Senior Subordinated Notes 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 2005 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 4 SUCCESSORS SECTION 4.01. 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 -26- (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 3.09 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 4.02. 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 4.01 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 5 DEFAULTS AND REMEDIES SECTION 5.01. 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 3.07, 3.09 or 3.12 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 -27- 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 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 -28- 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 5.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (vii) or (viii) of Section 5.01 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 5.01 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. If an Event of Default occurs under this Indenture prior to the maturity of the Securities 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 the date of maturity, 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 January 15 of the years set forth below: Year Percentage ---- ---------- 1997 . . . . . . . . . . . . . . . . 107.875% 1998 . . . . . . . . . . . . . . . . 106.300% 1999 . . . . . . . . . . . . . . . . 104.725% 2000 . . . . . . . . . . . . . . . . 103.150% 2001 . . . . . . . . . . . . . . . . 101.575% 2002 . . . . . . . . . . . . . . . . 100.000% 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 6.01 hereof, the Trustee shall be entitled to rely on the determination set forth in any such resolutions delivered to the Trustee. SECTION 5.03. 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. -29- SECTION 5.04. 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 5.05. 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. SECTION 5.06. 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 5.07. 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 5.08. COLLECTION SUIT BY TRUSTEE. -30- If an Event of Default specified in Section 5.01(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 6.07 hereof, including the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 5.09. 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 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 6.07 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 6.07 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 5.10. 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 6.07, 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 5.10 upon five Business Days prior notice to the Company. -31- SECTION 5.11. 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 5.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. ARTICLE 6 TRUSTEE SECTION 6.01. 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 5.05 hereof. -32- (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 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 6.02. 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 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. SECTION 6.03. 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 6.10 and 6.11 hereof. SECTION 6.04. TRUSTEE'S DISCLAIMER. -33- 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 6.05. 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 6.06. 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. SECTION 6.07. 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 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 6.07 shall survive the satisfaction and discharge of this Indenture. -34- 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 5.01(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 6.08. 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 6.10 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. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 6.10 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 -35- 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 6.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 6.08, the Company's obligations under Section 6.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 6.09. 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 6.10. 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 6.11. 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 7 DISCHARGE OF INDENTURE SECTION 7.01. 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 7.02 or 7.03 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article 7. SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.02, 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 7.05 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 7.02, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the -36- 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 7.04 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 Sections 2.04, 2.06, 2.07 and 3.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 6.07 hereof, and the Company's obligations in connection therewith and (iv) this Article 7. Subject to compliance with this Article 7, the Company may exercise its option under this Section 7.02 notwithstanding the prior exercise of its option under Section 7.03 hereof with respect to the Securities. SECTION 7.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.03, the Company shall be released from its obligations under the covenants contained in Sections 3.07, 3.08, 3.09, 3.10, 3.11, 3.12, 3.14, 3.15, and 3.16 and Article 4 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 5.01(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 7.01 hereof of the option applicable to this Section 7.03, Sections 5.01(iv) through 5.01(vi) hereof shall not constitute Events of Default. SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 7.02 or Section 7.03 hereof to the outstanding Securities: (i) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.10 who shall agree to comply with the provisions of this Article 7 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, and interest on such outstanding Securities on the stated maturity date of such principal or installment of principal, premium, if any, or interest. -37- (ii) In the case of an election under Section 7.02 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. (iii) In the case of an election under Section 7.03 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. (iv) No Default or Event of Default with respect to the Securities shall have occurred and be continuing 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, insofar as Section 5.01(vii) or 5.01(viii) hereof is concerned, at any time in the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (v) 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). (vi) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (vii) 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 7.02 or 7.03 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. (viii) 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 7.02 hereof or the Covenant Defeasance under Section 7.03 hereof (as the case may be) have been complied with as contemplated by this Section 7.04. -38- SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 7.06 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 7.05, the "Trustee") pursuant to Section 7.04 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, and interest, 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 7.04 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 7 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 7.04 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 7.04(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 7.06. 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, or interest 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 7.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any U.S. Dollars or non-callable Government Securities in accordance with Section 7.02 or 7.03 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 7.02 or 7.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 7.02 or 7.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the -39- 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 8 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 8.01. 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 3.15 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 4 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 8.06 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 8.02. WITH CONSENT OF HOLDERS. Except as provided in Section 8.01 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 -40- 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 8.06 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 8.02 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 5.04 and 5.07 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; (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 5.04 or 5.07 hereof; or (vii) make any change in this sentence of this Section 8.02. SECTION 8.03. 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 8.04. 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 -41- 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 8.05. 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 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 8 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 6.01, 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 9 MISCELLANEOUS SECTION 9.01. 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 9.02. 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), telex, telecopier or overnight air courier guaranteeing next day delivery, to the other's address: -42- 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: Brian J. McCarthy 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 answered back, if telexed; 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 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. -43- 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 9.04. 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 9.05 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 9.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 9.05. 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 9.06. 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 9.07. 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. -44- SECTION 9.08. 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 9.09. DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. SECTION 9.10. 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 9.11. 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 9.12. 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 9.13. 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 9.14. 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 9.15. 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. -45- SIGNATURES Dated as of January 15, 1997 TENET HEALTHCARE CORPORATION By: /s/ Terence P. McMullen --------------------------------------- Name: Terence P. McMullen Title: Vice President Attest: /s/ Richard B. Silver (SEAL) - ---------------------------- Richard B. Silver Dated as of January 15, 1997 THE BANK OF NEW YORK, as Trustee By: /s/ Vivian Georges --------------------------------------- Name: Vivian Georges Title: Assistant Vice President Attest: ____________________________(SEAL) By: /s/ Mary Jane Morrissey ------------------------ Authorized Signatory -46- EXHIBIT A (Face of Security) 7 7/8% Senior Note due January 15, 2003 CUSIP: 88033G AE 0 No. $____________ TENET HEALTHCARE CORPORATION promises to pay to ______________________________________________________________ or its registered assigns, the principal sum of_______________ Dollars on January 15, 2003. Interest Payment Dates: January 15 and July 15, commencing July 15, 1997. Record Dates: January 1 and July 1 (whether or not a Business Day). [(If Security is a Global Security--) 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 A-1 (Back of Security) 7 7/8% SENIOR NOTE due January 15, 2003 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 7/8%. The Company shall pay interest semiannually in arrears on January 15 and July 15 of each year, commencing July 15, 1997 to Holders of record on the immediately preceding January 1 and July 1, 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 January 15, 1997 (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 $400,000,000 in aggregate principal amount. A-2 5. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 3.12 of the Indenture (as described in paragraph 6 below), the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. 6. 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. 7. 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. 8. 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. 9. 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, A-3 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 3.15 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 4 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. 10. 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 3.07, 3.09 or 3.12 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. If an Event of Default occurs under the Indenture prior to maturity 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 the date of maturity, then the premium specified in Section 5.02 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. A-4 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. 11. 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. 12. 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. 13. 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. 14. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. 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). 16. 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 17. 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. A-5 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. A-6 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 3.12 of the Indenture, check the box below: / / Section 3.12 (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 3.12 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. A-7 EXHIBIT 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 January 15, 1997, providing for the issuance of an aggregate principal amount of $400,000,000 of 7 7/8% Senior Notes due 2003 (the "Securities"); WHEREAS, Section 3.15 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 8.01 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 B-1 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 5 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 5 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 A 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 3 and 4 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, any state thereof or the District of Columbia and such surviving Person or transferee shall expressly B-2 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 of the Company that have executed and delivered a B-3 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. B-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: B-5 EXHIBIT A 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 B-6 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: B-7 EX-4.(N) 10 EXHIBIT 4(N) 8% SENIOR INDENTURE TENET HEALTHCARE CORPORATION -------------------------------- $900,000,000 8% SENIOR NOTES due 2005 -------------------------------- ----------------------------- INDENTURE Dated as of January 15, 1997 ----------------------------- -------------------------------- 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 . . . . . . . . . . . . . . . . 10 SECTION 1.03. INCORPORATION BY REFERENCE OF TIA . . . . . . . . 10 SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . 11 ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . 11 SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY. . . . . . . . 11 SECTION 2.03. EXECUTION AND AUTHENTICATION. . . . . . . . . . . 12 SECTION 2.04. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . 12 SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . 13 SECTION 2.06. HOLDER LISTS. . . . . . . . . . . . . . . . . . . 13 SECTION 2.07. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . 13 SECTION 2.08. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . 14 SECTION 2.09. REPLACEMENT SECURITIES. . . . . . . . . . . . . . 14 SECTION 2.10. OUTSTANDING SECURITIES. . . . . . . . . . . . . . 15 SECTION 2.11. TREASURY SECURITIES . . . . . . . . . . . . . . . 15 SECTION 2.12. TEMPORARY SECURITIES. . . . . . . . . . . . . . . 15 SECTION 2.13. CANCELLATION. . . . . . . . . . . . . . . . . . . 16 SECTION 2.14. DEFAULTED INTEREST. . . . . . . . . . . . . . . . 16 SECTION 2.15. RECORD DATE . . . . . . . . . . . . . . . . . . . 16 SECTION 2.16. CUSIP NUMBER. . . . . . . . . . . . . . . . . . . 16 ARTICLE 3 COVENANTS SECTION 3.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . 16 SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . 17 SECTION 3.03. COMMISSION REPORTS. . . . . . . . . . . . . . . . 17 SECTION 3.04. COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . 18 SECTION 3.05. TAXES . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.06. STAY, EXTENSION AND USURY LAWS. . . . . . . . . . 19 SECTION 3.07. LIMITATIONS ON RESTRICTED PAYMENTS. . . . . . . . 19 SECTION 3.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES . . . . . . 21 SECTION 3.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK . . . . . . . . 22 SECTION 3.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES . . . 23 -i- Page ---- SECTION 3.11. LIMITATIONS ON LIENS. . . . . . . . . . . . . . . 24 SECTION 3.12. CHANGE OF CONTROL . . . . . . . . . . . . . . . . 24 SECTION 3.13. CORPORATE EXISTENCE . . . . . . . . . . . . . . . 25 SECTION 3.14. LINE OF BUSINESS. . . . . . . . . . . . . . . . . 26 SECTION 3.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. . . . . . . . . . 26 SECTION 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED NOTE INDENTURE. . . . . . . 26 ARTICLE 4 SUCCESSORS SECTION 4.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS . . . . . . . . . . . . . . . . 27 SECTION 4.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . 27 ARTICLE 5 DEFAULTS AND REMEDIES SECTION 5.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 28 SECTION 5.02. ACCELERATION. . . . . . . . . . . . . . . . . . . 29 SECTION 5.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . 30 SECTION 5.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . 30 SECTION 5.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . 30 SECTION 5.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . 31 SECTION 5.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. . . . . . . 31 SECTION 5.08. COLLECTION SUIT BY TRUSTEE. . . . . . . . . . . . 31 SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . 31 SECTION 5.10. PRIORITIES. . . . . . . . . . . . . . . . . . . . 32 SECTION 5.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . 32 ARTICLE 6 TRUSTEE SECTION 6.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . 32 SECTION 6.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . 33 SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE. . . . . . . . . . . 34 SECTION 6.04. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . 34 SECTION 6.05. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . 34 SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . 34 SECTION 6.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . 35 SECTION 6.08. REPLACEMENT OF TRUSTEE. . . . . . . . . . . . . . 35 SECTION 6.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC.. . . . 36 SECTION 6.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . 36 -ii- Page ---- SECTION 6.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . . . . . . . . . . . . . . . . . . 37 ARTICLE 7 DISCHARGE OF INDENTURE SECTION 7.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES. . . . . . . . . . 37 SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE. . . . . . . . . . 37 SECTION 7.03. COVENANT DEFEASANCE . . . . . . . . . . . . . . . 37 SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . 38 SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . 39 SECTION 7.06. REPAYMENT TO COMPANY. . . . . . . . . . . . . . . 40 SECTION 7.07. REINSTATEMENT . . . . . . . . . . . . . . . . . . 40 ARTICLE 8 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 8.01. WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . 40 SECTION 8.02. WITH CONSENT OF HOLDERS . . . . . . . . . . . . . 41 SECTION 8.03. COMPLIANCE WITH TIA . . . . . . . . . . . . . . . 42 SECTION 8.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . 42 SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . 42 SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.. . . . . . . . . 43 ARTICLE 9 MISCELLANEOUS SECTION 9.01. TIA CONTROLS. . . . . . . . . . . . . . . . . . . 43 SECTION 9.02. NOTICES . . . . . . . . . . . . . . . . . . . . . 43 SECTION 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS . . . . . . . . . . . . . . . . . . . . 44 SECTION 9.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . 44 SECTION 9.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . . . . . . . . . . . . . . . 44 SECTION 9.06. RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . 45 SECTION 9.07. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . 45 SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. . . . . . . . . . . 45 SECTION 9.09. DUPLICATE ORIGINALS . . . . . . . . . . . . . . . 45 SECTION 9.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . 45 SECTION 9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . 46 -iii- Page ---- SECTION 9.12. SUCCESSORS. . . . . . . . . . . . . . . . . . . . 46 SECTION 9.13. SEVERABILITY. . . . . . . . . . . . . . . . . . . 46 SECTION 9.14. COUNTERPART ORIGINALS . . . . . . . . . . . . . . 46 SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . 46 SIGNATURES EXHIBIT A FORM OF SECURITY EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE -iv- CROSS-REFERENCE TABLE* TRUST INDENTURE ACT SECTION INDENTURE SECTION - ------------------- ----------------- 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 6.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 6.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . 6.10 (b). . . . . . . . . . . . . . . . . . . . . . . . . . 6.08; 6.10 (c). . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311 (a). . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 (b). . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 (c). . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312 (a). . . . . . . . . . . . . . . . . . . . . . . . . . 2.06 (b). . . . . . . . . . . . . . . . . . . . . . . . . . 9.03 (c). . . . . . . . . . . . . . . . . . . . . . . . . . 9.03 313 (a). . . . . . . . . . . . . . . . . . . . . . . . . . 6.06 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . 6.06 (c). . . . . . . . . . . . . . . . . . . . . . . . . . 6.06; 9.02 (d). . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 314 (a). . . . . . . . . . . . . . . . . . . . . . . . . . 3.03; 9.02 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . 9.04 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . 9.04 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d). . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e). . . . . . . . . . . . . . . . . . . . . . . . . . 9.05 (f). . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315 (a). . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(iii)(b) (b). . . . . . . . . . . . . . . . . . . . . . . . . . 6.05; 9.02 (c). . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(i) (d). . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(iii) (e). . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 316 (a)(last sentence) . . . . . . . . . . . . . . . . . . 2.11 (a)(1)(A). . . . . . . . . . . . . . . . . . . . . . . 5.05 (a)(1)(B). . . . . . . . . . . . . . . . . . . . . . . 5.04 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b). . . . . . . . . . . . . . . . . . . . . . . . . . 5.07 (c). . . . . . . . . . . . . . . . . . . . . . . . . . 2.15; 8.04 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 5.08 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 5.09 (b). . . . . . . . . . . . . . . . . . . . . . . . . . 2.05 - --------------------------- *This Cross-Reference Table is not part of the indenture. -v- 318 (a). . . . . . . . . . . . . . . . . . . . . . . . . . 9.01 (b). . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c). . . . . . . . . . . . . . . . . . . . . . . . . . 9.01 N.A. means not applicable -vi- INDENTURE dated as of January 15, 1997 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% Senior Notes due 2005 (the "SECURITIES"): 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 3.07 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 January 30, 1997. "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 4 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 (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), PLUS (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, PLUS (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, PLUS (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. 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. -2- "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 9.02 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. "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 January 15, 2005. "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. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the Closing Date, until such amounts are -3- 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 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 -4- 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 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. "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) -5- any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "NEW 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, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "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. "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 -6- 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. "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 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 S&P or Moody's or both shall not 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. -7- "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). "REFINANCING" has the meaning ascribed to it in the prospectus dated January 27, 1997 relating to the Company's 7 7/8% Senior Notes due 2003, 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 5/8% Senior Subordinated Notes due 2007 of the Company in an aggregate principal amount of $700.0 million, issued pursuant to the Senior Subordinated Note Indenture. "SENIOR SUBORDINATED NOTE INDENTURE" means 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, under which the Senior Subordinated Notes were issued. -8- "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 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 8.03 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. -9- "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. SECTION 1.02. OTHER DEFINITIONS. DEFINED IN TERM SECTION - ---- ----------- "Affiliate Transaction". . . . . . . . . . . . . . . . . . . . 3.10 "Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . 5.01 "Change of Control Offer". . . . . . . . . . . . . . . . . . . 3.12 "Change of Control Payment". . . . . . . . . . . . . . . . . . 3.12 "Change of Control Payment Date" . . . . . . . . . . . . . . . 3.12 "Covenant Defeasance". . . . . . . . . . . . . . . . . . . . . 7.03 "Custodian". . . . . . . . . . . . . . . . . . . . . . . . . . 5.01 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . 5.01 "incur". . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . 7.02 "Legal Holiday". . . . . . . . . . . . . . . . . . . . . . . . 9.07 "Notice of Default". . . . . . . . . . . . . . . . . . . . . . 5.01 "Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Registrar". . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Restricted Payments". . . . . . . . . . . . . . . . . . . . . 3.07 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; -10- "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. ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. 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. -11- 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 Exhibit A hereto. 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 6.07 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Securities. -12- 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 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 8.05 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: -13- (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. If required by the Trustee or the Company, 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. -14- 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 3.01 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. -15- 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 3.01 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 COVENANTS SECTION 3.01. 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. -16- SECTION 3.02. 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 3.03. 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 3.03(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. -17- (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 3.03(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 3.03. (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 3.04. 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 3.03 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 3 or of Article 4 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. -18- (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 5.01(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 3.05. 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 3.06. 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 3.07. 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 -19- $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 3.09 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) $20.0 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 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; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $15.0 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 -20- 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 3.08. 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 related to the Company's 7 7/8% Senior Notes due 2003, (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 3.09 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 New Credit Facility and related documentation as the same is in effect on the Closing Date and as amended or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the New Credit Facility and related documentation as in effect on the Closing Date. -21- SECTION 3.09. 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 New 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 Senior 7f% Notes due 2003 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 -22- 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 $250.0 million. SECTION 3.10. 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 3.07 hereof, in each case, shall not be deemed to be Affiliate Transactions. SECTION 3.11. 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. -23- SECTION 3.12. 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 3.12 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 -24- (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 3.13. CORPORATE EXISTENCE. Subject to Section 3.12 and Article 4 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 3.14. 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. Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture, in substantially the form attached hereto as Exhibit 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, -25- 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 3.15. 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 Exhibit 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 3.16. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR SUBORDINATED NOTE INDENTURE. The Company shall not amend, modify or alter the Senior Subordinated Note Indenture or the indentures relating to the 2005 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 2005 Senior Subordinated Notes 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 2005 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 4 SUCCESSORS SECTION 4.01. 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 -26- 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 3.09 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 4.02. 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 4.01 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 5 DEFAULTS AND REMEDIES SECTION 5.01. 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; -27- (iii) failure by the Company to comply with the provisions of Sections 3.07, 3.09 or 3.12 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 evide nced 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 Subsidiari es), 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 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. -28- 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 5.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (vii) or (viii) of Section 5.01 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 5.01 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. If an Event of Default occurs under this Indenture prior to the maturity of the Securities 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 the date of maturity, 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 January 15 of the years set forth below: Year Percentage ---- ---------- 1997 . . . . . . . . . . . . 108.000% 1998 . . . . . . . . . . . . 106.857% 1999 . . . . . . . . . . . . 105.714% 2000 . . . . . . . . . . . . 104.571% 2001 . . . . . . . . . . . . 103.428% 2002 . . . . . . . . . . . . 102.285% 2003 . . . . . . . . . . . . 101.142% 2004 . . . . . . . . . . . . 100.000% 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 6.01 hereof, the Trustee shall be entitled to rely on the determination set forth in any such resolutions delivered to the Trustee. -29- SECTION 5.03. 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 5.04. 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 5.05. 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. SECTION 5.06. 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. -30- SECTION 5.07. 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 5.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 5.01(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 6.07 hereof, including the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 5.09. 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 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 6.07 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 6.07 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 5.10. 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 6.07, 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 -31- 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 5.10 upon five Business Days prior notice to the Company. SECTION 5.11. 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 5.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. ARTICLE 6 TRUSTEE SECTION 6.01. 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 -32- (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 5.05 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 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 6.02. 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 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. SECTION 6.03. 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 6.10 and 6.11 hereof. -33- SECTION 6.04. 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 6.05. 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 6.06. 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. SECTION 6.07. 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 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. -34- The obligations of the Company under this Section 6.07 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 5.01(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 6.08. 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 6.10 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. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 6.10 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 -35- 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 6.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 6.08, the Company's obligations under Section 6.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 6.09. 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 6.10. 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 6.11. 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 7 DISCHARGE OF INDENTURE SECTION 7.01. 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 7.02 or 7.03 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article 7. SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.02, 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 7.05 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 7.02, and to have satisfied all its -36- 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 7.04 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 Sections 2.04, 2.06, 2.07 and 3.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 6.07 hereof, and the Company's obligations in connection therewith and (iv) this Article 7. Subject to compliance with this Article 7, the Company may exercise its option under this Section 7.02 notwithstanding the prior exercise of its option under Section 7.03 hereof with respect to the Securities. SECTION 7.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.03, the Company shall be released from its obligations under the covenants contained in Sections 3.07, 3.08, 3.09, 3.10, 3.11, 3.12, 3.14, 3.15, and 3.16 and Article 4 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 5.01(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 7.01 hereof of the option applicable to this Section 7.03, Sections 5.01(iv) through 5.01(vi) hereof shall not constitute Events of Default. SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 7.02 or Section 7.03 hereof to the outstanding Securities: (i) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.10 who shall agree to comply with the provisions of this Article 7 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, and interest on such outstanding Securities on the stated maturity date of such principal or installment of principal, premium, if any, or interest. -37- (ii) In the case of an election under Section 7.02 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. (iii) In the case of an election under Section 7.03 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. (iv) No Default or Event of Default with respect to the Securities shall have occurred and be continuing 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, insofar as Section 5.01(vii) or 5.01(viii) hereof is concerned, at any time in the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (v) 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). (vi) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (vii) 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 7.02 or 7.03 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. (viii) 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 7.02 hereof or the Covenant Defeasance under Section 7.03 hereof (as the case may be) have been complied with as contemplated by this Section 7.04. -38- SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 7.06 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 7.05, the "Trustee") pursuant to Section 7.04 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, and interest, 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 7.04 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 7 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 7.04 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 7.04(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 7.06. 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, or interest 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 7.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any U.S. Dollars or non-callable Government Securities in accordance with Section 7.02 or 7.03 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 7.02 or 7.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 7.02 or 7.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the -39- 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 8 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 8.01. 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 3.15 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 4 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 8.06 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 8.02. WITH CONSENT OF HOLDERS. Except as provided in Section 8.01 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 -40- Trustee of the documents described in Section 8.06 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 8.02 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 5.04 and 5.07 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; (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 5.04 or 5.07 hereof; or (vii) make any change in this sentence of this Section 8.02. SECTION 8.03. 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 8.04. 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. -41- 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 8.05. 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 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 8 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 6.01, 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 9 MISCELLANEOUS SECTION 9.01. 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 9.02. 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), telex, 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: -42- Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Telecopier No.: (213) 687-5600 Attention: Brian J. McCarthy 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 answered back, if telexed; 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 9.03. 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 9.04. 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 9.05 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 -43- (2) an Opinion of Counsel (which shall include the statements set forth in Section 9.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 9.05. 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 9.06. 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 9.07. 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 9.08. 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 9.09. DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. -44- SECTION 9.10. 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 9.11. 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 9.12. 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 9.13. 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 9.14. 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 9.15. 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. -45- SIGNATURES Dated as of January 15, 1997 TENET HEALTHCARE CORPORATION By: /s/ Terence P. McMullen ------------------------------- Name: Terence P. McMullen Title: Vice President Attest: /s/ Richard B. Silver (SEAL) - ------------------------------------------- Richard B. Silver Dated as of January 15, 1997 THE BANK OF NEW YORK, as Trustee By: /s/ Vivian Georges ------------------------------- Name: Vivian Georges Title: Assistant Vice President Attest: (SEAL) - ------------------------------------------- By: /s/ Mary Jane Morrissey -------------------------------- Authorized Signatory -46- EXHIBIT A (Face of Security) 8% Senior Note due January 15, 2005 CUSIP: 88033G AF 7 No.$____________ TENET HEALTHCARE CORPORATION promises to pay to - -------------------------------------------------------------- or its registered assigns, the principal sum of_______________ Dollars on January 15, 2005. Interest Payment Dates: January 15 and July 15, commencing July 15, 1997. Record Dates: January 1 and July 1 (whether or not a Business Day). [(If Security is a Global Security--) 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 A-1 (Back of Security) 8% SENIOR NOTE due January 15, 2005 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%. The Company shall pay interest semiannually in arrears on January 15 and July 15 of each year, commencing July 15, 1997 to Holders of record on the immediately preceding January 1 and July 1, 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 January 15, 1997 (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 $900,000,000 in aggregate principal amount. A-2 5. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Section 3.12 of the Indenture (as described in paragraph 6 below), the Company shall not be required to make any mandatory redemption or sinking fund payments with respect to the Securities. 6. 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. 7. 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. 8. 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. 9. 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 A-3 Securities, to provide for any supplemental indenture required pursuant to Section 3.15 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 4 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. 10. 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 3.07, 3.09 or 3.12 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. If an Event of Default occurs under the Indenture prior to maturity 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 the date of maturity, then the premium specified in Section 5.02 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. A-4 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. 11. 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. 12. 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. 13. 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. 14. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. 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). 16. 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 17. 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. A-5 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 Guarancy 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. A-6 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 3.12 of the Indenture, check the box below: / / Section 3.12 (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 3.12 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 Guarancy 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. A-7 EXHIBIT 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 January 15, 1997, providing for the issuance of an aggregate principal amount of $900,000,000 of 8% Senior Notes due 2005 (the "Securities"); WHEREAS, Section 3.15 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 8.01 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 B-1 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 5 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 5 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 A 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 3 and 4 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, 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 B-2 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 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. B-3 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. B-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: B-5 EXHIBIT A 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. B-6 Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. [GUARANTOR] By: --------------------------- Name: Title: B-7 EX-4.(O) 11 EXHIBIT 4(O) 8 5/8% SSN INDENTURE TENET HEALTHCARE CORPORATION -------------------------------- $700,000,000 8 5/8% SENIOR SUBORDINATED NOTES due 2007 -------------------------------- ----------------------------- INDENTURE Dated as of January 15, 1997 ----------------------------- -------------------------------- 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 . . . . . . . . . . . . . . . . . . . . . . .10 SECTION 1.03. INCORPORATION BY REFERENCE OF TIA . . . . . . . . . . . . . . .11 SECTION 1.04. RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . .11 ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING . . . . . . . . . . . . . . . . . . . . . . . .11 SECTION 2.02. FORM OF LEGEND FOR GLOBAL SECURITY. . . . . . . . . . . . . . .12 SECTION 2.03. EXECUTION AND AUTHENTICATION. . . . . . . . . . . . . . . . . .12 SECTION 2.04. REGISTRAR AND PAYING AGENT. . . . . . . . . . . . . . . . . . .13 SECTION 2.05. PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . . . . .13 SECTION 2.06. HOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . . . . .13 SECTION 2.07. TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . . . .14 SECTION 2.08. PERSONS DEEMED OWNERS . . . . . . . . . . . . . . . . . . . . .14 SECTION 2.09. REPLACEMENT SECURITIES. . . . . . . . . . . . . . . . . . . . .15 SECTION 2.10. OUTSTANDING SECURITIES. . . . . . . . . . . . . . . . . . . . .15 SECTION 2.11. TREASURY SECURITIES . . . . . . . . . . . . . . . . . . . . . .16 SECTION 2.12. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . . . . .16 SECTION 2.13. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . . .16 SECTION 2.14. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . . . .16 SECTION 2.15. RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . .16 SECTION 2.16. CUSIP NUMBER. . . . . . . . . . . . . . . . . . . . . . . . . .17 ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. . . . . . . . . . . . . . . . . . . . . . .17 SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. . . . . . . . . . . . .17 SECTION 3.03. NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . . . . . . .17 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. . . . . . . . . . . . . . . . .18 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . . .18 SECTION 3.06. SECURITIES REDEEMED IN PART . . . . . . . . . . . . . . . . . .19 SECTION 3.07. OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . . .19 SECTION 3.08. MANDATORY REDEMPTION. . . . . . . . . . . . . . . . . . . . . .19 ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES . . . . . . . . . . . . . . . . . . . . .19 SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . .20 SECTION 4.03. COMMISSION REPORTS. . . . . . . . . . . . . . . . . . . . . . .20 SECTION 4.04. COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . . . . . . .21 SECTION 4.05. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 SECTION 4.06. STAY, EXTENSION AND USURY LAWS. . . . . . . . . . . . . . . . .22 SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS. . . . . . . . . . . . . . .22 SECTION 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES . . . . . . . . . .24 SECTION 4.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS ANDISSUANCE OF PREFERRED STOCK. . . . . . . . . . . . . . . . . . . . . . .25 SECTION 4.10. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES . . . . . . . . . .26 SECTION 4.11. LIMITATIONS ON LIENS. . . . . . . . . . . . . . . . . . . . . .27 SECTION 4.12. CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . . .27 SECTION 4.13. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . .28 SECTION 4.14. LINE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . .29 SECTION 4.15. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . .29 SECTION 4.16. NO SENIOR SUBORDINATED DEBT . . . . . . . . . . . . . . . . . .29 ARTICLE 5 SUCCESSORS SECTION 5.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . . . . .30 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . .30 SECTION 6.02. ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . . . .32 SECTION 6.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . .33 SECTION 6.04. WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . . .33 SECTION 6.05. CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . . . .33 SECTION 6.06. LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . . .34 SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. . . . . . . . . . . . . .34 SECTION 6.08. COLLECTION SUIT BY TRUSTEE. . . . . . . . . . . . . . . . . . .34 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. . . . . . . . . . . . . . . .34 SECTION 6.10. PRIORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .35 SECTION 6.11. UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . . .35 ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . .35 SECTION 7.02. RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . .36 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . .37 SECTION 7.04. TRUSTEE'S DISCLAIMER. . . . . . . . . . . . . . . . . . . . . .37 SECTION 7.05. NOTICE OF DEFAULTS. . . . . . . . . . . . . . . . . . . . . . .37 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS . . . . . . . . . . . . . . . . .37 SECTION 7.07. COMPENSATION AND INDEMNITY. . . . . . . . . . . . . . . . . . .38 SECTION 7.08. REPLACEMENT OF TRUSTEE. . . . . . . . . . . . . . . . . . . . .38 SECTION 7.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC.. . . . . . . . . . .39 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . . . . .39 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . . . . .40 ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES. . . . . . . . . . . . . . . . . . . . . . .40 SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. . . . . . . . . . . . . . . . .40 SECTION 8.03. COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . .40 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. . . . . . . . . . .41 SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. . . . . . . .42 SECTION 8.06. REPAYMENT TO COMPANY. . . . . . . . . . . . . . . . . . . . . .43 SECTION 8.07. REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . .43 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS. . . . . . . . . . . . . . . . . . .43 SECTION 9.02. WITH CONSENT OF HOLDERS . . . . . . . . . . . . . . . . . . . .44 SECTION 9.03. COMPLIANCE WITH TIA . . . . . . . . . . . . . . . . . . . . . .45 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . . . . .45 SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . . . . . .46 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.. . . . . . . . . . . . . . . .46 ARTICLE 10 SUBORDINATION SECTION 10.01 AGREEMENT TO SUBORDINATE. . . . . . . . . . . . . . . . . . . .46 SECTION 10.02. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . .46 SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. . . . . . . . . . . . . .47 SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT . . . . . . . . . . . . . . .47 SECTION 10.05. ACCELERATION OF SECURITIES. . . . . . . . . . . . . . . . . . .48 SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER . . . . . . . . . . . . . .48 SECTION 10.07. NOTICE BY COMPANY . . . . . . . . . . . . . . . . . . . . . . .48 SECTION 10.08. SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . .48 SECTION 10.09. RELATIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . .49 SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. . . . . . . . . .49 SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. . . . . . . . . . . .49 SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. . . . . . . . . . . . . . .49 SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION . . . . . . . . . . . . .50 SECTION 10.14. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .50 ARTICLE 11 MISCELLANEOUS SECTION 11.01. TIA CONTROLS. . . . . . . . . . . . . . . . . . . . . . . . . .50 SECTION 11.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS . . . . . . . . . .51 SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. . . . . . .51 SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . . . .52 SECTION 11.06. RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . . . . . . . .52 SECTION 11.07. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . . . .52 SECTION 11.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS. . . . . . . . . . . . . . . . . . .52 SECTION 11.09. DUPLICATE ORIGINALS . . . . . . . . . . . . . . . . . . . . . .52 SECTION 11.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . .53 SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . . . .53 SECTION 11.12. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . .53 SECTION 11.13. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . .53 SECTION 11.14. COUNTERPART ORIGINALS . . . . . . . . . . . . . . . . . . . . .53 SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . . . .53 SIGNATURES EXHIBIT A FORM OF SECURITY EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE 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; 9.04 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . . . . . . . 6.09 (b). . . . . . . . . . . . . . . . . . . . . . . . 2.05 - -------------------- *This Cross-Reference Table is not part of the indenture. 318 (a). . . . . . . . . . . . . . . . . . . . . . . . 11.01 (b). . . . . . . . . . . . . . . . . . . . . . . . N.A. (c). . . . . . . . . . . . . . . . . . . . . . . . 11.01 N.A. means not applicable INDENTURE dated as of January 15, 1997 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 5/8% Senior Subordinated Notes due 2007 (the "SECURITIES"): 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 January 30, 1997. "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 (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), PLUS (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, PLUS (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, PLUS (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. 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. -2- "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. "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 January 15, 2007. "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. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the Closing Date, until such amounts are -3- repaid, including all reimbursement obligations with respect to letters of credit outstanding as of the Closing Date. "EXISTING SENIOR NOTES" means the 2002 Senior Notes and the 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 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. -4- "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 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. "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 -5- 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). "NEW 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, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "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. "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. -6- "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. "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 S&P or Moody's or both shall not 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 -7- 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). "REFINANCING" has the meaning ascribed to it in the prospectus dated January 27, 1997 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 securities described above, issued under this Indenture. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR NOTES" means the 7 7/8% Senior Notes due 2003 and the 8% Senior Notes due 2005 of the Company in an aggregate principal amount of $1.3 billion, issued pursuant to the indentures 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. "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 -8- 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 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 5/8% 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. -9- "2003 SENIOR NOTES" means the 8 5/8% 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 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. 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 "Covenant Defeasance". . . . . . . . . . . . . . . . . . . . 8.03 "Designated Senior Debt" . . . . . . . . . . . . . . . . . . 10.02 "Custodian". . . . . . . . . . . . . . . . . . . . . . . . . 6.01 "Event of Default" . . . . . . . . . . . . . . . . . . . . . 6.01 "incur". . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09 "Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . 8.02 "Legal Holiday". . . . . . . . . . . . . . . . . . . . . . . 11.07 "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; -10- "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. ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. 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 -11- 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 Exhibit A hereto. 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 -12- 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 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. -13- 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, (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. -14- 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. If required by the Trustee or the Company, 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. 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. -15- 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. 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 -16- a Change of Control has occurred and the conditions set forth in Section 4.12 hereof have been satisfied, as applicable. 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. -17- 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 January 15, 2002, 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. 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 January 15 of the following years: -18- Year Percentage ---- ---------- 2002 104.313% 2003 102.876% 2004 101.438% 2005 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 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, -19- 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. (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. -20- (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 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. -21- 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 $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) $20.0 million. -22- 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 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; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $15.0 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 Securities in accordance with the provisions of this 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, -23- (b) this Indenture and the Indentures relating to the Senior Notes, (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 New Credit Facility and related documentation as the same is in effect on the Closing Date and as amended or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to Transfer Restrictions than the New 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: -24- (a) the incurrence by the Company of Indebtedness pursuant to the New 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 and the Senior 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 payments of which are 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 (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 $250.0 million. -25- 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 to secure Indebtedness that is PARI PASSU with or subordinated in right of payment to the Securities (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: -26- (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 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. Prior to complying with the provisions of this Section 4.12, but in any event within 90 days following a Change of Control Triggering Event, the Company shall either repay all -27- outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Securities required by this Section 4.12. 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 Exhibit 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. -28- 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 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. -29- 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, 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; -30- (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 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. -31- 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 January 15, 2002 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 January 15, 2002 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 January 15 of the years set forth below: Year Percentage ---- ---------- 1997. . . . . . . . . . . . . . . . 108.625% 1998. . . . . . . . . . . . . . . . 107.547% 1999. . . . . . . . . . . . . . . . 106.469% 2000. . . . . . . . . . . . . . . . 105.391% 2001. . . . . . . . . . . . . . . . 104.313% 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. -32- 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. 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. -33- 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 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. -34- 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 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. -35- (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 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. 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. 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 -36- 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. 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 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. -37- 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. 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. -38- 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 upon compliance with the conditions set forth below in this Article 8. 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 Sections 2.04, 2.06, 2.07 and 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. -39- 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 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, and interest on such outstanding Securities on the stated maturity date of such principal or installment of principal, premium, if any, or interest. (ii) 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. (iii) 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 -40- 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. (iv) No Default or Event of Default with respect to the Securities shall have occurred and be continuing 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, insofar as Section 6.01(vii) or 6.01(viii) hereof is concerned, at any time in the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (v) 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). (vi) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (vii) 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. (viii) 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. 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, and interest, 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. -41- 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, or interest 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, or interest 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; -42- (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 this -43- 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. 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. -44- 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. SECTION 10.02. CERTAIN DEFINITIONS. "Designated Senior Debt" means (i) so long as any Obligations are outstanding under the New 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 New Credit Facility, (ii) the Senior Notes, 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 Senior Subordinated Notes, the 2005 Senior Subordinated Notes and the 2005 Exchangeable Subordinated Notes, (w) any liability for federal, state, local or other -45- 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 New 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 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 New 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 New 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. -46- 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. 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 -47- 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. 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 -48- 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. 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), telex, 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: Brian J. McCarthy If to the Trustee: -49- 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 answered back, if telexed; 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 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. -50- 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. 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. -51- 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 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. -52- SIGNATURES Dated as of January 15, 1997 TENET HEALTHCARE CORPORATION By: /s/ Terence P. McMullen ------------------------------------- Name: Terence P. McMullen Title: Vice President Attest: /s/ Richard B. Silver (SEAL) - ------------------------------ Richard B. Silver Dated as of January 15, 1997 THE BANK OF NEW YORK, as Trustee By: /s/ Vivian Georges ------------------------------------- Name: Vivian Georges Title: Assistant Vice President Attest: (SEAL) - ------------------------------ By: /s/ Mary Jane Morrissey --------------------------- Authorized Signatory -53- EXHIBIT A (Face of Security) 8 5/8% Senior Subordinated Note due January 15, 2007 CUSIP: 88033G AG 5 No. $ ----------- TENET HEALTHCARE CORPORATION promises to pay to - -------------------------------------------------------------------------------- or its registered assigns, the principal sum of_______________ Dollars on January 15, 2007. Interest Payment Dates: January 15 and July 15, commencing July 15, 1997. Record Dates: January 1 and July 1 (whether or not a Business Day). [(If Security is a Global Security--) 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 A-1 (Back of Security) 8 5/8% SENIOR SUBORDINATED NOTE due January 15, 2007 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 5/8%. The Company shall pay interest semiannually in arrears on January 15 and July 15 of each year, commencing July 15, 1997 to Holders of record on the immediately preceding January 1 and July 1, 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 January 15, 1997 (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 $700,000,000 in aggregate principal amount. A-2 5. OPTIONAL REDEMPTION. On or after January 15, 2002, 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 January 15 of the following years: Year Percentage ---- ---------- 2002 104.313% 2003 102.876% 2004 101.438% 2005 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) the New 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. A-3 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. 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 A-4 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 January 15, 2002 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 January 15, 2002, 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 A-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. 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 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. A-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.* - ------------------------- *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. A-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.* - ------------------------- *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. A-8 EXHIBIT 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 January 15, 1997, providing for the issuance of an aggregate principal amount of $700,000,000 of 8 5/8% Senior Subordinated Notes due 2007 (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 B-1 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 A 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, any state thereof or the District of Columbia and such surviving Person or transferee shall expressly B-2 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 of the Company that have executed and delivered a B-3 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. B-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: B-5 EXHIBIT A 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 B-6 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: B-7 EX-10.(C) 12 EXHIBIT 10(C) AMEND. NO.2 TO REIMBURSEMENT AGMNT AMENDMENT NO. 2 TO REIMBURSEMENT AGREEMENT AMENDMENT No. 2 dated as of January 30, 1997 to the Amended and Restated Letter of Credit and Reimbursement Agreement dated as of February 28, 1995, as heretofore amended (as so amended, the "Reimbursement Agreement"), among TENET HEALTHCARE CORPORATION, as account party, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, THE BANK OF NEW YORK, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Banks, and THE BANK OF NEW YORK, as Issuing Bank. WHEREAS, the Reimbursement Agreement incorporates by reference, or otherwise refers to, certain provisions of the 1996 Credit Agreement (as defined therein); WHEREAS, the 1996 Credit Agreement is to be replaced by a new credit agreement (the "1997 Credit Agreement"); and WHEREAS, the parties hereto desire to amend the Reimbursement Agreement so that it refers to the relevant provisions of the 1997 Credit Agreement rather than the 1996 Credit Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS, REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Reimbursement Agreement has the meaning assigned to such term in the Reimbursement Agreement. Each reference to "hereof", "hereunder", "herein", and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Reimbursement Agreement shall, after this Agreement becomes effective, refer to the Reimbursement Agreement as amended hereby. SECTION 2. AMENDMENT OF DEFINITIONS. The definitions in Section 1.01 of the Reimbursement Agreement are amended as follows: (a) The definition of "Letter of Credit Fee Rate" is deleted and replaced by the following definition: "Letter of Credit Fee Rate" means a rate per annum equal to the LC Fee Rate determined in accordance with the Pricing Schedule attached to the 1997 Credit Agreement. (b) The following new definitions are added immediately after the definition of "1996 Credit Agreement": "1997 Closing Date" means the "Closing Date", as such term is defined in the 1997 Credit Agreement. "1997 Credit Agreement" means the Credit Agreement dated as of January 30, 1997 among the Company, the Lenders, Managing Agents and Co-Agents 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, as such agreement may be amended from time to time. (c) The definition of "Termination Date" is amended to read as follows: "Termination Date" means the date which is five Business Days prior to the "Termination Date" under and as defined in the 1997 Credit Agreement. SECTION 3. LETTER OF CREDIT FEE. Section 3.01(a) of the Reimbursement Agreement is amended to read as follows: (a) LETTER OF CREDIT FEE. For the account of the Banks, a letter of credit fee calculated for each day at the Letter of Credit Fee Rate for such day on the aggregate outstanding face amount of the Series A L/C and the Series B L/C on such day. Such letter of credit fee shall accrue from and including the 1997 Closing Date to and including the Termination Date and shall be payable quarterly in arrears on the last Business Day of each March, June, September and December and on the Termination Date. SECTION 4. REPRESENTATIONS AND WARRANTIES. Section 4.03 of the Reimbursement Agreement is amended to read as follows: SECTION 4.03 REPRESENTATIONS TO BE UPDATED. In connection with any extension of the Letters of Credit after the 1997 Closing Date, the Company will update the following representations and warranties as provided in Section 5.02(b) hereof: (i) the representations and warranties made by the Company in Section 4.01 of this Agreement; (ii) the representations and warranties made by the Company in Sections 4.04 through 4.14 of the 1997 Credit Agreement (defined terms used therein having the meanings assigned to such terms in the 1997 Credit Agreement except that, for purposes of this Agreement, (A) the term "Financing Documents" shall include this Agreement, the Lease Guaranty and the Letters of Credit and (B) the terms "this Agreement" and "hereby" contained in Section 4.12 thereof shall include this Agreement); (iii) the representations and warranties made by the Company in the Securities Pledge and Security Agreement; and 2 (iv) any other representations and warranties made by the Company in any certificate, document or financial or other statement furnished at any time hereunder or in connection herewith. SECTION 5. CONDITIONS TO EXTENSIONS OF LETTERS OF CREDIT. Section 5.02(b) of the Reimbursement Agreement is amended to read as follows: (b) the fact that each of the representations and warranties referred to in Section 4.03 hereof will be true and correct on and as of the date of extension of the Letters of Credit as if made on and as of such date (except that representations and warranties made with respect to specified dates or periods will be true and correct as of such specified dates or for such specified periods, as the date may be); and SECTION 6. INCORPORATION OF COVENANTS BY REFERENCE. Section 6.01 of the Reimbursement Agreement is amended to read as follows: SECTION 6.01 INCORPORATION BY REFERENCE. The Company agrees that, so long as any Commitment remains in effect, any amount remains available for drawing under any Letter of Credit or any amount is owing to any Bank or the Issuing Bank hereunder, the Company shall observe and perform each of its covenants and undertakings set forth in Article 5 of the 1997 Credit Agreement and such covenants and undertakings are hereby incorporated herein by reference. Defined terms used in Article 5 of the 1997 Credit Agreement have the meanings assigned such terms in the 1997 Credit Agreement; PROVIDED that, for purposes of this Section 6.01, (i) the term "Lenders" shall mean the Banks, (ii) the term "Financing Documents" shall include this Agreement, the Lease Guaranty and the Letters of Credit, (iii) the term "Required Lenders" shall mean the Required Banks, (iv) the term "Default" shall mean a Default as such term is defined herein, and (v) the term "Administrative Agent" shall mean the Issuing Bank. SECTION 7. CROSS DEFAULT. Section 7.01(e) of the Reimbursement Agreement is amended to read as follows: (e) An Event of Default under and as defined in the 1997 Credit Agreement shall have occurred and be continuing; or SECTION 8. AMENDMENTS AND WAIVERS. Section 11.05(B) of the Reimbursement Agreement is amended to read as follows: (B) Any amendment or waiver of any provision of Articles 4 and 5 (or any related definition) of the 1997 Credit Agreement shall be effective for purposes of Articles IV and VI of this Agreement if signed by the Company and the Required Banks hereunder in their respective capacities as "Lenders" under the 1997 Credit Agreement. 3 SECTION 9. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 10. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Company represents and warrants that, on the 1997 Closing Date, the representations and warranties made by the Company in Section 4.03 of the Reimbursement Agreement are true in all material respects, and no Default has occurred and is continuing. SECTION 11. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effective as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective and binding on the parties hereto when: (i) the Issuing Bank shall have received from each of the Company, the Banks and the Issuing Bank either a counterpart hereof signed by such party or telex, facsimile or other written confirmation satisfactory to it that such party has signed a counterpart hereof; (ii) the Issuing Bank shall have received a coy of the 1997 Credit Agreement in the form signed by all the parties thereto and the 1997 Credit Agreement shall have become effective; and (iii) the Company shall have paid to the Issuing Bank (A) all fees accrued for the account of the Banks to but excluding the 1997 Closing Date pursuant to Section 3.01(a) of the Reimbursement Agreement and (B) all Reimbursement Obligations and other amounts (if any) due and payable to the Issuing Bank on or before the 1997 Closing Date. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date and year first above written. TENET HEALTHCARE CORPORATION By: /S/ SCOTT M. BROWN ----------------------------------- Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /S/ WYATT R. RITCHIE ----------------------------------- Title: Managing Director MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /S/ DIANA H. IMHOF ----------------------------------- Title: Vice President THE BANK OF NEW YORK, as a Bank By: /S/ LISA Y. BROWN ----------------------------------- Title: Vice President THE BANK OF NEW YORK, as Issuing Bank By: /S/ LISA Y. BROWN ----------------------------------- Title: Vice President 5 SCHEDULE I LIST OF COMMITMENTS AS OF 1997 CLOSING DATE BANK COMMITMENT - ---- ---------- The Bank of New York $28,983,333.34 Bank of America National Trust and 28,983,333.33 Savings Association Morgan Guaranty Trust Company of New York 28,983,333.33 ------------- TOTAL $86,950,000.00 -------------- -------------- EX-10.(F) 13 EXHIBIT 10(F) AMENDMENT NO.1 TO CREDIT AGREEMENT Exhibit 10(f) Amendment to Credit Agreement CONFORMED COPY AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT dated as of July 25, 1997 to the Credit Agreement dated as of January 30, 1997 (the "CREDIT AGREEMENT") among TENET HEALTHCARE CORPORATION (the "BORROWER"), the LENDERS, MANAGING AGENTS and CO-AGENTS party thereto, the SWINGLINE BANK party thereto, THE BANK OF NEW YORK and THE BANK OF NOVA SCOTIA, as Documentation Agents, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Syndication Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H : WHEREAS, the parties hereto desire to amend the Credit Agreement to (i) modify the definition of Consolidated EBITDA so that certain charges incurred by the Borrower in the third and fourth quarters of 1997 and certain non-cash and merger-related charges that may be incurred by the Borrower will be excluded in calculating the amount thereof, (ii) exclude the effect of certain charges incurred in the third and fourth quarters of 1997 on the Borrower's Consolidated Net Worth for purposes of compliance with the minimum Consolidated Net Worth covenant and (iii) permit the Borrower to prepay, defease or redeem certain Debt that is subordinated in right of payment to the Loans; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. CONSOLIDATED EBITDA. The definition of "Consolidated EBITDA" in Section 1.01 of the Credit Agreement is amended to read as follows: "Consolidated EBITDA" means, for any period of four consecutive Fiscal Quarters, the sum of (i) the consolidated net income of the Borrower and its Subsidiaries for such period plus (ii) to the extent deducted in determining such consolidated net income, the sum of (A) interest expense, (B) income taxes, (C) depreciation and amortization expenses, (D) other non-cash charges (other than those non-cash charges that reflect a past expenditure of cash (such as prepaid expenses and other similar charges) or future expenditure of cash) and (E) merger-related charges, all determined on a Pro Forma Basis; PROVIDED that Consolidated EBITDA shall be calculated so as to exclude the effect of (w) any gain or loss that is classified as extraordinary in accordance with GAAP, (x) any gain or loss from any sale or other disposition of any Healthcare Facility, any Healthcare Business or any Equity Interest in any Person and (y) non-recurring charges recorded by the Borrower in the third and fourth Fiscal Quarters of 1997. SECTION 3. CONSOLIDATED NET WORTH. Section 5.10 of the Credit Agreement is amended to read as follows: Section 5.10. CONSOLIDATED NET WORTH. Consolidated Net Worth will at no time be less than the sum of (i) $2,750,000,000 PLUS (ii) 75% of the consolidated net income of the Borrower and its Subsidiaries for each Fiscal Quarter ended after November 30, 1996, if such consolidated net income for such Fiscal Quarter is positive (PROVIDED that, for any Fiscal Quarter when consolidated net income of the Borrower and its Subsidiaries was reduced as a result of a charge included in clause (iv), consolidated net income for such Fiscal Quarter shall be calculated to exclude the after-tax effect of such charge), PLUS (iii) 100% of the amount by which the consolidated stockholders' equity of the Borrower and its Subsidiaries is increased after November 30, 1996 as a result of any issuance or sale of Equity Interests by the Borrower (other than the issuance of common stock of the Borrower as consideration for the Acquisition), MINUS (iv) the amount of non-recurring charges (calculated on an after-tax basis) recorded by the Borrower in the third and fourth Fiscal Quarters of 1997. SECTION 4. RESTRICTION ON PREPAYING SUBORDINATED DEBT. Section 5.15 of the Credit Agreement is amended to read as follows: Section 5.15. RESTRICTION ON PREPAYING SUBORDINATED DEBT. Neither the Borrower nor any Subsidiary will prepay, defease or purchase, prior to the date on which it is required by its terms to be repaid, repurchased or otherwise retired, all or any portion of any Debt of the 2 Borrower that is subordinated in right of payment to the Loans; PROVIDED that (x) the Borrower may prepay, defease or repurchase such Debt in an aggregate amount not in excess of the net cash proceeds received by the Borrower from the issue and sale or incurrence of additional subordinated Debt in the 12 month period prior to, or substantially concurrently with, such prepayment, defeasance or repurchase, so long as such additional subordinated Debt has a final maturity after the final maturity of, and a weighted average life that is longer than the weighted average life of, the subordinated Debt prepaid, defeased or repurchased, and (y) in addition to any subordinated Debt prepaid, defeased or repurchased pursuant to clause (x), the Borrower may prepay, defease or repurchase such Debt so long as the aggregate cash (or value of property) used therefor, plus the aggregate amount of Restricted Payments made in accordance with Section 5.12, does not at any time exceed the sum of (i) $500,000,000 and (ii) 50% of the Borrower's cumulative consolidated net income for the period (treated as a single accounting period) commencing June 1, 1998 and ending on the last day of the last Fiscal Quarter ended prior to the date of such prepayment, defeasance or repurchase. SECTION 5. REPRESENTATIONS OF BORROWER. The Borrower represents and warrants that (i) the representations and warranties of the Borrower set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 6. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 8. EFFECTIVENESS. This Amendment shall become effective on the date (the "AMENDMENT EFFECTIVE DATE") when the Administrative Agent shall have received from each of the Borrower and the Required Lenders a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. TENET HEALTHCARE CORPORATION By: /s/ T.P. McMullen --------------------------------------------- Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Diana H. Imhof --------------------------------------------- Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Anthony L. Trunzo --------------------------------------------- Title: Vice President THE BANK OF NEW YORK By: /s/ Lisa Yee Brown --------------------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ Christopher Johnson --------------------------------------------- Title: Senior Relationship Manager 4 THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY By: /s/ Carl-Eric Benzinger --------------------------------------------- Title: Senior Vice President ABN AMRO BANK N.V. LOS ANGELES INTERNATIONAL BRANCH By: /s/ Paul K. Stimpfl --------------------------------------------- Title: Vice President By: /s/ Matthew S. Thomson --------------------------------------------- Title: Group Vice President/Director BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ Jeb Beckwith --------------------------------------------- Title: Vice President THE CHASE MANHATTAN BANK By: /s/ Dawn Lee Lum --------------------------------------------- Title: Vice President 5 DEUTSCHE BANK NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By: /s/ Andreas Dirnagl --------------------------------------------- Title: Vice President By: /s/ Iain Stewart --------------------------------------------- Title: Vice Presidnet THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ T. Morgan Edwards --------------------------------------------- Title: Deputy General Manager NATIONSBANK OF TEXAS, N.A. By: /s/ Elizabeth C. Gould --------------------------------------------- Title: Vice President PNC BANK, N.A. By: /s/ Karin M. George --------------------------------------------- Title: Vice President 6 THE SANWA BANK LIMITED, DALLAS AGENCY By: /s/ Toru Sakamuro --------------------------------------------- Title: Vice President SOCIETE GENERALE By: /s/ J. Staley Stewart --------------------------------------------- Title: Vice President THE SUMITOMO BANK, LIMITED By: /s/ Goro Hirai --------------------------------------------- Title: Joint General Manager TORONTO DOMINION (TEXAS), INC. By: /s/ Darlene Riedel --------------------------------------------- Title: Vice President WACHOVIA BANK OF GEORGIA, N.A. By: /s/ T. Ashby Watts, IV --------------------------------------------- Title: Vice President 7 COMMERZBANK AG LOS ANGELES BRANCH By: /s/ John Korthuis --------------------------------------------- Title: Vice President By: /s/ Carl Kemmerer --------------------------------------------- Title: Assistant Treasurer CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Farboud Tavangar --------------------------------------------- Title: First Vice President THE DAI-ICHI KANGYO BANK, LTD. LOS ANGELES AGENCY By: /s/ Masatsugu Morishita --------------------------------------------- Title: Senior Vice President & Joint General Manager THE FUJI BANK, LIMITED By: /s/ N. Umemura --------------------------------------------- Title: Joint General Manager 8 KREDIETBANK N.V. By: /s/ Robert Snauffer --------------------------------------------- Title: Vice President By: /s/ Todd R. Angus --------------------------------------------- Title: Vice President BANK OF MONTREAL By: /s/ Peter W. Steelman --------------------------------------------- Title: Director BANQUE PARIBAS By: /s/ Sean T. Conlon --------------------------------------------- Title: Vice President By: /s/ Stanley P. Berkman --------------------------------------------- Title: General Manager CORESTATES BANK, N.A. By: /s/ Deirdre L. McAleer --------------------------------------------- Title: Vice President and Team Leader 9 CREDIT SUISSE FIRST BOSTON By: /s/ David J. Worthington --------------------------------------------- Title: Managing Director By: /s/ Mark A. Swanson --------------------------------------------- Title: Vice President SUMITOMO BANK OF CALIFORNIA By: /s/ Shuji Ito --------------------------------------------- Title: Vice President THE ROYAL BANK OF SCOTLAND plc By: /s/ D. Dougan --------------------------------------------- Title: Vice President HIBERNIA NATIONAL BANK By: /s/ Christopher B. Pitre --------------------------------------------- Title: Assistant Vice President THE SUMITOMO TRUST & BANKING COMPANY LTD. NEW YORK BRANCH By: /s/ Suraj P. Bhatia --------------------------------------------- Title: Senior Vice President, Manager Corporate Finance Department 10 BANQUE FRANCAISE DU COMMERCE EXTERIEUR By: /s/ Daniel Touffu --------------------------------------------- Title: First VP and Regional Manager By: /s/ Iain A. Whyte --------------------------------------------- Title: Vice President BHF-BANK AKTIENGESELLSCHAFT By: /s/ Dan Dobrjanskyj --------------------------------------------- Title: Assistant Vice President By: /s/ John D. Sykes --------------------------------------------- Title: Assistant Vice President MICHIGAN NATIONAL BANK By: /s/ Draga B. Palincas --------------------------------------------- Title: Vice President/Relationship Manager THE TOYO TRUST & BANKING CO., Ltd. By: /s/ Kenji Fujikawa --------------------------------------------- Title: General Manager 11 THE TOKAI BANK LIMITED, LOS ANGELES AGENCY By: /s/ Kosuke Furukawa --------------------------------------------- Title: Joint General Manager UNITED STATES NATIONAL BANK OF OREGON By: /s/ Dale Parshall --------------------------------------------- Title: Vice President 12 EX-10.(Q) 14 EXHIBIT 10(Q) THIRD AMENDMENT TO B.O.D. RETIREMENT THIRD AMENDMENT TO TENET HEALTHCARE CORPORATION BOARD OF DIRECTORS RETIREMENT PLAN I, Scott M. Brown, the Secretary of Tenet Healthcare Corporation ("THC"), hereby certify that on July 30, 1997, the Board of Directors of THC approved the following amendment to the Tenet Healthcare Corporation Board of Directors Retirement Plan (the "Plan"): 1. Section 3 of the Plan is hereby amended by the addition of the following Section 3.7 at the end thereof: "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 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 1 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." 2. Section 4.3 of the Plan is amended in its entirety to read as follows: "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. 3. Section 5.2 of the Plan is hereby amended in its entirety to read as follows: "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 2 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. Tenet shall have no obligation to pay any benefits under the Plan to the extent such benefits are provided from such trust." IN WITNESS WHEREOF, I have caused this certificate to be executed as of August 15, 1997. TENET HEALTHCARE CORPORATION By: /s/ Scott M. Brown ------------------------- Scott M. Brown, Secretary EX-10.(U) 15 EXHIBIT 10(U) THIRD AMENDMENT TO EXEC. RETIREMENT THIRD AMENDMENT TO TENET HEALTHCARE CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN This Third Amendment to the Tenet Healthcare Corporation Supplemental Executive Retirement Plan (the "Amendment") is made, entered into and effective as of January 28, 1997. RECITALS A. Tenet Healthcare Corporation, a Nevada corporation formerly known as National Medical Enterprises, Inc. ("Tenet") adopted the Supplemental Executive Retirement Plan (the "Plan") on November 1, 1984, and amended the Plan on May 21, 1986, April 24, 1994, and July 25, 1994. B. Section 5.4 of the Plan provides that Tenet reserves the right, in its sole discretion, to amend the Plan. C. Tenet desires to amend the Plan as more particularly described below. NOW, THEREFORE, intending to be legally bound, Tenet hereby amends the Plan as follows: AMENDMENT 1. Section 2.10 of the Plan is hereby amended by deleting such Section in its entirety and replacing it with the following: "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. Section 2.14 is hereby amended by deleting such Section in its entirety and replacing it with the following: "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 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." 3. Section 2.15 of the Plan is hereby amended by deleting such Section in its entirety and replacing it with the following: "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." 4. Section 3.2(a)(iii) is hereby amended by deleting such Section in its entirety and replacing it with the following: "3.2(a)(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." 5. Section 3.2(b) is hereby amended by deleting such Section in its entirety and replacing it with the following: "3.2(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 commencement of payment precedes the date on which the Participant will attain age 62." 6. Section 3.4(c)(iii) is hereby amended by deleting such Section in its entirety and replacing it with the following: "3.4(c)(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 was eligible for Early Retirement, his 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." 7. Section 3.4(d) is hereby amended by deleting such Section in its entirety and replacing it with the following: "3.4(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 by the maximum percentage reduction for Early Retirement at age 55 (i.e., 21%)." 8. Section 3.8(b) is hereby amended by deleting such Section in its entirety and replacing it with the following: "3.8(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 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." 9. The Plan, as amended by this Amendment, remains in full force and effect. IN WITNESS WHEREOF, Tenet has signed this Amendment as of the date set forth above. Tenet Healthcare Corporation By: /s/ Richard B. Silver ------------------------------------- Name: Richard B. Silver Title: Assistant Secretary EX-13 16 EXHIBIT 13 ANNUAL REPORT 1997 A N N U A L R E P O R T TENET HEALTHCARE CORPORATION [LOGO] TENET IS 130 HOSPITALS, SPECIALTY CARE FACILITIES, OUTPATIENT CENTERS, HOME HEALTH AGENCIES AND MANY OTHER RELATED BUSINESSES. WE HAVE 105,000 DEDICATED PEOPLE -- INCLUDING PHYSICIANS, NURSES AND SUPPORT STAFF -- PROVIDING QUALITY, COST-EFFECTIVE MEDICAL CARE TO THEIR COMMUNITIES. CONTENTS 1 LETTER TO SHAREHOLDERS 7 FINANCIAL SUMMARY 8 MANAGEMENT'S DISCUSSION AND ANALYSIS 17 CONSOLIDATED STATEMENTS OF OPERATIONS 18 CONSOLIDATED BALANCE SHEETS 19 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 20 CONSOLIDATED STATEMENTS OF CASH FLOWS 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 40 REPORT OF INDEPENDENT AUDITORS 41 DIRECTORS AND MANAGEMENT 43 SUPPLEMENTARY FINANCIAL INFORMATION 44 CORPORATE INFORMATION LETTER TO OUR SHAREHOLDERS JEFFREY C. BARBAKOW [PHOTO] MICHEAL H. FOCHT SR. It's remarkable how quickly a year passes. Equally remarkable is how much we have accomplished at Tenet during the span of only 12 months. As the fiscal year closed on May 31, 1997, we had a great deal to celebrate. The company completed the acquisition of OrNda HealthCorp well ahead of schedule. We achieved another year of solid financial results that testified to the strength of our healthcare delivery networks and the effectiveness of our overall business strategy. Through a major refinancing, we reduced Tenet's financing costs. During the course of the fiscal year, Tenet enhanced its networks across the country by acquiring three nonprofit hospitals and entering into long-term lease agreements for two more. At the same time, we were exploring or establishing a number of innovative new partnerships with the not-for-profit, academic and investor-owned sectors. We also began to put in place our new Economic Value Added system, designed to better measure financial performance throughout the company and spur our managers to add additional value to our organization for our shareholders. Our momentum as a company has continued into fiscal 1998 - and not just in the area of acquisitions. Shortly after the beginning of the new fiscal year, we launched an important initiative -- unprecedented, we believe, in this industry -- to narrow the gap between us and our not-for-profit colleagues and to explore ways in which we can, together, lead the healthcare industry into the 21st century. THE ORNDA ACQUISITION While we have much to be proud of in fiscal 1997, the OrNda acquisition was clearly the year's seminal event. It would be difficult to overestimate the impact of melding the nation's second- and third-largest healthcare companies. The numbers alone are impressive. On January 30, 1997, more than a month ahead of the original schedule, Tenet successfully completed its acquisition of OrNda, adding 50 OrNda acute care hospitals to the 77 that Tenet already owned. More impressive was the fact that 32 of the OrNda facilities complemented Tenet's existing healthcare delivery networks. Overnight, Tenet became the largest healthcare provider in Southern California. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 1 LETTER TO OUR SHAREHOLDERS (CONTINUED) In South Florida, the acquisition added four acute care hospitals to Tenet South Florida HealthSystem, our South Florida integrated network, bringing the total count to 12. In Texas, the OrNda acquisition added eight acute care hospitals to Tenet's 12 existing hospitals, enhancing the company's presence in important areas like the greater Dallas and Houston areas. The OrNda acquisition also introduced Tenet to important new markets. OrNda's five acute care hospitals in Arizona gave Tenet a presence in one of the nation's fastest-growing regions. The acquisition also created new opportunities for the company in other states, including Massachusetts. It was not only the bricks and mortar of the two companies that fit so well together. Tenet and OrNda also shared the same commitment to delivering quality, community--based healthcare. An interesting thing started to happen shortly after the decision to acquire OrNda was announced in October 1996. An increasing number of not--for-profit hospitals and health systems began to contact us, inquiring about possible partnerships or outright acquisitions. The acquisition of OrNda, it seemed, had sent the message that Tenet was here to stay and that it had become a far more powerful force in redefining healthcare delivery. Now, there was another reason to become part of a Tenet network. Tenet, we believe, already enjoyed the reputation for having the healthcare industry's most comprehensive corporate integrity program. And its practice of allowing its hospitals to carry on the missions they had pursued as not-for-profit institutions was being appreciated by more and more not-for-profits. The enhanced networks and additional financial strength that came with the OrNda acquisition was yet another reason for them to reach out to Tenet. Following the completion of the OrNda acquisition, we realigned Tenet's operational structure to accommodate the OrNda facilities, primarily by creating a new "super region" in Southern California and a new Arizona Region for former OrNda facilities in Arizona and several other Western states. We also unified our company's quality assurance functions into a single new Quality Management department, consolidated all acquisition and development activity into one larger department, and expanded our compliance and audit departments. In addition, we began moving a number of legal, reimbursement and business office staff from our Dallas Operations Center to the regional offices to better serve the company's facilities. Upon completing the OrNda acquisition, Tenet put into place new short-- and long-term financing. Although we had originally intended to issue $1.3 billion in public debt and obtain a $2.5 billion line of credit, demand from investors was so strong that we increased the amounts to $2 billion and $2.8 billion, respectively, to better position ourselves for future growth. The borrowings, portions of which were used to repurchase OrNda's public debt and to repay old lines of credit for Tenet and OrNda, are at more favorable rates than our previous debt. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 2 L E T T E R TO OUR SHAREHOLDERS FISCAL 1997 RESULTS For the fiscal year ended May 31, 1997, Tenet reported earnings per share from continuing operations -- excluding unusual or non-recurring items -- of $1.46. That's compared with $1.27 in the prior year, a gain of 15 percent. Results for both years are restated to reflect the pooling-of-interests merger with OrNda HealthCorp on January 30, 1997. Net operating revenues for the fiscal year were $8.7 billion, an increase of 12.8 percent from $7.7 billion in the 1996 fiscal year. Income from continuing operations, excluding the effect of all unusual or non-recurring items, was $445 million in fiscal 1997, compared with $370 million in the previous fiscal year, an increase of 20.1 percent. The strong revenue growth in the year reflects improved patient volumes at Tenet's hospitals. Total admissions at Tenet's acute care hospitals increased 10.2 percent for the year. Admissions increased 1.3 percent on a same-facility basis for the year. Total outpatient visits increased 22.3 percent for the year. On a same-facility basis, outpatient visits increased 11 percent for the year. Providing a strong finish to what has been a very successful and eventful year for Tenet, the company reported earnings from continuing operations, before unusual or non-recurring items, in the fourth quarter of fiscal 1997 of 41 cents per share, a 17 percent increase compared with 35 cents in the fourth quarter of the prior year. Total admissions at Tenet's acute care hospitals increased 14.5 percent in the quarter -- 2.9 percent on a same-facility basis. Total outpatient visits increased 24.8 percent in the quarter -- 11.2 percent on a same-facility basis. Results for the year include a number of unusual or non-recurring items totaling $517 million after tax. For a more complete discussion of these items and the company's financial results, turn to the Financial Statements and the Management's Discussion and Analysis sections later in this report. GROWING THROUGH ACQUISITIONS In fiscal 1997, we continued to focus on expanding and strengthening operations in our existing markets by acquiring or leasing hospitals that enhance our integrated delivery networks. On June 1, 1996, the first day of the fiscal year, we acquired Hialeah Hospital, a 378-bed acute care facility near Miami. The addition of Hialeah to Tenet South Florida HealthSystem particularly enhanced Tenet's presence in North Dade County, a highly competitive area with heavy managed care activity. In early October 1996, Tenet acquired Lloyd Noland Hospital & Health System, a 319-bed, acute care hospital and health system in Birmingham, Ala., strengthening Tenet's presence in Birmingham and helping establish the foundation for a statewide integrated delivery system. Tenet also owns 586-bed Brookwood Medical Center in Birmingham and has a 50 percent interest in St. Clair Regional Hospital, an 82-bed hospital located just outside of Birmingham and managed by Tenet's 50 percent partner. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 3 In January 1997, Tenet further enhanced its South Florida network by acquiring North Shore Medical Center, a 357-bed hospital in Miami. Also in January, Tenet entered into a 30-year lease of Brookside Hospital in San Pablo, Calif. Brookside, a 233-bed facility, faced potential closure until Tenet proposed combining its operations with Doctors Hospital of Pinole, a 137-bed facility that Tenet operates in nearby Pinole. And in May, Tenet assumed a 30-year lease of Desert Hospital, a 388-bed hospital in Palm Springs, Calif. The transaction pairs Desert with John F. Kennedy Memorial Hospital, a Tenet-owned 130-bed acute care community hospital in nearby Indio, to form a regional healthcare delivery system serving the entire Coachella Valley. The pace of acquisitions continued into the new fiscal year. In July, Tenet completed its acquisition of 1,030-bed Deaconess Incarnate Word Health System, Inc. in St. Louis. The system, which includes three acute care hospitals and numerous related services, will form the foundation of an integrated healthcare delivery system for the greater St. Louis area, where Tenet already owns 408-bed Lutheran Medical Center. Also in July, Tenet assumed the remaining four years of a five-year lease of county-owned Sylvan Grove Hospital in Jackson, Ga. Sylvan Grove, a 25-bed acute care hospital providing general medical services, will be paired with Tenet's Spalding Regional Hospital, a 160-bed acute care community hospital in nearby Griffin. BUILDING PARTNERSHIPS During fiscal 1997, Tenet continued to demonstrate its willingness to enter into partnerships with other healthcare providers, not-for-profit and investor-owned alike, that help the company expand its business. In April 1997, for example, Tenet and MedPartners, Inc., the nation's largest manager of physician practices, announced a letter of intent to form a partnership to create Southern California's largest healthcare contracting network. Under the agreement, Tenet will acquire MedPartners' 99-bed Pioneer Hospital in Artesia, Calif. The hospital will concentrate on ambulatory services, while the 100,000 HMO members currently served by Pioneer will receive healthcare services at other Tenet acute care hospitals under a 10-year, full-risk, capitated arrangement. Additionally, MedPartner's 1.2 million Southern California HMO members will have access to Tenet hospitals. In June 1997, Tenet South Florida HealthSystem and the renowned Cleveland Clinic received approval from the state of Florida to jointly build a 150-bed acute care hospital in Weston, one of South Florida's fastest-growing areas. Cleveland Clinic Florida will oversee clinical care, research and educational programs, and Tenet will manage the operations of the Broward County hospital. Upon completion of the jointly owned hospital, Cleveland Clinic Florida will become part of the Tenet South Florida network. Tenet's affiliations with prestigious academic medical centers also grew in fiscal 1997. In July 1996, Tenet's Board of Directors and Louisiana State University approved an affiliation agreement between LSU Medical Center and two New Orleans-area Tenet hospitals - Kenner Regional Medical Center and Memorial Medical Center. In addition to creating a teaching affiliation between LSU and the two hospitals, the agreement calls for centers of excellence offering specialized tertiary and quaternary TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 4 L E T T E R TO OUR SHAREHOLDERS medical services to be established at both Kenner and Memorial and for Tenet to provide diagnostic services at the planned Stanley S. Scott Cancer Center at LSU. Tenet's two other major academic affiliations are with Creighton University School of Medicine in Omaha, Neb., and the University of Southern California School of Medicine in Los Angeles. In June 1997, shortly after the end of the fiscal year, Tenet's USC University Hospital in Los Angeles reached an agreement with the University of Southern California to manage the USC/Norris Cancer Hospital, a private facility owned and operated by USC. USC/Norris Cancer Hospital is part of the USC/Norris Comprehensive Cancer Center, one of only 26 such centers in the United States designated by the National Cancer Institute to lead the nation in cancer research, treatment, education and prevention. We believe that establishing relationships with nationally known teaching and research institutions like these enhances the quality of care we are able to offer our patients. ECONOMIC VALUE ADDED PERFORMANCE MEASUREMENT At the beginning of fiscal 1998, we began implementing an Economic Value Added (EVA) performance measurement system that eventually will be adopted throughout the company. By tying operating performance to the cost of capital required to generate that performance, EVA strengthens Tenet's ability to measure real financial performance at every level of the company. Because this capital allocation discipline takes into account all business costs, EVA is a more complete measure of profitability than traditional measures such as EBITDA (earnings before interest, taxes, depreciation and amortization), EBIT (earnings before interest and taxes) or ROI (return on investment). Moreover, we have incorporated EVA into Tenet's incentive compensation programs, giving us a vital new dimension that will help us achieve superior performance for shareholders. BUILDING AN OPEN WORLD But what about the future? We believe a new order in healthcare is emerging, one in which consumers are likely to insist upon a more open healthcare system that provides a greater choice of services at reasonable costs. As this change occurs, we anticipate many new opportunities for nontraditional growth, particularly in the provision of new healthcare services. We want Tenet to be among the leaders in these emerging areas. All of this has profound implications for Tenet's strategy today. If the healthcare industry is, in fact, headed for an open world, we must prepare for it now. We must expand our thinking to entertain fresh, innovative partnership models with other institutions in this industry. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 5 Nothing is more vital to the development of this open world -- and nothing is more important to Tenet -- than bridging the gap with not-for-profit hospitals and health systems. They need us; we need them. They hold key links that will allow us to complete our delivery systems, through acquisitions, partnerships or other innovative relationships. In return, Tenet has much to offer them -- for example, access to our well-respected accounts receivable and collections capabilities, powerful group-purchasing programs and managed care networks. To help bridge the gap, we have joined the American Hospital Association, the premier not-for-profit trade organization in the hospital industry. This puts us side-by-side with our not-for-profit colleagues. Tenet has an historic opportunity to break down the artificial barrier that separates us from our not-for-profit colleagues. If our efforts are successful, they will open a vast new world of opportunity for Tenet while literally reshaping our industry for the better. At a time when this industry is searching for alternatives and society is looking for more open, customer-friendly healthcare services, we believe Tenet is better positioned than anyone to deliver. Tenet can be a remarkable instrument of change. If we stay the course, we can transform this industry in a profoundly positive way that will directly benefit not just you, our shareholders, but also healthcare in the United States. /s/ Jeffrey Barbakow Jeffrey C. Barbakow Chairman and Chief Executive Officer /s/ Michael H. Focht Sr. Michael H. Focht Sr. President and Chief Operating Officer August 1, 1997 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 6 FINANCIAL SUMMARY SELECTED FINANCIAL DATA CONTINUING OPERATIONS(1)
Years Ended May 31, ------------------------------------------------------------------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1993 1994 1995(2) 1996 1997 ------------------------------------------------------------------ OPERATING RESULTS: Net operating revenues $4,140 $4,218 $ 5,161 $ 7,706 $ 8,691 Operating expenses: Salaries and benefits 1,908 1,868 2,170 3,130 3,574 Supplies 462 498 668 1,056 1,197 Provision for doubtful accounts 178 193 260 431 494 Other operating expenses 899 942 1,178 1,646 1,829 Depreciation 185 199 232 319 335 Amortization 23 25 44 100 108 Merger, facility consolidation and other non-recurring charges 52 110 37 86 740 ------------------------------------------------------------------ Operating income 433 383 572 938 414 Interest expense, net of capitalized portion (144) (157) (251) (425) (417) Investment earnings 24 31 32 27 26 Equity in earnings of unconsolidated affiliates 13 27 43 25 1 Minority interests (15) (12) (10) (30) (27) Net gain (loss) on disposals of facilities and long-term investments 122 42 31 346 (18) ------------------------------------------------------------------ Income (loss) from continuing operations before income taxes 433 314 417 881 (21) Taxes on income (156) (145) (151) (383) (52) ------------------------------------------------------------------ Income (loss) from continuing operations $ 277 $ 169 $ 266 $ 498 $ (73) ------------------------------------------------------------------ ------------------------------------------------------------------ Earnings (loss) per common share from continuing operations, fully diluted $ 1.24 $ 0.75 $ 1.08 $ 1.70 $ (0.24) ------------------------------------------------------------------ ------------------------------------------------------------------ Cash dividends per common share $ 0.48 $ 0.12 $ -- $ -- $ -- ------------------------------------------------------------------ ------------------------------------------------------------------ As of May 31, ------------------------------------------------------------------- 1993 1994 1995 (2) 1996 1997 ------------------------------------------------------------------- BALANCE SHEET DATA:(1) Working capital (deficit) $ 182 $ (190) $ 273 $ 499 $ 522 Total assets 5,379 5,543 9,787 10,768 11,705 Long-term debt, excluding current portion 1,598 1,290 4,287 4,421 5,022 Shareholders' equity 1,964 1,648 2,379 3,277 3,224 Book value per common share $ 9.24 $ 7.33 $ 9.13 $ 11.13 $ 10.65
(1) On January 30, 1997, Tenet Healthcare Corporation (together with its subsidiaries "Tenet" or the "Company") acquired OrNda HealthCorp (together with its subsidiaries, "OrNda") by issuing 81,439,910 shares of its common stock in a tax-free exchange for all of OrNda's outstanding common stock. The transaction has been accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements and all statistical data shown herein prior to the combination have been restated to include the accounts and results of operations of OrNda for all periods presented. (2) On March 1, 1995, Tenet acquired, in a transaction accounted for as a purchase, all the outstanding common stock of American Medical Holdings, Inc. (together with its subsidiaries, "AMH") for $1.5 billion in cash and 33.2 million shares of Tenet's common stock valued at approximately $488 million (the "AMH Merger"). TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE ORNDA MERGER On January 30, 1997, Tenet Healthcare Corporation (together with its subsidiaries, "Tenet" or the "Company") acquired OrNda HealthCorp (together with its subsidiaries, "OrNda"). The OrNda Merger has been accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements and all statistical data shown herein for prior years have been restated to include the accounts and results of operations of OrNda for all periods presented. Tenet's subsidiaries operated 77 general hospitals and OrNda's subsidiaries operated 50 general hospitals at January 30, 1997. Management believes that joining together Tenet's general hospitals and related healthcare operations with OrNda's has created a stronger, more geographically diverse company that is better able to compete in certain key geographic areas, such as Southern California and South Florida, and to grow through strategic acquisitions and partnerships. The OrNda Merger also expanded Tenet's operations into several new geographic areas, including Arizona, Iowa, Massachusetts, Mississippi, Nevada, Oregon and Washington. The healthcare industry has undergone, and continues to undergo, tremendous change, including cost-containment pressures by government payors, managed care providers and others, as well as technological advances that require increased capital expenditures. The combined company will continue to emphasize the creation of strong integrated healthcare delivery systems to address those changes. The OrNda Merger is expected to enable the combined company to realize certain cost savings before any costs related to the merger and facility consolidations. No assurances can be made as to the amount of cost savings, if any, that actually will be recognized. In connection with the OrNda Merger, the Company repaid $2.3 billion in debt. The debt retirements were financed by borrowings under the Company's new $2.8 billion revolving bank credit agreement and the public issuance of $2.0 billion in new debt securities. THE AMERICAN MEDICAL HOLDINGS MERGER On March 1, 1995, in a transaction accounted for as a purchase, the Company acquired American Medical Holdings, Inc. (together with its subsidiaries, "AMH") for $1.5 billion in cash and 33.2 million shares of the Company's common stock valued at $488 million (the "AMH Merger"). In connection with the acquisition, the Company also repaid $1.8 billion of debt. Both the acquisition and debt retirements were financed by borrowings under the Company's then-existing credit agreement and the public issuance of $1.2 billion in new debt securities. Prior to the AMH Merger, Tenet (excluding OrNda) operated 33 domestic general hospitals with 6,620 licensed beds in six states and a small number of skilled nursing facilities, rehabilitation hospitals and psychiatric hospitals located on or near general hospital campuses. With the AMH Merger, the Company acquired 37 domestic general hospitals with 8,831 beds, bringing its domestic general hospital complement at that time to 70 hospitals with 15,451 licensed beds in 13 states. The acquisition also included ancillary facilities at or nearby many AMH hospitals, including outpatient surgery centers, rehabilitation units, long-term-care facilities, a psychiatric hospital, home healthcare programs and ambulatory, occupational and rural healthcare clinics. Management believes that the AMH Merger strengthened the Company in its then-existing markets and enhanced its ability to deliver quality, cost-effective healthcare services in new markets. The consolidation of Tenet and AMH has resulted in certain cost savings, estimated to be at least $60 million annually, TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 8 MANAGEMENT'S DISCUSSION beginning in the fiscal year ended May 31, 1996. These savings are before any severance or other costs of implementing certain efficiencies and have been realized through (i) elimination of duplicate corporate overhead expenses, (ii) reduced supplies expense through the incorporation of the acquired facilities into the Company's existing group-purchasing program, (iii) achievement of lower information system costs through consolidation and outsourcing and (iv) improved collection of the acquired AMH facilities' accounts receivable. RESULTS OF OPERATIONS Income from continuing operations before income taxes was $417 million in 1995 and $881 million in 1996. The Company reported a pretax loss from continuing operations of $21 million in 1997. The most significant transactions affecting the results of continuing operations were (i) the acquisition of AMH, (ii) the acquisition by OrNda of Summit Health Ltd. ("Summit"), (iii) the financing of the AMH Merger, which added more than $250 million annually in interest expense, (iv) a series of other acquisitions and divestitures during fiscal 1995, 1996 and 1997 (see Note 3 of Notes to Consolidated Financial Statements herein), and (v) merger, facility consolidation and other non-recurring charges recorded in all three fiscal years (See Note 4 of Notes to Consolidated Financial Statements herein). Fiscal 1995 includes the sale of a 75% interest in Total Renal Care Holdings, Inc. ("TRC"). Fiscal 1996 includes the 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 8,301,067 shares of common stock of Vencor, Inc. ("Vencor"). Fiscal 1997 includes a noncash charge relating to increases in the index value of certain of the Company's long-term debt. These transactions and other unusual pretax items relating to the OrNda Merger, facility consolidation and other non-recurring charges are shown below: (in millions) 1995 1996 1997 ------------------------- Gain (loss) on sales of facilities and long-term investments $(1) $329 $ (18) Gains on sales of subsidiary's common stock 32 17 - Merger, facility consolidation and other non-recurring charges (37) (86) (740) ------------------------- Net unusual pretax items (after tax, fully diluted per share: ($0.02) in 1995, $0.43 in 1996 and ($1.70) in 1997) $(6) $260 $(758) ------------------------- Excluding the unusual items in the table above, income from continuing operations before income taxes would have been $423 million in 1995, $621 million in 1996 and $737 million in 1997 and fully diluted earnings per share from continuing operations would have been $1.10, $1.27 and $1.46, respectively. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 9 The following is a summary of continuing operations for the past three fiscal years:
1995 1996 1997 1995 1996 1997 ---------------------------------------- ------------------------------------ (PERCENTAGE OF (DOLLARS IN MILLIONS) NET OPERATING REVENUES) Net Operating Revenues: Domestic general hospitals(3) $ 4,536 $7,183 $7,932 87.9% 93.2% 91.3% Other domestic operations (1), (3) 394 472 759 7.6% 6.1% 8.7% International operations 214 51 - 4.2% 0.7% - Divested operations (2) 17 - - 0.3% - - ---------------------------------------- ------------------------------------ $ 5,161 $7,706 $8,691 100.0% 100.0% 100.0% ---------------------------------------- ------------------------------------ Operating Expenses: Salaries and benefits (2,170) (3,130) (3,574) 42.0% 40.6% 41.1% Supplies (668) (1,056) (1,197) 13.0% 13.7% 13.8% Provision for doubtful accounts (260) (431) (494) 5.0% 5.6% 5.7% Other operating expenses (1,178) (1,646) (1,829) 22.8% 21.4% 21.0% Depreciation (232) (319) (335) 4.5% 4.1% 3.9% Amortization (44) (100) (108) 0.9% 1.3% 1.2% ---------------------------------------- ------------------------------------ Operating income before merger, facility consolidation and other non-recurring charges 609 1,024 1,154 11.8% 13.3% 13.3% Merger, facility consolidation and other non-recurring charges (37) (86) (740) 0.7% 1.1% 8.5% ---------------------------------------- ------------------------------------ Operating income $ 572 $ 938 $ 414 11.1% 12.2% 4.8% ---------------------------------------- ------------------------------------ ---------------------------------------- ------------------------------------
(1) NET OPERATING REVENUES OF OTHER DOMESTIC OPERATIONS CONSIST PRIMARILY OF REVENUES FROM (I) PHYSICIAN PRACTICES; (II) A SMALL NUMBER OF REHABILITATION HOSPITALS, LONG-TERM-CARE FACILITIES AND PSYCHIATRIC HOSPITALS THAT ARE LOCATED ON OR NEAR THE SAME CAMPUSES AS THE COMPANY'S GENERAL HOSPITALS; (III) HEALTHCARE JOINT VENTURES OPERATED BY THE COMPANY; (VI) SUBSIDIARIES OF THE COMPANY OFFERING MANAGED CARE AND INDEMNITY PRODUCTS; AND (IV) REVENUES EARNED BY THE COMPANY IN CONSIDERATION OF THE GUARANTEES OF CERTAIN INDEBTEDNESS AND LEASES OF VENCOR AND OTHER THIRD PARTIES. (2) NET OPERATING REVENUES OF DIVESTED OPERATIONS CONSIST OF REVENUES FROM (I) TRC PRIOR TO THE AUGUST 1994 SALE OF AN APPROXIMATELY 75% EQUITY INTEREST IN TRC. (3) CERTAIN RECLASSIFICATIONS HAVE BEEN MADE TO THE FINANCIAL INFORMATION PREVIOUSLY SEPARATELY REPORTED BY ORNDA TO BE CONSISTENT WITH THE COMPANY'S MANNER OF PRESENTATION. Net operating revenues were $5.2 billion in 1995, $7.7 billion in 1996 and $8.7 billion in 1997. Fiscal 1996 includes revenues attributable to facilities acquired in the AMH Merger. Fiscal 1995 includes three months of revenues attributable to the facilities acquired in the AMH Merger. Operating income before merger, facility consolidation and other non-recurring charges increased by 68.1% from $609 million in 1995 to $1,024 million in 1996, and by 12.7% to $1,154 million in 1997. The operating margin on this basis increased from 11.8% in 1995 to 13.3% in 1996 and in 1997. The table below sets forth certain selected historical operating statistics for the Company's domestic general hospitals:
INCREASE (DECREASE) 1995 1996 1997 1996 to 1997 -------------------------------------------------------- Number of hospitals (at end of period) 114 122 128 6 Licensed beds (at end of period) 23,250 25,699 27,959 8.8% Net inpatient revenues (in millions) $ 3,049 $ 4,744 $ 5,227 10.2% Net outpatient revenues (in millions) $ 1,399 $ 2,283 $ 2,515 10.2% Admissions 470,027 714,058 786,887 10.2% Equivalent admissions (1) 640,931 1,017,514 1,124,397 10.5% Average length of stay (days) 5.5 5.3 5.2 (0.1)* Patient days 2,569,427 3,771,928 4,099,709 8.7% Equivalent patient days (2) 3,478,485 5,432,612 5,817,251 7.1% Net inpatient revenues per patient day $ 1,187 $ 1,258 $ 1,275 1.4% Net inpatient revenues per admission $ 6,487 $ 6,643 $ 6,643 - Utilization of licensed beds 42.8% 41.6% 42.5% 0.9%* Outpatient visits 4,115,716 8,174,002 9,997,266 22.3%
* THE % CHANGE IS THE DIFFERENCE BETWEEN THE 1996 AND 1997 PERCENTAGES SHOWN. (1) EQUIVALENT ADMISSIONS REPRESENTS ACTUAL ADMISSIONS ADJUSTED TO INCLUDE OUTPATIENT AND EMERGENCY ROOM SERVICES BY MULTIPLYING ACTUAL ADMISSIONS BY THE SUM OF GROSS INPATIENT REVENUE AND OUTPATIENT REVENUE AND DIVIDING THE RESULT BY GROSS INPATIENT REVENUE. (2) EQUIVALENT PATIENT DAYS REPRESENTS ACTUAL PATIENT DAYS ADJUSTED TO INCLUDE OUTPATIENT AND EMERGENCY ROOM SERVICES BY MULTIPLYING ACTUAL PATIENT DAYS BY THE SUM OF GROSS INPATIENT REVENUE AND OUTPATIENT REVENUE AND DIVIDING THE RESULT BY GROSS INPATIENT REVENUE. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 10 MANAGEMENT'S DISCUSSION The table below sets forth certain selected operating statistics for the Company's domestic general hospitals, on a same-facility basis: Increase 1996 1997 (Decrease) ---------------------------------- Number of hospitals 107 107 - Average licensed beds 22,248 22,327 0.4% Patient days 3,464,652 3,483,065 0.5% Net inpatient revenue per patient day $ 1,267 $ 1,283 1.3% Admissions 655,248 663,890 1.3% Net inpatient revenue per admission $ 6,699 $ 6,731 0.5% Outpatient visits 7,535,242 8,361,152 11.0% Average length of stay (days) 5.3 5.2 (0.1)* *THE % CHANGE IS THE DIFFERENCE BETWEEN 1996 AND 1997 PERCENTAGES SHOWN. 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. The Medicare program accounted for approximately 38% of the net patient revenues of the Company's domestic general hospitals in 1995 and 40% in 1996 and 1997. Historically, rates paid under Medicare's prospective payment system ("PPS") for inpatient services have increased, but such increases have been less than cost increases. Under the Balanced Budget Act of 1997 (the "1997 Act"), there will be no increases in the rates paid to general hospitals under the PPS through September 30, 1998. Payments for Medicare outpatient services provided at general hospitals, home health services and all services provided at rehabilitation hospitals historically have been reimbursed based on costs, subject to certain limits. The 1997 Act requires that the reimbursement for those services be converted to a PPS, which will be phased in over time. The Company believes that the foregoing changes and other changes in reimbursement mandated by the 1997 Act, as well as certain proposed changes to various states' Medicaid programs, will reduce payments as the changes are phased in. Such reduced payments, however, are not likely to have a material adverse effect on the Company's results of operations. The 1997 Act also contains various provisions that create new opportunities for the Company. Certain of those provisions, such as those allowing for creation of Provider Service Organizations, 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 from the federal government for each Medicare beneficiary enrolled in its plans and assumes the risks and rewards of meeting the healthcare needs of those enrolled in its plans. The Company may purchase insurance to cover all or 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 these opportunities will be. To address the effect of reduced payments for services, while continuing to provide quality care to patients, the Company has implemented hospital cost-control programs and overhead reduction plans and continues to form integrated healthcare delivery systems in an effort to reduce inefficiencies, create synergies, obtain additional business and control costs. As a result of these efforts, such reduced payments are not expected to have a material adverse effect on the Company's results of operations. Pressures to control healthcare costs have resulted in an increase in the percentage of revenues attributable to managed care payors. The percentage of the Company's net patient revenues of the domestic general hospitals attributable to managed care was approximately 24.6% in 1995, 27.6% in 1996 and 29.5% in 1997. The Company anticipates that its managed care business will continue to increase in the future. The Company TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 11 generally receives lower payments from managed care payors than it does from traditional indemnity insurers. The Company also increasingly is assuming a greater share of risk by entering into capitated arrangements with managed care payors and employers. 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 pressures are expected to continue. Net operating revenues from the Company's other domestic operations were $394 million in 1995, compared with $472 million in 1996 and $759 million in 1997. The 19.8% increase from 1995 to 1996 primarily reflects continued growth of the Company's subsidiaries offering health insurance products and growth of its physician practices. The 60.8% increase from 1996 to 1997 is primarily related to the continued growth of the Company's physician practices. The Company currently owns or manages over 900 physician practices. The $163 million decrease in net operating revenues from the Company's international operations in fiscal 1996 compared to fiscal 1995 is attributable to the sales of the Company's hospitals and related healthcare businesses in Singapore and Australia. Operating expenses, which include salaries and benefits, supplies, provision for doubtful accounts, depreciation and amortization, and merger, facility consolidation and other non-recurring charges, were $4.6 billion in 1995, $6.8 billion in 1996 and $8.3 billion in 1997. Operating expenses for fiscal 1996 include 12 months of operating expenses from the facilities acquired in the AMH Merger, while fiscal 1995 includes only three months and, to that extent, the 1995 and 1996 periods are not comparable. Fiscal 1995 also includes the operating expenses of the international and other divested operations discussed above. Salaries and benefits expense as a percentage of net operating revenues was 42.0% in 1995, 40.6% in 1996 and 41.1% in 1997. The improvement in 1996 is attributable primarily to reductions in staffing levels in the Company's hospitals and corporate offices, implemented following the AMH Merger in 1995. The increase in 1997 over the prior year is primarily attributable to an increase in salaries and benefits in the same-store facilities acquired in the OrNda Merger and to other recent acquisitions of not-for-profit hospitals. Supplies expense as a percentage of net operating revenues was 13.0% in 1995, 13.7% in 1996 and 13.8% in 1997. The increases over the prior two years are attributable primarily to higher supplies expense in the facilities acquired in the AMH Merger and subsequent acquisitions. The increase is also attributable to the sales of the Company's international operations. Supplies expense as a percentage of net operating revenues at the international facilities was substantially less than supplies expense as a percentage of net operating revenues at the domestic general hospital operations. The Company expects to continue to focus on reducing supplies expense through incorporating acquired facilities into the Company's existing group-purchasing program and by developing and expanding various programs designed to improve the purchasing and utilization of supplies. The provision for doubtful accounts as a percentage of net operating revenues was 5.0% in 1995, 5.6% in 1996 and 5.7% in 1997. The increase in 1996 was attributable primarily to higher bad debt experience at the facilities acquired in the AMH Merger and subsequent acquisitions. The increase in 1997 over the prior year is primarily related to acquisitions and an increase in days outstanding in accounts receivable. The Company, through its collection subsidiary, Syndicated Office Systems, has established improved follow-up collection systems by consolidating the collection of accounts receivable in all the Company's facilities. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 12 MANAGEMENT'S DISCUSSION Other operating expenses as a percentage of net operating revenues were 22.8% in 1995, 21.4% in 1996 and 21.0% in 1997. The improvements in 1996 and 1997 reflect the effects of the cost-control programs and overhead-reduction plans mentioned herein. Depreciation and amortization expense was $276 million in 1995, $419 million in 1996 and $443 million in 1997. The increases in 1995 and 1996 were due primarily to the AMH Merger, the Summit acquisition and various other acquisitions by both Tenet and OrNda, as described in Note 3 to the Consolidated Financial Statements. In addition, amortization of intangibles increased as a result of acquired businesses. Goodwill amortization associated with the AMH Merger is approximately $64 million annually. Merger, facility consolidation and other non-recurring charges of $37 million, $86 million and $740 million were recorded in fiscal 1995, 1996 and 1997, respectively. The fiscal 1995 $37 million charge included severance payments and outplacement services for involuntary terminations of former employees of the Company and other costs related to consolidating the operations of AMH and Tenet. 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 also 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 acquisition and the write-off of goodwill and other assets related to certain of the Company's physician practices. In fiscal 1997, the Company also recorded non-recurring charges in connection with the OrNda Merger of $309 million which included: investment 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 other 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 OrNda 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. Interest expense, net of capitalized interest, was $251 million in 1995, $425 million in 1996 and $417 million in 1997. The increase between 1995 and 1996 was due primarily to the acquisition of AMH and the notes and bank loans used to finance the acquisition and to retire debt in connection with the AMH Merger. The reduction in 1997 compared to 1996 is primarily due to the refinancing of debt in connection with the OrNda Merger at lower interest rates. Investment earnings were $32 million in 1995, $27 million in 1996 and $26 million in 1997 and were derived primarily from notes receivable and investments in debt securities. Equity in earnings of unconsolidated affiliates was $43 million in 1995, $25 million in 1996 and $1 million in 1997. Substantially all of the decrease between 1995 and 1996 is due to the exchange of the Company's investment in Hillhaven for common stock in Vencor and the purchase of a majority interest in Houston Northwest Medical Center. During 1995 and 1996 (through the date of the exchange), the Company's equity in the earnings of Hillhaven was $16 million and $7 million, respectively. The Company's equity in the earnings of Houston Northwest Medical Center was $14 million in 1995 and $9 million in 1996. The Company's equity in the earnings of Westminster Health Care Holdings PLC ("Westminster") was $6 million in 1995 and $7 million in 1996. The Company sold its investment in Westminster in May 1996. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 13 Minority interests in income of consolidated subsidiaries decreased in the current year due to reduced operating results at consolidated but not wholly owned facilities and increased in 1996 due to the effects of minority interests recorded at facilities acquired in the AMH Merger and other acquisitions. Minority interest expense was $10 million in 1995, $30 million in 1996 and $27 million in 1997. The Company's tax provision in 1995 and 1996 includes the benefit of the realization of certain prior-year operating losses of OrNda. The tax provision in 1996 includes additional amortization of goodwill resulting from the AMH Merger and gains from the sales of international operations. The amortization expense arising from the AMH Merger is a noncash charge but provides no income tax benefits. The tax charge in 1997 is due primarily to certain nondeductible merger costs and impairment charges which provide no tax benefits, partially offset by the benefit of prior years' operating losses of OrNda. The Company expects its normal tax rate in 1998 to approximate 40%. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity for the year ended May 31, 1997 was derived principally from the cash proceeds from operating activities, the proceeds from the sale of public debt and borrowings under the Company's secured and unsecured bank credit agreements. Net cash provided by operating activities for the years ended May 31, 1995, 1996 and 1997 was $126 million, $349 million and $404 million, respectively. Net expenditures for discontinued operations, merger, facility consolidation and other non-recurring charges were $427 million in 1995, $97 million in 1996 and $108 million in 1997, and are estimated to be approximately $366 million in 1998. Cash flows from operating activities during the year ended May 31, 1997 also have been adversely affected due to the following principal reasons: (i) billing delays resulting from conversions of patient accounting systems at several hospitals; (ii) delays in cash flows at recently acquired facilities where accounts receivable were not purchased; (iii) temporary slowdowns in the collection of Medicare receivables due to changes in fiscal intermediaries for recently acquired facilities; and (iv) a general slowdown of payments from other payors. Management believes that future cash flows from operations will continue to be positive. This liquidity, along with the availability of credit under the Company's current unsecured credit agreement, should be adequate to meet debt-service requirements and to finance planned capital expenditures and other known operating needs over the short term (up to 18 months) and the long term (18 months to three years). The Company's cash and cash equivalents at May 31, 1996 were $107 million, a decrease of $53 million from May 31, 1995. The Company's cash and cash equivalents at May 31, 1997 were $35 million, a decrease of $72 million from May 31, 1996. Working capital at May 31, 1995 was $273 million, compared to $499 million at May 31, 1996 and $522 million at May 31, 1997. One of the factors increasing working capital in both years is a decrease in the current portion of long-term debt as new credit agreements, described below, eliminated previously required quarterly payments of debt and amounts available under the new credit agreement were earmarked for the redemption of other currently maturing long-term debt. Net proceeds from the sales of facilities, investments and other assets were $191 million in 1995, compared to $551 million during 1996 and $50 million during 1997. In June 1996, the Company sold its former corporate headquarters building in Santa Monica, Calif. The proceeds in 1996 were primarily from the sales of the Company's international operations. 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 "New 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. The New Credit Agreement replaced the Company's March 1996 five-year $1.55 billion unsecured revolving credit agreement. Borrowings under the New Credit TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 14 MANAGEMENT'S DISCUSSION Agreement are unsecured and will mature on January 31, 2002. The Company generally may repay or prepay loans made under the New Credit Agreement and may reborrow at any time prior to the maturity date. The New Credit Agreement provides lower interest margins and generally has less restrictive covenants than the former agreement. The New Credit Agreement, among other requirements, has 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 stock unless its senior long-term unsecured debt securities are rated BBB- or higher by Standard and Poors' Ratings Services and Baa3 or higher by Moody's Investors Services, Inc., and covenants regarding maintenance 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's unused borrowing capacity under the New Credit Agreement was $2.0 billion at May 31,1997. In connection with the OrNda Merger and related refinancing, the Company on January 30, 1997 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. Proceeds from borrowings amounted to $3.5 billion in 1995, $3.3 billion in 1996 and $5.1 billion in 1997. In 1996, the proceeds consisted primarily of borrowings of $2.1 billion under the Company's bank credit agreements and $487 million in net proceeds from the sale of public debt. In 1997 these proceeds consisted of $3.1 billion in borrowings under the Company's bank credit agreements, and $2.0 billion in net proceeds from the sale of public debt. Loan repayments were $2.2 billion in 1995, $3.3 billion in 1996 and $4.5 billion during 1997. Cash payments for property and equipment were $336 million in fiscal 1995, $472 million in fiscal 1996 and $406 million in fiscal 1997. The Company expects to spend approximately $400 million to $500 million annually on capital expenditures, before any significant acquisitions of facilities and other healthcare operations and before an estimated $275 million commitment to fund the construction of a new replacement facility for one of its hospitals. 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 1996 and 1997, the Company spent $841 million and $787 million, respectively, for purchases of new businesses, net of cash acquired. These include 18 general hospitals and a number of other healthcare-related businesses. These acquisitions were financed primarily by borrowings under the Company's credit agreements. The Company's strategy includes the pursuit of growth through acquisitions and partnerships, including the development of integrated healthcare systems in certain strategic geographic areas, general hospital acquisitions and partnerships and physician practice acquisitions and partnerships. All or portions of this growth may be financed through available credit under the New Credit Agreement or, depending on capital market conditions, sale of additional debt or equity securities or other bank borrowings. BUSINESS OUTLOOK TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 15 The challenge facing the Company and the healthcare industry is to continue to provide quality patient care in an environment of rising costs, strong competition for patients, and a general reduction of reimbursement 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 further healthcare legislation at the federal and/or state level will be passed in the future, but it continues to monitor all proposed legislation and analyze its potential impact in order to formulate the Company's future business strategies. FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Report, including, without limitation, statements containing the words "believes," "anticipates," "expects" 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 involve known and unknown risks, uncertainties and other factors 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 lack of assurance that the synergies expected from the OrNda Merger will be achieved; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. 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. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 16 CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE Years ended May 31, ------------------------------------ AND SHARE AMOUNTS) 1995 1996 1997 ------------------------------------ Net operating revenues $ 5,161 $ 7,706 $ 8,691 ------------------------------------ Operating expenses: Salaries and benefits 2,170 3,130 3,574 Supplies 668 1,056 1,197 Provision for doubtful accounts 260 431 494 Other operating expenses 1,178 1,646 1,829 Depreciation 232 319 335 Amortization 44 100 108 Merger, facility consolidation and other non-recurring charges 37 86 740 ------------------------------------ Operating income 572 938 414 ------------------------------------ Interest expense, net of capitalized portion (251) (425) (417) Investment earnings 32 27 26 Equity in earnings of unconsolidated affiliates 43 25 1 Minority interests in income of consolidated subsidiaries (10) (30) (27) Net gain (loss) on disposals of facilities and long-term investments 31 346 (18) ------------------------------------ Income (loss) from continuing operations before income taxes 417 881 (21) Taxes on income (151) (383) (52) ------------------------------------ Income (loss) from continuing operations 266 498 (73) Discontinued operations (10) (25) (134) Extraordinary charges from early extinguishment of debt (20) (23) (47) ------------------------------------ Net income (loss) 236 450 (254) Preferred stock dividend requirements (2) - - ------------------------------------ Net income (loss) applicable to common shareholders $ 234 $ 450 $ (254) ------------------------------------ ------------------------------------ Earnings (loss) per common and common equivalent share: Primary: Continuing operations $1.10 $1.73 $(0.24) Discontinued operations (0.04) (0.09) (0.44) Extraordinary charges (0.08) (0.08) (0.16) ------------------------------------ $0.98 $1.56 $(0.84) ------------------------------------ ------------------------------------ Fully diluted: Continuing operations $1.08 $1.70 $(0.24) Discontinued operations (0.04) (0.08) (0.44) Extraordinary charges (0.08) (0.08) (0.16) ------------------------------------ $0.96 $1.54 $(0.84) ------------------------------------ ------------------------------------ Weighted average number of shares and share equivalents outstanding (in thousands): Primary 237,964 287,129 303,860 Fully diluted 254,105 295,062 304,153
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 17 CONSOLIDATED BALANCE SHEETS
MAY 31, -------------------- (DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1996 1997 -------------------- ASSETS Current assets: Cash and cash equivalents $ 107 $ 35 Short-term investments in debt securities 112 116 Accounts receivable, less allowance for doubtful accounts ($205 in 1996 and $224 in 1997) 1,040 1,346 Inventories of supplies, at cost 170 193 Deferred income taxes 312 294 Other current assets 299 407 ------------------- Total current assets 2,040 2,391 ------------------- Investments and other assets 588 678 Property and equipment, net 4,984 5,490 Costs in excess of net assets acquired, less accumulated amortization ($116 in 1996 and $180 in 1997) 3,072 3,072 Other intangible assets, at cost, less accumulated amortization ($43 in 1996 and $46 in 1997) 84 74 ------------------- $ 10,768 $ 11,705 ------------------- ------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 120 $ 28 Accounts payable 530 540 Employee compensation and benefits 173 309 Accrued interest payable 84 144 Reserves related to discontinued operations and other non-recurring charges 70 423 Other current liabilities 564 425 ------------------- Total current liabilities 1,541 1,869 ------------------- Long-term debt, net of current portion 4,421 5,022 Other long-term liabilities and minority interests 1,097 1,282 Deferred income taxes 432 308 Commitments and contingencies Shareholders' equity: Common stock, $0.075 par value; authorized 450,000,000 shares at May 31, 1996 and 700,000,000 shares at May 31, 1997; 297,352,251 shares issued at May 31, 1996 and 305,501,379 shares issued at May 31, 1997 22 23 Additional paid-in capital 2,171 2,311 Unrealized gains on investments in debt and equity securities 28 110 Retained earnings 1,096 819 Less common stock in treasury, at cost, 2,790,967 shares at May 31, 1996 and 2,676,091 shares at May 31, 1997 (40) (39) ------------------- Total shareholders' equity 3,277 3,224 ------------------- $ 10,768 $ 11,705 ------------------- -------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 18 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONVERTIBLE COMMON STOCK PREFERRED STOCK --------------------- ---------------- (DOLLAR AMOUNTS ARE ADDITIONAL EXPRESSED IN MILLIONS, SHARE OUTSTANDING ISSUED ISSUED PAID-IN UNREALIZED RETAINED TREASURY AMOUNTS IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT CAPITAL GAINS EARNINGS STOCK ---------------------------------------------------------------------------------------- Balances, May 31, 1994 224,739 $18 1,310 $ 20 $1,412 $ 71 $ 410 $(282) Net income 236 Shares issued in connection with: AMH Merger 33,156 3 485 Other acquisitions 561 5 Paid-in-kind dividends 134 2 (2) Conversion of convertible preferred stock 154 (114) (2) 2 Stock options exercised 1,917 10 10 Restricted share cancellations (4) Decrease in unrealized gains on investments in debt and equity securities, net of income taxes (19) ---------------------------------------------------------------------------------------- Balances, May 31, 1995 260,523 21 1,330 20 1,912 52 646 (272) Net income 450 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 Net change in unrealized gains from changes in market value of investments in debt and equity securities, net of income taxes (24) ---------------------------------------------------------------------------------------- Balances, May 31, 1996 294,561 22 -- -- 2,171 28 1,096 (40) Net loss (254) Issuance of common stock 1,171 22 1 Stock options exercised 7,093 1 118 Increase in unrealized gains on investments in debt and equity securities, net of income taxes 82 Elimination of the effect of including OrNda's results of operations for the three months ended August 31, 1996 in both years ended May 31, 1996 and 1997 (23) ---------------------------------------------------------------------------------------- Balances, May 31, 1997 302,825 $ 23 -- $ -- $2,311 $ 110 $ 819 $ (39) ---------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 19 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, -------------------------- (DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1995 1996 1997 -------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 236 $ 450 $ (254) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 276 419 443 Provision for doubtful accounts 260 431 494 Deferred income taxes 83 247 (219) Net loss (gain) on disposals of facilities and long-term investments (31) (346) 18 Additions to reserves for discontinued operations, merger, facility consolidation and other non-recurring charges 51 127 955 Extraordinary charges from early extinguishment of debt 20 23 47 Other items (17) 35 26 Increases (decreases) in cash from changes in operating assets and liabilities, net of effects from purchases of new businesses: Accounts receivable (400) (709) (791) Inventories and other current assets (36) (91) (7) Accounts payable, income taxes payable and other current liabilities (10) (100) (141) Other long-term liabilities and minority interests 121 (40) (59) Net expenditures for discontinued operations, merger, facility consolidation and other non-recurring charges (427) (97) (108) ------------------------- Net cash provided by operating activities 126 349 404 ------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (336) (472) (406) Purchases of new businesses, net of cash acquired (1,489) (841) (787) Proceeds from sales of facilities, long-term investments and other assets 191 551 50 Other items 11 (38) 18 ------------------------- Net cash used in investing activities (1,623) (800) (1,125) ------------------------- ------------------------- TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 20 Consolidated Statements of Cash Flows YEARS ENDED MAY 31, ---------------------------- (DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1995 1996 1997 ---------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 3,546 3,278 5,117 Loan payments (2,234) (3,307) (4,512) Proceeds from exercises of performance investment plan options -- 203 -- Proceeds from exercises of stock options 11 37 59 Proceeds from sales of common stock -- 192 12 Other items 3 (5) (23) ---------------------------- Net cash provided by financing activities 1,326 398 653 ---------------------------- Net increase (decrease) in cash and cash equivalents (171) (53) (68) Cash and cash equivalents at beginning of year 331 160 107 Pooling adjustment to beginning of period balance to conform fiscal years -- -- (4) ---------------------------- Cash and cash equivalents at end of year $ 160 $ 107 $ 35 ---------------------------- ---------------------------- SUPPLEMENTAL DISCLOSURES: The Company paid interest (net of amounts capitalized) of $222 million, $386 million and $273 million for the years ended May 31, 1995, 1996 and 1997, respectively. Income taxes paid during the same years amounted to $47 million, $57 million and $147 million, respectively. The fair value of common stock issued for acquisitions of hospitals and other assets was $493 million in 1995 and $11 million in 1997. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Certain prior-year amounts have been reclassified to conform to current-year classifications. 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 have been restated to include the accounts and results of operations of OrNda for all periods presented. (See Note 3 for further details pertaining to the OrNda Merger.) 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 years ended August 31, 1995 and 1996 have been combined with Tenet's consolidated financial statements for the years ended May 31, 1995 and 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, general hospitals and related healthcare facilities serving urban and rural communities in 22 states and holds investments in other healthcare companies. At May 31, 1997, the Company's subsidiaries operated 128 domestic general hospitals, with a total of 27,959 licensed beds in 22 states. The largest concentrations of hospitals are in California (35.2%), Texas (15.6%) and Florida (13.3%). The concentrations of hospitals 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 reimbursement 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. At May 31, 1997, the Company's subsidiaries and affiliates 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. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 22 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. USE OF ESTIMATES 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. 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. These contractual allowances and discounts are deducted from accounts receivable in the accompanying consolidated balance sheets. Approximately 43% of consolidated net operating revenues were from participation of the Company's hospitals in Medicare and Medicaid programs in 1995. It was approximately 45% in each of 1996 and 1997. 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. 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, 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 an adjustment to shareholders' equity. Realized gains or losses are included in net income on the specific identification method, and are immaterial for all years presented. G. INTEREST RATE SWAP AGREEMENTS The differentials to be paid or received under interest rate swap agreements are accrued as the interest rates change and are recognized over the lives of the agreements as adjustments to interest expense. H. INDEXED DEBT INSTRUMENTS Changes in liability resulting from increases or decreases in the index value of the Company's indexed long-term debt instrument (its 6% Exchangeable Subordinated Notes) are accounted for as adjustments of the carrying amount of the related debt obligation with corresponding charges (or credits) to earnings. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 23 I. 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 $8 million in 1995. It was $12 million in 1996 and 1997. Intangible Assets: Preopening costs are amortized over one year. 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. J. SALES OF COMMON STOCK OF SUBSIDIARIES At the time a subsidiary or equity affiliate sells existing or newly issued common stock to unrelated parties at a price in excess of its book value, the Company records a gain reflecting its share of the change in the subsidiary's shareholders' equity resulting from the sale. K. EARNINGS PER SHARE Primary earnings (or loss) per share of common stock is based on after-tax income (or loss) applicable to common stock and the weighted average number of shares of common stock and common stock equivalents outstanding during each period as appropriate. Fully diluted earnings-per-share calculations are based on the assumption that all dilutive convertible debentures issued by Tenet (and, through December 8, 1995, redeemable convertible preferred shares issued by OrNda) are converted into shares of Tenet common stock as of the beginning of the year, or as of the issue date if later, and (i) that those shares are added to the weighted average number of common shares and share equivalents outstanding used in the calculation of primary earnings per share, and (ii) that after-tax income (or loss) is adjusted accordingly. The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is required to be adopted for financial statements issued for periods ending after December 15, 1997. This statement establishes new, simplified standards for computing and presenting earnings per share. It replaces the traditional presentations of primary earnings per share and fully diluted earnings per share with presentations of basic earnings per share and diluted earnings per share, respectively. When adopted by the Company, during the quarter ending February 28, 1998, basic earnings per share is expected to increase slightly from primary earnings per share and diluted earnings per share is expected to approximate fully diluted earnings per share. L. STOCK-BASED COMPENSATION Compensation cost for stock-based employee compensation plans is recognized based on the difference, if any, between the quoted market price of the Company's common stock on the option grant date and the amount the employee must pay to acquire the stock, in accordance with Accounting Principles Board Opinion No. 25. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 ACQUISITIONS AND DISPOSALS OF FACILITIES MERGER WITH ORNDA: 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 which has been accounted for as a pooling-of-interests. The results of operations previously reported by the separate companies and the combined amounts presented in the accompanying consolidated statements of operations are summarized below (in millions).
Prior to Merger Subsequent to Merger -------------------------------------- -------------------------------------- Fiscal Fiscal 06/01/96 01/30/97 Year Year to to Merger- Year ended ended 01/29/97 05/31/97 Related ended 05/31/95 05/31/96 (unaudited) (unaudited) Expenses 05/31/97 -------------------------------------- -------------------------------------- Net operating revenues: Tenet $ 3,318 $ 5,559 $ 3,983 $ 3,074 -- $ 7,057 OrNda 1,843 2,147 1,637 -- -- 1,637 Conforming reclassifications -- -- (3) -- -- (3) -------------------------------------- -------------------------------------- Combined $ 5,161 $ 7,706 $ 5,617 $ 3,074 $ -- $ 8,691 -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- Extraordinary charges: Tenet $ (20) $ (23) -- -- $ (47) $ (47) OrNda -- -- -- -- -- -- -------------------------------------- -------------------------------------- Combined $ (20) $ (23) $ -- $ -- $ (47) $ (47) -------------------------------------- -------------------------------------- Net income (loss): Tenet $ 165 $ 350 $ 221 $ (339) $ (208) $ (326) OrNda 71 100 72 -- -- 72 -------------------------------------- -------------------------------------- Combined $ 236 $ 450 $ 293 $ (339) $ (208) $ (254) -------------------------------------- -------------------------------------- -------------------------------------- --------------------------------------
MERGER WITH AMH: In March 1995, in a transaction accounted for as a purchase, Tenet acquired all the outstanding common stock of American Medical Holdings, Inc. (together with its subsidiaries, "AMH") for $1.5 billion in cash and 33,156,614 shares of Tenet's common stock valued at $488 million. The total purchase price was allocated to the assets and liabilities of AMH based on their estimated fair values. The total purchase price exceeded the fair value of the net assets acquired by approximately $2.5 billion. OTHER DOMESTIC: Tenet's subsidiaries, including OrNda, acquired seven general hospitals in fiscal 1996 and 11 general hospitals in fiscal 1997. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 25 The Company also acquired a number of physician practices, home health agencies and other healthcare operations during the three years ended May 31, 1997. 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, have been included in the Company's consolidated statements of operations, shareholders' equity and cash flows from the dates of acquisition. INTERNATIONAL: In fiscal 1996, the Company sold its interests in hospitals and related healthcare businesses in Singapore, Australia, Malaysia and Thailand for net cash consideration of approximately $344 million. These transactions resulted in gains of approximately $158 million. Also in fiscal 1996, the Company sold its approximately 42% interest in Westminster Health Care Holdings PLC for a gain of $34 million. NOTE 4 MERGER, FACILITY CONSOLIDATION AND OTHER NON-RECURRING CHARGES In the year ended May 31, 1995, the Company recorded restructuring charges of approximately $37 million ($0.09 per share) associated with the relocation of substantially all of its hospital support activities previously located in Southern California and Florida to Dallas, Texas. In the year ended May 31, 1996, the Company recorded an impairment loss of approximately $86 million, before tax benefits of approximately $32 million ($0.18 per fully diluted share). The assets deemed to be impaired consisted of three rehabilitation hospitals, four general hospitals and a parcel of undeveloped land. In the case of the rehabilitation hospitals, the principal facts and circumstances leading to the impairment included recent and forecast reductions in hospital admissions and payment rates caused by payor-driven shifts in care from traditional rehabilitation services to lower-cost skilled nursing facilities. The impairment of the general hospitals was the result of (i) a change in the use of one of the facilities from acute care to less intense specialty care, (ii) lower patient volumes, and (iii) adverse changes in payor mix. In the year ended May 31, 1997, the Company recorded merger, facility consolidation and other non-recurring charges totaling $740 million ($506 million after taxes or $1.66 per share). These charges consist of the following: A. MERGER-RELATED EXPENSES The Company recorded non-recurring charges of $309 million in connection with the OrNda Merger. The after-tax effect of these expenses was $208 million or $0.68 per share. These expenses included (in millions): Investment banking, professional fees and other transaction costs $ 27 Severance for identified employees and costs to terminate or convert employee benefit programs 83 Closure of OrNda's corporate and regional offices, consolidation of operations 90 Information systems consolidations, primarily related to the buy-out of vendor contracts and the write-down of computer equipment and capitalized software 15 Estimated costs to settle a government investigation of OrNda and other OrNda litigation 32 Other, primarily related to conforming accounting practices used for estimating allowances for self-insurance reserves and doubtful accounts 62 ------ $ 309 ------ ------ TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS B. FACILITY CONSOLIDATION AND OTHER IMPAIRMENT LOSSES The Company recorded $413 million ($287 million after taxes or $0.94 per share) for asset impairment losses in 1997 related to the (in millions): 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 ---- $413 ---- ---- Three of the hospitals to be closed will be converted to alternate uses. The aggregate operating results of the facilities to be closed or sold were not significant. The Company expects to complete this consolidation plan by May 31, 1998. The asset impairments resulted primarily from declining patient volumes and adverse changes in payor mix 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. C. OTHER The Company recorded $18 million ($11 million after taxes or $0.04 per share) for restructuring its physician practices. These non-recurring charges include severance, write-off of computer equipment and software, physician contract terminations, and the reorganization of regional management service organizations. NOTE 5 PROPERTY AND EQUIPMENT Property and equipment is stated at cost and consists of the following: (IN MILLIONS) 1996 1997 --------------------- Land $ 429 $ 443 Buildings and improvements 3,884 4,176 Construction in progress 149 345 Equipment 1,842 1,958 --------------------- 6,304 6,922 Less accumulated depreciation and amortization 1,320 1,432 Net property and equipment $ 4,984 $ 5,490 --------------------- --------------------- TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 27 NOTE 6 LONG-TERM DEBT AND LEASE OBLIGATIONS A. LONG-TERM DEBT
Long-term debt consists of the following: (IN MILLIONS) 1996 1997 ---------------------- Loans payable to banks - unsecured $ 975 $ 779 Loans payable to banks - secured 692 -- 9 5/8% Senior Notes due 2002, $300 million face value, net of $5 million unamortized discount 294 295 8 5/8% Senior Notes due 2003, $500 million face value, net of $11 million unamortized discount 488 489 7 7/8% Senior Notes due 2003, $400 million face value, net of $8 million unamortized discount -- 392 8% Senior Notes due 2005, $900 million face value, net of $23 million unamortized discount -- 877 10 1/8% Senior Subordinated Notes due 2005, $900 million face value, net of $20 million unamortized discount 878 880 8 5/8% Senior Subordinated Notes due 2007, $700 million face value, net of $16 million unamortized discount -- 684 11 3/8 and 12 1/4% Senior Subordinated Notes repaid in 1997 525 -- 6% Exchangeable Subordinated Notes due 2005, $320 million face value, stated at indexed value, net of $8 million unamortized discount 311 330 Zero-coupon guaranteed bonds due 1997 and 2002, $131 million face value, net of $19 million unamortized discount 102 110 Notes and capital lease obligations, secured by property and equipment, weighted average interest rate of approximately 11.5% in 1996 and 11.4% in 1997, payable in installments to 2009 188 188 Other notes, primarily unsecured 88 26 ---------------------- 4,541 5,050 Less current portion (120) (28) ---------------------- $ 4,421 $ 5,022 ---------------------- ----------------------
Loans Payable to Banks - In January 1997, in connection with the OrNda Merger, the Company entered into a new revolving credit agreement (the "New 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 five-year $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 New 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 under the New Credit Agreement 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 non-recurring charges. During the year ended May 31, 1997, the weighted average interest rate on the loans payable to banks was 6.1%. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SENIOR NOTES AND SENIOR SUBORDINATED NOTES - The Company sold, on March 1, 1995, $300 million of 9 5/8% Senior Notes due September 1, 2002 and $900 million of 10 1/8% Senior Subordinated Notes due March 1, 2005. The senior notes are not redeemable by the Company prior to maturity. Subject to certain limitations in the New 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 after March 1, 2000, at redemption prices ranging from 105.063% in 2000 to 100% in 2003 and thereafter. In October 1995, the Company sold $500 million of Senior Notes due December 2003. The notes have a coupon of 8 5/8%. The notes are not redeemable by the Company prior to maturity. 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 New 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, at redemption prices ranging from 104.313% in 2002 to 100% in 2005 and thereafter. 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 New Credit Agreement described above. The senior subordinated notes also are unsecured obligations of the Company subordinated in right of payment to all existing and future senior debt, including the senior notes and borrowings under the New Credit Agreement. 6% EXCHANGEABLE SUBORDINATED NOTES - In January 1996, the Company issued $320 million of 6% Exchangeable Subordinated Notes due 2005 that will be exchangeable at the option of the holder for shares of common stock of Vencor, Inc. ("Vencor") at any time on or after November 6, 1997 at an exchange rate of 25.9403 shares 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 Vencor common stock in lieu of delivery of such shares. The exchange price equivalent to the exchange rate is $38.55 per share. Subject to certain limitations in the New Credit Agreement, the notes are redeemable at the option of the Company at any time on or after January 15, 1999 at the redemption prices set forth in the indenture, plus accrued and unpaid interest. 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 New Credit Agreement. To the extent that the fair market value of the Company's investment in the common stock of Vencor 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 investment through a charge or credit to earnings. Corresponding adjustments to the carrying value of the investment in Vencor are credited or charged directly to shareholders' equity as unrealized gains or losses. At May 31, 1997, the market price of Vencor's common stock was $40.75 per share, or $2.20 per share over the exchange price of the stock. The Company accordingly recognized a pretax, noncash charge to earnings in the amount of $18 million ($11 million after-tax, or $0.04 per share). This charge has been 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. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 29 LOAN COVENANTS - The New 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:
1998 1999 2000 2001 2002 LATER YEARS - ------------------------------------------------------------------------------------------------------ Long-term debt $ 28 $ 33 $ 35 $ 218 $ 672 $ 4,174 Long-term leases 201 168 120 103 84 315
Rental expense under operating leases, including short-term leases, was $170 million in 1995, $239 million in 1996 and $253 million in 1997. NOTE 7 INCOME TAXES Taxes on income from continuing operations consist of the following amounts: (IN MILLIONS) 1995 1996 1997 --------------------------------- Currently payable: Federal $ 116 $ 217 $ 131 State 23 44 27 Foreign 9 5 -- --------------------------------- 148 266 158 Deferred: Federal (4) 80 (132) State 2 14 (6) --------------------------------- (2) 94 (138) --------------------------------- Other 5 23 32 --------------------------------- $ 151 $ 383 $ 52 --------------------------------- --------------------------------- 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: (IN MILLIONS OF DOLLARS) 1995 1996 1997 --------------------------------- Tax provision at statutory federal rate of 35% $146 $308 $(7) State income taxes, net of federal income tax benefit 17 37 15 Goodwill amortization 8 27 26 Gain on sale of foreign operations - 30 - Nondeductible OrNda Merger costs - - 14 Nondeductible asset impairment charges - - 29 Benefit of prior-year net operating losses (21) (24) (19) Other 1 5 (6) --------------------------------- Taxes on income from continuing operations $151 $383 $52 --------------------------------- --------------------------------- TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities as of May 31, 1996 and 1997 relate to the following: 1996 1997 ------------------------------------------------------------ (IN MILLIONS) ASSETS LIABILITIES ASSETS LIABILITIES ------------------------------------------------------------ Depreciation and fixed-asset basis differences $ -- $ 652 $ -- $ 661 Reserves related to discontinued operations, merger, facility consolidation and other non-recurring charges 87 -- 203 -- Receivables-doubtful accounts and adjustments 144 -- 112 -- Cash-basis accounting change -- 9 -- -- Accruals for insurance risks 103 -- 103 -- Intangible assets 4 -- 1 -- Other long-term liabilities 86 -- 50 -- Benefit plans 78 -- 91 -- Other accrued liabilities 79 -- 40 -- Investments and other assets -- 87 -- 43 Federal and state net operating loss carryforwards 69 -- 58 -- Other items 17 -- 53 -- ------------------------------------------------------------ $ 667 $ 748 $ 711 $ 704 Valuation allowance (41) -- (22) - ------------------------------------------------------------ $ 626 $ 748 $ 689 $ 704 ------------------------------------------------------------ ------------------------------------------------------------
The valuation allowance was reduced by $19 million in fiscal 1997 upon consummation of the OrNda Merger to conform the accounting practices of the two companies. Management believes that realization of the deferred tax assets in excess of the valuation allowance recorded at May 31, 1997 is more likely than not to occur as temporary differences reverse against future taxable income. The following schedule summarizes approximate tax attribute carryforwards from prior tax returns for OrNda which are available to offset future federal net taxable income: (IN MILLIONS) AMOUNT EXPIRATION PERIODS ---------------------------- Net operating loss $167 1999-2009 General business credits 4 1998-2001 Alternative minimum tax 5 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 8 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 injuries arising from 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, which vary by hospital and by policy period from $500,000 to $3 million per occurrence, through a majority-owned insurance subsidiary. A significant portion of these risks is, in turn, reinsured with major independent insurance companies. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 31 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 with major independent insurance companies. The Company has reached the policy limits provided by this insurance subsidiary related to the psychiatric hospitals in several coverage years. In addition, damages, if any, arising from fraud and conspiracy claims in psychiatric malpractice cases 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 using a weighted average discount rate of approximately 8%. Adjustments to the reserves are included in results of operations. B. SIGNIFICANT LEGAL PROCEEDINGS The Company has been involved in significant legal proceedings of an unusual nature related principally to its discontinued psychiatric business. During the years ended May 31, 1995, 1996 and 1997, 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 for unusual litigation costs that relate to matters that had not been settled as of May 31, 1997 and an estimate of the legal fees to be incurred subsequent to May 31, 1997 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. PSYCHIATRIC MALPRACTICE CASES - The Company continues to defend a greater-than- normal level of litigation relating to certain of its subsidiaries' former 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 the increase in litigation arose 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 focused, in many instances, on the Company's settlement of past disputes involving the operations of its discontinued psychiatric business subsidiaries, including the Company's 1994 resolution of the Federal government's investigation and a corresponding criminal plea agreement involving such discontinued psychiatric business of the Company. From June 1, 1994 to the present, approximately 1,000 cases alleging fraud and conspiracy have been filed against the Company and certain of its subsidiaries. Most of the cases have been filed in Texas and Washington, D.C. To date, the Company has resolved approximately 700 of these cases. 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. SHAREHOLDER LAWSUITS - Two federal class actions filed in August 1993 were consolidated into one action. This consolidated action is on behalf of a purported class of shareholders who purchased or sold stock TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of the Company between January 14, 1993 and August 26, 1993, and alleges violations of the securities laws by the Company and certain of its executive officers. After unsuccessful mediation, the parties agreed in May 1995 to proceed with the litigation. In June 1995, the defendants filed a motion to dismiss and to strike plaintiffs' complaint. Although in March 1997 the defendants' motion was denied, the Company believes it has meritorious defenses to this action and will continue to defend this litigation vigorously. C. ORNDA INVESTIGATION An agreement has been executed with the Department of Justice resolving the investigation related to certain physician relationships at 12 of the hospitals acquired by OrNda in its April 1994 acquisition of Summit Health Ltd. ("Summit") and one OrNda hospital outside of the group acquired from Summit. NOTE 9 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 Company may redeem the rights at $.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 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. The plan also provides that, 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, 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 outstanding. B. WARRANTS At May 31, 1997, there were warrants outstanding to purchase 124,064 shares of common stock at an exercise price of $13.25 per share. These warrants can be exercised through April 30, 2000. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 33 NOTE 10 STOCK BENEFIT PLANS The Company has four stock-based compensation plans, which are described below. The Company applies Accounting Principles Board Opinion No.25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock options under the plans. Under its 1991 and 1995 Stock Incentive Plans, the Company may grant fixed stock options and performance-based incentive stock awards to key employees, advisors and consultants for up to 23 million shares of common stock remaining available for issuance under such plans. No new stock awards may be made under the Company's 1983 Stock Incentive Plan. Under all three plans, 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 which makes available for issuance to nonemployee directors options to purchase 500,000 shares of common stock. This plan, adopted in September 1994, replaced the Company's 1991 Director Restricted Share Plan which in turn had replaced the Company's 1985 Director Stock Option Plan. Awards made under the 1985 and 1991 plans remain outstanding, but new awards are made only under the 1994 plan. Under this plan each nonemployee director receives a stock option for 5,000 common shares upon initially being elected to the Board of Directors and on 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 March 1997, the Board of Directors approved an amendment to the Directors Stock Option Plan increasing the initial and annual grant of options under the plan to 7,500 options. The amendment will become effective if approved by the shareholders at the Annual Meeting of Shareholders scheduled for October 1, 1997. All awards granted under the foregoing plans will vest under circumstances defined in the plans or under certain employment arrangements, including, with the consent of the Compensation and Stock Option Committee of the Board of Directors, upon a change in control of the Company. The following table summarizes certain information about the Company's stock options outstanding at May 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- ---------------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE - --------------------------------------------------------------------------------------------------------- $ 3.56 to $ 9.50 2,856,938 5.7 years $ 9.18 2,856,938 $ 9.18 $ 9.63 to $ 14.88 9,702,535 7.2 $ 12.97 7,998,426 $ 12.77 $15.88 to $ 21.50 4,465,342 8.2 $ 20.26 2,167,881 $ 19.85 $21.63 to $ 26.38 7,825,975 8.6 $ 23.80 1,427,425 $ 22.44 ---------- ---------- $ 3.56 to $ 26.38 24,850,790 7.6 $ 17.25 14,450,670 $ 14.08 ---------- ----------
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 34 A summary of the status of the Company's stock incentive plans as of May 31, 1995, 1996 and 1997, and changes during the years ending on those dates, is presented below:
1995 1996 1997 ----------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ----------------------------------------------------------------------------------------- Outstanding at beginning of year 23,087,133 $ 14.56 25,742,932 $ 14.22 26,299,166 $ 15.05 Granted 6,527,950 $ 13.88 5,782,921 $ 19.23 6,436,800 $ 24.07 Exercised (1,917,773) $ 5.47 (3,120,462) $ 11.69 (7,093,224) $ 13.85 Forfeited (1,954,378) $ 17.11 (2,106,225) $ 20.05 (791,952) $ 19.92 ----------- ---------- ----------- Outstanding at end of year 25,742,932 $ 13.17 26,299,166 $ 14.20 24,850,790 $ 17.25 ----------- ---------- ----------- Options exercisable at year-end 12,612,236 $ 16.11 13,403,495 $ 14.12 14,450,670 $ 14.08 ----------- ---------- ----------- Weighted average fair value of options granted during the past two years $ 10.12 $ 11.62 ------- -------
The fair values of the option grants in the table above, and for purposes of the pro forma disclosures in the table below, have been estimated as of the date of each grant using a Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 1996 and 1997, respectively: expected volatility of 39% and 40%, risk-free interest rates of 5.7% and 6.5%, expected lives of 6.2 and 5.8 years, and dividend yield of 0% for both years. Had compensation cost for the Company's stock options been determined based on these fair values for awards granted during the past two years, the Company's net income (loss) and earnings (loss) per share would have been reduced (increased) to the pro forma amounts indicated below: (IN MILLIONS) 1996 1997 ----------------------- Net income (loss): As reported $ 450 $ (254) Pro forma $ 447 $ (260) Primary earnings (loss) per share: As reported $ 1.56 $ (0.84) Pro forma $ 1.56 $ (0.86) Fully diluted earnings (loss) per share: As reported $ 1.54 $ (0.84) Pro forma $ 1.53 $ (0.86) 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. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 35 NOTE 11 EMPLOYEE STOCK PURCHASE PLAN On September 27, 1995, the Company's shareholders approved its 1995 Employee Stock Purchase Plan under which the Company is authorized to issue up to 2,000,000 shares of common stock to eligible employees of the Company or its designated subsidiaries who customarily work at least 20 hours per week and six months per year. Under the terms of the plan, 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. The plan commenced on April 1, 1996. OrNda had a similar plan between March 1, 1996 and January 21, 1997. It was terminated as a result of the OrNda Merger. Approximately 6,200 employees have participated in both plans since their respective inceptions. Under the plans, 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. In July 1997, the Board of Directors approved an amendment to the Employee Stock Purchase Plan increasing the number of shares available for purchase under the Employee Stock Purchase Plan from 2,000,000 to 5,000,000. The amendment will become effective if approved by the shareholders at the Annual Meeting of Shareholders scheduled for October 1, 1997. NOTE 12 EMPLOYEE RETIREMENT PLANS Substantially all domestic employees who are employed by the Company or its subsidiaries, upon qualification, are eligible to participate in defined contribution 401(k) plans. 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 plan were approximately $22 million for 1995, and $32 million for fiscal 1996 and 1997. NOTE 13 INVESTMENTS In fiscal 1996, Vencor Inc. ("Vencor") acquired all of the outstanding common stock of The Hillhaven Corporation ("Hillhaven"). As a result of the transaction, the shares of Hillhaven common stock that had been owned by the Company were exchanged for 8,301,067 shares of Vencor common stock. In addition, the Company received approximately $92 million in cash for its Hillhaven Series C and Series D preferred stock. The exchange and sale of preferred stock resulted in a gain of approximately $176 million. The Company classifies its investment in Vencor as "available for sale" whereby the carrying value of the unrestricted Vencor shares is adjusted to market value at the end of each accounting period through a credit or charge, net of income taxes, to shareholders' equity. At May 31, 1996 and 1997, the market value of the investment was approximately $263 million and $338 million, respectively. (See Note 6.) The Company is contingently liable under various guarantees for $113 million of Vencor's obligations to third parties, including $107 million of lease obligations and $6 million of long-term debt obligations. The Company also is contingently liable for approximately $55 million in lease obligations relating to certain rehabilitation facilities sold in 1994. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 36 In fiscal 1995, the Company completed the sale of a controlling interest in Total Renal Care Holdings, Inc. ("TRC"), an operator of outpatient renal dialysis centers. This transaction resulted in a $32 million gain to the Company. As part of the transaction, the Company also received a $75 million cash distribution from TRC prior to the sale and retained 3 million shares of TRC common stock (after a 2-for-3 reverse stock split). In October 1995, TRC completed an initial public offering of 6,000,000 shares of its common stock, which resulted in an additional gain to the Company of approximately $17 million. The Company also classifies its investment in TRC as "available for sale." At May 31, 1996, the Company's aggregate carrying value in its investment in TRC was $49 million and the aggregate fair market value of the investment was $124 million. At May 31, 1997, both the carrying value and fair market value of the investment were approximately $108 million. NOTE 14 DISCONTINUED OPERATIONS - PSYCHIATRIC HOSPITAL BUSINESS In November 1993, the Company decided to discontinue its psychiatric hospital business and adopted a plan to dispose of its psychiatric hospitals and substance abuse recovery facilities. All operating results and gains or losses on disposals of facilities for the discontinued business for periods subsequent to November 30, 1993 have been charged to the reserve for estimated losses during the phase-out period. In addition, the Company has incurred the following additional charges related to the psychiatric hospitals: (1) in the fourth quarter of fiscal 1995, the Company recorded $16 million of estimated litigation costs (less income tax benefits of $7 million), (ii) in the fourth quarter of 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, and (iii) in the fourth quarter of 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 liigation 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 15 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, short- term borrowings and notes, current portion of long-term debt, accounts payable and 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. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 37 NOTE 16 DERIVATIVE FINANCIAL INSTRUMENTS The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. These derivatives are nonleveraged and involve little complexity. They are used to manage well-defined interest rate risks. The notional amounts of derivatives in the tables below do not represent amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. There are no cash or collateral requirements in connection with these agreements. INTEREST RATE SWAPS - These derivative financial instruments allow the Company to make long-term borrowings at floating rates and then swap them into fixed rates that are lower than those available to the Company if fixed-rate borrowings were made directly. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. Cross-currency interest rate swaps allow borrowings to be made in foreign currencies, gaining access to additional sources of financing while limiting foreign exchange risk. The Company's exposure to credit loss under these agreements is limited to the interest rate spread in the event of nonperformance by the other parties. Because the other parties are creditworthy financial institutions, generally commercial banks, the Company does not expect nonperformance. The Company terminated its two cross- currency swaps in November 1996. The original maturity dates for these contracts were in October 1998. Proceeds to the Company as a result of the terminations were $742 thousand. The following table shows the Company's interest rate swaps and their weighted average interest rates as of the end of the most recent two fiscal years. Variable interest rates may change significantly, affecting future cash flows.
(IN MILLIONS) 1996 1997 ---------------------------------- Notional amount for agreements under which the Company receives fixed rates $ 29 $ 29 Average receive rate 7.0% 7.0% Average pay rate 6.0% 5.6% Contract duration 1 year matured Notional amount for agreements under which the Company pays fixed rates $ 69 $ 69 Average pay rate 8.7% 8.7% Average receive rate 5.8% 5.5% Contract duration 3-4 years 2-3 years
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 38 NOTE 17 RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued two new Statements of Financial Accounting Standards ("SFAS") which are effective for financial statements for periods beginning after December 15, 1997 and which will apply to the Company beginning with its fiscal year ending May 31, 1999: SFAS No.130, "Reporting Comprehensive Income," 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 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. Examples of comprehensive income, other than net income, include unrealized gains and losses on certain investments in debt and equity securities and foreign currency items. SFAS No.131, "Disclosures About Segments of an Enterprise and Related Information," establishes standards for the way that public enterprises report information about operating segments in annual financial statements. It also requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Under existing accounting standards, the Company has reported its operations as one line of business since fiscal 1993 because substantially all of its revenues and operating profits from continuing operations since then have been derived from its general hospitals and closely related ancillary services. The Company is presently evaluating the new standard in order to determine its effect, if any, on the way the Company might report its operations in the future. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 39 REPORT OF INDEPENDENT AUDITORS 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, 1996 and 1997, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the years in the three-year period ended May 31, 1997. 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, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended May 31, 1997, in conformity with generally accepted accounting principles. KPMG PEAT MARRICK LLP Los Angeles, California July 25, 1997 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 40 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 BERNICE B. BRATTER 1,3,4 PRESIDENT, LOS ANGELES WOMEN'S FOUNDATION MAURICE J. DEWALD 1,2,3 CHAIRMAN, VERITY FINANCIAL GROUP, INC. PETER DE WETTER 1,6* RETIRED EXECUTIVE VICE PRESIDENT, TENET HEALTHCARE CORPORATION 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 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 OPERATIONS DAVID R. MAYEUX EXECUTIVE VICE PRESIDENT, ACQUISITION & DEVELOPMENT BARRY P. SCHOCHET EXECUTIVE VICE PRESIDENT, OPERATIONS W. RANDOLPH SMITH EXECUTIVE VICE PRESIDENT, EASTERN OPERATIONS NORMAN S. BOBES, M.D. 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 JIM BILTZ TEXAS REGION WILLIAM L. BRADLEY CENTRAL STATES REGION DENNIS M. BROWN NORTHERN REGION MICHAEL W. GALLO FINANCE, WESTERN DIVISION REYNOLD J. JENNINGS GULF STATES REGION BEN F. KING FINANCE, EASTERN DIVISION WILLIAM M. MURRAY ARIZONA REGION NEIL M. SORRENTINO CHIEF EXECUTIVE OFFICER, SOUTHERN CALIFORNIA REGION DON S. STEIGMAN FLORIDA REGION EDWARD TUDANGER SOUTHEAST REGION VICE PRESIDENTS WILLIAM A. BARRETT ASSISTANT GENERAL COUNSEL JOEL M. BERGENFELD OPERATIONS, WEST LOS ANGELES, SOUTHERN CALIFORNIA REGION STEVEN R. BLAKE FINANCE, NORTHERN REGION SANFORD M. BRAGMAN RISK MANAGEMENT * RETIRING FROM THE BOARD OCT. 1, 1997 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 41 MARK H. BRYAN FINANCE, FLORIDA REGION ROGER L. BURKE MANAGED CARE BUSINESS DEVELOPMENT THOMAS E. CASADAY OPERATIONS, TEXAS REGION ALAN N. CRANFORD INFORMATION SYSTEMS DAVID S. DEARMAN FINANCE, TEXAS REGION LEE DOMANICO OPERATIONS, EAST LOS ANGELES, SOUTHERN CALIFORNIA REGION STEVE DOMINGUEZ GOVERNMENT PROGRAMS WILLIAM R. DURHAM FINANCE, GULF STATES REGION EDWARD A. ELLIOTT FINANCIAL PROJECTS DEBORAH J. ETTINGER BUSINESS DEVELOPMENT, WESTERN DIVISION STEPHEN D. FARBER FINANCE MICHAEL J. FIRNENO ALTERNATIVE DELIVERY SYSTEMS RICHARD W. FISKE ACQUISITION & DEVELOPMENT RICHARD S. FREEMAN OPERATIONS, GULF STATES REGION MICHAEL FRENCH OPERATIONS, SOUTHEAST REGION DOUGLAS FRITSCHE FINANCE, ARIZONA REGION NEIL B. HADLEY ETHICS & BUSINESS CONDUCT LYNN S. HART GOVERNMENT RELATIONS JEFF HEINEMANN PHYSICIAN SERVICES LAWRENCE G. HIXON CORPORATE REPORTING MICHAEL S. HONGOLA INFORMATION SYSTEMS JOSEPH L. JACKSON HUMAN RESOURCES BRUCE L. JOHNSON INTERNAL AUDIT 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 JUDITH G. NOVAK OPERATIONS, TEXAS REGION PAUL O'NEILL ACQUISITION & DEVELOPMENT MARTIN J. PARIS, M.D., M.P.H. MEDICAL AFFAIRS KAREN S. POOLE OPERATIONS, ARIZONA REGION TIMOTHY L. PULLEN CONTROLLER DOUGLAS E. RABE TAXATION JAMES S. RICHARDSON FINANCE, EASTERN DIVISION DAVID C. RICKER MATERIAL RESOURCE MANAGEMENT JACQUELINE D. RISSOTTO EMPLOYEE BENEFITS LEONARD H. ROSENFELD QUALITY MANAGEMENT PAUL J. RUSSELL INVESTOR RELATIONS RICHARD B. SILVER ASSOCIATE GENERAL COUNSEL CHARLES R. SLATON OPERATIONS, CENTRAL STATES REGION 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, CENTRAL ORANGE COUNTY, SOUTHERN CALIFORNIA REGION ANTHONY P. WHITEHEAD FINANCE, SOUTHEAST REGION WILLIAM R. WILSON FINANCE, WESTERN DIVISION BARRY A. WOLFMAN OPERATIONS, SOUTH LOS ANGELES/NORTH ORANGE COUNTY, SOUTHERN CALIFORNIA REGION SUBSIDIARY MANAGEMENT ARNOLD M. ROBIN PRESIDENT, SYNDICATED OFFICE SYSTEMS G. MICHAEL SHELEY CHIEF EXECUTIVE OFFICER, NATIONAL HEALTH PLANS TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 42 SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (In millions, except Fiscal 1996 Quarters Fiscal 1997 Quarters ------------------------------------------------- --------------------------------------------- per share amounts) First Second Third Fourth First Second Third Fourth ------------------------------------------------- --------------------------------------------- Net operating revenues $1,767 $ 1,863 $ 1,973 $ 2,028 $ 1,991 $ 2,112 $ 2,237 $ 2,351 Income (loss) from continuing operations $ 134 $ 203 $ 98 $ 56 $ 96 $ 103 $ (66) $ (206) Net income (loss) $ 134 $ 203 $ 98 $ 8 $ 96 $ 103 $ (113) $ (340) ------------------------------------------------- --------------------------------------------- ------------------------------------------------- --------------------------------------------- Earnings (loss) per share from continuing operations: Primary $ 0.51 $ 0.75 $ 0.33 $ 0.19 $ 0.32 $ 0.34 $(0.21) $(0.67) Fully diluted $ 0.49 $ 0.72 $ 0.33 $ 0.19 $ 0.32 $ 0.34 $(0.21) $(0.67) ------------------------------------------------- -------------------------------------------- ------------------------------------------------- ---------------------------------------------
The quarterly financial information in the table above, for periods prior to the OrNda Merger, combines the three-month periods in Tenet's fiscal years with OrNda's corresponding three-month periods, respectively. Quarterly operating results are not necessarily representative of operations for a full year. For example, unusual items in fiscal 1996 include a $124 million gain on asset disposals in the first quarter, a $171 million gain on asset disposals in the second quarter, a $17 million gain from the sale of a subsidiary's common stock in the second quarter, impairment losses of $86 million and asset disposal gains of $34 million in the fourth quarter, as well as a $25 million net charge to discontinued operations and a $23 million extraordinary charge from early extinguishment of debt in the fourth quarter. Fiscal 1997 includes non-recurring expenses of $272 million recorded in the third quarter and $37 million recorded in the fourth quarter in connection with the OrNda Merger, and restructuring charges of $18 million, impairment losses of $413 million and $18 million 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 net charge to discontinued operations in the fourth quarter. COMMON STOCK INFORMATION (UNAUDITED)
Fiscal 1996 Quarters Fiscal 1997 Quarters ----------------------------------- ------------------------------------ First Second Third Fourth First Second Third Fourth ------------------------------------- ------------------------------------ Price range: High 17 18 1/2 22 1/2 22 1/2 22 5/8 23 1/4 28 7/8 29 5/8 Low 13 3/8 15 5/8 17 7/8 18 1/8 18 1/2 20 3/8 21 3/8 23 1/4
At May 31, 1997, there were approximately 15,700 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 currently prohibits the payment of dividends. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 43 CORPORATE INFORMATION COMMON STOCK TRANSFER AGENT AND REGISTRAR For information on stock certificates or for change of address, please contact: The Bank of New York 101 Barclay Street New York, NY 10286 (800) 524-4458 National Medical Enterprises, Inc. (NME) stock certificates remain valid and do not need to be exchanged for Tenet certificates. 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 contact The Bank of New York at (800) 507-9357. For all other shareholder inquiries, contact Paul J. Russell, Vice President, Investor Relations, at (805) 563-7188. Headquarters Office Tenet Healthcare Corporation 3820 State Street Santa Barbara, CA 93105 (805) 563-7000 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: 7 7/8% SENIOR NOTES DUE 2003 9 5/8% SENIOR NOTES DUE 2002 8 5/8% SENIOR NOTES DUE 2003 8% SENIOR NOTES DUE 2005 10 1/8% SENIOR SUBORDINATED NOTES DUE 2005 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007 6% EXCHANGEABLE SUBORDINATED NOTES DUE 2005 7 3/8% MEDIUM TERM NOTES DUE 1997 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. Oct. 1, 1997, at the Regent Beverly Wilshire Hotel, 9500 Wilshire Boulevard, Beverly Hills, Calif. 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) 563-6868. TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 44 [Logo] TENET HEALTHCARE CORPORATION 3820 STATE STREET, SANTA BARBARA, CALIFORNIA 93105 EX-21 17 EXHIBIT 21 - LIST OF SUBSIDIARIES All of the following subsidiaries are 100% owned by Tenet Healthcare Corporation unless otherwise indicated. 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) Alabama Health Connection, Inc. (b) Alabama Medical Group, Inc. (b) American Medical (Central), Inc. (c) Amisub (Heights), Inc.(1) (c) Tenet Texas Employment, Inc. (c) Amisub of Texas, Inc.(1) 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.(1) (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%) (e) Texas Healthcare Physician Services, Inc. (e) 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. (c) Texas Southwest Healthservices, Inc. (d) Diagnostic and Theraputic Cardiology Services, L.P. - OWNERSHIP - PHYSICIANS (7.143%) TEXAS SOUTHWEST HEALTHSERVICES,INC. (92.857%) - ------------------------ (1) Mailing address: c/o Woodburn & Wedge, First Interstate Bank Building, One East First Street, Suite 1600, Reno, Nevada 89501. (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. - OWNERSHIP - AMI AMBULATORY CENTRES, INC. (80%) RANDY PHILLIPS (20%) (d) Ambulatory Care - Broward Development Corp. (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) Amisub Development of South Carolina, Inc. (c) Hilton Head Clinics, Inc. (c) Hilton Head Health Systems, L.P. - OWNERSHIP - AMISUB DEVELOPMENT OF SOUTH CAROLINA, 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.(2) (b) Amisub (Hilton Head), Inc. (b) Amisub (Irvine Medical Center), Inc. (b) Tenet HealthSystem Spalding, Inc. (c) Health International, Inc. (c) Tenet Primary Care Clinic, Inc. (c) Spalding Health System, L.L.C. - OWNERSHIP - TENET HEALTHSYSTEM SPALDING, INC. (50%) PHYSICIANS (50%) (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%) (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) Piedmont One, Inc. (c) Piedmont Two, Inc. (c) Piedmont Three, Inc. (c) Piedmont Fourth, Inc. (c) Piedmont Five, Inc. (c) Piedmont Six, Inc. (c) Piedmont Seven, Inc. (c) Piedmont Eight, Inc. (c) Piedmont Nine, 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. (b) Amisub (Sierra Vista), Inc. - --------------------------- (2) Mailing Address: 1325 Airmotive Way, Suite 130, Reno, Nevada 89052 (c) MRI of San Louis Obispo, G.P. - OWNERSHIP - AMISUB (SIERRA VISTA), INC. (45%) MEDIQ (55%) (b) Tenet Finance Corp.(3) (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. (33 1/3%) EASTERN HEALTH SYSTEM, INC. (33 1/3%) ST. VINCENT'S HOSPITAL (33 1/3%) (c) Alabama Health Services (St. Clair), L.L.C. - OWNERSHIP - BROOKWOOD DEVELOPMENT, INC. (50%) HEALTH SERVICES, INC. (50%) (c) Group Administrators, Inc. - OWNERSHIP - BROOKWOOD DEVELOPMENT, INC. (33 1/3%) TENET HEALTHSYSTEM LLOYD NOLAND PROPERTIES, INC. (33 1/3%) EASTSIDE VENTURES, INC. (33 1/3%) (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) Frye Home Care Services, Inc. (c) Tenet Claims Processing, Inc. (c) Ten Broeck/Frye Partnership - OWNERSHIP - FRYE REGIONAL MEDICAL CENTER, INC. (50%) UNITED MED CORP. OF NC (50%) (c) Uniform MSO, L.L.C. - OWNERSHIP - FRYE REGIONAL MEDICAL CENTER, INC. (33%) CALDWELL MEMORIAL HOSPITAL, INC. (67%) - -------------------------- (3) Mailing address: c/o Woodburn & Wedge, First Interstate Bank Building, One East First Street, Suite 1600, Reno, Nevada 89051 (b) Georgia Health Services, Inc. (b) Heartland Corporation (c) Prairie Medical Clinic, Inc. (c) Heartland Physicians, Inc. (b) Inhalation Therapy Services, 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 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 Heatlhcenter - Hunter Anesthesiology, Inc. (c) Tenet HealthSystem NPMC Hamilton West, Inc. (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 001, Inc. (c) North Fulton 002, Inc. (c) North Fulton 003, Inc. (c) North Fulton 004, Inc. (c) North Fulton 005, Inc. (c) North Fulton 006, Inc. (c) North Fulton 007, Inc. (c) North Fulton 008, Inc. (c) North Fulton 009, Inc. (c) North Fulton 010, Inc. (c) North Fulton 011, Inc. (c) North Fulton 012, 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) Occupational Health Medical Services of Florida, Inc. (b) Palm Beach Gardens Community Hospital, Inc. (b) Partners in Service, Inc.(4) (b) Physicians Development, Inc. (b) Piedmont Home Health, Inc. (b) Piedmont Rehab Center, 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 (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%) (b) Tennessee Health Services, Inc. (b) Texas Healthcare Services, Inc. (b) Texas Professional Properties, Inc. (b) Tenet Ashley River OB/GYN, Inc. (b) Tenet Caldwell Family Physicians, Inc. (b) Tenet Catawba Nurse Midwives, Inc. (b) Tenet Choices, Inc. - OWNERSHIP - TENET HEALTHSYSTEM MEDICAL, INC.(50%) RICHARD FREEMAN (1%); ROGER FRIEND (1%) (b) Tenet Claremont Medical Center, Inc. (b) Tenet DeLaine Adult Medical Care, Inc. (b) Tenet East Cooper Spine Center, Inc. (b) Tenet Health Choices Operating Corporation (b) Tenet Health Network, 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 Partners, Inc. (b) Tenet HealthSystem SGH, Inc. (b) Tenet HomeCare Information Systems, Inc. (b) Tenet Home Care of South Florida, Inc. - --------------------------- (4) Mailing address: 900 Market Street, Wilmington, Delaware 19801 (b) Tenet Home Care Tampa/St. Pete, Inc. (b) Tenet Lincolnton Medical Specialists Center, Inc. (b) Tenet McDonough Primary Care, Inc. (b) Tenet Robertson Family Practice, 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%)(5) Assured Investors Life Company (a) Stanislaus Life Insurance Company 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 Tenet Healthcare (Australia) Pty., 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) Providence Community Care Network (b) Providence Physicians Health Network, Inc. (b) Greater El Paso Healthcare Enterprises (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%) - ------------------------- (5) Mailing address: 25 Century Boulevard, Suite 300, Nashville, Tennessee 37214 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 - California, Inc. (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) 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 Desert, Inc. (a) Tenet HealthSystem DI, Inc. (b) Deaconess College of Nursing Student Government Association (a) Tenet HealthSystem DI-SNF, Inc. (a) Tenet HealthSystem DI-TPS, Inc. (a) Tenet HealthSystem Memorial Medical Center, Inc. (a) Tenet HealthSystem Metroplex Hospitals, 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. (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. NME Rehabilitation Properties, Inc. (a) R.H.S.C. Prosthetics, Inc. (a) Rehabilitation Facility at San Ramon, Inc. (a) Rehabilitation Facility at San Diego (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. (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. (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 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. (d) AHM SMC, Inc. (d) AHM WCH, Inc. (d) American Healthcare Management Development Company (d) CareNet Health Systems, Inc. - OWNNERSHIP - ORNDA INVESTMENTS (60%) INDIVIDUAL SHAREHOLDERS (40%) (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) Woodland Park Hospital, 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) Davenport Medical Center, Inc. (c) The Davenport Clinic, Inc. (c) Davenport Medical Partners, L.P. - OWNERSHIP - DAVENPORT MEDICAL CENTER, INC., GP (51%) (b) DHPG of Georgia, Inc. (b) Doctors' Hospital Medical Center, Inc. (b) FMC Center, Inc. (c) FMC Hospital, Ltd. - OWNERSHIP - FMC CENTER, 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%) (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) French Hospital Medical Center (c) Recovery Partners, Ltd.- OWNERSHIP - FRENCH HOSPITAL MEDICAL CENTER, INC. GP (47.94%) DOCTORS GROUP, LP (52.06%) (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) HNPG, Inc. (e) Houston Northwest Home Health Care, Inc. (e) Champions Imaging Satellite, Ltd. - OWNERSHIP - HNPG, INC., GP (65%) DOCTORS GROUP, LP (35%) (e) HNMC Mobile Lithotripsy, Ltd. - OWNERSHIP - HNPG, INC., GP (50%) DOCTORS GROUP, LP (50%) (e) HNMC Outpatient Cardiac Cath Lab, Ltd. - OWNERSHIP - HNPG, INC., GP (50%) DOCTORS GROUP, LP (50%) (e) HNMC Women's Pavillion Limited Partnership - OWNERSHIP - HNPG, INC., GP (3.08%) DOCTORS GROUP, LP (96.92%) (e) MRI-North Houston Venture - OWNERSHIP - HNPG, INC., GP (12%) DOCTORS GROUP, LP (88%) (e) Texas Tower Imaging Satellite, Ltd. - OWNERSHIP - HNPG, INC., GP (50%) DOCTORS GROUP, LP (50%) (d) HNW GP, Inc. (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%) (b) MCS Administrative Services, Inc. (b) Meridian Regional Hospital, Inc. (b) Mesa General Hospital Medical Center, Inc. (b) MGPG, 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) S.V. 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. (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) Premier Health Resources, Inc. (b) Qualicare of Mississippi, Inc. (c) Gulf Coast Community Health Care Systems, Inc. (c) Gulf Coast Community Hospital, Inc. (b) Qualicare of Wyoming, Inc. (c) Lander Valley Regional Medical Center (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 (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 TVLP, Inc. (b) S.C. Management, Inc. (c) Clinic Holdings, 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) 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 LMC, Inc. (a) Tenet HealthSystem Occupational Medicine, Inc. Tenet HealthSystem ALB, Inc. (a) Proton Acquisition Corporation Syndicated Office Systems Wilshire Rental Corp. Women's Medical Center of America, Inc. Revised: August 13, 1997 Source: Michelle Quinn
EX-23.(A) 18 EXHIBIT 23(A) KPMG CONSENT Exhibit 23(a) ACCOUNTANTS' CONSENT AND REPORT ON CONSOLIDATED SCHEDULE The Board of Directors Tenet Healthcare Corporation: Under date of July 25, 1997, we reported on the consolidated balance sheets of Tenet Healthcare Corporation and subsidiaries as of May 31, 1997 and 1996 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended May 31, 1997, as contained in the 1997 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 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. 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, based on our audits, 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 therein. We also consent to the incorporation by reference of our report dated July 25, 1997, in the Company's Registration Statements on Form S-3 (Nos. 33-39130, 33-57801, 33-57057, 33-55285, 33-62591, 33-63451, 333-17907, 333-24955, 333-21867 and 333-26621), 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 and 333-01183). /s/ KPMG Peat Marwick LLP Los Angeles, California August 26, 1997 EX-27.1 19 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS MAY-31-1997 MAY-31-1997 35,000 116,000 1,570,000 224,000 193,000 2,391,000 6,922,000 1,432,000 11,705,000 1,869,000 5,022,000 0 0 23,000 3,201,000 11,705,000 0 8,691,000 0 7,043,000 740,000 494,000 417,000 (21,000) 52,000 (73,000) (134,000) (47,000) 0 (254,000) (.84) (.84)
EX-27.2 20 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS MAY-31-1996 MAY-31-1996 107,000 112,000 1,245,000 205,000 170,000 2,040,000 6,304,000 1,320,000 10,768,000 1,541,000 4,421,000 0 0 22,000 3,255,000 10,768,000 0 7,706,000 0 6,251,000 86,000 431,000 425,000 881,000 383,000 498,000 (25,000) (23,000) 0 450,000 1.56 1.54
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