-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, LkM0tCgEE9MZeV/DcTsLJfPycnGqcJ6qZtmHORTAy1s8nbfn/256u25glEnUPvqq 346JxFIWM48rmvByEpU35g== 0000826490-94-000014.txt : 19941220 0000826490-94-000014.hdr.sgml : 19941220 ACCESSION NUMBER: 0000826490-94-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19940831 FILED AS OF DATE: 19941123 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHTRUST INC THE HOSPITAL CO CENTRAL INDEX KEY: 0000826490 STANDARD INDUSTRIAL CLASSIFICATION: 8062 IRS NUMBER: 621234332 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10915 FILM NUMBER: 94561731 BUSINESS ADDRESS: STREET 1: 4525 HARDING RD CITY: NASHVILLE STATE: TN ZIP: 37205 BUSINESS PHONE: 6153834444 10-K 1 PART I Item 1. Business The Company Healthtrust, Inc. - The Hospital Company ("Healthtrust" or the "Company") is one of the largest providers of health care services in the United States, delivering a full range of inpatient, outpatient and other health care services principally through its affiliated hospitals. At October 31, 1994, the Company operated 116 acute care hospitals, all of which are owned or leased by the Company through its subsidiaries or joint venture arrangements. The Company is also an investor, through joint ventures, in four other acute care hospitals. The Company's affiliated hospitals are located in rural, suburban and urban communities in 22 southern and western states. The Company's affiliated hospitals generally provide a full range of inpatient and outpatient health care services, including medical/surgical, diagnostic, obstetric, pediatric and emergency services. Many of the Company's affiliated hospitals also offer certain specialty programs and services, including occupational medicine programs, home health care services, skilled nursing services, physical therapy programs, rehabilitation services, alcohol and drug dependency programs and selected mental health services. The health care services provided by each hospital are based upon the local demand for such services and the ability to provide such services on a competitive basis. The Company was incorporated in 1985 as a subsidiary of Hospital Corporation of America (together with its subsidiaries, "HCA", a predecessor of Columbia/HCA Healthcare Corporation) and had no significant assets, liabilities or operations prior to its formation in September 1987 through the acquisition of a group of hospitals and related assets from HCA. In February 1994, HCA merged with Columbia Hospital Corporation to form Columbia/HCA Healthcare Corporation ("Columbia"). Recent Events On October 4, 1994, the Company, Columbia and COL Acquisition Corporation, a wholly-owned subsidiary of Columbia ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Merger Sub will merge with and into the Company and the Company will survive as a wholly-owned subsidiary of Columbia (the "Merger"). Upon the effectiveness of the Merger, each outstanding share of Healthtrust common stock will be converted into the right to receive 0.88 of a share of Columbia common stock. Consummation of the Merger is subject to certain conditions, including, among others, approval by the shareholders of the Company and Columbia and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Shareholders meetings to vote on the proposed merger transaction are anticipated during the first quarter of 1995. After the merger, Columbia will own and operate 311 hospitals with approximately 60,000 licensed beds and 125 outpatient centers in 37 states and 2 foreign countries. The combined companies will have approximately 170,000 employees and total assets and annual revenues of over $15 billion. It is anticipated that by leveraging the economies of scale and collective strengths and efficiencies resulting from the combination, the Merger will enhance each Company's strategy of controlling healthcare costs while maintaining quality patient care. Strategy The Company's principal objective is to be a significant and growing provider of low cost, high quality health care services in the markets in which it operates. Although the means of achieving this objective will vary depending upon the local market and the relative position of the Company's affiliated hospitals and other health care businesses in that market, the strategies employed generally include (i) expanding market share through improvements in quality and reductions in cost for existing services and through the provision of new or expanded services to meet underserved needs, (ii) participating in quality health care delivery networks through affiliations, joint ventures, partnerships and other arrangements with physicians, other hospitals and providers of other health care related services, (iii) continuously improving operating and financial performance, and (iv) developing the resources needed by management to operate more effectively in the changing health care environment. In addition, the Company has pursued and will continue to pursue other opportunities to grow through the acquisition, construction or development of hospital facilities or other health care related businesses that are or can be positioned competitively in their markets. Consistent with the Company's strategy, in May 1994 Healthtrust acquired EPIC Holdings, Inc. ("EPIC Holdings" and, together with its subsidiaries, "EPIC")(the "EPIC Acquisition"). EPIC is a health care services provider that owns and operates 32 general acute care hospitals providing inpatient, outpatient and other specialty services in 10 southern and western states. During fiscal 1994, the Company also acquired Nashville Memorial Hospital in Madison, Tennessee, Holy Cross-Jordan Valley Hospital in Jordan Valley, Utah and St. Benedict's Hospital in Ogden, Utah. These acquisitions enhance the Company's presence in geographic areas it presently serves and provide access to new markets. In addition, the acquisitions will allow the Company to expand its health care delivery capabilities in such areas as home health care, geropsychiatric care, rehabilitation services and physical therapy services, thereby enhancing the Company's development of integrated health care delivery networks designed to provide a full range of health care services to managed care plans, self- insured employers and government payors. In connection with the EPIC Acquisition, the Company completed (i) the public offering of $200 million aggregate principal amount of 10 1/4% Subordinated Notes due 2004 and 5,980,000 shares of Common Stock (par value $.001 per share) and (ii) the refinancing of the Company's bank credit facility to provide for aggregate commitments of up to $1.2 billion. The Company operates its affiliated hospitals and other health care businesses in three general types of market settings: (i) small rural areas where the Company's hospital is the only hospital in its community, (ii) other generally rural areas where the Company's hospital is one of two or three hospitals in its community, and (iii) urban and suburban areas where the Company's facility or facilities compete with a larger number of other providers in the market. Approximately 37% of the Company's affiliated hospitals are located in small rural communities, approximately 22% are located in communities with two or three hospital providers and approximately 41% of the Company's hospitals are located in urban and suburban areas. To meet the Company's objectives in the smaller rural areas, the Company's affiliated hospitals generally work in cooperation with local physicians and the community to identify underserved needs and to meet those needs in a cost effective manner. Examples include the establishment of rural health clinics and home health agencies, the introduction of new clinical technologies and the recruitment of physicians to these communities. In addition, such hospitals, together with their local physicians, network with larger tertiary care facilities to provide easy access to specialized services which cannot be efficiently provided in the rural community. In areas where the Company's affiliated hospital has one or two hospital competitors in the community, the Company's affiliated hospitals work closely with their physicians to position themselves as the lower cost, higher quality provider in the community. Such facilities expand or add services to gain market share and network with larger tertiary hospitals and other providers to give patients access to a broad continuum of care including those services not provided by the local Healthtrust affiliated facility. In urban and suburban areas, the Company's affiliated hospitals have formed or jointed physician hospital organizations ("PHOs") medical service organizations ("MSOs") and other networks of quality health care providers in order to offer one package, to the buyers of care, a full range of health care services over a broader geographic area. In some markets, such networks may also develop programs for sharing the financial risk of health care delivery. Each of the Company's affiliated hospitals has also implemented, and will continue to implement, programs to maintain and enhance the range and quality of its health care services. The Company uses patient and physician surveys, employee training and education programs relating to continuous quality improvement methods and incentive compensation programs to enhance the quality of care in its hospitals. The Company's hospitals continue to focus on new or expanded programs and cooperative relationships, affiliations and agreements with its physicians to assist the hospitals staff physicians in developing their practices based on the physicians' needs and the needs of the community. Such programs and cooperative relationships, like PHOs and MSOs, also assist the hospitals and their staff physicians in responding to the expected increased significance of managed care purchasers in their markets. Each hospital also has implemented physician recruitment programs to increase and improve the availability of physician services in the local market and many now offer a variety of practice management services to assist physicians in establishing and managing their practices. As part of the Company's strategy to increase its market share by expanding its health care service delivery capabilities, the Company has focused principally on the expansion and improvement of outpatient facilities and services to take advantage of improved technologies and treatments, and on the expansion of service delivery capability in such areas as home health care services, skilled nursing care, rehabilitation services, emergency care, women's health services, cardiology, less invasive surgery, diagnostics, occupational medicine programs, physical therapy programs, preventative care services, wellness services and other areas of specialized care for which there is a defined need in the local community. In implementing such programs, the Company works with members of the local communities in which its hospitals are located, especially local physicians and employers, to be sure that these new services meet the communities needs. To further the Company's objectives, the Company's affiliated hospitals continue to develop their ability to efficiently deliver services to patients covered by managed care contracts or by government payors providing a fixed reimbursement for services. In order to increase net revenue from these managed care and government payors, many of the Company's affiliated hospitals have developed (i) improved negotiation and tracking methods for managed care contracts, (ii) improved patient management and reporting procedures, (iii) programs for the collection and sharing of utilization and patient-mix data with physicians, other providers, employers and payors and (iv) strategic networking relationships with physicians, other providers, employers and/or managed care programs serving the local communities in which the Company's hospitals are located. Each of the Company's affiliated hospitals also continue to implement a variety of cost reduction programs. Such programs have included and are expected to continue to include (i) more careful control of staffing levels and expense, (ii) the renegotiation of purchasing contracts and revision of purchasing practices to take better advantage of volume purchasing and low cost, quality products, (iii) more controlled use of contract nursing, (iv) more efficient billing and collection procedures, (v) more effective management of the Company's own medical benefit costs and (vi) the reduction or elimination of certain services that no longer efficiently meet the needs of the community. In addition, the Company's cost reduction programs are increasingly focused on better management of resource consumption. Since physicians control what services or supplies are ordered for a particular patient, the Company has made available to its physicians better clinical and other information to help improve the efficiency and cost-effectiveness of their practices. Similarly, the Company's facilities are focused on the use of more generic pharmaceutical and surgical supplies and the general simplification of supplies to only a limited variety of low cost, quality products. With respect to labor expense, many of the Company's hospitals are redesigning the manner in which clinical and administrative work is performed, changing the mix of skills required for various tasks and consolidating traditionally fragmented departments within the hospital. The Company believes these and other programs along with price increases have contributed, in part, to the growth of the Company's net operating revenue, which increased from $1,856.9 million in fiscal 1990 to $2,970.0 million in fiscal 1994, and the improvement in the operating margin from 19.9% for fiscal 1990 to 20.5% for fiscal 1994. The Company believes that the success of each of its hospitals is directly related to the quality of its local management teams and other hospital employees. The initiative, responsibility and accountability of the local management teams have been emphasized through significant incentive compensation programs based primarily on the financial performance of, and the quality of care delivered by, each hospital. Similarly, the Company promotes the concept of employee-ownership through its retirement program to improve employee responsiveness and efficiency in delivering services to patients and physicians and in implementing the hospitals' programs. The Company's retirement program owns approximately 28% of the Common Stock outstanding. In addition, the Company believes that it must continue to develop and have access to the tools local management needs to operate effectively in the changing health care environment. The Company has invested, and expects to continue to invest, in new or improved information systems designed to provide better information concerning clinical outcomes, resource consumption and the cost of services provided. Similarly, the Company has developed or is developing the resources and expertise both within the Company and with preferred outside vendors to manage its existing and new services more efficiently. Hospital Operations The Company's hospitals generally operate in different geographical markets and, consequently, under differing market conditions. Approximately 28% of the Company's hospitals are located in Texas and approximately 34% are located in Florida, Louisiana, Tennessee and Utah. Each Company hospital is managed on a day-to-day basis by a hospital chief executive officer. The medical, professional and ethical practices (including the performance of medical and surgical procedures) of each of the Company's hospitals generally are supervised and regulated by the hospital's Board of Trustees, (which includes practicing physicians, members of the community and representatives of Company management), and by the hospital's medical staff. The Company provides a variety of management services to its hospitals, the most significant of which include information systems support, national purchasing contracts, physician recruitment assistance, government reimbursement assistance, strategic planning and central financial and other systems. The following table sets forth certain operating statistics of the Company's hospitals for each of the periods indicated.
Year Ended August 31, 1994 1993 1992 1991 1990 (Dollars in millions) Historical Operating Data: Number of hospitals (at year end) 116 81 81 85 86 Bed capacity (1) 12,466 11,233 11,374 11,607 12,022 Gross revenue: (2) Inpatient 3,154.9 $ 2,594.2 $2,439.3 $2,148.6 $1,994.4 Outpatient 1,625.8 $ 1,181.6 $1,021.9 $814.2 $642.6 Net operating revenue (3) 2,970.0 $ 2,394.6 $2,265.3 $2,025.7 $1,856.9 Patient days 1,732,610 1,541,536 1,616,340 1,658,061 1,792,461 Adjusted patient days (4) 2,625,426 2,243,677 2,293,453 2,286,357 2,369,995 Average length of stay (days) 5.2 5.4 5.5 5.7 5.8 Admissions 333,200 284,606 291,599 293,344 307,758 Adjusted admissions (5) 504,898 414,239 413,755 404,502 406,918 Occupancy rate 38% 38% 39% 39% 41% Operating margin (6) 20.5% 21.1% 20.7% 20.2% 19.9% Same Hospitals Operating Data: (7) Gross revenue: (2) Inpatient 2,622.8 $ 2,458.5 $2,240.9 $1,938.7 $1,706.3 Outpatient 1,310.2 $ 1,128.2 $ 948.5 $741.1 $558.1 Net operating revenue (3) 2,432.9 $ 2,271.5 $2,092.0 $1,835.3 $1,599.3 Patient days 1,436,797 1,470,713 1,517,226 1,531,693 1,565,793 Adjusted patient days (4) 2,154,520 2,145,598 2,159,393 2,115,382 2,077,163 Average length of stay (days) 5.1 5.4 5.5 5.6 5.7 Admissions 281,908 272,970 275,085 273,326 274,834 Adjusted admissions (5) 422,729 398,231 391,515 377,192 364,340 Occupancy rate 37% 38% 39% 40% 41% Operating margin (6) 22.4% 21.8% 21.2% 20.7% 20.4%
(1)Average number of licensed beds during the period. Licensed beds are those beds for which a facility has been granted approval to operate from the appropriate state licensing agency. (2)Gross revenue represents the hospitals' standard charges for services performed prior to any contractual adjustments and policy discounts. (3)Net operating revenue represents gross revenue less any contractual adjustments and policy discounts. (4)Represents actual patient days adjusted to include outpatient and emergency room services by multiplying actual patient days by the sum of gross inpatient and patient revenue and dividing the result by gross inpatient revenue. (5)Represents actual admissions adjusted to include outpatient and emergency room services by multiplying actual admissions by the sum of gross inpatient revenue and gross outpatient revenue and dividing the result by gross inpatient revenue. (6)Operating margin for each period presented refers to the result obtained by dividing (i) net operating revenue less hospital service costs by (ii) net operating revenue. (7)Same hospitals operating data represents the operations of the 77 hospitals owned for all periods presented, and excludes the operations of acquired and divested hospitals. Consistent with industry trends, the Company's hospitals have experienced a significant shift from inpatient to outpatient care. Outpatient utilization has increased significantly over the past three years. Inpatient volume utilization has declined nationwide over the same period. Healthtrust's growth in outpatient gross revenue and more intensive utilization of ancillary services, along with inpatient price increases, have resulted in net revenue growth despite decreases in inpatient volume. The Company is unable to predict whether such trends will continue. Health Care Industry Overview According to industry sources, there are approximately 5,300 general acute care hospitals in the United States. Investor-owned hospitals account for approximately 720 or 14% of these hospitals. The remaining hospitals are operated as not-for-profit institutions or are government sponsored. According to Commerce Department projections, health care expenditures are expected to grow at a 10% to 14% annual rate through 1995, despite industry-wide cost containment pressures. These Commerce Department health care spending projections assume that continued cost containment measures will be more than offset by demands resulting from current demographic trends, such as the aging of the population, growth in income, general inflation, new technology and diseases such as AIDS. Over the past decade, many hospitals have closed due to cost containment pressures, changing technology, changes in regulations and reimbursement, changes in physician practice patterns and other factors. Another result of these changes has been a significant shift from inpatient to outpatient care. Outpatient utilization, as reflected in outpatient gross revenue and adjusted admissions, has increased significantly over the past several years. The Company is unable to predict whether such trends will continue. See "Hospital Operations" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." During the past several years, the major third-party payors of hospital services (Medicare, Medicaid and private health care insurance companies) have undertaken substantial revisions in their payment methodologies and monitoring of health care expenditures in order to contain health care costs. Instead of reimbursing health care providers for retrospectively determined actual costs, Medicare now reimburses for inpatient services based on fixed prospectively determined payments keyed to regional and national rates under a system of specific diagnosis related groups of services ("DRGs") determined by a patient's principal diagnosis. Consequently, hospitals bear the risk of providing care in that they receive a specific, fixed reimbursement for each treatment regardless of actual cost. This payment system was established to control costs and reward hospitals for efficient treatment of Medicare patients (which patients, on an industry-wide basis, currently represent approximately 50% of an average for-profit hospital's gross revenue). The introduction of these Medicare cost containment incentives, combined with closer monitoring of health care expenditures by both private health insurers and employers, has resulted over the past several years in increased contractual adjustments and policy discounts to hospitals' standard charges for services performed, significant declines in inpatient hospital utilization and increases in outpatient hospital utilization. In addition, due in part to these initiatives, managed care organizations, such as health maintenance organizations ("HMOs") and preferred provider organizations ("PPOs"), represent an increasing segment of health care payors. For a more complete discussion see "Reimbursement". Sources of Revenue The sources of the Company's hospital revenue are charges related to the medical support activities performed by the hospitals such as x-rays, physiotherapy and laboratory procedures, and basic charges for the hospital room and related services such as general nursing care and meals. The Company's hospitals receive payments for health care services (i) from the federal Medicare program for certain elderly and disabled patients, (ii) the federal and state funded Medicaid programs, administered by the states for certain indigent patients, (iii) private insurance carriers such as Blue Cross Insurance Companies ("Blue Cross") or other private insurance plans for their insureds, (iv) employers, (v) managed care programs and (vi) patients directly. The single largest patient group is Medicare beneficiaries. The following table sets forth the approximate percentages of total net operating revenue of the Company's hospitals from the sources and for the periods indicated: Year Ended August 31, 1994 1993 1992 Medicare........................ 36% 33% 33% Medicaid........................ 9 9 9 Private Insurance and Patients.. 55 58 58 Total........................... 100% 100% 100% Amounts received under Medicare, Medicaid and cost- based Blue Cross and from managed care organizations such as HMOs and PPOs, generally are less than the hospitals' charges for the services provided. Patients are generally not responsible for any difference between hospital charges and amounts reimbursed under these programs for such services, but are responsible to the extent of any exclusions, deductibles or co- insurance features of their coverage. The Company's hospitals continue to experience an increase in the amount of such exclusions, deductibles and co- insurance. See "Reimbursement." As with the hospital industry in general, the primary component of the Company's working capital is accounts receivable arising from services provided to its patients. Payments on accounts receivable are made by third-party payors (Medicare, Medicaid, Blue Cross, and other private insurance carriers and insurance plans) and directly by patients. The Company believes that its average collection period is consistent with industry experience. Following the initiative taken by the federal government to control health care costs, other major purchasers of health care, including states, insurance companies and employers, are increasingly negotiating the amounts they will pay for services performed rather than simply paying health care providers the amounts billed. Managed care organizations such as HMOs and PPOs, which offer prepaid and discounted medical service packages, represent an increasing segment of health care payors, thereby tending to reduce the historical rate of growth of hospital revenues. Medical Staffs and Employees At August 31, 1994, approximately 8,380 active licensed physicians were members of the medical staffs of the Company's hospitals. A patient is usually admitted to a hospital only at the request of a member of the medical staff. Medical staff members are generally independent contractors and not employees of a hospital. Medical staff members may also serve on the medical staffs of hospitals not owned by the Company, and each may terminate his or her connection with a Company-owned hospital at any time. Wages and employee benefits constitute a significant portion of the Company's hospital service costs. As of August 31, 1994, the Company and its subsidiaries employed approximately 41,000 persons full-time and approximately 14,000 persons part-time. One of the Company's hospitals is a party to a labor contract with a union covering approximately 100 employees and another of the Company's hospitals is a party to a labor contract with a union representing approximately 85 employees. The Company experiences union organizational efforts in its hospitals and other facilities from time to time, but does not expect such efforts to materially affect its future operations. The Company considers its labor relations with its employees to be good. The Company generally has not experienced material difficulty in recruiting and retaining employees, including nurses and professional staff members. Directors and Executive Officers Set forth below are the names, ages, positions and certain other information concerning the current directors and executive officers of the Company. Name Age Position R. Clayton McWhorter 61 Chairman of the Board, Chief Executive Officer and President; Director W. Hudson Connery, Jr. 45 Senior Vice President and Chief Operating Officer; Director Michael A. Koban,Jr. 43 Senior Vice President; Director Harry N. Beaty, M.D. 62 Director Alethea O. Caldwell 53 Director Robert F. Dee 70 Director Richard W. Hanselman 67 Director William T. Hjorth 57 Director Donald S. MacNaughton 77 Director Kenneth C. Donahey 44 Senior Vice President and Controller Richard E. Francis, Jr. 40 Senior Vice President Philip D. Wheeler 38 Senior Vice President, General Counsel and Secretary Clifford G. Adlerz 40 Vice President O. Ernest Bacon 57 Vice President Yolanda D. Chesley 44 Vice President Edward J. Driesse 47 Vice President James M. Fleetwood, Jr. 47 Vice President William L. Hough 43 Vice President Jone Law Koford 38 Vice President Robert M. Martin 45 Vice President Dana C. McLendon, Jr. 52 Vice President R. Parker Sherrill 50 Vice President David L. Smith 39 Vice President Robert A. Vraciu 47 Vice President Kent H. Wallace 39 Vice President Mr. McWhorter has been Chairman and Chief Executive Officer of Healthtrust since its formation in 1987 and was elected to the additional office of President of the Company in 1991. Mr. McWhorter served as President and Chief Operating Officer of HCA from 1985 to 1987, and as a Director of HCA from 1983 to 1987. Mr. McWhorter joined HCA in 1970 as Administrator of Palmyra Park Hospital in Albany, Georgia. He was named Division Vice President--Eastern Region in 1973, Senior Vice President in 1976, Executive Vice President--Domestic Operations in 1980 and Executive Vice President--Operations in 1983. Mr. McWhorter is a director of Third National Bank in Nashville and Ingram Industries, Inc. and is a member of the Board of the Foundation for State Legislatures. He is also past Chairman of the Federation of American Health Systems, a past member of the Board of Trustees of the American Hospital Association, a Fellow of the American College of Healthcare Executives and a Trustee of the Committee for Economic Development. Mr. Connery was elected a Director of the Company in 1992. He became a Vice President of the Company in 1989 and Senior Vice President and Chief Operating Officer of the Company in 1991. Mr. Connery was Director of Development for the Company from 1987 to 1989 and Director, Acquisitions and Development, for HCA from 1983 to 1987. From 1981 to 1983, he was Administrator of Margate General Hospital in Margate, Florida. He joined HCA in 1981. Mr. Koban was elected a Director of the Company in 1993. Mr. Koban became Vice President and Treasurer of the Company in 1987 and Senior Vice President for finance in 1992. He was Treasurer of HCA from 1985 to 1987 and Assistant Treasurer from 1980 to 1985. Mr. Koban joined HCA in 1976. Dr. Beaty was elected a Director of the Company in 1993. Dr. Beaty has been a Professor of Medicine and Dean of the Northwestern University Medical School since 1983. He is on the attending medical staff of Northwestern Memorial Hospital and on the consulting staff of Veterans Administration Lakeside Medical Center and is also President of Northwestern Medical Faculty Foundation, an academic multiple group practice with over 400 physicians. Dr. Beaty is a diplomat of the American Board of Internal Medicine and a Fellow of the American College of Physicians. Dr. Beaty is a member of the American Federation of Clinical Research, the American Medical Association, the American Society for Clinical Investigation, the American Society for Microbiology and the American Society of Internal Medicine. Dr. Beaty is past Chairman of the Association of American Medical Colleges' Council of Deans and Executive Council and served on its Administrative Board before his election to Chairman. He is also a member of the Board of Directors of Becton, Dickinson and Company. Ms. Caldwell was elected a Director of the Company in 1992. Ms. Caldwell is currently President and COO of Managed Health Network, Inc. Prior thereto she was Executive Vice President for Blue Cross of California; Director of the Arizona Department of Health Services from 1991 to 1993; President and Chief Executive Officer of Ancilla Systems Incorporation in Chicago, Illinois from 1987 to 1991; Chief Executive Officer of University Medical Center Corporation of Tucson, Arizona from 1984 to 1987; and Executive Assistant Director and Chief Operating Officer of University of California, Irvine Medical Center from 1980 to 1984. She serves on the Board of Managed Health Network; The National Board of Advisors for the College of Business and Public Administration at he University of Arizona and is a Fellow in the American College of Health Care Executives. Mr. Dee was elected a Director of the Company in 1992. Mr. Dee retired in 1987 from SmithKline Beckman Corporation (a predecessor of SmithKline Beecham Corporation) having served as its Chairman of the Board from 1976 to 1987 and as its Chief Executive Officer and President from 1972 to 1982. Mr. Dee is a director of United Technologies Corporation, Air Products and Chemicals, Inc., Kabi Pharmacia and Volvo North America Corporation. He also serves on the Board of Directors of the U.S. Council for International Business and the Committee for Economic Development and is a member of the Business Council, The Conference Board and the Management Executive's Society. Mr. Hanselman was elected a Director of the Company in 1987. Mr. Hanselman is currently a private investor. From 1981 to 1986, he was Chairman, President and Chief Executive Officer of Genesco, Inc., a diversified footwear and apparel business. Prior thereto, he held senior management positions with Beatrice Companies, Inc., Samsonite Corporation and RCA Corporation. Mr. Hanselman is a director of Becton, Dickinson and Company, Arvin Industries, Inc., The Bradford Funds, IMCO Recycling, Inc., Foundation Health Corporation, Benson Eye Corp. and Daisy Manufacturing. Mr. Hanselman is also a Trustee of the Committee for Economic Development. Mr. Hjorth was elected a Director of the Company in 1990. Mr. Hjorth is currently a private investor. He was Chairman, Chief Executive Officer and President of Equicor-Equitable HCA Corporation from 1988 to 1990 when Equicor was acquired by another company. From 1987 to 1988, he held various senior executive positions with Equicor including Chief Financial Officer and Chief Operating Officer. Prior thereto, he served in various management capacities with Clark Equipment Company from 1980 to 1986 (including Senior Vice President, Chief Financial Officer and Director) and with Chrysler Corporation from 1964 to 1980. Mr. Hjorth is a member of the Board of Directors of Coventry Corporation and Managed Health Network, Inc. Mr. MacNaughton has served as Chairman of the Executive Committee of Healthtrust since its formation in 1987. He retired as an employee of Healthtrust in 1991. Mr. MacNaughton joined HCA in 1978 as Chairman and Chief Executive Officer. He continued to serve as Chief Executive Officer of HCA until 1982, Chairman of the Board until 1985 and as Chairman of the Executive Committee until 1987. Prior to 1978, Mr. MacNaughton was Chairman and Chief Executive Officer of The Prudential Insurance Company of America, where he served in various management capacities for 23 years, including nine years as Chairman and Chief Executive Officer. Mr. MacNaughton is a member of The Business Council, a member of the Board of Trustees of Vanderbilt University and a member of the Board of Directors of Financial Securities Advisers, Inc. Mr. Donahey became Vice President and Controller of the Company in 1987 and a Senior Vice President in April 1993. He was Vice President--Operations and Controller of HCA from 1986 to 1987. Mr. Donahey joined HCA in 1977, became Director--Financial Support in 1981, and Assistant Vice President and Controller--Business Development in 1985. Prior to joining HCA, Mr. Donahey was a senior auditor with Genesco, Inc. Mr. Francis became a Vice President of the Company in 1990 and Senior Vice President for development in 1992. Mr. Francis was a Director of Development of the Company from 1987 to 1990 and a Director, Acquisition and Development, for HCA from 1983 to 1987. Prior to joining HCA, he was Vice President of MedAmerican Health System and Miami Valley Hospital in Dayton, Ohio. Mr. Wheeler became a Vice President of the Company in 1990 and a Senior Vice President in 1993. Mr. Wheeler joined the Company in 1988 as General Counsel and Secretary. Prior thereto, he was Senior Counsel with HCA from 1984 to 1988 and associated with the predecessor of the law firm of Chadbourne & Parke from 1981 to 1984. Mr. Adlerz became a Vice President of the Company in 1992. Mr. Adlerz served as Chief Executive Officer of the Company's South Bay Hospital in Sun City Center, Florida from 1987 to 1992 and Associate Administrator at Bayonet Point/Hudson Medical Center in Hudson, Florida from 1985 to 1987. Prior thereto, Mr. Adlerz was Assistant Administrator at North Beach Medical Center in Fort Lauderdale, Florida. Mr. Bacon became a Vice President of the Company in 1992. Mr. Bacon served as Chief Executive Officer of the Company's Lanier Park Regional Hospital from 1990 to 1992. Mr. Bacon previously served as Chief Executive Officer of Hamilton Medical Center in Dalton, Georgia from 1988 to 1990, Chief Executive Officer of Park View Medical Center in Nashville, Tennessee from 1986 to 1988 and Chief Executive Officer of West Paces Ferry Hospital in Atlanta, Georgia from 1979 to 1986. Ms. Chesley became a Vice President of the Company in 1992. She was Director of Compensation and Benefits from 1991 to 1992 and Director of Compensation from 1987 to 1991. Ms. Chesley served as Director of Salary Administration for HCA from 1985 to 1987, Manager of Salary Administration from 1983 to 1985 and Senior Compensation Analyst from 1982 to 1983. Prior to joining HCA, Ms. Chesley was Manager of Compensation for Provident Life Insurance Company. Mr. Driesse became a Vice President of the Company in 1993. He served as senior partner in IBM's worldwide consulting practice in Dallas, Texas from 1991 to 1993. Prior thereto, Mr. Driesse was the Site Information Systems Manager for IBM in Dallas, Texas from 1989 to 1991 and Manager of Information Systems planning and strategy from 1984 to 1989. Mr. Fleetwood became a Vice President of the Company in 1992. Mr. Fleetwood served as Chief Executive Officer of the Company's Plantation General Hospital from 1989 to 1992. Prior thereto, Mr. Fleetwood served as Chief Executive Officer at Coral Reef Hospital in Miami, Florida from 1987 to 1989, Chief Executive Officer at Larkin General Hospital in South Miami, Florida from 1980 to 1987 and prior thereto as Assistant Administrator of Coral Gables Hospital in Coral Gables, Florida from 1978 to 1980. Mr. Hough became a Vice President of the Company in 1990. Mr. Hough was the Chief Executive Officer of the Company's Bayshore Medical Center in Pasadena, Texas from 1987 to 1990 and Administrator of Gulf Coast Hospital in Baytown, Texas from 1985 to 1987. Prior thereto, he was Chief Financial Officer for Pasadena Bayshore Medical Center and Park West Hospital in Knoxville, Tennessee and a certified public accountant at the predecessor of Ernst & Young LLP. Ms. Koford became a Vice President of the Company in 1992. Ms. Koford was Chief Executive Officer of the Company's Pioneer Valley Hospital in West Valley, Utah from 1991 to 1992, Chief Executive Officer of the Company's Brigham City Community Hospital in Brigham City, Utah from 1989 to 1991 and Assistant Administrator of Pioneer Valley Hospital from 1987 to 1989. Prior thereto, Ms. Koford served as Senior Vice President for Development at St. Benedict Health Systems, President of St. Benedict's Management Company, and a Director of Planning at Intermountain Health Care, Inc. Mr. Martin became a Vice President of the Company in 1990. Mr. Martin was Chief Executive Officer of the Company's Northeast Community Hospital in Bedford, Texas from 1985 to 1990 and Chief Operating Officer of that hospital from 1981 to 1985. Prior thereto, he was associate administrator and Chief Financial Officer of Cherry Hill Medical Center in Cherry Hill, New Jersey from 1979 to 1981. Mr. McLendon became a Vice President of the Company in 1993. Mr. McLendon was Director, Delivery System Integration of Healthtrust from 1992 to 1993 and Director, Development from 1991 to 1992. Prior thereto he was President and Chief Executive Officer of First American National Bank in Nashville, Tennessee from 1988 to 1990 and served in various management capacities with First Union Corp. from 1977 to 1988. Mr. Sherrill became a Vice President of the Company in 1993. Mr. Sherrill was Director of Government Affairs of Healthtrust from 1990 to 1993 and Vice President for Government Affairs for HCA from 1986 to 1990. Prior to joining HCA, Mr. Sherrill served as Executive Director of the State Health Planning and Resources Development Authority in Tennessee. Mr. Smith became a Vice President of the Company in 1990. Mr. Smith was Director, Internal Audit of Healthtrust from 1987 to 1990, Manager, Internal Audit for HCA from 1981 to 1987 and Supervisor, Internal Audit for HCA from 1979 to 1981. Prior to joining HCA, Mr. Smith was with the predecessor of Ernst & Young LLP. Mr. Vraciu became Vice President of the Company in 1987. He was President of the Center for Health Studies at HCA from 1986 to 1987. Mr. Vraciu joined HCA in 1980 as Vice President--Strategic Planning. Prior thereto, he was an Assistant Professor of Hospital Administration and Medical Care Organization at the University of Michigan. Mr. Wallace became a Vice President of the Company in 1991. Mr. Wallace was a Regional Assistant Vice President of the Company from 1987 to 1991. Prior thereto, he was the Chief Financial Officer of various HCA hospitals from 1981 to 1987. In general, officers are elected by the Board of Directors annually and serve at the discretion of the Board of Directors. There are no family relationships between any of the directors or executive officers. Properties At October 31, 1994, the Company, through its subsidiaries or joint venture arrangements, operated 116 hospitals. All such hospitals are wholly-owned by subsidiaries of the Company, except that, as noted in the following table, certain of the Company's hospitals have minority interests held by physicians at such hospitals, certain hospitals are held pursuant to leases and one hospital is operated pursuant to a management contract. The Company also owns (i) a 50% interest in a general partnership with Orlando Regional Medical Center, Inc. which partnership owns South Seminole Community Hospital (126 beds) and West Lake Psychiatric Hospital (80 beds) in Longwood, Florida; (ii) a 50% interest in a general partnership with Presbyterian Hospital of Charlotte which partnership owns Orthopaedic Hospital of Charlotte (166 beds) in Charlotte, North Carolina; and (iii) a 25% interest in a general partnership with American Medical International, Inc., which partnership owns Encino Hospital (188 beds) in Encino, California and Tarzana Medical Center (177 beds) in Tarzana, California. The Company has also formed a joint venture with Austin Diagnostic Clinic, P.A. for the purpose of constructing and operating an integrated healthcare facility in Austin, Texas. This facility, currently under construction, will consist of a 180-bed hospital, a diagnostic and treatment center and a medical office building. Following completion of construction the Company will manage the hospital. In August 1994, the Company completed its acquisition of three hospitals in Utah from Holy Cross Healthcare Systems. However, pursuant to a consent decree and settlement agreement with the Federal Trade Commission ("FTC") the Company has agreed to hold separate and divest Holy Cross Hospital of Salt Lake City. In addition, the Company, through its subsidiaries or joint venture arrangements, owns, leases or manages approximately 240 medical office buildings with physicians' office space and various parcels of undeveloped land, substantially all of which are adjacent to its hospitals. See "Competition" and "Regulation." In addition, the Company occupies approximately 70,000 square feet of corporate office space in Nashville, Tennessee. The Company believes its headquarters, hospitals and other facilities are suitable for their respective uses and are, in general, adequate for the Company's current needs. The following table sets forth certain information relating to each of the hospitals operated by the Company, grouped by state, at November 1, 1994. The Company is engaged from time to time in discussions relating to proposed sales of certain of its hospitals and of minority interests in, or joint ventures with medical staff physicians or others with respect to, certain other facilities. However, except as noted below, as of November 1, 1994, no definitive arrangements with respect to any sales or joint ventures have been agreed upon and the facilities involved at the present time are not, in the aggregate, material to the Company's business. For a discussion concerning certain regulations relating to joint venture and other financial arrangements between health care providers and physicians, see "Reimbursement." Number of Licensed State Name Location Beds Alabama Andalusia Hospital Andalusia 77 Crestwood Hospital Huntsville 120 Four Rivers Medical Center Selma 214 Arizona El Dorado Hospital & Medical Center Tucson 166 Northwest Hospital Tucson 150 Arkansas DeQueen Regional Medical Center DeQueen 122 Medical Park Hospital Hope 91 California Chino Community Hospital Chino 118 Healdsburg General Hospital Healdsburg 49 Mission Bay Memorial Hospital San Diego 150 Palm Drive Hospital Sebastopol 56 Westside Hospital(1) Los Angeles 87 Florida Clearwater Community Hospital(2) Clearwater 133 East Pointe Hospital Lehigh Acres 88 Edward White Hospital St. Petersburg 167 Lake City Medical Center Lake City 75 North Okaloosa Medical Center Crestview 110 Palm Beach Regional Hospital Lake Worth 200 Palms West Hospital Loxahatchee 117 Plantation General Hospital(3) Plantation 264 Santa Rosa Medical Center(4) Milton 129 South Bay Hospital Sun City Center 112 Georgia Barrow Medical Center Winder 60 Doctors Hospital(5) Columbus 248 Lanier Park Regional Hospital Gainesville 124 Idaho Eastern Idaho Regional Medical Center Idaho Falls 286 West Valley Medical Center Caldwell 150 Indiana Terre Haute Regional Hospital Terre Haute 284 Kentucky Bourbon General Hospital Paris 60 Logan Memorial Hospital Russellville 100 Meadowview Regional Medical Center Maysville 111 PineLake Medical Center Mayfield 116 Scott General Hospital Georgetown 75 Spring View Hospital Lebanon 113 Louisiana Dauterive Hospital New Iberia 113 Doctor's Hospital of Opelousas(6)(7) Opelousas 133 Highland Park Hospital Covington 104 Lakeside Hospital Metairie 186 Medical Center of Baton Rouge Baton Rouge 225 Medical Center of SW Louisiana Lafayette 166 Riverview Medical Center Gonzales 104 Women's and Children's Hospital(8) Lafayette 93 Mississippi Garden Park Community Hospital(9) Gulfport 120 Vicksburg Medical Center Vicksburg 144 Missouri Springfield Community Hospital Springfield 200 North Carolina Davis Community Hospital Statesville 149 The Brunswick Hospital(10) Supply 60 Heritage Hospital Tarboro 127 Oklahoma Claremore Hospital Claremore 89 Doctor's Medical Center Tulsa 211 Edmond Regional Medical Center Edmond 139 Southwestern Medical Center Lawton 108 Wagoner Community Hospital(11) Wagoner 100 Oregon McMinnville Community Hospital McMinnville 80 Douglas Community Hospital Roseburg 118 South Carolina Chesterfield General Hospital Cheraw 72 Colleton Regional Hospital Walterboro 131 Marlboro Park Hospital Bennettsville 111 Tennessee Crockett Hospital Lawrenceburg 106 Hendersonville Hospital Hendersonville 120 Johnson City Specialty Hospital(12) Johnson City 39 Livingston Regional Hospital Livingston 106 Nashville Memorial Hospital Madison 341 North Side Hospital(13) Johnson City 154 River Park Hospital(14) McMinnville 89 Smith County Memorial Hospital Carthage 66 Southern Tennessee Medical Center(15) Winchester 212 South Pittsburg Municipal Hospital(16) South Pittsburg 107 Stones River Hospital Woodbury 85 Sycamore Shoals Hospital Elizabethton 100 Trinity Hospital Erin 40 Texas Alice Physicians & Surgeons Hospital Alice 131 Alvin Community Hospital Alvin 86 Bayshore Medical Center Pasadena 469 Brownwood Regional Hospital(17) Brownwood 218 Coastal Bend Hospital Aransas Pass 75 Coronado Hospital Pampa 115 Denton Regional Medical Center Denton 297 Detar Hospital Victoria 303 Doctors Hospital(18) Conroe 135 Doctors Hospital of Laredo(19) Laredo 91 El Campo Memorial Hospital El Campo 41 Fort Bend Community Hospital Missouri City 80 Gilmer Medical Center Gilmer 46 Gulf Coast Medical Center Wharton 161 Katy Medical Center Katy 103 Longview Regional Hospital Longview 80 Mainland Regional Healthcare Texas City 430 System(20) Medical Arts Hospital(21) Dallas 72 Medical Arts Hospital(21) Texarkana 110 Medical Center Hospital Conroe 182 Medical Plaza Hospital Sherman 164 Midway Park Medical Center Lancaster 90 Northeast Community Hospital Bedford 200 North Texas Medical Center McKinney 270 Parkway Hospital Houston 262 Riverside Hospital Corpus Christi 89 Round Rock Community Hospital Round Rock 75 Sun Belt Regional Medical Center(22) Houston 273 Terrell Community Hospital(23) Terrell 101 Valley Regional Medical Center Brownsville 158 Westbury Hospital Houston 134 Woodland Heights Medical Center Lufkin 117 Utah Ashley Valley Medical Center Vernal 39 Brigham City Community Hospital Brigham City 50 Castleview Hospital Price 88 Jordan Valley Hospital West Jordan 50 Lakeview Hospital Bountiful 128 Mountain View Hospital Payson 118 Ogden Regional Medical Center Ogden 239 Pioneer Valley Hospital West Valley City 139 Virginia Montgomery Regional Hospital Blacksburg 146 Northern Virginia Doctors Hospital Arlington 267 Pulaski Community Hospital Pulaski 153 Washington Capital Medical Center Olympia 110 Wyoming Riverton Memorial Hospital Riverton 70 (1) Owned by a limited partnership of which 28.7% of the interest is held by minority owners. The limited partnership has leased the hospital to a joint venture of which approximately 23.7% is held by minority owners. (2) Operated by a limited partnership of which approximately 18% of the interest is held by minority owners. (3) Operated by a partnership of which the Company is the general partner owning 53% and certain physicians are limited partners owning 47%. (4) Lease expires 2005, unless landlord exercises option to purchase facility for book value in 1995. (5) Owned by the Company as a tenancy in common with physicians having a minority interest of 40.5%. (6) Operated by a limited partnership of which approximately 23% of the interest is held by minority owners. (7) The facility is leased. (8) Ground lease expires 2011; there are two ten-year optional renewal terms. (9) Operated by a limited partnership in which the minority investors receive the first $2 million earned by the partnership after payment of the lease payments due to the Company ($3 million per year, increasing by 15% per year), and the Company is entitled to 60% of all additional earnings. (10) Lease expires in 2004. (11) Lease expires in 2007. (12) Owned by a partnership of which the Company is the general partner owning 87% and certain physicians are limited partners owning 13%. (13) Owned by the Company as a tenancy in common with physicians having a minority interest of 30.25%. (14) Owned by a partnership of which the Company is the general partner owning 78% and certain physicians are limited partners owning 22%. (15) Includes a leased (lease expires in 2020) hospital campus located in Sewanee, Tennessee with 50 licensed beds. (16) Managed by the Company for profits and losses attributable thereto with an option to buy for $50,000 and the provision for full payment of all outstanding indebtedness issued in connection with the construction of the hospital. The Company's management contract for this facility expires in 1999. (17) Lease expires in 2000; there are two optional renewal terms of ten years each. (18) Initial term of lease expires in 2006; there are three optional renewal terms of ten years each. The Company has an option to buy this facility for an amount determined in accordance with a specified formula. (19) Operated by a limited partnership of which approximately 22.125% of the interest is held by minority owners. (20) Consists of two hospital facilities, one of which is leased. (21) The facility is leased. (22) Includes a hospital campus located at Channelview, Texas with 96 licensed beds. (23) The hospital consists of two facilities, one of which is leased. Competition Many areas served by the Company's hospitals are also served by other facilities which provide services similar to those offered by the Company's hospitals. In some cases, competing hospitals are more established, better equipped or offer a wider range of services than those of the Company or have financial resources greater than those of the Company. In addition, certain competing hospitals are owned by tax- supported government agencies or by tax-exempt, not- for-profit corporations, which may be supported by endowments and charitable contributions. Such support generally is not available to the Company's hospitals. In certain localities served by the Company, large regional teaching and tertiary care hospitals provide highly specialized facilities, equipment and services not available at most of the Company's hospitals. Even in those communities where the Company's hospital is the sole provider of general acute care hospital services, the Company's hospital faces competition from local providers of outpatient services and from hospitals and other health care providers in nearby communities. Competition among hospitals and other health care providers for patients has intensified in recent years as occupancy rates have declined as a result of cost containment pressures, changing technology, changes in government regulation and reimbursement, and changes in practice patterns (e.g., shifting from inpatient to outpatient treatments), and other factors. New competitive strategies of hospitals and other health care providers place increasing emphasis on the use of alternative health care delivery systems (such as home health services, outpatient surgery and emergency and diagnostic centers) that eliminate or reduce lengths of hospital stays. In some cases, these strategies include the use of larger regional facilities that employ equipment and services more specialized than those available at the Company's hospitals. The Company's competitive position also is affected by the ability of its hospitals to provide services to managed care organizations, including HMOs, PPOs and other purchasers of group health care services. HMOs and PPOs attempt to direct and control the use of hospital services through managed care programs and discounts or other payment mechanisms that are lower than the hospital's established standard charges. Generally, hospitals compete for service contracts with HMOs, PPOs and other group health care services on the basis of geographic location, quality of services, quality of medical staffs and price. Since physicians generally control the majority of hospital admissions, another significant factor in a hospital's competitive position is the number and quality of physicians on its medical staff. A physician may at any time terminate his or her affiliation with a Company-operated hospital. The Company believes that physicians refer patients to a hospital primarily on the basis of the quality of services the hospital renders to patients and physicians, the quality of other physicians on the medical staff, the location of the hospital and the quality of its facilities, equipment and employees. Accordingly, the Company seeks to retain physicians of varied specialties on its hospital staffs and to attract other qualified physicians by maintaining high quality facilities and equipment, dedicated employees and comprehensive support services for physicians and their patients, as well as high ethical and professional standards. The Company also believes that offering a variety of practice management services to physicians and operating a medical office building adjacent to a hospital attracts additional physicians to the hospital's medical staff and, accordingly, contributes to patient admissions and utilization at the hospital facility. Substantially all of the Company's hospitals have adjacent medical office buildings and many are offering practice management services. The Company's hospitals also frequently participate in the same managed care contracts as its medical staff physicians. The Company also has a number of joint venture arrangements with medical staff physicians relating to physician-hospital organizations ("PHOs") and to minority investments in Company hospitals, outpatient facilities and other health care businesses, and intends to pursue additional PHO and joint venture opportunities in the future. See "Reimbursement." Certificate-of-need laws in some states place limitations on the industry's ability to build new hospitals, expand existing hospitals and convert existing facilities to other uses. In those states with certificate-of-need laws, applications for approval of new hospitals or services are highly competitive. See "Regulation." Professional Liability As is typical in the health care industry, the Company is subject to claims and legal actions by patients in the ordinary course of business. The Company's current insurance program provides first dollar coverage for professional and general liability with commercial insurance carriers for the Company's hospitals in all states except Florida, Louisiana and Indiana on a claims-made basis with coverage limits of $1.0 million for each occurrence and $3.0 million in the aggregate annually, with no deductibles. In Florida, such coverage is $2.0 million for each occurrence, $2.5 million in the aggregate annually and, in Indiana, such coverage for the Company's hospital is $100,000 for each occurrence and $300,000 in the aggregate annually with deductibles of $25,000 for each occurrence and $125,000 in the aggregate annually. In Louisiana, the liability of each of the Company's hospitals is limited to $100,000 for each occurrence and $300,000 in the aggregate annually, consistent with Louisiana law and the Hospital's participation in Louisiana's patient compensation fund. The Company funds payments under these policies on a dollar-for-dollar basis. All professional and general liability in excess of such coverage limits is self-insured. The Company maintains an unfunded reserve for its liability risks that is based on actuarial estimates calculated and evaluated by an independent actuary. Actual hospital professional and general liability costs for a particular period are not normally known for several years after the period has ended. The delay in determining the actual cost associated with a particular period is due to the time between the occurrence of an incident, the reporting thereof and the settlement of related claims. Because of this delay in payment, reserves for losses and related expenses, using expected loss reporting patterns determined by the independent actuary, are discounted using a rate of 6% to their present value. Adjustments to the total reserves determined by the actuary on an annual basis are recorded by the Company as an increase or decrease in the current year's expense. For the fiscal year ended August 31, 1994, the Company recorded aggregate expense for professional liability risks of $38.1 million. As of August 31, 1994, the unfunded reserve for professional liability risks was $245.4 million. While the Company's cash flow has been adequate to provide for alleged and unforeseen liability claims in the past, there can be no assurance that the Company's cash flow will continue to be adequate. If payments with respect to self-insured liabilities increase in the future, the results of operations of the Company could be adversely affected. Regulation Licensing and Accreditation Hospital operations are subject to a variety of federal, state and local regulations relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, fire prevention, rate-setting and compliance with building codes and environmental protection laws. Various licenses and permits also are required for the use and storage of narcotics, the operation of pharmacies and the use of radioactive material and certain equipment. Facilities are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. All of the Company's hospitals are licensed under appropriate state laws and substantially all of the Company's hospitals are certified under the Medicare program and are accredited by the Joint Commission on Accreditation of Health Care Organizations (the "Joint Commission"). The Company believes that its hospitals are in substantial compliance with current federal, state, local and independent review body regulations and standards. The requirements for licensing, certificates of need, and accreditation are subject to change and, in order to remain qualified, it may be necessary for the Company to effect changes in its facilities, equipment, personnel and services. Although the Company intends to continue its qualifications, there is no assurance that its hospitals will be able to comply in the future. Certificates of Need Some states in which the Company owns hospitals require a hospital or its owner to obtain a certificate-of-need from regional and/or state health planning agencies as a precondition to hospital acquisitions, construction, expansion or modernization, additions of equipment or initiation of major new services involving capital expenditures in excess of certain limits. Failure to obtain necessary state approval can result in the inability to complete an acquisition or change of ownership, the imposition of civil or, in some cases, criminal sanctions, the inability to receive Medicare or Medicaid reimbursement and/or the revocation of a facility's license. Utilization Review The Company's hospitals are subject to various forms of governmental and private utilization and quality assurance review. Procedures mandated by the Social Security Act to ensure that services rendered to Medicare and Medicaid patients meet recognized professional standards and are medically necessary include review by a federally funded Peer Review Organization ("PRO") of the appropriateness of Medicare and Medicaid patient admissions and discharges, quality of care, validity of DRG classifications and appropriateness of services being provided in an inpatient setting. PRO's also routinely review outpatient services for quality and appropriateness and review ambulatory surgery procedures for proper classification. While no PRO has taken material adverse action against any of the Company's hospitals, negative PRO reviews may result in denial of reimbursement of payments, assessments of fines or exclusions from such programs. Rate Review Rate or budget review legislation is in effect in a number of states where the Company owns hospitals. For example, in Florida a budget review process and a ceiling on revenue increases per admission has been in effect with respect to the Company's hospitals since 1986. The ceiling on revenue increases per admission limits hospital revenue increases to an administratively determined cost of health care index plus an additional percentage in excess thereof. This law has limited the Company's ability to increase rates at its Florida hospitals. A number of states also have adopted taxes on hospital revenue and/or imposed licensure fees to fund indigent health care within such states. There can be no assurance that these states or other states in which the Company operates hospitals will not enact further or new rate-setting or other regulations that may adversely affect the Company's hospitals. Reimbursement Medicare The Social Security Amendments of 1965 established the Medicare program, which is designed to provide health care services to the aged. Medicare Part A provides health insurance benefits for covered hospital and related health care services to most persons who are 65 years old and are entitled to monthly social security retirement benefits and to certain disabled persons. Medicare Part B provides voluntary supplemental medical benefits covering primarily outpatient and physician care costs for covered persons. Operating Payments Medicare originally provided reimbursement for the reasonable direct and indirect costs of hospital services furnished to beneficiaries, plus an allowed return on equity for proprietary hospitals. Pursuant to the Social Security Amendments of 1983 and subsequent budget reconciliation act modifications, a prospective payment system intended to cover the routine and ancillary operating costs of most Medicare inpatient hospital services was adopted to replace the original cost-based reimbursement for impatient services. Under Medicare's prospective payment system for inpatient hospital service, hospital discharges are classified into approximately 500 DRGs, which classify illnesses according to the estimated intensity of hospital resources necessary to furnish care for each principal diagnosis. Hospitals generally receive a fixed amount based upon the assigned DRG, for each Medicare patient. Such payment is made regardless of how long the patient remains in the hospital or the volume of ancillary services ordered by the attending physician. Interim payments are made to rural hospitals with less than 100 beds and hospitals that serve a disproportionate share of elderly and Medicaid patients. Approximately 29% of the Company's hospitals are currently eligible for such payments. Additional "outlier" payments are made to hospitals for cases involving extremely long lengths of stay or unusually high costs in comparison with other discharges in the same DRG. Under this prospective payment system, hospitals generally are encouraged to operate with greater efficiency since they may retain payments in excess of costs but must absorb costs in excess of such payments. The federal Health Care Financing Administration (the "HCFA"), which administers the Medicare program, periodically updates and recalibrates DRG rates. Such updating and recalibrating has been affected by several recent federal enactments. The Omnibus Budget Reconciliation Act of 1987 ("OBRA-87") provided for an increase in prospective payment system update factors based upon the location of the hospital. As a result of the Omnibus Budget Reconciliation Act of 1989 ("OBRA-89"), future DRG recalibrations must be undertaken on a budget-neutral basis effective with FY 1991. In September 1993, the HCFA published final rules implementing changes to the prospective payment system which set 4.3% as the market basket increase to be used in determining the update factor for the large urban, other urban and rural hospitals in FY 1994. In September 1994, the HCFA published changes to the classification categories of the standardized payment amounts to limit hospital classifications to either large urban or other effective October 1, 1994. In addition, the market basket increase used to determine the annual update factor for urban hospitals was set at 3.6% and the update factor for other hospitals was the amount needed to equalize the rural and other urban rates. Pursuant to OBRA-93, the net updates of DRG rates for large urban and other urban hospitals are established as follows: FY 1994 and FY 1995, market basket minus 2.5%; FY 1996, market basket minus 2.0%; and FY 1997, market basket minus 0.5%; and thereafter, market basket. OBRA-93 established the rural hospital update factors as follows: FY 1994, market basket minus 1.0%; FY 1995, the amount necessary to make the average standardized amount for rural hospitals equal to that for hospitals classified as other urban: FY 1996, market basket minus 2.0%; FY 1997, market basket minus 0.5%; and thereafter, market basket. The hospital market basket is a measure of the inflation experienced by hospitals in purchasing the goods and services they need to provide inpatient services. In FY 1993, the market basket was 4.1% and the update DRG rate was market basket minus 1.55% for urban hospitals and market basket minus 0.55% for rural hospitals. Of the Company's hospitals, 81 were located in urban areas and 38 were located in rural areas for reimbursement purposes during fiscal year 1994. As of October 1, 1994, after giving effect to the reclassification of certain of the Company's hospitals, the Company had 97 hospitals located in urban areas and 22 hospitals located in rural areas for reimbursement purposes. Medicare payments for outpatient hospital-based services generally are the lower of hospital costs or customary charges. The Omnibus Budget Reconciliation Act of 1990 ("OBRA-90") directed that payments for the reasonable cost for outpatient hospital services (other than for capital related costs) be reduced by 5.8% during federal fiscal year ("FY") 1991 through FY 1995. The Omnibus Budget Reconciliation Act of 1993 ("OBRA- 93") extends this provision through FY 1998. Rural primary care hospitals and sole community hospitals are exempt from these reductions. Outpatient clinical laboratory services are reimbursed based upon a fee schedule substantially lower than customary charges. Certain ambulatory surgery procedures and outpatient diagnostic radiology procedures are reimbursed based on a blend of hospital costs and the rate paid by Medicare for similar procedures performed in free-standing facilities. Effective January 1, 1992, the blend for such procedures is 42% of the hospital costs and 58% of the fees paid in free-standing facilities. All other outpatient diagnostic procedures are based on a blend of 50% of hospital costs and 50% of the fee schedule amounts paid by Medicare for similar procedures performed in non-hospital settings; provided, however, hospitals may not receive more than costs for services paid on a blend of costs and fees method. In an effort to restrict unbundling, OBRA-90 directed that diagnostic services, including clinical diagnostic laboratory tests, and other admission-related services provided on the day of hospital admission and up to three business days immediately preceding the admission date will no longer be reimbursable under Medicare Part B if Medicare Part A is the primary payor. This unbundling provision is applicable to diagnostic services furnished on or after January 1, 1991 and any other admission-related services furnished on or after October 1, 1991. OBRA-90 further directed that the unbundling apply in the case of any services provided during the day immediately preceding admission, without regard to whether the services are related to the admission. The original cost-based payment method for facilities and units that are exempt from the DRG prospective payment system, including inpatient psychiatric and rehabilitation hospitals and units, children's hospitals and long-term care hospitals was modified by OBRA-90. Such units are reimbursed actual cost subject to an aggregate limit based on a target operating cost per discharge. If a hospital's actual cost per discharge is less than the target cost, the hospital receives an incentive payment of 50% of the difference between the target costs and the actual cost per discharge up to 5% of target operating cost. OBRA-90 also reduced the penalty for hospitals that incur actual operating costs in excess of the target cost by reimbursing 50% of the cost in excess of the limit up to 110% of the limit. The target cost per discharge is updated annually by the increase in the cost of the market basket of hospital goods and services, which for FY 1993 was an effective increase of 4.2%. For FY 1994, the market basket increase is 4.3% and for FY 1995 the market basket increase is 3.7%. OBRA-93 set the target cost per discharge update increase at the market basket minus 1% for FY 1994 through FY 1997. Capital Payments Prior to October 1986, the Medicare program reimbursed each hospital on a reasonable cost basis for the Medicare program's pro rata share of the hospital's allowable capital costs related to inpatient care. Reimbursable capital costs generally include depreciation, rent and lease expense, capital interest, property taxes and insurance premiums related to each of the physical plant, fixed equipment and movable equipment. Since 1986, Congress has required the HCFA to reduce capital-related payments below the amount that was otherwise payable pursuant to increasing capital payment discounts. Rural primary care hospitals and sole community hospitals were generally exempt from these reductions. In 1991, HHS changed the reimbursement of capital expenditures related to inpatient care from a cost reimbursement basis to prospective payment effective for hospital cost reporting periods beginning on or after October 1, 1991. The payment system will be phased in over ten years. The regulations establish a standard federal rate per discharge for capital-related inpatient hospital costs. The national rate is based on the estimated FY 1992 average Medicare payment for capital cost per discharge under cost reimbursement. The rate is then adjusted for each hospital to reflect the relative severity of diagnosis, higher cost of certain geographic areas, disproportionate share of low income patients, indirect medical education costs and extremely high cost cases. Hospitals whose costs per discharge were below the federal rate were paid on the basis of a blend of 90% hospital-specific rate and 10% federal rate in FY 1992. The federal portion is then scheduled to be increased 10% each year until the payment becomes 100% federal rate. Hospitals whose costs per discharge are above the federal rate can choose to be paid on the basis of 85% of reasonable costs of "old capital" (costs reported before December 31, 1990 or costs for capital-related items and services legally obligated on or before December 31, 1990 and put into use before October 1, 1994) plus a per case payment for new capital based on the ratio of the hospital's cost for new capital to its total capital costs. Hospitals will be eligible for additional payments to provide minimum payment levels during the 10-year transition period. The minimum payment for sole community hospitals is 90% of their Medicare inpatient capital costs; the minimum payment for urban hospitals with 100 or more beds and a disproportionate patient share percentage of at least 20.2% is 80% of their Medicare inpatient capital costs; for all other hospitals, the minimum payment is 70% of their Medicare inpatient capital costs. Funds available for additional payments are limited to 10% of aggregate inpatient capital payments. As a result, sufficient funds may not be available to meet the minimum payment levels. Also, as required by law, payments will be adjusted in FY 1992 through FY 1995 so that aggregate payments will not exceed 90% of the amounts that would have been payable on a cost reimbursement basis. However, this adjustment will not apply to payments for old capital. Payments for future years will be affected by annual updates in the federal payment rate which cannot be predicted. The final federal rate for prospective capital in FY 1993 was $417.29, in FY 1994 was $378.34 and in FY 1995 is $376.83. OBRA-93 required a 7.4% reduction in the federal rate to correct prior inflation forecast errors. The Medicare program reimburses each hospital on a reasonable cost basis for the Medicare program's pro rata share of the hospital's allowable capital costs related to outpatient services. Outpatient capital reimbursement was reduced by 10% during FY 1992 and OBRA-90 further directs that outpatient capital reimbursement be reduced by 10% in FY 1993 through FY 1995. OBRA-1993 extends this reduction through FY 1998. Rural primary care hospitals and sole community hospitals are exempt from this reduction. Other Medicare Payment System Initiatives Considerable uncertainty surrounds the future determination by the federal government of reimbursement levels for DRG classifications and for outpatient services and for capital expenditures. Congress could consider further legislation in the prospective payment area, such as reducing DRG payment rate increases or otherwise revising DRG payment rates to take into account evidence of historical reductions in hospital operating costs. In addition, any automatic spending cuts mandated under Gramm-Rudman would reduce payments made to the Company's hospitals under the Medicare program. However, because the actual amount of the reduction for any fiscal year may vary according to the federal deficit, the financial impact on the Company of any such action by Congress or of Gramm-Rudman cannot be predicted. In addition, substantial areas of the Medicare programs are subject to judicial interpretation, administrative rulings, governmental funding restrictions and requirements for utilization review (such as second opinions for surgery and preadmission criteria). Such matters, as well as more general governmental budgetary concerns, may significantly reduce payments made to the Company's hospitals under such programs, and there can be no assurance that future Medicare payment rates will be sufficient to cover costs in providing services to Medicare patients. The Company believes that the failure to provide appropriate DRG rate increases, reductions in reimbursement for capital costs and inadequate reimbursement for extraordinary Medicare cases have had a significant negative effect on its hospital operating margins and the profitability of providing services for Medicare patients. The continuing effect of the Medicare prospective payment system on the Company cannot be accurately predicted. Moreover, significant operating costs are required to be incurred in order to satisfy licensing laws, standards of the Joint Commission and quality of care concerns. See "-- Regulation." Hospital costs also are affected by the type and severity of each patient's illness, occupancy rates and decisions of physicians regarding each patient's length of stay and the number and type of tests and other procedures ordered. The ability of the Company's hospitals to control or influence these factors is limited, as such decisions generally are made by attending physicians. Medicaid The Medicaid program, created by the Social Security Amendments of 1965, is designed to provide medical assistance to individuals unable to afford care. Medicaid is a joint federal and state program in which states voluntarily participate. Reimbursement rates under the Medicaid program are set by each participating state, and rates and covered services may vary from state to state. At least 50% of Medicaid funding comes from the federal government, with the balance shared by state and local governments. The Company operates hospitals in a number of states that currently levy taxes on provider costs or revenues, in part, to fund their Medicaid programs. Effective January 1, 1992, Congress established a national limit on additional amounts required to be paid to hospitals defined as providing a disproportionate amount of Medicaid and low-income inpatient services equal to 12% of total Medicaid spending for each fiscal year. However, states then using a greater percentage of their Medicaid expenditures for disproportionate share hospital payments are allowed to continue at current levels and adjustments may be made for states with unusually high disproportionate share expenditures. After January 1, 1996, states which adopt certain criteria for defining a hospital as a disproportionate share hospital will not be subject to the disproportionate share payment limits. In 1993, the HCFA published final regulations which loosened national and state limits on disproportionate share payments to hospitals by interpreting the statute as setting target percentage goals, rather than as establishing an absolute cap on disproportionate share expenditures. The effect of these regulations was to increase the percentage of FY 1993 Medicaid expenditures for disproportionate share hospitals from 12% to 13.7%. OBRA-93 further limits disproportionate share payments to the cost of services provided to Medicaid and uninsured patients minus Medicaid payments for state fiscal years beginning during or after FY 1995. Many state Medicaid payments are now made under a prospective payment system. Medicaid payments generally are substantially less than a hospital's cost of services. In addition, states increasingly are seeking and obtaining waivers from HCFA which allow the provision of Medicaid services through contracts with managed care organizations. The federal government and many states are currently considering the use of managed care and other ways to limit the increase in the level of Medicaid funding, including replacement of the current system with a federal system which, in turn, could adversely affect future levels of Medicaid reimbursement received by the Company's hospitals. Annual Cost Reports The Company's annual cost reports, which are required under the Medicare and Medicaid programs involving cost-based reimbursement payment systems, are subject to audit which may result in adjustments to the amounts ultimately determined to be due to the Company under these programs. These audits often require several years to reach the final determination of amounts earned under the programs based on cost. Providers also have rights of appeal. The Company is currently contesting certain issues raised in audits of prior years' reports. Management believes that adequate provision has been made for any material retroactive adjustments that might result from such audits and that final results from these issues will not have a material adverse effect upon the Company's financial position or results of operations. Commercial Insurance The Company's hospitals provide services to individuals covered by health care insurance offered by private insurance carriers, such as Blue Cross. Blue Cross generally pays hospitals for covered services at their established hospital charges, at a percentage thereof or at rates negotiated between Blue Cross and the hospital. At a number of the Company's hospitals, Blue Cross plans are administered under contracts providing for payments based on the costs of services. Other private insurance carriers also reimburse their policyholders, or make direct payments to hospitals, for covered hospital services at established hospital charges or a percentage thereof. In addition, managed care organizations, which offer prepaid and discounted medical service packages, represent an increasing segment of health care payors. Except for patients covered under cost-based Blue Cross plans and many managed care contracts, the privately insured patient generally is responsible to the hospital for any difference between covered items and the total charges. Anti-Fraud and Similar Legislation The Social Security Act imposes criminal and civil penalties for making false claims to the Medicare or Medicaid Programs for services not rendered or for misrepresenting actual services rendered in order to obtain higher reimbursement. In addition, the Social Security Act contains prohibitions on offering, paying, soliciting or receiving remuneration intended to induce business reimbursed under Medicare or state health care programs. Financial arrangements between hospitals and persons, such as physicians, who are in a position to refer patients or induce the acquisition of any goods or services paid for by Medicare or state health care programs must comply with the applicable provisions of the Social Security Act. In addition to felony criminal penalties (fines of up to $25,000 and imprisonment for up to five years per referral), the Social Security Act also establishes civil monetary penalties and the sanction of excluding violators from Medicare and Medicaid participation. The federal anti-fraud provisions have been interpreted broadly to include the intentional payment of anything of value to influence the referral of Medicare or Medicaid business. In order to provide guidance to health care providers on ways to engage in legitimate business practices and avoid scrutiny under the statute, HHS has issued (i) "fraud alerts" identifying features of transactions, which, if present, may indicate that the transaction violates the law, and (ii) regulations outlining certain "safe harbor" practices, which, although potentially capable of inducing prohibited referrals of business under Medicare or state health programs, would not be subject to enforcement action under the Social Security Act. The practices covered by the regulations include certain physician joint venture transactions, space and equipment leases, personal services and management contracts, sales of physician practices, referral services, warranties, discounts, payments to employees, group purchasing organizations and waivers of beneficiary deductibles and co-payments. Additional safe harbor regulations have been proposed which cover certain managed care plans, certain investment interests, physician recruitment, certain malpractice insurance subsidies, referral agreements, purchases of physician practices and other matters. In addition, OBRA-93 included certain amendments to Section 1877 of the Social Security Act dealing with "Physician Ownership of, and Referral to, Healthcare Entities," commonly known as the "Stark Bill." The amendments significantly broadened the scope of prohibited physician self-referrals contained in the original Stark Bill to include referrals by physicians to entities in which the physician has a financial relationship and which provide certain "designated health services" which are reimbursable by Medicare or Medicaid. These services include, among other things, clinical laboratory services, certain therapy services, radiology or other diagnostic services, and inpatient and outpatient hospital services. The amended Stark Bill contains exceptions to the self-referral prohibition, including an exception if the physician has an ownership interest in the entire hospital. The amendments become effective January 1, 1995 and contemplate the promulgation of regulations implementing the new provisions. The Company cannot predict the final form that such regulations will take or the effect that the Stark Bill amendment or the regulations to be promulgated thereunder will have on the Company. Certain of the Company's current financial arrangements with physicians, including joint ventures, and the Company's future development of joint ventures and other financial arrangements with physicians could be adversely affected by the failure of such arrangements to comply with federal anti-fraud provisions, the Stark Bill or other legislation or regulation in these areas adopted in the future. See "Properties." The Company is unable to predict the effect of such regulations on the Company or whether other legislation or regulations on the federal or state level in any of these areas will be adopted, what form such legislation or regulations may take or their impact on the Company. Although certain of the Company's current financial arrangements with physicians do not qualify for the safe harbor exemptions, the Company exercises care in an effort to structure its arrangements with health care providers to comply in all material respects with the anti-fraud provisions and the Stark Bill. However, there can be no assurance that such laws will ultimately be interpreted in a manner consistent with the practices of the Company. Corporate Practice of Medicine and Fee-Splitting Prohibitions Some of the states in which the Company operates also have laws that prohibit corporations from employing physicians and practicing medicine for a profit or that prohibit certain direct and indirect payments or fee-splitting arrangements between health care providers that are designed to induce or encourage the referral of patients to, or the recommendation of, particular providers for medical products and services. In addition, some states restrict certain business relationships between physicians and pharmacies. Possible sanctions for violation of these restrictions include loss of licensure and civil and criminal penalties. These statutes vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. Although the Company exercises care in an effort to structure its arrangements with health care providers to comply with the relevant state statutes, there can be no assurance that such state laws will ultimately be interpreted in a manner consistent with the practices of the Company. Reform Efforts In November 1993, President Clinton submitted proposed comprehensive health care reform legislation (the "Administration's Proposal") to Congress. Under the Administration's Proposal, states would be required to establish regional purchasing cooperatives, known as "regional alliances," that would be the exclusive source of coverage for individuals and employers with less than 5,000 employees. All employers would be required to make coverage available to their employees and contribute 80% of the premium and all individuals would be required to enroll in an approved health plan. Regional alliances would contract with health plans that demonstrate an ability to provide consumers with a full range of benefits, including hospital services, that would be guaranteed by the federal government. The federal government would provide subsidies to low income individuals and certain small businesses to help pay for the cost of coverage. These subsidies and other costs of the Administration's Proposal would be funded in significant part by reductions in payments by the Medicare and Medicaid programs to providers, including hospitals. The Administration's Proposal would also place stringent limits on the annual growth in health plan premiums. Other comprehensive reform proposals have been introduced in Congress. These other proposals contain coverage guarantees, benefit standards, financing and cost control mechanisms which differ from the Administration's Proposal. In addition, certain states have adopted or are considering health care reform measures. Due to the uncertainties regarding the ultimate features of reform initiatives and their enactment, the Company is unable to predict what, if any, reforms will be adopted in the future, or when any such reforms will be implemented. No assurance can be given that such reforms will not have a material adverse impact on the Company's revenues or earnings. Environmental Matters The Company is subject to various federal, state and local statutes and ordinances regulating the discharge of materials into the environment. Company management does not believe that the Company will be required to expend any material amounts in order to comply with these laws and regulations or that compliance will materially affect its capital expenditures, earnings or competitive position. Legal Proceedings The Company is presently, and is from time to time, subject to claims and suits arising in the ordinary course of its business, including claims for damages for personal injuries or for wrongful restriction of or interference with physicians' staff privileges. In certain such actions, plaintiffs request punitive or other damages that may not be covered by insurance. Except as described below, the Company and its subsidiaries presently are not parties to any legal proceeding in which, in management's opinion, an adverse determination would have a material adverse effect on the Company's financial position. Certain of the Company's Utah hospitals, along with other Utah hospitals, were the subject of a federal grand jury investigation of possible criminal violations of the federal antitrust laws in connection with nursing compensation practices. Six of the Company's affiliated hospitals along with a number of other Utah hospitals have entered into consent decrees with the Justice Department which settle all charges against all named hospitals. Under the consent decree, the Company's affiliated hospitals named in therein are prohibited from entering into agreements with other Utah hospitals to fix the compensation paid to nurses and prohibited from exchanging information with other Utah hospitals concerning current or prospective compensation paid to nurses, except in limited circumstances, for a period of five years. None of the settling parties admitted any wrongdoing and no fines or penalties were assessed. The Internal Revenue Service (the "IRS") has audited the Company's federal income tax returns for taxable years ended in 1987 through 1990 and has proposed certain adjustments thereto. A formal protest has been filed with the IRS Appeals Office disputing the proposed adjustments and the Company expects to settle the disputed adjustments at the Appeals Office level. Although the ultimate outcome of the examination cannot be predicted with certainty, the Company believes that the resolution of these matters will not have a material adverse effect on the Company's financial position. Two purported class actions, entitled Alvarez v. R. Clayton McWhorter, et al. and Swain vs. R. Clayton McWhorter, et al., were commenced in Delaware Chancery Court in October 1994 by two alleged stockholders of Healthtrust against the Company and its Board of Directors. The complaints in both actions allege that the Company's Board of Directors breached their fiduciary and common law duties to the Company's stockholders by failing to maximize stockholder value and obtain the highest price possible for the Company's stockholders in connection with the Company's agreement to merge with Columbia. The complaints seek (i) a preliminary and permanent injunction against the Merger; (ii) recision and recissionary damages in the event the transaction is consummated; (iii) an accounting of any profits that might be realized by the company's directors through the Merger; (iv) unspecified compensatory damages; and (v) attorneys' and experts' fees. Healthtrust believes that the allegations in the complaints are without merit and intends to defend both actions vigorously. Item 2. Properties Information with respect to this Item is incorporated herein by reference to Item 1 - Business - Properties. Item 3. Legal Proceedings Information with respect to this Item is incorporated herein by reference to Item 1 - Business - Legal Proceedings. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for the Company's Common Equity and Related Stockholder Matters The Company's Common Stock is listed on the New York Stock Exchange and trades under the symbol "HTI". At November 15, 1994, there were 2,711 holders of record of the Company's Common Stock. The following table sets forth the reported high and low sale prices of the Company's Common Stock for the periods indicated as reported by the New York Stock Exchange or the Wall Street Journal: Period High Low FY 1993 1st Quarter ............................. $ 17 7/8 $ 11 7/8 2nd Quarter ............................. $ 19 7/8 $ 12 3rd Quarter ............................. $ 19 1/8 $ 13 3/8 4th Quarter ............................. $ 21 7/8 $ 17 3/8 Period High Low FY 1994 1st Quarter ............................. $ 24 3/4 $ 19 3/4 2nd Quarter ............................. $ 29 5/8 $ 22 5/8 3rd Quarter ............................. $ 33 1/4 $ 27 3/4 4th Quarter ............................. $ 31 $ 26 1/2 FY 1995 1st Quarter (through November 15)........ $ 36 $ 29 Dividends Each share of Common Stock has an equal and ratable right to receive dividends to be paid from the Company's assets legally available therefor when, as and if declared by the Board of Directors. The declaration and payment of dividends on the Common Stock are restricted by the terms of the 1994 Credit Agreement and the indentures governing the Company's other long-term indebtedness. No dividends have been paid on the Company's Common Stock. Item 6. Selected Financial Data The following tables set forth selected financial information for the Company for each of the years in the five-year period ended August 31, 1994 and quarterly operations information for each of the fiscal years ended August 31, 1994 and 1993. The information in the following tables should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Consolidated Financial Statements and related notes thereto.
SELECTED FINANCIAL DATA (In millions, except per share amounts) Statements of Operations Data (Years Ended August 31): 1994 1993 1992 1991 1990 Net operating revenue $2,970.0 $2,394.6 $2,265.3 $2,025.7 $1,856.9 Hospital service costs 2,361.6 1,888.6 1,796.0 1,615.8 1,488.2 608.4 506.0 469.3 409.9 368.7 Income (loss) before extraordinary charges 173.2 135.2 93.2 6.6 (53.2) Extraordinary charges on early retirements of debt (net of taxes) 0.0 13.6 136.3 0.0 5.8 Net income (loss) (before preferred dividends) 173.2 121.6 (43.1) 6.6 (59.0) Net income (loss) to common stockholders $ 173.2 $ 121.6 $ (67.7) $ (69.7) $ (124.7) Average shares and share equivalents 87.4 83.5 76.8 60.4 58.5 Earnings (loss) per share: Before extraordinary charges $ 1.98 $ 1.62 $ 0.90 $ (1.15) $ (2.03) Net income (loss) per share 1.98 1.46 (0.88) (1.15) (2.13) Balance Sheet Data (At August 31): Current assets $ 842.2 $ 670.9 $ 584.1 $ 676.9 $ 560.0 Property, plant and equipment (net) 2,253.7 1,567.5 1,554.1 1,510.2 1,466.0 Excess of purchase price over net assets acquired 736.2 178.6 176.7 180.9 194.5 Other assets 135.2 119.7 64.8 77.4 73.3 TOTAL ASSETS 3,967.3 2,536.7 2,379.7 2,445.4 2,293.8 Current liabilities 559.1 451.8 338.8 286.7 250.2 Long-term debt 1,740.9 948.6 1,033.9 1,150.0 1,155.6 Other liabilities 641.7 480.6 476.2 344.8 346.3 Redeemable preferred stock 0.0 0.0 0.0 575.9 499.6 Stockholders' equity 1,025.6 655.7 530.8 88.0 42.1 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,967.3 $2,536.7 $2,379.7 $2,445.4 $2,293.8 Cash Flow Data (Years Ended August 31): Provided by operating activities $ 368.8 $ 364.5 $ 430.1 $ 321.3 $ 348.6 Used in investing activities (509.6) (290.8) (155.1) (93.5) (111.0) Capital expenditures (included in investing activities) (221.0) (219.5) (178.1) (170.3) (120.8) Provided by (used in) financing activities 81.8 (95.0) (400.0) (74.3) (105.7)
QUARTERLY FINANCIAL INFORMATION (In thousands, except per share amounts) Fiscal 1994 Quarter Ended Quarter Ended Quarter Ended Quarter Ended 8-31-94 5-31-94 2-29-94 11-30-93 Net operating revenue $ 941,905 $ 753,515 $ 652,521 $ 622,095 Hospital service costs 762,812 597,833 506,667 494,299 179,093 155,682 145,854 127,796 Income before income taxes 65,766 78,335 79,758 65,411 Net income $ 41,320 $ 45,648 $ 47,376 $ 38,852 Net income per share $ 0.44 $ 0.52 $ 0.56 $ 0.46
Fiscal 1993 Quarter Ended Quarter Ended Quarter Ended Quarter Ended 8-31-93 5-31-93 2-28-93 11-30-92 Net operating revenue $ 608,178 $ 596,726 $ 597,884 $ 591,779 Hospital service costs 496,526 466,642 461,407 463,976 111,652 130,084 136,477 127,803 Income before income taxes and extraordinary charges 41,738 63,391 64,265 56,472 Extraordinary charges (net of taxes) 923 12,710 0 0 Net income $ 25,623 $ 24,678 $ 37,935 $ 33,322 Income per share: Before extraordinary charges $ 0.32 $ 0.45 $ 0.45 $ 0.40 Extraordinary charges 0.01 0.15 0.00 0.00 Net income $ 0.31 $ 0.30 $ 0.45 $ 0.40
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations On October 4, 1994 the Company and Columbia/HCA Healthcare Corporation announced the signing of a definitive merger agreement under which the Company's shareholders will receive 0.88 shares of Columbia common stock in exchange for each share of Healthtrust common stock they hold. The proposed transaction is expected to be accounted for as a pooling of interests. The completion of the transaction is subject, among other things, to the approval of the shareholders of both companies and certain regulatory approvals. The shareholders' meetings to vote on the Merger transaction are expected to be scheduled for the first quarter of calendar 1995. The following table sets forth certain data relating to the Company's operations as a percentage of net operating revenue for each of the past three years. Year Ended August 31, 1994 1993 1992 Net operating revenue 100.0% 100.0% 100.0% Hospital service costs: Salaries and benefits 37.8 37.0 37.5 Supplies 13.6 14.5 14.4 Fees 10.8 11.3 11.5 Other expenses 10.7 10.0 9.8 Bad debt expense 6.6 6.1 6.1 79.5 78.9 79.3 Depreciation and amortization 5.6 5.5 5.6 Interest expense 3.8 4.2 5.2 ESOP/pension expense 1.5 1.6 1.7 Deferred compensation - 0.2 0.4 Other income (net) <0.5> <0.3> <0.2> Income before minority interests, income taxes and extraordinary charges 10.1 9.9 8.0 Minority interests 0.4 0.5 0.7 Income before income taxes and extraordinary charges 9.7 9.4 7.3 Income tax expense 3.9 3.8 3.2 Extraordinary charges (net) - 0.5 6.0 Net income (loss) 5.8% 5.1% (1.9)% Results of Operations General The Company continues to experience gross and net operating revenue increases and the Company's results of operations continue to be affected by the trend toward certain services being performed more frequently on an outpatient basis. The Company has been able to achieve increases in net operating revenue due to the higher utilization of outpatient and ancillary services, general price increases and increased severity of illness of patients admitted. Although the Company's net operating revenue has grown in each period, the impact of price increases and increases in patient acuity have been partially offset by the increasing proportion of revenue derived from fixed payment sources, including Medicare and Medicaid (approximately 45% of the Company's net operating revenue for fiscal 1994 is related to Medicare and Medicaid patients). The growth in outpatient services is expected to continue as procedures currently being performed on an inpatient basis become available on an outpatient basis through continuing advances in pharmaceutical and medical technologies. The redirection of certain procedures to an outpatient basis has also been influenced by pressures from payors to direct certain procedures from inpatient care to outpatient care. While the Company expects the growth in outpatient services to continue, the rate of increase is expected to decline. The Company expects Medicare and Medicaid revenue to continue to increase due to the general aging of the population and the expansion of state Medicaid programs. The Medicare program reimburses the Company's hospitals primarily based on established rates that are dependant on each patient's diagnosis, regardless of the provider's cost to treat the patient or the length of time the patient stays in the hospital. The Medicare program's established rates are indexed for inflation annually, but these increases have historically been less than both the actual inflation rate and the Company's increases to its standard charges. Insurance companies, government programs (other than Medicare) and employers purchasing health care services for their employees are negotiating the amounts they will pay the health care providers rather than paying the providers standard prices. This leads to these purchasers of health care services becoming managed care payors, similar to HMO's and PPO's, in virtually all markets and making it increasingly difficult for providers to maintain their historical net revenue growth trends. The Company acquired EPIC (which owned 34 hospitals and various related healthcare entities) and three other hospital facilities during 1994. Congress is currently considering a variety of proposals for comprehensive health care reform, with the objectives of providing health care coverage to everyone, streamlining the administration of health care delivery and public assistance programs, developing a more rational payment approach for health care services and creating a global strategy for controlling health care costs. The Company cannot predict what reforms the Congress will eventually enact or the resulting implications for providers at this time. However, the Company believes that the delivery of primary care, emergency care, obstetrical services and rehabilitative services, on a local basis, to rural and suburban markets will be an integral component of any strategy for controlling health care costs and the Company believes it is well positioned to provide these services. Years Ended August 31, 1994 and 1993 Net operating revenue for the Company's hospitals for the year ended August 31, 1994, increased 24.0% (8.9% excluding EPIC) to $2.970 billion, while same hospitals net operating revenue increased 7.1%. Gross revenue during the year ended August 31, 1994, increased 27.1% (11.7% excluding EPIC) due to a 37.6% increase (18.2% excluding EPIC) in gross outpatient revenue and a 21.6% increase (8.7% excluding EPIC) in gross inpatient revenue. On a same hospitals basis, gross revenue increased 9.7% compared to the prior year, due to an 16.1% increase in gross outpatient revenue and a 6.7% increase in gross inpatient revenue. In each case, gross revenue grew faster than net operating revenue, primarily because the patient day mix became more heavily weighted to Medicare, Medicaid and speciality unit patients (for which reimbursement rate increases have been less than implemented price increases) and increased utilization by managed care programs. Costs of hospital services (salaries and benefits, fees, supplies, bad debt expense and other expenses) for the year ended August 31, 1994 increased 25.0%. The 24.0% increase in net operating revenue and 25.0% increase in the costs of hospital services resulted in the operating margin decreasing from 21.1% for 1993 to 20.5% for 1994. Salaries and benefits, the largest component of hospital services, increased from 37.0% to 37.8% of net operating revenue due to higher than average expense at the facilities acquired during 1994. Supplies expense decreased from 14.5% of net operating revenue for 1993 to 13.6% of net operating revenue for 1994, reflecting the benefits from the Company's efforts to standardize supplies and consolidate vendors. Bad debt expense has increased from 6.1% to 6.6% of net operating revenue for 1994, with higher than average expense at the facilities acquired during 1994 and 1993 contributing to this increase. Interest expense increased from $99.8 million to $113.7 million for 1994, due primarily to the additional debt incurred to finance the acquisition of EPIC and the other 1994 acquisitions. Income before income taxes and extraordinary charges increased $63.4 million, due primarily to the net effect of the $102.4 million increase in net operating revenue less hospital service costs and $47.3 million increase in depreciation, amortization and interest expense. The Company's combined federal and state effective tax rate was 40.1% for both 1994 and 1993. During 1993, the Company incurred an extraordinary charge of $13.6 million (net of tax benefits) related to the early retirement of certain long term debt. No extraordinary charges where incurred during 1994. The Company continues to generate significantl levels of cash flows from operating activities, $368.8 million in 1994 and $364.5 million in 1993. Although net income increased by $51.6 million, changes in certain working capital items (primarily a decrease in accounts payable and accrued expenses) offset the increase in net income to result in cash flow from operations remaining at a basically constant level. Years Ended August 31, 1993 and 1992 Net operating revenue for the Company's hospitals for the year ended August 31, 1993, increased 5.7% to $2.395 billion, while same hospitals net operating revenue increased 8.6%. Gross revenue during the year ended August 31, 1993, increased 9.1% due to a 15.6% increase in gross outpatient revenue and a 6.4% increase in gross inpatient revenue. On a same hospitals basis, gross revenue increased 12.5% compared to the prior year, due to an 18.9% increase in gross outpatient revenue and a 9.7% increase in gross inpatient revenue. In each case, gross revenue grew faster than net operating revenue, primarily because the patient day mix became more heavily weighted to Medicare, Medicaid and specialty unit patients and increased utilization by managed care programs. Costs of hospital services (salaries and benefits, fees, supplies, bad debt expense and other expenses) for the year ended August 31, 1993 increased 5.2%. The 5.7% increase in net operating revenue and 5.2% increase in the costs of hospital services resulted in the operating margin increasing from 20.7% for 1992 to 21.1% for 1993. Salaries and benefits, the largest component of hospital services, increased 4.2%. This increase is lower than the rate of increase in net revenue and was achieved through favorable changes in work redesign, nursing skill mixes and employee retention. Supplies expense increased from 14.4% of net operating revenue for 1992 to 14.5% of net operating revenue for 1993, primarily resulting from additional expense due to changes in the Company's capitalization policy, offsetting benefits derived from the Company's efforts to consolidate vendors and negotiate contracts on a consolidated basis. Bad debt expense remained constant at 6.1% of net operating revenue for both 1993 and 1992. Interest expense was reduced from $119.6 million for 1992 to $99.8 million for 1993, due primarily to the Company refinancing $300 million of higher rate debt at a fixed rate of 8.75% during 1993, lower interest rates on the Company's variable rate debt and benefits resulting from the Company's December 1991 Recapitalization Plan transactions. Income before income taxes and extraordinary charges increased $61.2 million, due primarily to the $36.7 million increase in net operating revenue less hospital service costs and the $19.8 million decrease in interest expense. The Company's combined federal and state effective tax rate was 40.1% for 1993 and 43.4% for 1992. Although the enactment of the Revenue Reconciliation Act of 1993 increased 1993 tax expense by approximately $5.0 million, the utilization of capital loss carryforwards and lower effective state income tax rates offset this federal rate increase. In 1992, the effective income tax rate was increased by approximately 2.4% due to the recognition of deferred compensation expense in excess of the amount allowable for tax purposes. The Company incurred extraordinary charges (net of tax benefits) on the early extinguishments of debts of $13.6 million in 1993 and $136.4 million in 1992. The Company incurred dividends on preferred stock of $24.6 million during 1992. There were no preferred stock dividends in 1993. Liquidity and Capital Resources Healthtrust ended fiscal 1994 in the strong financial position: cash totaled $92.3 million; total assets reached $3.97 billion; stockholders' equity climbed to $1.03 billion; and debt as a percentage of total capital was at 63.0%. Cash provided from operations continued to satisfy all of the Company's working capital, capital expenditure (excluding EPIC and other facility acquisitions) and debt principal payment requirements. The Company generated $368.8 million of cash from operations in 1994, $364.5 million in 1993 and $430.1 million in 1992. Management believes that, based upon its analysis of the Company's financial condition, the cash flow generated from operations in the future should provide sufficient liquidity to meet all cash requirements for at least the next year without substantial additional borrowings. In addition, the Company believes, based on current internal long-term projections of future results of operations, that it will be able to satisfy its current and expected obligations as they become due without incurring substantial additional indebtedness, and that satisfaction of such obligations will not prevent the Company from meeting liquidity requirements for operations and capital expenditures. However, there can be no assurance that future developments in the health care industry or general economic trends will not adversely affect the Company's operations or its ability to meet such obligations. During April 1994, the Company entered into a credit agreement with the Bank of Nova Scotia, acting as administrative agent for the lenders (the "1994 Credit Agreement"). The 1994 Credit Agreement provides for an aggregate of up to $1.2 billion in credit available to the Company. Loans under the 1994 Credit Agreement bear interest at fluctuating rates, as selected by the Company at specified times, equal to either (i) an alternate base rate (the higher of the Bank of Nova Scotia's base rate for dollar loans or the Federal Funds rate plus 50 basis points) plus 50 basis points or (ii) LIBO plus 150 basis points. At August 31, 1994, the Company had outstanding $415 million of term loans, $277 million of delayed term loans and $55 million of revolving loans under the 1994 Credit Agreement. At August 31, 1994, the Company had approximately $429 million of credit available under the 1994 Credit Agreement. The Company completed its acquisition of EPIC on May 5, 1994. EPIC shareholders received $7.00 for each share of EPIC common stock (approximately $249.4 million in the aggregate) and the Company refinanced approximately $681 million and assumed approximately $32 million of EPIC indebtedness. The acquisition was financed through the public offering of 5,980,000 shares of Healthtrust common stock at $28.25 per share, the public offering of $200 million of 10 1/4% Subordinated Notes, borrowings under the Company's bank credit agreement and cash on hand. The Company acquired three other hospital facilities during the fiscal year 1994 for an aggregate purchase price of approximately $156.7 million. The Company did not renew the lease on one of the facilities acquired from EPIC that terminated in July 1994 and one of the facilities acquired from EPIC was sold during August 1994. During fiscal 1993, the Company acquired five hospital facilities for an aggregate purchase price of $90.1 million. The Company sold one hospital facility during 1993 for approximately $85.1 million. The proceeds from this sale were received in September 1993. During 1994, the Company spent $221 million (excluding the EPIC and other facility acquisitions) for capital expenditures, primarily to renovate and add new equipment and technology to existing facilities, compared with $220 million in 1993 and $178 million in 1992. The Company intends to continue to invest in its existing facilities and in new facilities within its existing health care business and capital expenditures for fiscal 1995 are expected to be approximately $300 million. The Company may seek to sell certain of its hospitals from time to time. Management does not consider the sale of any assets to be necessary to repay the Company's indebtedness or to provide working capital. The Company's cash, cash expected to be generated from operations and available sources of capital are believed by management to be adequate to finance its planned future growth. The Company receives payment for services rendered from federal and state agencies (under the Medicare, Medicaid and Champus programs), private insurance carriers, employers, managed care programs and patients. During the year ended August 31, 1994, approximately 45% of the Company's net operating revenue related to patients participating in the Medicare and Medicaid programs. The Company recognizes that revenue and receivables from government agencies are significant to the Company's operations, but the Company does not believe that there are any significant credit risks associated with these government agencies. The Company does not believe that there are any other significant concentrations of revenue from any particular payor that would subject the Company to any significant credit risks in the collection of its accounts receivable. The Company is primarily self-insured for professional and general liability risks. The unfunded reserve for professional and general liability risks was $245.4 million at August 31, 1994. Payments of professional and general liability claims aggregated $21.3 million for the year ended August 31, 1994. The Company does not believe that the payment of these self-insured risks will have any significant impact on the Company's liquidity or working capital. Revenue Reconciliation Act of 1993 Numerous provisions of the Code were revised by the Revenue Reconciliation Act of 1993. As a result of this Act, the Company's federal statutory rate was increased to 35% for fiscal 1994 and thereafter. Management does not believe that the increased tax rate will have any significant effect on the Company's cash flow during fiscal 1995. Inflation The health care industry is labor intensive. Wages and other expenses increase during periods of inflation and when shortages in the marketplace occur. In addition, suppliers pass along rising costs to the Company in the form of higher prices. The Company has, to date, offset increases in operating costs to the Company by increasing charges for services and expanding services. The Company also has implemented cost control measures to curb increases in operating costs and expenses. The Company cannot predict its ability to cover future cost increases, and the Company's ability to increase prices is limited, in certain cases, by various federal and state laws, including federal laws that establish revenues per admission for hospital services rendered to Medicare and Medicaid patients. Item 8. Financial Statements and Supplementary Data The response to this Item is submitted in a separate section of this report. See "Selected Financial Data" and pages A-1 through A-31. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant Information with respect to the Company's executive officers is contained under Item 1, "Directors and Executive Officers". Base upon a review of reports filed with the Securities and Exchange Commission (the "Commission") under Section 16(a) of the Securities Exchange Act of 1934, as amended, and furnished to the Company during the Company's most recent fiscal year, William T. Hjorth, a director of the Company, failed to file one report on Form 4 with the Commission on a timely basis. Such report was filed eight calendar days after it was due and one transaction was disclosed in such report. Item 11. Executive Compensation Directors who are not officers receive a fee of $20,000 per year together with $1,000 plus expenses for each Board or Committee meeting attended and are eligible for participation in the Company's Amended and Restated 1990 Directors Stock Compensation Plan (the "Directors Plan"). Messrs. Hanselman and Hjorth were each awarded 28,290 shares under the Directors Plan in 1990 and 1991, respectively, Mr. Dee and Ms. Caldwell were each awarded stock options for 15,000 shares under such Plan in 1992 and Dr. Beaty was awarded stock options for 15,000 shares under such Plan in 1993. Such shares or options generally vest or become exercisable in five annual increments of 20% each. The Directors Plan is of unlimited duration and is administered by a committee of the Board of Directors, which has discretion to select participants and to determine the size of awards at the time of grant. To enable the granting of awards tailored to changing business conditions, the Directors Plan provides for awards payable in stock options, stock appreciation rights, restricted stock, restricted units, other equity based units or cash, either singly or in any combination thereof. Awards may be granted with an exercise price of less than the fair market value of the underlying Common Stock on the date of grant. Shares will vest upon the participant's death, disability or retirement and as otherwise determined by the committee at the time of grant. The Directors Plan authorized awards of up to 188,600 shares of Common Stock. Mr. MacNaughton, Chairman of the Executive Committee of the Board of Directors of the Company entered into a consulting agreement with the Company pursuant to which Mr. MacNaughton agreed to serve as a consultant to the Company following his retirement as an employee. The agreement provides that Mr. MacNaughton will receive consulting fees of $11,250 per month plus reimbursement of expenses and certain personal benefits for services rendered and in lieu of director's fees. During fiscal year 1994 Mr. MacNaughton received cash payments aggregating $135,000 pursuant to such consulting agreement. In February, 1994, Ms. Caldwell entered into a consulting agreement with the Company pursuant to which Ms. Caldwell agreed to provide consulting services to the Company in connection with the further development of the Company's strategic planning. The Agreement provides that Ms. Caldwell will receive consulting fees of $1,000 per day plus reimbursement of expenses for services rendered. During fiscal year 1994 Ms. Caldwell received payments aggregating $23,000 pursuant to such Consulting Agreement. Compensation of Officers The following table sets forth information concerning the annual and long-term cash compensation paid or to be paid by the Company to the Company's Chief Executive Officer and the four most highly- compensated executive officers of the Company for services rendered to Healthtrust in all capacities during the fiscal year ending August 31, 1994 as well as the total compensation paid to each individual during the Company's three previous fiscal years:
Summary Compensation Table Long Term Compensation Annual Compensation Awards Payouts Name Other Restricted All Other and Annual Stock LTIP Compen- Principal Fiscal Salary Bonus Compen- Award(s) Options/ ayouts sation Position Year ($) ($) sation($)(1) ($) SARs(#) ($) ($)(2) R. Clayton McWhorter 1994 $800,000 $400,000 - $400,000(3)333,333 0 $ 33,029(2) Chairman of the 1993 750,000 375,000 - 0 100,000 0 24,190 Board, CEO 1992 750,000 150,000 - 0 565,800(4) 0 -- and President W. Hudson Connery, Jr. 1994 $491,667 $200,000 - $200,000(3) 16,667 0 $25,806(2) Senior Vice President 1993 441,667 175,000 - 0 60,000 0 20,590 and COO 1992 375,000 100,000 - 0 200,000 0 -- Richard E Francis, Jr. 1994 $306,667 $100,000 - $100,000(3) 9,042 0 $24,188(2) Senior Vice President 1993 267,167 100,000 - 0 70,000 0 17,392 1992 192,666 75,000 - 0 30,000 0 -- Michael A. Koban, Jr. 1994 $295,000 $130,000 - $130,000(3) 10,833 0 $22,285(2) Senior Vice President 1993 218,334 135,000 - 0 65,000 0 17,587 1992 171,666 75,000 - 0 35,000 0 - Robert M. Martin 1994 $226,667 $271,400 - $149,270(3) 5,750 0 $22,878(2) Vice President 1993 213,834 118,500 - 0 30,000 0 18,292 1992 192,666 80,000 - 0 30,000 0 -
(1) In accordance with the Securities and Exchange Commission's rules, perquisites and other personal benefits, securities or property which, in the aggregate, do not exceed the lesser of $50,000 or 10% of the annual salary and bonus for each named executive are excluded and amounts for 1992 have been omitted. (2) In accordance with certain transition rules adopted by the Securities and Exchange Commission amounts for 1992 have been omitted. Includes contributions made by the Company during fiscal year 1994 under certain defined contribution plans and the amount of premiums paid by the Company under term life insurance and long-term disability arrangements in the following amounts respectively: McWhorter, $18,438, $6,300 and $8,291; Mr. Connery, $18,438, $2,700, and $4,668; Mr. Francis, $18,438, $2,700, and $3,050; Mr. Koban, $16,535, $2,700 and $3,050; and Mr. Martin, $16,473, $2,700 and $3,705. (3) Pursuant to the Company's compensation program, participants may elect to defer receipt of their annual cash bonus and use up to 100% of such amount to purchase restricted stock at a 50% discount to the market price on the date of grant of such restricted stock. Messrs. McWhorter, Connery, Francis and Koban each deferred 100% and Mr. Martin deferred 55% of their respective 1994 annual cash bonuses and were granted 22,858, 11,429, 6,200, 7,429 and 8,530 restricted shares, respectively, all of which shares will vest on August 31, 1996. The value of such restricted shares on the grant date were respectively: Mr. McWhorter, $800,000; Mr. Connery, $400,000; Mr. Francis, $200,000; Mr. Koban, $260,000; and Mr Martin, $298,540. Dividends, if and when declared, will be paid on such restricted stock. (4) Mr. McWhorter was awarded an option to purchase 565,800 shares of Common Stock at an option price per share of $14.00 in fiscal year 1992. In connection with such award Mr. McWhorter forfeited 282,900 unvested shares of Restricted Stock previously awarded to him. The following table sets forth certain information concerning options granted during fiscal year 1994 to the named executives:
Option/SAR Grants in Last Fiscal Year Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term(2) Number of % of Total Securities Options Underlying Granted to Exercise Options Employees in Base Price Expiration Name Granted(#)(1) Fiscal Year ($/Share) Date 5%($) 10%($) R. Clayton McWhorter 333,333 39.50% $23.75 12/31/03 $4,999,995 $12,624,987 W. Hudson Connery, Jr. 16,667 1.97% 23.75 12/31/03 250,005 631,263 Richard E. Francis, Jr. 9,042 1.07% 23.75 12/31/03 135,630 342,466 Michael A. Koban, Jr. 10,833 1.28% 23.75 12/31/03 162,495 410,300 Robert M. Martin 5,750 0.06% 23.75 12/31/03 86,250 217,781
(1) All such options vest and become exercisable on August 31, 1997 except 300,000 for Mr. McWhorter vest on August 31, 1996. (2) Potential realizable value is based on an assumption that the stock price of the Company's common stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the option term. These numbers are calculated based on the requirements promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of future stock price growth. The following table summarizes options exercised during fiscal year 1994 and presents the value of unexercised options held by the named executives at fiscal year end:
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/ Options/ Shares at Fiscal at Fiscal Acquired Value Year-End(#) Year-End($)* on Exercise Realized* Exercisable(E)/ Exercisable(E)/ Name (#) ($) Unexercisable(U) Unexercisable (U) R. Clayton McWhorter 0 0 565,800/433,333 $9,477,150/$3,570,831 W. Hudson Connery, Jr. 0 0 100,000/176,667 $1,600,000/$2,459,169 Richard E. Francis, Jr. 0 0 20,000/89,042 $ 247,500/$1,162,044 Michael A. Koban, Jr. 0 0 20,000/90,833 $ 247,500/$1,192,706 Robert M. Martin 0 0 0/65,750 $ 0/$ 891,500
* For all unexercised in-the-money options, values are calculated using the difference between fair market value per share of the stock at the close of business on August 31, 1994 of $30.75 and the exercise price of the option. Employment Agreement In December, 1993, the Company entered into an employment agreement (the "Employment Agreement") with Mr. McWhorter providing for a three-year term of employment commencing September 1, 1993 and ended August 31, 1996. Under the Employment Agreement, Mr. McWhorter is entitled to an annual base salary of $800,000, subject to increases by the Board of Directors, and is eligible to participate in all executive compensation and employee benefit plans or programs applicable to senior management employees of the Company including such incentive bonuses as the Board of Directors may determine from time to time. Under the Employment Agreement, Mr. McWhorter's employment may be terminated by the Company for cause, in which event the Company's obligation to pay Mr. McWhorter's salary after termination would cease. In the event Mr. McWhorter becomes disabled or dies during the term of the Employment Agreement, the Company could terminate his employment and pay to him or his estate, as the case may be, disability or death benefits, equal to his salary then in effect, until the later of (i) August 31, 1996 and (ii) one year from the date of such termination. Severance Protection Agreements The Company's Board of Directors has authorized the Company to enter into Severance Protection Agreements with approximately 70 employees ("Executives"), including the named executives. Such agreements are expected to provide that if, within 24 months following a Change of Control (as defined therein), the Executive's employment is terminated by the Company without Cause (as defined therein) or due to a Disability (as defined therein) or by the Executive with Good Reason (as defined therein), the Executive will be entitled to receive a lump sum severance payment equal to one, two or three times annual base salary (two times annual base salary for Mr. Martin and three times annual base salary for each of the other named executives) plus a pro rata bonus for the fiscal year in which termination occurs. In addition, the Executive would be entitled to continued coverage under the Company's medical benefit plans for up to 18 months (or until such earlier date as the Executive obtains comparable medical coverage from a new employer). The Severance Protection Agreements are expected to provide that if any payment made thereunder would be subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, such payment will be reduced to the extent necessary such that the remaining payment would not be subject to the excise tax. It is anticipated that each Severance Protection Agreement will have a two-year term, provided that no agreement will expire earlier than two years after the occurrence of a Change in Control. Compensation Committee Interlocks and Insider Participation. Directors Hanselman, Hjorth and MacNaughton comprise the Committee. Mr. MacNaughton is a former employee of the Company and currently performs consulting services for the Company. The Company intends to retain the services of Mr. MacNaughton in the next fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth as of November 15, 1994 the number of shares of Common Stock of the Company held beneficially, directly or indirectly, by each person or entity owning of record, or known by the Company to own beneficially, more than five percent of the outstanding Common Stock of the Company, by each director and each executive officer named in the Summary Compensation Chart below, individually, and by all officers and directors as a group, together with the percentage of the outstanding shares which such ownership represents. Name and Address Beneficial Ownership(1) of Beneficial Owner(2) No. of Shares Percent Healthtrust, Inc.-The Hospital Company 401(k) Retirement Plan(3) 25,768,044 28.4% Mellon Bank Corporation(4) 5,230,000 5.8% R. Clayton McWhorter 1,200,264 1.3% W. Hudson Connery, Jr. 240,178 * Michael A. Koban, Jr. 143,004 * Harry N. Beaty, M.D. 3,500 * Alethea O. Caldwell 6,000 * Robert F. Dee 7,000 * Richard W. Hanselman 10,000 * William T. Hjorth 21,941 * Donald S. MacNaughton 208,754 * Richard E. Francis 112,857 * Robert M. Martin 110,026 * All directors and officers as a group (25 persons) 2,847,991 3.0% (1) The beneficial owner has both sole voting and sole investment power with respect to these shares except as set forth in this or other footnotes below. Not included in such number of shares beneficially owned are shares subject to options becoming exercisable in more than sixty days. Included in such number of shares beneficially owned are options which are currently exercisable or will be exercisable within sixty days as follows: Mr. McWhorter, 565,800 options; Mr. Connery, 100,000 options; Mr. Koban, 20,000 options; Dr. Beaty, 3,000 options; Ms. Caldwell, 6,000 options; Mr. Dee, 6,000 options; Mr. Francis, 20,000 options; and all 25 directors and officers as a group, 1,031,800 options. In addition, one director shares investment power with such director's spouse with respect to 500 shares and one director and one officer share voting power with such director's or officer's spouse with respect to 150,000 and 12,000 shares respectively. Included are shares allocated to such persons under the Company's retirement plans as follows: Mr. McWhorter, 17,424 shares; Mr. Connery, 8,948 shares; Mr. Koban, 9,103 shares; Mr. Francis, 8,476 shares; Mr. Martin, 8,039 shares; and all 25 directors and officers as a group, 131,687 shares. (2) The address for the Retirement Plan and for Ms. Caldwell and Messrs. McWhorter, Connery, Koban, Beaty, Dee, Hanselman, Hjorth, MacNaughton, Francis and Martin is c/o Healthtrust, Inc. - The Hospital Company, 4525 Harding Road, Nashville, Tennessee 37205. (3) Shares held by the Retirement Plan are voted by the Trustee in accordance with directions given by employees participating in the Plan. Shares allocated to participants are voted with respect to all matters submitted to stockholders only in accordance with instructions of such participants. The Trustee may respond to tender or exchange offers only in accordance with the instructions of participants to whom shares have been allocated. Under certain circumstances, the Trustee may be required to override participants' voting directions or vote allocated shares for which no directions are received. (4) Based upon information set forth in the report on Schedule 13G dated February 10, 1994 filed with the Securities and Exchange Commission by Mellon BankCorporation and certain of its subsidiaries ("Mellon"). According to such Schedule 13G report, Mellon has sole voting power over 3,657,000 of such shares and shared investment power over 1,232,000 of such shares. According to such Schedule 13G report, Mellon's address is one Mellon Bank Center, Pittsburgh, Pennsylvania 15258. (*) Less than 1% Item 13. Certain Relationships and Related Transactions Except as described under Executive Compensation with respect to certain directors and executive officers, during fiscal year 1994 the Company's executive officers and directors were not indebted to, and did not have significant business relations with, the Company. In addition, none of these individuals expect to become indebted to, or have such significant business relations with, the Company during fiscal year 1995. In general, officers are elected by the Board of Directors annually and serve at the discretion of the Board of Directors. There are no family relationships between any of the directors or executive officers. PART IV Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K (a)(1) and (2) List of Financial Statements and Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. See page A-1. (a)(3) List of Exhibits. Page Description 2.1 -Agreement and Plan of Merger, dated October 4, 1994, among Columbia/HCA Healthcare Corporation, COL Acquisition Corporation and the Company. 2.2 -Agreement and Plan of Merger, dated as of January 9, 1994, among the Company, Odyssey Acquisition Corp. and EPIC Holdings. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated January 10, 1994. 3.1 -Restated Certificate of Incorporation of the Company, as amended to date. Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1993. 3.2 -Bylaws of the Company, as amended to date. 4.1 -Rights Agreement, dated as of July 8, 1993, between the Company and First Union National Bank of North Carolina, as Rights Agent. Incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A dated July 12, 1993. 4.2 -Indenture, dated as of March 30, 1993, between the Company and The First National Bank of Boston, as Trustee, relating to the Company's 8-3/4% Subordinated Debentures due 2005 and the Company's 10 1/4% Subordinated Notes due 2004. Incorporated by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A dated April 22, 1993. 4.3 -Indenture, dated as of May 1, 1992, between the Company and The First National Bank of Boston, as Trustee, relating to the Company's 10 3/4% Subordinated Notes due 2002. Incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1992. 4.4 -Warrant Certificate, dated September 17, 1987. Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-1 No. 33-19163. 4.5 -Warrants and Common Stock Registration Rights Agreement, dated as of September 17, 1987, by and between the Company and the Purchasers set forth therein. Incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-1 No. 33-19163. 4.6 -Credit Agreement, dated as of April 28, 1994, as amended as of May 1994, by and among the Company, certain financial institutions as lenders and The Bank of Nova Scotia ("Scotia Bank") as Administrative Agent. Incorporated by reference to Exhibit 99.4 to the Company's Current Report Form 8-K dated May 5, 1994. 4.6(a) -Subsidiary Guaranty Agreement, dated as of April 28, 1994, by the Subsidiaries of the Company, in favor of Scotiabank as collateral agent for and representative of the Guarantied Parties. 4.6(b) -Borrower Stock Pledge Agreement, dated as of April 28, 1994, by the Company, in favor of Scotiabank as collateral agent for and representative of the Lender Parties. 4.6(c) -Subsidiary Stock Pledge Agreement, dated as of April 28, 1994, by the Subsidiaries of the Company, in favor of Scotiabank as collateral agent for and representative of the Secured Parties. 10.1 -Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Trust Agreement, dated as of September 17, 1987, by and between the Company and First American Trust Company, as trustee of the Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Trust ("First American"). Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 No. 33-19163. 10.1(a) -Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Plan, effective September 17, 1987. Incorporated by reference to Exhibit 10.1(a) to the Company's Registration Statement on Form S-1 No. 33-19163. 10.1(b) -First Amendment to the Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Plan adopted June 23, 1988. Incorporated by reference to Exhibit 10.1(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, File No. 1-10915. 10.1(c) -Second Amendment to Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Plan adopted April 7, 1989. Incorporated by reference to Exhibit 10.1(i) to Company's Registration Statement on Form S-1 No. 33-19660. 10.1(d) -Third Amendment to Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Plan adopted October 15, 1991. Incorporated by reference to Exhibit 10.4(i) to the Company's Registration Statement on Form S-1 No. 33-42225. 10.1(e) -Memorandum of Understanding, dated November 15, 1991, by and between the Company and the Administrative Committee of the Healthtrust, Inc.- The Hospital Company Employee Stock Ownership Plan. Incorporated by reference to Exhibit 10.4(m) to the Company's Registration Statement on Form S-1 No. 33-42225. 10.2 -Employment Agreement, dated as December 21, 1993, by and between the Company and R. Clayton McWhorter. 10.3 -Amended and Restated 1990 Directors Stock Compensation Plan of the Company, adopted on October 15, 1991. Incorporated by reference to Exhibit 28.8 to the Company's Current Report on Form 8-K dated February 4, 1992. 10.4 -Amended and Restated 1990 Stock Compensation Plan of the Company adopted, October 15, 1991. Incorporated by reference to Exhibit 28.7 to the Company's Current Report on Form 8-K dated February 4, 1992. 10.5 -1988 Supplemental Stock Plan of Company, adopted September 8, 1988. Incorporated by referenced to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Referenced Room, 450 Fifth Street, N.W., Washington, D.C., 20549, File No. 1-10915. 10.6 -Trust Agreement, dated as of August 31, 1988, by and between the Company and Dominion Trust Company of Tennessee ("Dominion"). Incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C., 20549, File No. 1-10915. 10.6(a) -First Amendment to Trust Agreement, dated as of January 31, 1990, between the Company and Dominion. Incorporated by reference to Exhibit 10.36(a) to the Company's Registration Statement on Form S-1 No. 33-19960. 10.7 -Description of Healthtrust, Inc. Transferred Assets Retirement Program. Incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, File No. 1-10915. 10.7(a) -First Amendment to the Healthtrust, Inc. Transferred Assets Retirement Program. Incorporated by reference to Exhibit 10.38(a) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, File No. 1-10915. 10.7(b) -Second Amendment to the Healthtrust, Inc. Transferred Assets Retirement Program. Incorporated by reference to Exhibit 10.38(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, File No. 1-10915. 10.7(c) -Trust Agreement for Healthtrust, Inc. Frozen Money Purchase Plan. Incorporated by reference to Exhibit 10.38(c) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C., 20549, File No. 1-10915. 10.7(d) -Trust Agreement for Healthtrust, Inc. Frozen Profit Sharing Plan. Incorporated by reference to Exhibit 10.38(d) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, File No. 1-10915. 10.7(e) -Trust Agreement for Healthtrust, Inc. Frozen 401(k) Plan. Incorporated by reference to Exhibit 10.38(e) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, on file at the Securities and Exchange Commission Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, File No. 1-10915. 10.8 -Healthtrust, Inc. - The Hospital Company 401(k) Retirement Program effective January 1, 1992. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1992. 10.8(a) -Trust Agreement, effective as of January, 1992, by and between the Company and Third National Bank of Tennessee. Incorporated by reference to Exhibit 10.8(a) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1992. 10.9 -Consulting Agreement, dated April 14, 1994, between the Company and Donald S. MacNaughton. 10.10 -Consulting Agreement, dated February 28, 1994, between the Company and Alethea O. Caldwell. 10.11 -Form of Severance Protection Agreement. 10.12 -Amended and Restated ESOP Agreement, dated as of March 17, 1994, among the Company, Odyssey Acquisition Corp., EPIC Holdings, Inc., EPIC Healthcare Group, Inc., U.S. Trust Company of California, N.A. and the ESOP Committee. Incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-3 No. 33-52401. 10.13 -Executive Management Total Direct Compensation Program 11 -Statement re: Computation of Per Share Earnings. 22 -List of Subsidiaries of the Company. 24 -Consent of Ernst & Young LLP. 25 -Powers of Attorney. 27 -Financial Data Schedule Exhibits are included in a separate bound volume or volumes. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended August 31, 1994. (c) Exhibits. The exhibits required by Item 601 of Regulation S- K are filed with this report or are incorporated by this reference herein and are contained in the Exhibits listed in response to Item 14(a)(3). (d) Financial Statement Schedules Required by Regulation S-X. Reference is hereby made to page A-1 and pages A-29 through A-31 of this report for the financial statement schedules required by Regulation S-X. SIGNATURES 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 the 22nd day of November, 1994. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By:s/ R. Clayton McWhorter R. Clayton McWhorter Chairman, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated. Name Title Date s/R. Clayton McWhorter Chairman, Chief November 22, 1994 R. Clayton McWhorter Executive Officer and President; Director (Principal Executive Officer) */W. Hudson Connery, Jr. Senior Vice President November 22, 1994 W. Hudson Connery, Jr. and Chief Operating Officer; Director */Donald S. MacNaughton Director November 22, 1994 Donald S. MacNaughton */Richard W. Hanselman Director November 22, 1994 Richard W. Hanselman */Robert F. Dee Director November 22, 1994 Robert F. Dee */Alethea O. Caldwell Director November 22, 1994 Alethea O. Caldwell */William T. Hjorth Director November 22, 1994 William T. Hjorth */Harry N. Beaty, M.D. Director November 22, 1994 Harry N. Beaty, M.D. s/Michael A. Koban, Jr. Senior Vice President November 22, 1994 Michael A. Koban, Jr. (Principal Financial Officer) Director s/Kenneth C. Donahey Senior Vice President November 22, 1994 Kenneth C. Donahey (Principal Accounting Officer) *By:s/ Michael A. Koban, Jr. November 22, 1994 Michael A. Koban, Jr. (Attorney-in-Fact) ANNUAL REPORT ON FORM 10-K ITEM 14 (a)(1) and (2) HEALTHTRUST, INC. - THE HOSPITAL COMPANY INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of the Company are included in response to Item 8: Page No. Report of Independent Auditors........................... A-2 Consolidated Balance Sheets - August 31, 1994 and 1993... A-3 Consolidated Statements of Operations - Years Ended August 31, 1994, 1993 and 1992................. A-5 Consolidated Statements of Stockholders' Equity - Years Ended August 31, 1994, 1993 and 1992.. A-6 Consolidated Statements of Cash Flows - Years Ended August 31, 1994, 1993 and 1992........... A-7 Notes to Consolidated Financial Statements............... A-9 The following financial statement schedules of the Company are included in Item 14(d): Schedule V - Property, Plant and Equipment............... A-29 Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment........ A-30 Schedule VIII - Valuation and Qualifying Accounts........ A-31 All other schedules of the Company for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or have been disclosed in the notes to financial statements and therefore have been omitted. Audited Consolidated Financial Statements Healthtrust, Inc. - The Hospital Company Years Ended August 31, 1994, 1993 and 1992 with Report of Independent Auditors Report of Independent Auditors Board of Directors Healthtrust, Inc.-The Hospital Company We have audited the accompanying consolidated balance sheets of Healthtrust, Inc.-The Hospital Company as of August 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1994. Our audits also included the financial statement schedules listed in the Index at item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Healthtrust, Inc.-The Hospital Company at August 31, 1994 and 1993, and the consolidated results of operations and cash flows for each of the three years in the period ended August 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Ernst & Young LLP Nashville, Tennessee October 14, 1994 Healthtrust, Inc. - The Hospital Company Consolidated Balance Sheets August 31, 1994 1993 (In Thousands) Assets Current assets: Cash and cash equivalents $ 92,327 $ 151,346 Accounts receivable, less allowances for doubtful accounts of $175,838 in 1994 and $107,758 in 1993 549,554 346,491 Receivables from hospital sales - 95,653 Supplies 86,576 51,740 Other current assets 113,752 25,692 Total current assets 842,209 670,922 Property, plant and equipment: Land 214,536 141,148 Buildings and improvements 1,495,829 987,372 Equipment 1,168,015 895,190 Construction in progress 112,179 144,655 2,990,559 2,168,365 Less accumulated depreciation 736,863 600,853 2,253,696 1,567,512 Excess of purchase price over net assets acquired 736,189 178,549 Unamortized loan costs 26,768 16,978 Investments in affiliates 58,404 56,154 Other assets 50,016 46,598 $3,967,282 $ 2,536,713 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 153,821 $ 109,545 Employee compensation and benefits 189,317 118,545 Interest payable 43,373 29,229 Income taxes payable - 26,047 Other accrued liabilities 128,011 67,848 Current maturities of long-term debt 44,543 100,605 Total current liabilities 559,065 451,819 Long-term debt 1,740,872 948,604 Deferred income taxes 91,230 133,385 Deferred professional liability risks 215,503 140,124 Other liabilities 335,008 207,124 Stockholders' equity: Common stock, $.001 par value - authorized 400,000,000 shares, issued and outstanding 90,733,447 in 1994 and 81,065,074 in 1993 91 81 Paid-in capital 1,021,929 826,350 Deferred compensation - (1,162) Retained earnings (deficit) 3,584 (169,612) 1,025,604 655,657 $3,967,282 $ 2,536,713 See accompanying notes. Healthtrust, Inc. - The Hospital Company Consolidated Statements of Operations
Year Ended August 31, 1994 1993 1992 (In Thousands, except per share data) Net operating revenue $ 2,970,036 $ 2,394,567 $ 2,265,265 Costs and expenses: Hospital service costs: Salaries and benefits 1,121,496 886,645 850,723 Supplies 404,734 346,972 325,874 Fees 321,973 270,063 259,745 Other expenses 317,395 239,333 222,582 Bad debt expense 196,013 145,538 137,074 2,361,611 1,888,551 1,795,998 Depreciation and amortization 166,001 132,688 127,509 Interest 113,741 99,787 119,556 ESOP/pension expense 44,497 38,991 38,725 Deferred compensation expense 1,162 4,279 8,104 Other income (net) (15,686) (7,553) (4,617) 2,671,326 2,156,743 2,085,275 Income before minority interests, income taxes and extraordinary charges 298,710 237,824 179,990 Minority interests 9,440 11,958 15,316 Income before income taxes and extraordinary charges 289,270 225,866 164,674 Income tax expense 116,074 90,675 71,432 Income before extraordinary charges 173,196 135,191 93,242 Extraordinary charges on early extinguishments of debt (net of tax benefits of $7,723 and $27,959) - 13,633 136,352 Net income (loss) 173,196 121,558 (43,110) Dividends paid and discount accretion on preferred stock - - 24,582 Net income (loss) to common stockhold $ 173,196 $ 121,558 $ (67,692) Weighted average common shares 87,444,065 83,540,815 76,769,481 Income (loss) per common share: Income before extraordinary charges $ 1.98 $ 1.62 $ 0.90 Extraordinary charges - 0.16 1.78 Net income (loss) $ 1.98 $ 1.46 $ (0.88)
See accompanying notes. Healthtrust, Inc. - The Hospital Company Consolidated Statements of Stockholders' Equity
Notes Retained Common Paid-In Receivable Deferred Earnings Stock Capital From ESOP Compensation (Deficit) (In Thousands) Balances at September 1, 1991 $ 60 $ 748,612 $(392,739) $ (19,890) $ (248,060) Issuance of common stock 40 525,209 Purchase of common stock (3) (31,291) Receipt and retirement of common stock in satisfaction of notes receivable from ESOP (24) (384,728) 384,752 Shares forfeited under stock benefit plans (6,264) 6,264 Deferred compensation accrual 8,104 ESOP accrual 7,987 Dividends paid and discount accretion on preferred stock (24,582) Other 8 491 Net loss (43,110) Balances at August 31, 1992 81 827,447 0 (5,522) (291,170) Deferred compensation accrual 4,279 Other (1,097) 81 Net income 121,558 Balances at August 31, 1993 81 826,350 0 (1,162) (169,612) Issuance of common stock 10 196,535 Deferred compensation accrual 1,162 Other (956) Net income 173,196 Balances at August 31, 1994 $ 91 $1,021,929 $ 0 $ 0 $ 3,584
See accompanying notes. Healthtrust, Inc. - The Hospital Company Consolidated Statements of Cash Flows
Year Ended August 31, 1994 1993 1992 (In Thousands) Operating activities Net income (loss) $ 173,196 $ 121,558 $ (43,110) Adjustments to reconcile net income (loss) to cash flows provided by operating activities: Depreciation 151,955 124,781 119,993 Extraordinary charges - 21,356 164,311 Noncash ESOP/pension expense 32,413 13,467 38,725 Noncash professional liability expense 15,570 12,112 21,079 Amortization 14,046 7,907 7,516 Deferred tax expense (benefit) 71,231 (31,735) 35,300 Decrease in accounts and agency receivables 7,683 10,151 41,605 Increase (decrease) in accounts payable and accrued liabilities (89,725) 78,413 19,302 Other (7,618) 6,529 25,386 Net cash provided by operating activities 368,751 364,539 430,107 Investing activities Acquisition of hospital facilities (380,916) (101,935) - Purchases of property, plant and equipment (220,975) (219,506) (178,138) Proceeds from sales of property, plant and equipment 97,349 38,583 24,282 Other (5,054) (7,977) (1,250) Net cash used in investing activities $ (509,596) $ (290,835) $ (155,106) Financing activities Principal payments on long-term debt $ (452,682) $ (628,750) $ (613,521) Proceeds from long-term borrowings 1,128,000 832,000 1,440,000 Proceeds from common stock issuances 172,849 - 525,249 Purchase of common stock - (4,498) (31,294) Purchase of preferred stock and warrants - - (600,000) Purchase of long-term debt securities (754,081) (283,483) (1,070,411) Payment of debt issuance costs (12,260) (10,227) (50,039) Net cash provided by (used in) financing activities 81,826 (94,958) (400,016) Increase (decrease) in cash and cash equivalents (59,019) (21,254) (125,015) Cash and cash equivalents at beginning of year 151,346 172,600 297,615 Cash and cash equivalents at end of year $ 92,327 $ 151,346 $ 172,600 Cash paid during the year for: Interest $ 101,481 $ 103,236 $ 97,096 Income taxes $ 90,585 $ 83,931 $ 9,996
See accompanying notes. Healthtrust, Inc. - The Hospital Company Consolidated Statements of Cash Flows
Year Ended August 31, 1994 1993 1992 (In Thousands) Operating activities Net income (loss) $ 173,196 $ 121,558 $ (43,110) Adjustments to reconcile net income (loss) to cash flows provided by operating activities: Depreciation 151,955 124,781 119,993 Extraordinary charges - 21,356 164,311 Noncash ESOP/pension expense 32,413 13,467 38,725 Noncash professional liability expense 15,570 12,112 21,079 Amortization 14,046 7,907 7,516 Deferred tax expense (benefit) 71,231 (31,735) 35,300 Decrease in accounts and agency receivables 7,683 10,151 41,605 Increase (decrease) in accounts payable and accrued liabilities (89,725) 78,413 19,302 Other (7,618) 6,529 25,386 Net cash provided by operating activities 368,751 364,539 430,107 Investing activities Purchases of property, plant and equipment (601,891) (321,441) (178,138) Proceeds from sales of property, plant and equipment 97,349 38,583 24,282 Other (5,054) (7,977) (1,250) Net cash used in investing activities $ (509,596) $ (290,835) $ (155,106) Financing activities Principal payments on long-term debt $ (452,682) (628,750) $ (613,521) Proceeds from long-term borrowings 1,128,000 832,000 1,440,000 Proceeds from common stock issuances 172,849 - 525,249 Purchase of common stock - (4,498) (31,294) Purchase of preferred stock and warrants - - (600,000) Purchase of long-term debt securities (754,081) (283,483) 1,070,411 Payment of debt issuance costs (12,260) (10,227) (50,039) Net cash provided by (used in) financing activities 81,826 (94,958) (400,016) Increase (decrease) in cash and cash equivalents (59,019) (21,254) (125,015) Cash and cash equivalents at beginning of year 151,346 172,600 297,615 Cash and cash equivalents at end of year $ 92,327 $ 151,346 $ 172,600 Cash paid during the year for: Interest $ 101,481 $ 103,236 $ 97,096 Income taxes $ 90,585 $ 83,931 $ 9,996
See accompanying notes. 1. Accounting Policies Healthtrust, Inc. - The Hospital Company (the "Company") is engaged primarily in the operation of hospitals and other medical facilities. The majority of the Company's hospitals and other medical facilities were acquired from a subsidiary of Hospital Corporation of America ("HCA") during September 1987. HCA merged with Columbia Hospital Corporation to form Columbia/HCA Healthcare Corporation ("Columbia") during 1994. The Company is structured so that employees of the Company have a significant beneficial ownership of the Company's common stock through their participation in the Company's benefit plans. Principles of Consolidation The consolidated financial statements of the Company include the accounts of the Company and all its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliates (20% to 50% ownership) are recorded using the equity method of accounting. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value. Accounts Receivable The Company receives payment for services rendered from federal and state agencies (under the Medicare, Medicaid and Champus programs), private insurance carriers, employers, managed care programs and patients. During the years ended August 31, 1994 and 1993, approximately 45% and 42%, respectively, of the Company's net operating revenue related to patients participating in the Medicare and Medicaid programs. The Company recognizes that revenue and receivables from government agencies are significant to the Company's operations, but the Company does not believe that there are any significant credit risks associated with these government agencies. 1. Accounting Policies (continued) The Company does not believe that there are any other significant concentrations of revenue from any particular payor that would subject the Company to any significant credit risks in the collection of its accounts receivable. Supplies Supplies are recorded at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the buildings and improvements (principally 20 to 40 years) and equipment (principally 4 to 20 years). Interest incurred during the construction or improvement of a facility is capitalized as part of the cost of the constructed assets. Interest capitalized totaled $4.7 million, $8.4 million and $5.0 million for fiscal 1994, 1993, and 1992, respectively. Intangible Assets The excess of purchase price over the fair value of net assets of purchased subsidiaries is being amortized over periods of 5 to 40 years using the straight-line method. Accumulated amortization of the excess of purchase price over net assets acquired was $50.1 million and $37.8 million at August 31, 1994 and 1993, respectively. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill is reduced by the estimated shortfall of cash flows. Costs incurred in obtaining long-term financing are deferred and amortized by the interest method over the term of the related debt and such amortization is included in interest expense. Accumulated amortization of deferred financing costs was $4.5 million and $2.0 million at August 31, 1994 and 1993, respectively. 1. Accounting Policies (continued) Net Operating Revenue Net operating revenue is based on established billing rates less allowances and discounts for patients covered by Medicare, Medicaid and other contractual programs. Payments received under these programs, which are based on either predetermined rates or the costs of services, are generally less than the established billing rates of the Company's hospitals, and the differences are recorded as contractual adjustments or policy discounts. Net operating revenue is net of contractual adjustments and policy discounts of $1,864.9 million, $1,409.6 million and $1,227.4 million for fiscal 1994, 1993, and 1992, respectively. The provision for bad debts is included in operating expenses. Income Taxes The Company files a consolidated federal income tax return which includes all of its eligible subsidiaries. The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and/or liabilities are determined by multiplying the difference between the financial reporting and tax reporting bases of assets and liabilities by the tax rate, determined in accordance with enacted tax laws, that will be effective when such differences reverse. Income (Loss) Per Common Share Income (loss) per share of common stock is based upon the net income (loss) applicable to common stockholders and the weighted average number of shares and share equivalents outstanding during each period. Fully diluted per common share data is not presented since the effect would be antidilutive or dilute earnings per share by less than three percent (3%). 2. Acquisitions, Dispositions, and Joint Ventures 1994 Activities Acquisition of EPIC Holdings The Company completed its acquisition of EPIC Holdings, Inc. (EPIC) on May 5, 1994 (effective May 1, 1994 for accounting purposes). EPIC currently owns and operates 32 hospitals in 10 states. EPIC shareholders received $7.00 for each share of EPIC common stock (approximately $249.4 million in the aggregate) and the Company refinanced approximately $681 million and assumed approximately $32 million of EPIC indebtedness. The acquisition was financed through the public offering of 5,980,000 shares of Healthtrust common stock at $28.25 per share, the public offering of $200 million of 10 1/4% Subordinated Notes, borrowings under the Company's bank credit agreement and cash on hand. The acquisition was recorded using the purchase method of accounting and EPIC's results of operations are included in the Company's consolidated financial statements for periods subsequent to April 30, 1994. The purchase price was allocated to the assets acquired and liabilities assumed based upon their respective fair values. Goodwill resulting from the purchase price allocation (approximately $545.8 million) is being amortized over 40 years using the straight-line method. The following unaudited pro forma information has been prepared assuming the acquisition occurred at the beginning of the periods presented (dollars in millions, except per share data). Year Ended August 31 1994 1993 Net operating revenue $ 3,718.4 $3,413.7 Net income before extraordinary charge $ 166.3 $ 125.9 Net income $ 166.3 $ 90.4 Earnings per share: Net income before extraordinary charge $ 1.82 $ 1.42 Net income $ 1.82 $ 1.02 2. Acquisitions, Dispositions, and Joint Ventures (continued) The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect any operational efficiencies that might be obtained from combined operations. Other Acquisitions and Dispositions The Company acquired three other hospital facilities during fiscal 1994 for an aggregate purchase price of approximately $156.7 million. These acquisitions were recorded using the purchase method of accounting and the aggregate purchase price in excess of the fair value of net assets acquired was approximately $17.7 million. The results of operations of the acquired facilities subsequent to the acquisition dates have been included in the consolidated statements of operations. The Company did not renew the lease on one of the facilities acquired from EPIC that terminated in July 1994 and one of the facilities acquired from EPIC was sold during August 1994. No gain or loss was recognized on either of these transactions. 1993 Activities During August 1993, the Company sold one facility for approximately $85.1 million (recognizing a pretax gain of approximately $38.3 million) and sold its 40% interest in a two-hospital joint venture for approximately $14.3 million (recognizing a pretax loss of approximately $3.0 million). The Company also recorded reserves of approximately $38.5 million related to certain facilities that were expected to be sold or closed. These transactions were all recorded in other income (net). Approximately $95.7 million of the proceeds from the hospital sales was not received until September 1993 and such amount was recorded as a receivable at August 31, 1993. The Company acquired five hospital facilities during fiscal 1993 for an aggregate purchase price of approximately $90.1 million. These acquisitions were recorded using the purchase method of accounting and the aggregate purchase price in excess of the fair value of net assets acquired was approximately $11.2 million. The results of operations of the acquired facilities subsequent to the acquisition dates have been included in the consolidated statements of operations. 2. Acquisitions, Dispositions, and Joint Ventures (continued) Three of the Company's hospitals entered into joint venture alliances with other health care providers during the 1993 fiscal year. The Company does not own a majority interest in these ventures and is using the equity method of accounting to record its share of their operations. 1992 Activities During fiscal 1992, the Company completed the sale of four hospitals. The losses incurred on three of these facilities had been recorded during fiscal 1991. The loss incurred on the fourth facility sold during fiscal 1992 of approximately $0.5 million is included in other income (net). 3. Long-Term Debt The Company's long-term debt is summarized below: August 31 1994 1993 (In Thousands) Bank credit agreements, interest is paid at fluctuating rates (7.25% effective August 31, 1994) $ 747,000 $ 232,000 Subordinated Notes, interest is paid semiannually at 10.75% 500,000 500,000 Subordinated Debentures, interest is paid semiannually at 8.75% 300,000 300,000 Subordinated Notes, interest is paid semiannually at 10.25% 200,000 --- Other debt 38,415 17,209 1,785,415 1,049,209 Less current portion 44,543 100,605 $1,740,872 $ 948,604 3. Long-Term Debt (continued) Bank Credit Agreements During April 1994, the Company entered into a new bank credit agreement (the "1994 Credit Agreement") with the Bank of Nova Scotia, acting as administrative agent for the lenders. The 1994 Credit Agreement provides for an aggregate of up to $1.2 billion in credit available to the Company, consisting of up to $415 million in term loans, up to $385 million of delayed term loans and up to $400 million of revolving loans (including up to $150 million of letters of credit). The Company used $202 million of proceeds from the 1994 Credit Agreement to repay all the outstanding loans under 1992 Credit Agreement. At August 31, 1994, the Company had $415 million of term loans, $277 million of delayed term loans and $55 million of revolving loans outstanding and had approximately $429 million (net of outstanding letters of credit) of credit available under the delayed term loan and revolving loan facilities. Loans under the 1994 Credit Agreement bear interest at fluctuating rates, as selected by the Company at specified times, equal to either (i) an alternate base rate (the higher of the Bank of Nova Scotia's base rate for dollar loans or the Federal Funds rate plus 50 basis points) plus 50 basis points or (ii) LIBO plus 150 basis points. The term loans and delayed term loans are subject to mandatory semiannual principal reductions (beginning December 1, 1994 for the term loans and June 1, 1995 for the delayed term loans) and are payable in full on June 1, 2001. The revolving loan commitment amount will be payable in full on June 1, 2001. 10.75% Subordinated Notes During May 1992, the Company completed an offering of $500 million of Subordinated Notes due May 1, 2002 (the "Notes"). The Notes are unsecured subordinated obligations of the Company and bear interest at 10.75%, payable semiannually on May 1 and November 1 of each year. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 1, 1997 at 104% of par (declining to 102% of par on May 1, 1998 and 100% of par on May 1, 1999 and thereafter). 3. Long-Term Debt (continued) 8.75% Subordinated Debentures During March 1993, the Company completed an offering of $300 million of Subordinated Debentures due March 15, 2005 (the "Debentures"). The Debentures are unsecured subordinated obligations of the Company and bear interest at 8.75%, payable semiannually on March 15 and September 15 of each year. The Debentures are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 1998 at 104.375% of par (declining to 100% of par on March 15, 2001 and thereafter). 10.25% Subordinated Notes During May 1994, the Company completed an offering of $200 million of Subordinated Notes due April 15, 2004 (the "1994 Notes"). The 1994 Notes are unsecured subordinated obligations of the Company and bear interest at 10.25%, payable semiannually on April 15 and October 15 of each year, commencing October 15, 1994. The 1994 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after April 15, 1999 at 103.84% of par (declining to 102.56% of par on April 15, 2000, 101.28% of par on April 15, 2001 and 100% of par on April 15, 2002 and thereafter). Extraordinary Charges - Early Extinguishments of Debt Fiscal 1993 Transactions During 1993, the Company recorded an extraordinary charge of $13.6 million (net of tax benefits of $7.7 million) due to premiums paid and the write-off of unamortized loan costs related to the early extinguishment of $569.2 million of debt. The debts extinguished included $300.0 million of term loans under the 1992 Credit Agreement, the Guaranteed Subordinated Debentures ($240.0 million) and Senior Subordinated Debentures ($29.2 million). Fiscal 1992 Transactions The Company completed a recapitalization plan (the "Recapitalization Plan") that included the initial public offering of 40 million shares of its common stock, the reacquisition of certain preferred stock and warrants from HCA and the termination of future contributions to the ESOP. 3. Long-Term Debt (continued) In association with the Recapitalization Plan transactions and certain related transactions, the Company incurred extraordinary charges of $136.4 million (net of $28.0 million in net tax benefits) due to the premiums and consent fees paid, expenses incurred and the write-off of the unamortized loan costs related to the completion of the tender offers for certain debt securities and prepaying the loans outstanding under the bank credit agreements. The net tax benefit of $28.0 million represents a tax benefit of $63.9 million and a $35.9 million tax charge due to the early extinguishment of the ESOP debt and termination of contributions to the ESOP resulting in a permanent difference between ESOP expense for financial and tax reporting purposes. Other Debt Information At August 31, 1994, all the shares of common stock of the Company's subsidiaries have been pledged as collateral for certain outstanding debt agreements. Maturities of long-term debt for the fiscal years subsequent to August 31, 1994 are as follows: 1995--$44.5 million; 1996--$66.4 million; 1997--$96.6 million; 1998--$115.4 million; 1999--$117.9 million; and thereafter--$1,344.6 million. The credit agreements and/or debt indentures require the Company to (1) maintain net worth at specific levels, (2) pay no cash dividends on common stock and limit other restricted payments, (3) limit additional debt, liens and material acquisitions, (4) meet certain ratios related to operations, and (5) limit the use of funds derived from the sale of assets and business segments. At August 31, 1994, the fair value (based upon quoted market prices) of the Company's publicly traded $500 million, 10.75% Subordinated Notes, $300 million, 8.75% Subordinated Debentures and $200 million, 10.25% Subordinated Notes was $517.5 million, $276.8 million and $202.0 million, respectively. The carrying amount of the Company's indebtedness under the 1994 Credit Agreement approximates fair value. 4. Income Taxes The Company's income tax expense, net of the effect of extraordinary items, consisted of the following: Year Ended August 31 1994 1993 1992 (In Thousands) Current expense: Federal $ 38,664 $ 95,283 $ 3,838 State 6,179 19,404 4,335 Deferred expense (benefit): Federal 60,817 (25,667) 32,731 State 10,414 (6,068) 2,569 Income tax expense $116,074 $ 82,952 $ 43,473 The net income tax expense includes tax benefits of approximately $7.7 million and $28.0 million for the years ended August 31, 1993 and 1992, respectively, related to the extraordinary charges incurred on early extinguishments of debt. During the years ended August 31, 1994 and 1993, certain tax benefits were recorded as increases to paid-in capital ($3.6 million and $1.6 million, respectively) and reductions to the excess of purchase price over net assets acquired ($139.3 million and $6.7 million, respectively). On August 10, 1993, the Revenue Reconciliation Act of 1993 was enacted. As a result, the Company's federal statutory rate was increased to 34.67% for the fiscal year ended August 31, 1993 and 35% thereafter. The effect of this rate increase was a $2.0 million increase to current federal tax expense and a $3.0 million increase to deferred federal tax expense, for year ended August 31, 1993. 4. Income Taxes (continued) The Company's consolidated effective tax rate differed from the federal statutory rate as set forth in the following table: Year Ended August 31 1994 1993 1992 (In Thousands) Tax expense computed at federal statutory rate (35% for 1994, 34.67% for 1993 and 34% for 1992 ) $101,225 $ 78,309 $ 55,990 State and local income taxes, net of federal taxes 10,785 9,031 8,619 Goodwill amortization 2,962 3,051 2,451 Extraordinary charges on early extinguishments of debt --- (7,723) (27,959) Other, net 1,102 284 4,372 Income tax expense $116,074 $ 82,952 $ 43,473 At August 31, 1994, net operating loss carryforwards from various states (expiring in years 1995 through 2009) of approximately $435 million (including $98 million from EPIC) are available to offset future state taxable income. In addition, EPIC has approximately $105 million of federal net operating loss carryforwards (expiring in years 2002 through 2008). For financial reporting purposes, the tax benefits of the preacquisition EPIC federal and state net operating loss carryforwards were used to reduce the Company's deferred tax liability by approximately $43 million. During 1994, the Company established a valuation allowance of approximately $5 million to offset the deferred tax asset related to the preacquistion state net operating loss carryforwards due to the uncertainty of realizing these benefits. If the state net operating loss carryforwards of EPIC are realized, the tax benefits from the utilization of such losses will be used to reduce the excess of purchase price over net assets acquired. 4. Income Taxes (continued) For federal income tax purposes, as a result of the change in ownership of EPIC, the utilization of the federal net operating loss carryforwards is limited to approximately $11 million per year. If the full amount of the limitation is not used in any year, the amount not used increases the allowable limit in subsequent years. The approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets are as follows: August 31 1994 1993 (In Thousands) Deferred tax liabilities: Property, plant and equipment $268,110 $257,642 Deferred gain 16,090 --- Change in tax accounting method 4,466 7,962 Bad debt reserve --- 8,077 Other, net 48,502 39,466 Total deferred tax liabilities 337,168 313,147 Deferred tax assets: Insurance reserves 114,777 77,738 Agency receivables 85,138 75,350 State net operating loss carryforwards 25,150 22,307 Federal net operating loss carryforwards 30,876 --- Bad debt reserve 23,164 --- Deferred compensation 5,348 1,863 Accrued vacation 14,279 10,365 Other, net 18,201 28,189 Total deferred tax assets 316,933 215,812 Valuation allowance (31,198) (25,818) Net deferred tax assets 285,735 189,994 Net deferred tax liability $ 51,433 $123,153 The net deferred tax liabilities at August 31, 1994 and 1993 of $51.4 million and $123.2 million, respectively, are comprised of current assets of $39.8 million and $10.2 million and noncurrent liabilities of $91.2 million and $133.4 million, respectively. 5. Preferred Stock The Company has 78 million authorized shares of $.001 par value preferred stock of which 46 million shares were originally designated Class A Preferred Stock and 26 million shares were originally designated Class B Preferred Stock. No preferred stock was outstanding at August 31, 1994 or 1993. 6. Preferred Stock Purchase Rights On July 8, 1993, the Company declared a dividend distribution of one preferred stock purchase right (a "Right") for each outstanding share of common stock. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15% or more of the outstanding shares of common stock. In the event that the Rights become exercisable, each right (except for Rights beneficially owned by the acquiring person or group, which become null and void) would entitle the holder to purchase from the Company, one one-hundredth (1/100) of a share of preferred stock of the Company (designated as Series A Junior Preferred Stock) at a price of $75 per one one- hundredth (1/100) of a share, subject to adjustments. Each share of preferred stock will have 100 votes, voting together with the common stock. In the event of any merger, consolidation or other transaction in which the Company's common stock is exchanged, each share of preferred stock will be entitled to receive 100 times the amount received per common share. In the event that the Company is acquired in a transaction that has not been approved by the Board of Directors, the Rights Agreement provides that each Right holder of record will receive (upon payment of the exercise price) shares of common stock of the acquiring company having a market value at the time of such transaction equal to two times the exercise price. The Rights may be redeemed by the Board of Directors in whole, but not in part, at a price of $.01 per Right. The Rights have no voting or dividend privileges and are attached to and do not trade separately from, the common stock. The Rights expire on July 8, 2003. 7. Common Stock Warrants Warrants to purchase 814,979 shares of the Company's common stock are outstanding at August 31, 1994. The warrants may be exercised at any time through September 17, 2007. The exercise price after October 1, 1993 is $5.30 per warrant and is reduced to $3.18 per warrant if the market value of the Company's common stock exceeds certain per share values ($30.75 through September 30, 1995) for certain periods. Warrants for 2,588,770, and 3,772 shares were exercised during fiscal 1994 and 1992, respectively. 8. Stock Benefit Plans The Company has adopted the 1988 Supplemental Stock Plan (the "Supplemental Plan"), the Amended and Restated 1990 Stock Compensation Plan (the "1990 Plan") and the Amended and Restated 1990 Directors Stock Compensation Plan (the "Directors Plan") to promote the long-term growth of the Company by enabling officers, other key employees and directors who are not employees of the Company to acquire shares of common stock. Supplemental Plan The Supplemental Plan authorized awards of up to 9,503,707 shares of common stock. At August 31, 1994 all shares that had been awarded under the Supplemental Plan (8,483,381 shares) had been distributed to the plan participants. Shares of common stock reserved for issuance under the Supplemental Plan, but not awarded, will be transferred to the 1990 Plan. During fiscal 1994, vesting was accelerated with respect to 384,879 shares awarded under the Supplemental Plan that would otherwise have vested September 30, 1994. During fiscal 1993, vesting was accelerated with respect to 520,673 shares and 197,087 shares awarded under the Supplemental Plan that would otherwise have vested on September 30, 1993 and 1994, respectively. During fiscal 1992, as part of the Recapitalization Plan, vesting was accelerated with respect to 5,185,573 shares of common stock awarded under the Supplemental Plan that otherwise would have vested on September 30, 1992. The distribution of vested shares results in the recognition of income to the beneficiaries. To satisfy the beneficiaries' federal and state income tax liabilities resulting from such distributions of vested shares, the Company withheld 142,565, 218,524 and 2,195,169 of the vested shares of common stock designated to be distributed for the accelerated vesting in fiscal 1994, 1993 and 1992, respectively, and remitted amounts equal to the value of those shares to the relevant tax authorities. 8. Stock Benefit Plan (continued) Supplemental Plan transactions are as follows: Year Ended August 31 1994 1993 1992 Shares issued at September 1 384,879 1,108,294 8,926,591 Awarded --- --- --- Fully vested and distributed (384,879) (717,757) (7,380,745) Surrendered --- (5,658) (437,552) Shares issued at August 31 --- 384,879 1,108,294 Stock Option Plans - 1990 Plan and Directors Plan The 1990 Plan presently authorizes distributions of up to 6,601,000 shares to officers and other key employees, to enable the granting of awards payable in stock options (nonqualified and incentive), stock appreciation rights, restricted stock, restricted units, performance shares, performance units, other equity based units or cash, either singly or in any combination thereof. The 1990 Plan is of unlimited duration and is administered by a committee of the Board of Directors. The committee has discretion to (i) select the participants to whom awards will be granted and to determine the form and terms of each award, (ii) modify within certain limits the terms of any award that has been granted, (iii) establish and modify performance objectives and (iv) make all other determinations that it deems necessary or desirable in the interpretation and administration of the 1990 Plan. Awards may be granted with an exercise price less than the fair market value of the underlying common stock on the date of grant. 8. Stock Benefit Plans (continued) The Directors Plan authorizes awards of up to 188,600 shares of common stock. Nonemployee directors are eligible to participate in the Directors Plan. The Directors Plan is of unlimited duration and is administered by a committee of the Board of Directors, which has discretion to select participants and to determine the size of awards. To enable the granting of awards tailored to changing business conditions, the Directors Plan provides for awards payable in stock options, stock appreciation rights, restricted stock, restricted units, other equity based units or cash, either singly or in any combination thereof. Awards may be granted with an exercise price of less than the fair market value of the underlying common stock on the date of grant. The options granted generally vest over periods of three to five years. Information with respect to options under the plans is summarized as follows: Year Ended August 31 1994 1993 1992 Options outstanding at September 1 3,689,700 2,641,700 --- --- Granted 930,683 1,113,000 2,671,700 Surrendered (161,585) (65,000) (30,000) Exercised (223,788) --- --- Options outstanding at August 31 4,235,010 3,689,700 2,641,700 Options available for grant at August 31 2,474,222 3,243,320 4,091,320 Options exercisable at August 31 847,488 200,000 --- Option prices per share: Outstanding at September 1 $14.00-$18.38 $14.00-$17.88 --- Granted $ 0.01-$30.13 $17.88-$18.38 $14.00-$17.88 Surrendered $14.75-$23.75 $14.75-$15.25 $14.75 Exercised $0.01-$18.38 --- --- Outstanding at August 31 $0.01-$30.13 $14.00-$18.38 $14.00-$17.88 9. Employee Benefit Plans Retirement Plan The Company adopted its retirement plan (the "Retirement Plan"), effective January 1, 1992. The Retirement Plan is designed to provide retirement income to employees, an incentive for employees to remain at Healthtrust and an opportunity for employees to save for retirement on a tax-advantaged basis. All employees of the Company who have completed three months of service are eligible to participate in the Retirement Plan. Participants may make salary deferral (pretax) contributions of up to 10% of their compensation to the Retirement Plan. The Company will make a matching contribution equal to the participant's salary deferral contribution (up to 3% of the participant's compensation) if the participant has 1,000 hours of service during the plan year and is employed by the Company on the last day of the plan year. In addition, the Company, at its discretion, may make profit sharing contributions to the Retirement Plan. If profit sharing contributions are made for a plan year, such contributions will be allocated to each participant who has completed 1,000 hours of service and is employed by the Company on the last day of the plan year, on the basis that the participant's compensation bears to the compensation of all participants in the Retirement Plan. Under the Retirement Plan, participants are fully vested in their salary deferral contributions and, after five years of vesting service, will fully vest in Company matching and profit sharing contributions. Vesting service includes service with Healthtrust prior to adoption of the Retirement Plan and service with Columbia for those employees who became Healthtrust employees during September 1987. During the 1994, 1993 and 1992 fiscal years, the Company recorded expense of approximately $37.9 million, $39.0 million and $30.7 million, respectively, pursuant to the Retirement Plan. The Retirement Plan provides for payment of benefits at retirement, death or disability. In addition, account balances may be withdrawn after age 59 1/2 and distributions of salary deferral contributions and certain 401(k) accounts may be made on account of hardship. The Company's matching and profit sharing contributions may be made in cash or stock, at the election of the Company. Cash balances are invested in mutual funds at the participant's direction. Participants are entitled to liquidate up to 25% of the Company stock held in their plan accounts in each of the first four years following attainment of age 55 and ten years of vesting service and up to 50% of such stock in the fifth year. 9. Employee Benefit Plans (continued) Healthtrust ESOP The Company adopted the Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Plan (the "ESOP") on September 17, 1987. All employees were eligible to participate in the ESOP, except for employees who were covered by a collective bargaining agreement (unless the collective bargaining agreement provided for participation) or who were nonresident aliens. As a result of the termination of future contributions to the ESOP due to the Recapitalization Plan, ESOP participants became fully vested in shares of common stock allocated to their accounts (26,715,646 shares). The participants' ESOP account balances were transferred to the Retirement Plan. Distributions of allocated shares for retirement, disability or death generally will commence within one year after the close of the year in which retirement, death or disability occurs. The Company recorded ESOP expense (and corresponding reductions in the ESOP notes receivable) of $8.0 million for fiscal 1992. Interest expense incurred on ESOP debt totaled $12.1 million during fiscal 1992 and is included in interest expense. EPIC ESOP In connection with the acquisition of EPIC and the related Amended and Restated ESOP Agreement, all shares of EPIC common stock not allocated or allocatable to EPIC ESOP participants were returned to EPIC in full satisfaction of certain loans granted by EPIC to the EPIC ESOP. Subsequent to the acquisition, the Company has agreed to provide certain minimum retirement benefits to the former EPIC ESOP participants. These benefits include a profit sharing contribution by the Company on behalf of EPIC ESOP participants who participate in the Company retirement plan of 4% of aggregate compensation from the May 5, 1994 through December 31, 1994 and a matching contribution by the Company of 100% of participants' salary deferrals (up to a maximum of 3% of compensation) for the period from May 5, 1994 through December 31, 1998. During fiscal 1994, the Company recorded expense of approximately $6.6 million pursuant to the retirement plan for the former EPIC ESOP participants. 10. Relationship with Columbia The Company purchases computer time and services from Columbia. Rates for the data processing services rendered (approximately $18.6 million, $15.5 million and $15.8 million for fiscal 1994, 1993 and 1992, respectively) are based on customary and reasonable rates for such services. 11. Commitments and Contingencies The Company is self-insured for a substantial portion of its professional and general liability risks. The Company recorded self-insurance expense of $38.1 million, $29.5 million and $33.9 million during fiscal 1994, 1993 and 1992, respectively. At August 31, 1994, the reserve for professional and general liability risks was $245.4 million, of which $29.9 million is included in current liabilities. The reserves for self-insured professional and general liability losses and loss adjustment expenses are based on actuarially projected estimates discounted to their present value using a rate of 6%. Columbia retains the liability for all professional liability claims and claims which would be covered by a policy of comprehensive general liability insurance with a date of occurrence prior to September 1, 1987. Final determination of amounts earned under prospective payment and cost reimbursement activities is subject to review by appropriate governmental authorities or their agents. In the opinion of management, adequate provision has been made for any adjustments that could result from such reviews. The Company and its subsidiaries are currently, and from time to time are expected to be, subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material effect on the Company's financial position or results of operations. 12. Supplementary Statement of Operations Information Maintenance and repairs expense was $57.5 million, $44.4 million and $40.6 million during fiscal 1994, 1993 and 1992, respectively. Taxes other than payroll and income taxes, were $38.6 million, $30.6 million and $29.3 million during fiscal 1994, 1993 and 1992, respectively. 13. Subsequent Event On October 4, 1994 the Company and Columbia/HCA Healthcare Corporation jointly announced the signing of a definitive merger agreement under which the Company's shareholders will receive 0.88 shares of Columbia common stock in exchange for each share of Healthtrust common stock they hold. The proposed transaction is expected to be accounted for as a pooling of interests. The completion of the transaction is subject to the approval of the shareholders of both companies and regulatory approvals. The shareholders meetings to vote on the proposed merger transaction are expected to be scheduled for the first quarter of calendar 1995. Healthtrust, Inc. - The hospital Company Schedule V - Property, Plant and Equipment Three Years Ended August 31, 1994
Beginning End of of Period Additions Other Period Description Balance at Cost Retirements Charges Balance (Dollars in Thousands) YEAR ENDED AUGUST 31, 1994: Land $ 141,148 $ 5,962 $ 1,697 $ 65,121 (A) $ 214,536 2,002 (B) 2,000 (E) Buildings and improvements 987,372 30,040 2,862 372,488 (A) 1,495,829 108,791 (B) Equipment 895,190 99,341 14,019 128,573 (A) 1,168,015 58,930 (B) Construction in progress 144,655 85,632 212 51,827 (A) 112,179 (169,723)(B) $ 2,168,365 $ 220,975 $ 18,790 $ (16,038)(D) $ 2,990,559 YEAR ENDED AUGUST 31, 1993: Land $ 150,760 $ 1,837 $ 15,893 $ 8,421 (A) $ 141,148 1,008 (B) (4,985)(C) Buildings and improvements 1,013,483 9,411 53,532 24,256 (A) 987,372 38,145 (B) (17,182)(C) (27,209)(D) Equipment 844,119 69,140 40,145 42,850 (A) 895,190 19,124 (B) (23,860)(C) (16,038)(D) Construction in progress 66,203 139,118 324 63 (A) 144,655 (58,277)(B) (2,128)(C) $ 2,074,565 $ 219,506 $109,894 $(15,812) $2,168,365 YEAR ENDED AUGUST 31, 1992: Land $ 149,483 $ 2,542 $ 1,648 $ 383 (B) $ 150,760 Buildings and improvement 948,642 20,904 16,310 51,294 (B) 1,013,483 12,445 (E) (3,492)(D) Equipment 776,183 65,003 23,106 23,839 (B) 844,119 2,200 (E) Construction in progress 53,552 89,689 1,527 (75,516)(B) 66,203 $1,927,860 $ 178,138 $ 42,591 $ 11,158 $2,074,565
(A) Fixed assets of acquired facilities. (B) Reclassification of completed construciton to property, plantand equipment. (C) Assets contributed to/from joint ventures. (D) Reserves for losses on dispositions. (E) Reclassification from/to other assets. Healthtrust, Inc. - The Hospital Company Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Three Years Ended August 31, 1994
Beginning Additions End of of Period Charged to Other Period Description Balance Expense Retirements Charges Balance (Dollars in Thousands) YEAR ENDED AUGUST 31, 1994: Buildings and improvements $ 183,869 $ 47,177 $ 2,385 $ 228,661 Equipment 416,984 104,778 13,560 508,202 $ 600,853 $ 151,955 $ 15,945 $ -0- $ 736,863 YEAR ENDED AUGUST 31, 1993: Buildings and improvements $ 157,651 $ 38,213 $ 11,995 $ 183,869 Equipment 362,756 86,568 32,340 416,984 $ 520,407 $ 124,781 $ 44,335 $ -0- $ 600,853 YEAR ENDED AUGUST 31, 1992: Buildings and improvements $ 130,488 $ 36,010 $ 8,847 $ 157,651 Equipment 287,210 83,983 8,437 362,756 $ 417,698 $ 119,993 $ 17,284 $ -0- $ 520,407
Healthtrust, Inc. - The Hospital Company Schedule VII - Valuation and Qualifying Accounts Three Years Ended August 31, 1994
Additions Beginning Charged End of of Period Bad Debt to Other Period Description Balance Expense Accounts Deductions Balance (Dollars in Thousands) YEAR ENDED AUGUST 31, 1994: Allowance for doubtful accounts $ 107,758 $ 196,013 $ 44,800 (B) $ 172,733 (A) $ 175,838 YEAR ENDED AUGUST 31, 1993: Allowance for doubtful accounts $ 102,564 $ 145,538 $ -0- $ 140,344 (A) $ 107,758 YEAR ENDED AUGUST 31, 1992: Allowance for doubtful accounts $ 108,082 $ 137,074 $ -0- $ 142,592 (A) $ 102,564
(A) Accounts written off. (B) Reserves of acquired facilities. EX-1 2 AGREEMENT AND PLAN OF MERGER between COLUMBIA/HCA HEAlTHCARE CORPORATION, COL ACQUISITION CORPORATION and HEALTHTRUST, INC. - THE HOSPITAL COMPANY Dated as of October 4, 1994 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October 4, 1994, between Columbia/HCA Healthcare Corporation, a Delaware corporation ("Columbia"), COL Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Columbia ("Merger Sub"), and Healthtrust, Inc. The Hospital Company, a Delaware corporation ("Company"). RECITALS A. The Boards of Directors of Columbia and Company each have determined that a business combination between Columbia and Company is in the best interests of their respective companies and stockholders and presents an opportunity for their respective companies to achieve long-term strategic and financial benefits, and accordingly have agreed to effect the merger provided for herein upon the terms and subject to the conditions set forth herein. B. For federal income tax purposes, it is intended that the merger provided for herein shall qualify as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and for financial accounting purposes shall be accounted for as a pooling of interests. C. Columbia and Company have each received a fairness opinion relating to the transactions contemplated hereby as more fully described herein. D. Columbia, Merger Sub and Company desire to make certain representations, warranties and agreements in connection with the merger. NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE 1 1. The Merger. 1.1. The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and into Company in accordance with this Agreement, and the separate corporate existence of Merger Sub shall thereupon cease (the "Merger"). Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation"). The Merger shall have the effects specified in the Delaware General Corporation Law (the "DGCL"). 1.2. The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place (a) at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York, at 10:00 a.m., local time, on the first business day immediately following the day on which the last to be fulfilled or waived of the conditions set forth in Article 8 shall be fulfilled or waived in accordance herewith or (b) at such other time, date or place as Columbia and Company may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." 1.3. Effective Time. If all the conditions to the Merger set forth in Article 8 shall have been fulfilled or waived in accordance herewith and this Agreement shall not have been terminated as provided in Article 9, the parties hereto shall cause a Certificate of Merger meeting the requirements of Section 251 of the DGCL to be properly executed and filed in accordance with such Section on the Closing Date. The Merger shall become effective at the time of filing of the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the DGCL or at such later time which the parties hereto shall have agreed upon and designated in such filing as the effective time of the Merger (the "Effective Time"). ARTICLE 2 2. Certificate of Incorporation and Bylaws of the Surviving Corporation. 2.1. Certificate of Incorporation. The Certificate of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation, until duly amended in accordance with applicable law. 2.2. Bylaws. The Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation, until duly amended in accordance with applicable law. ARTICLE 3 3. Directors and Officers of the Surviving Corporation. 3.1. Directors. The directors of Merger Sub immediately prior to the Effective Time, a majority of whom shall not have been directors of the Company prior to the Effective Time, shall be the directors of the Surviving Corporation as of the Effective Time and until their successors are duly appointed or elected in accordance with applicable law. 3.2. Officers. The officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation as of the Effective Time and until their successors are duly appointed or elected in accordance with applicable law. ARTICLE 4 4. Effect of the Merger on Securities of Merger Sub and Company. 4.1. Merger Sub Stock. At the Effective Time, each share of Common Stock, $.01 par value, of Merger Sub outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and non assessable share of Common Stock, $.01 par value, of the Surviving Corporation. 4.2. Company Securities. (a) At the Effective Time, each share of Common Stock, $.001 par value (the "Company Common Stock"), of Company issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive 0.88 of a share of Common Stock, $.01 par value (the "Columbia Common Stock"),of Columbia (the "Exchange Ratio"). Each share of Columbia Common Stock issued to holders of Company Common Stock in the Merger shall be issued together with one associated preferred stock purchase right (a "Right") in accordance with the Amended and Restated Rights Agreement dated as of February 10, 1994, between Columbia and Mid-America Bank of Louisville & Trust Company. References herein to the shares of Columbia Common Stock issuable in the Merger shall be deemed to include the associated Rights. (b) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time all shares of Company Common Stock shall cease to be outstanding and shall be cancelled and retired and shall cease to exist, and each holder of shares of Company Common Stock shall thereafter cease to have any rights with respect to such shares of Company Common Stock, except the right to receive, without interest, the Columbia Common Stock and cash for fractional shares of Columbia Common Stock in accordance with Sections 4.3(b) and 4.3(e) upon the surrender of a certificate (a "Certificate") representing such shares of Company Common Stock. (c) Each share of Company Common Stock issued and held in Company's treasury at the Effective Time shall, by virtue of the Merger, cease to be outstanding and shall be cancelled and retired without payment of any consideration therefor. (d) All options (individually, a "Company Option" and collectively, the "Company Options") outstanding at the Effective Time under any Company stock option plan (the "Company Stock Option Plans") shall remain outstanding following the Effective Time. At the Effective Time, such Company Options shall, by virtue of the Merger and without any further action on the part of Company or the holder of any such Company Options, be assumed by Columbia in such manner that Columbia (i) is a corporation "assuming a stock option in a transaction to which Section 424(a) applied" within the meaning of Section 424 of the Code, or (ii) to the extent that Section 424 of the Code does not apply to any such Company Options, would be such a corporation were Section 424 applicable to such option. Each Company Option assumed by Columbia shall be exercisable upon the same terms and conditions as under the applicable Company Stock Option Plan and the applicable option agreement issued thereunder, except that (i) each such Company Option shall be exercisable for that whole number of shares of Columbia Common Stock (to the nearest whole share) into which the number of shares of Company Common Stock subject to such Company Option immediately prior to the Effective Time would be converted under this Section 4.2, and (ii) the option price per share of Columbia Common Stock shall be an amount equal to the option price per share of Company Common Stock subject to such Company Option in effect immediately prior to the Effective Time divided by the Exchange Ratio (the option price per share, as so determined, being rounded upward to the nearest full cent). No payment shall be made for fractional interests. From and after the date of this Agreement, except as provided in Section 7.2(a)(vi), no additional options shall be granted by Company or its Subsidiaries (as defined in Section 10.14 hereof) under the Company Stock Option Plans or otherwise. 4.3. Exchange of Certificates Representing Company Common Stock. (a) As of the Effective Time, Columbia shall deposit, or shall cause to be deposited, with an exchange agent selected by Columbia, which shall be Columbia's Transfer Agent or such other party reasonably satisfactory to Company (the "Exchange Agent"), for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article 4, certificates representing the shares of Columbia Common Stock and the cash in lieu of fractional shares (such cash and certificates for shares of Columbia Common Stock, together with any dividends or distributions with respect thereto (relating to record dates for such dividends or distributions after the Effective Time), being hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 4.2 and paid pursuant to this Section 4.3 in exchange for outstanding shares of Company Common Stock. (b) Promptly after the Effective Time, Columbia shall cause the Exchange Agent to mail to each holder of record of shares of Company Common Stock (i) a letter of transmittal which shall specify that delivery shall be effected, and risk of loss and title to such shares of Company Common Stock shall pass, only upon delivery of the Certificates representing such shares to the Exchange Agent and which shall be in such form and have such other provisions as Columbia may reasonably specify and (ii) instructions for use in effecting the surrender of such Certificates in exchange for certificates representing shares of Columbia Common Stock and cash in lieu of fractional shares. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, the holder of the shares represented by such Certificate shall be entitled to receive in exchange therefor (x) a certificate representing that number of whole shares of Columbia Common Stock and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of this Article 4, after giving effect to any required withholding tax, and the shares represented by the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of shares of Company Common Stock. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of Company, a certificate representing the proper number of shares of Columbia Common Stock, together with a check for the cash to be paid in lieu of fractional shares, may be issued to such a transferee if the Certificate representing such Company Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (c) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared after the Effective Time on Columbia Common Stock shall be paid with respect to any shares of Company Common Stock represented by a Certificate until such Certificate is surrendered for exchange as provided herein. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the certificates representing whole shares of Columbia Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Columbia Common Stock and not paid, less the amount of any withholding taxes which may be required thereon, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Columbia Common Stock, less the amount of any withholding taxes which may be required thereon. (d) At or after the Effective Time, there shall be no transfers on the stock transfer books of Company of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged for certificates for shares of Columbia Common Stock and cash in lieu of fractional shares, if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Article 4. Certificates surrendered for exchange by any person constituting an "affiliate" of Company for purposes of Rule 145(c~ under the Securities Act of 1933, as amended (the "Securities Act"), shall not be exchanged until Columbia has received a written agreement from such person as provided in Section 7.10. (e) No fractional shares of Columbia Common Stock shall be issued pursuant hereto. In lieu of the issuance of any fractional share of Columbia Common Stock pursuant to Section 4.2(b), cash adjustments will be paid to holders in respect of any fractional share of Columbia Common Stock that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the "Average Price" of a share of Columbia Common Stock. The "Average Price" of a share of Columbia Common Stock shall be the average of the closing sales prices thereof as reported on The New York Stock Exchange (the "NYSE") Composite Tape (as reported by The Wall Street Journal or, if not reported thereby, by another authoritative source) over the ten (10) business days immediately preceding the Closing Date. (f) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any shares of Columbia Common Stock) that remains unclaimed by the former stockholders of Company one year after the Effective Time shall be delivered to the Surviving Corporation. Any former stockholders of Company who have not theretofore complied with this Article 4 shall thereafter look only to the Surviving Corporation for payment of their shares of Columbia Common Stock, cash in lieu of fractional shares and unpaid dividends and distributions on the Columbia Common Stock deliverable in respect of each share of Company Common Stock such stockholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. (g) None of Columbia, Company, the Surviving Corporation, the Exchange Agent or any other person shall be liable to any former holder of shares of Company Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (h) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Columbia Common Stock and cash in lieu of fractional shares, and unpaid dividends and distributions on shares of Columbia Common Stock as provided in Section 4.3(c), deliverable in respect thereof pursuant to this Agreement. 4.4. Adjustment of Exchange Ratio. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, the outstanding shares of Columbia Common Stock or Company Common Stock, respectively, shall have been changed into a different number of shares or a different class as a result of a stock split, reverse stock split, stock dividend, subdivision, reclassification, split, combination, exchange, recapitalization or other similar transaction, the Exchange Ratio shall be appropriately adjusted. ARTICLE 5 5. Representations and Warranties of Company. Except as set forth in the disclosure letter delivered at or prior to the execution hereof to Columbia (the "Company Disclosure Letter") or in the Company Reports (as defined below), Company represents and warrants to Columbia as of the date of this Agreement as follows: 5.1. Existence; Good Standing: Corporate Authority; Compliance With Law. Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Company is duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good standing would not have a material adverse effect on the business, results of operations or financial condition of Company and its Subsidiaries (as defined in Section 10.14) taken as a whole (a "Company Material Adverse Effect"). Company has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted. Each of Company's Significant Subsidiaries (as defined in Section 10.14 hereof) is a corporation or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate or partnership power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have a Company Material Adverse Effect. Neither Company nor any of its Subsidiaries is in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which Company or any of its Subsidiaries or any of their respective properties or assets is subject, where such violation would have a Company Material Adverse Effect. Company and its Subsidiaries have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action would have a Company Material Adverse Effect. The copies of Company's Certificate of Incorporation and Bylaws previously delivered to Columbia are true and correct. 5.2. Authorization. Validity and Effect of Agreements. Company has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby. Subject only to the approval of this Agreement and the transactions contemplated hereby by the holders of a majority of the outstanding shares of Company Common Stock, the consummation by Company of the transactions contemplated hereby has been duly authorized by all requisite corporate action. This Agreement constitutes, and all agreements and documents contemplated hereby (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of Company, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 5.3. Capitalization. The authorized capital stock of Company consists of 400,000,000 shares of Company Common Stock and 78,000,000 shares of preferred stock, $.OOl par value (the "Company Preferred Stock"). As of October 3, 1994, there were 90,598,279 shares of Company Common Stock, and no shares of Company Preferred Stock, issued and outstanding. Since such date, no additional shares of capital stock of Company have been issued, except pursuant to the exercise of options outstanding under the Company Stock Option Plans or the exercise of warrants to purchase shares of Company Common Stock outstanding on October 3, 1994. Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of Company on any matter. All issued and outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. There are not at the date of this Agreement any existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate Company or any of its Subsidiaries to issue, transfer or sell any shares of capital stock of Company or any of its Subsidiaries. After the Effective Time, the Surviving Corporation will have no obligation to issue, transfer or sell any shares of capital stock of Company or the Surviving Corporation pursuant to any Company Benefit Plan (as defined in Section 5.11). 5.4. Subsidiaries. Company owns directly or indirectly each of the outstanding shares of capital stock (or other ownership interests having by their terms ordinary voting power to elect a majority of directors or others performing similar functions with respect to such Company Subsidiary) of each of Company's Subsidiaries. Each of the outstanding shares of capital stock of each of Company's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by Company free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which are not material. The following information for each Subsidiary of Company has been previously provided to Columbia, if applicable: (i) its name and jurisdiction of incorporation or organization; (ii) its authorized capital stock or share capital; and (iii) the number of issued and outstanding shares of capital stock or share capital. 5.5. Other Interests. Except for interests in the Company Subsidiaries, neither Company nor any Company Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments held by Company's captive insurance subsidiaries, investments in short term investment securities and corporate partnering, development, cooperative marketing and similar undertakings, arrangements entered into in the ordinary course of business and other investments the aggregate market value of which is less than $50,000,000). 5.6. No Violation. Neither the execution and delivery by Company of this Agreement nor the consummation by Company of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Certificate of Incorporation or Bylaws of Company; (ii) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any of its existing Company Stock Option Plans, or any grant or award made under any of the foregoing; (iii) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination or in a right of termination or cancellation of, accelerate the performance required by, result in the triggering of any payment or other material obligations pursuant to, result in the creation of any lien, security interest, charge or encumbrance upon any of the material properties of Company or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any material license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which Company or any of its Subsidiaries is a party, or by which Company or any of its Subsidiaries or any of their respective properties is bound or affected, except for any of the foregoing matters which would not have a Company Material Adverse Effect; or (iv) other than the filings provided for in Article 1, applicable federal, state and local regulatory filings, filings required under the Hart Scott Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933, as amended (the "Securities Act"), or applicable state securities and "Blue Sky" laws or filings in connection with the maintenance of qualification to do business in other jurisdictions (collectively, the "Regulatory Filings), require any material consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, the failure to obtain or make which would have a Company Material Adverse Effect. 5.7. SEC Documents. Company has delivered to Columbia each registration statement, report, proxy statement or information statement (as defined in Regulation 14C under the Exchange Act) prepared by it since August 31, 1993, including, without limitation, (i) its Annual Report on Form 10-K for the year ended August 31, 1993, as amended, (ii) its Quarterly Reports on Form 10-Q for the periods ended November 30, 1993, February 28, 1994, and May 31, 1994, (iii) its Current Reports on Form 8-K dated January 10, 1994 and May 5, 1994, (iv) its Proxy Statement for the Annual Meeting of Stockholders held January 13, 1994, (v) its Registration Statement on Form S-3, as amended, Registration No. 33-52403, and (vi) its Registration Statement on Form S-3, as amended, Registration No. 33 52401, each in the form (including exhibits and any amendments thereto) filed with the Securities and Exchange Commission (the "SEC") (collectively, the "Company Reports"). As of their respective dates, the Company Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each of the consolidated balance sheets of Company included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents the consolidated financial position of Company and the Company Subsidiaries as of its date, and each of the consolidated statements of income, retained earnings and cash flows of Company included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of Company and the Company Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Neither Company nor any of the Company Subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of Company or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since August 31, 1993. 5.8. Litigation. There are no actions, suits or proceedings pending against Company or the Company Subsidiaries or, to the actual knowledge of the executive officers of Company, threatened against Company or the Company Subsidiaries, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that are reasonably likely to have a Company Material Adverse Effect. 5.9. Absence of Certain Changes. Since August 31, 1993, Company has conducted its business only in the ordinary course of such business, and there has not been (i) any Company Material Adverse Effect (other than as a result of changes in conditions, including economic or political developments, applicable to the health care industry generally); (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock; or (iii) any material change in its accounting principles, practices or methods. 5.10. Taxes. Company and each of its Subsidiaries (i) have timely filed all material federal, state and foreign tax returns required to be filed by any of them for tax years ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request shall have been granted and not expired, and all such returns are complete in all material respects, (ii) have paid or accrued all taxes shown to be due and payable on such returns, (iii) have properly accrued all such taxes for such periods subsequent to the periods covered by such returns, and (iv) have "open" years for federal income tax returns only as set forth in the Company Reports. 5.11 Employee Benefit Plans. (a) All employee benefit plans and other benefit arrangements covering employees of Company and the Company Subsidiaries (the "Company Benefit Plans") and all employee agreements providing compensation, severance or other benefits to any employee or former employee of Company or any of its Subsidiaries are listed in the Company Reports or are set forth in the Company Disclosure Letter, except Company Benefit Plans which are not material. True and complete copies of the Company Benefit Plans have been made available to Columbia. To the extent applicable, the Company Benefit Plans comply, in all material respects, with the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, and any Company Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service (the "IRS") to be so qualified. Neither Company nor any ERISA Affiliate of Company (during the period of its affiliated status and prior thereto, to its knowledge) maintains, contributes to or has in the past maintained or contributed to any benefit plan which is covered by Title IV of ERISA or Section 412 of the Code. No Company Benefit Plan nor Company has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each Company Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. To the knowledge of the executive officers of Company, there are no pending or anticipated material claims against or otherwise involving any of the Company Benefit Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Company Benefit Plan activities) has been brought against or with respect to any such Company Benefit Plan, except for any of the foregoing which would not have a Company Material Adverse Effect. All material contributions required to be made as of the date hereof to the Company Benefit Plans have been made or provided for. Since September 25, 1980, neither Company nor any ERISA Affiliate of Company (during the period of its affiliated status and prior thereto, to its knowledge) has contributed to, or been required to contribute to, any "multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA). Company does not maintain or contribute to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment, and Company has never represented, promised or contracted (whether in oral or written form) to any employee or former employee that such benefits would be provided. The execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit plan, policy, arrangement or agreement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise~, acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. The only severance agreements or severance policies applicable to Company or its Subsidiaries are the agreements and policies specifically referred to in the Company Disclosure Letter (and, in the case of such agreements, the form of which is attached to the Company Disclosure Letter). (b) (i) From the date of its inception until its termination, each of the HealthTrust Employee Stock Ownership Plan and the EPIC Employee Stock Ownership Plan (the "ESOPs") were qualified under Section 401(a) of the Code and a determination letter has been issued by the IRS to the effect that each such ESOP was so qualified and that each trust forming a part of any such ESOP was exempt from tax pursuant to Section 501(a) of the Code and no circumstances existed or now exist which would adversely affect this qualification or exemption. The termination of any of the ESOPs has not had a Company Material Adverse Effect. (ii) No "prohibited transaction," within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any ESOP. (iii) All contributions and other payments required to be made by the Company, its Subsidiaries or ERISA Affiliates to the ESOPs prior to the date hereof have been made and no contributions have been made to the ESOPs that would be considered non-deductible under the Code, except as would not have a Company Material Adverse Effect. (iv) Company, its Subsidiaries and ERISA Affiliates have complied with and performed all obligations required to be performed by them under or with respect to the ESOPs, or any related trust and have complied with all applicable federal, state and local laws, rules or regulations with respect to the ESOPs, except as would not have a Company Material Adverse Effect. For purposes of this Agreement "ERISA Affiliate" means any business or entity which is a member of the same "controlled group of corporations," under "common control" or an "affiliated service group" with an entity within the meanings of Sections 414(b), (c) or (m) of the Code, or required to be aggregated with the entity under Section 414(o) of the Code, or is under "common control" with the entity, within the meaning of Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of the foregoing Sections. 5.12. Labor Matters. Neither Company nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the executive officers of Company, threatened against Company or its Subsidiaries relating to their business, except for any such proceeding which would not have a Company Material Adverse Effect. To the knowledge of the executive officers of Company, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of Company or any of its Subsidiaries. 5.13. No Brokers. Company has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Company or Columbia to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Company has retained Merrill lynch & Co. as its financial advisor, the arrangements with which have been disclosed in writing to Columbia prior to the date hereof. Other than the foregoing arrangements, Company is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 5.14. Opinion of Financial Advisor. Company has received the opinion of Merrill Lynch & Co. to the effect that, as of the date hereof, the Exchange Ratio is fair to the holders of Company Common Stock from a financial point of view. 5.15. Columbia Stock Ownership. Neither Company nor any of its Subsidiaries owns any shares of Columbia Common Stock or other securities convertible into Columbia Common Stock. 5.16. Medicare Participation/Accreditation. All of Company's hospitals are certified for participation or enrollment in the Medicare and Medicaid programs, have a current and valid provider contract with the Medicare and Medicaid programs, are in substantial compliance with the conditions of participation of such programs and have received all approvals or qualifications necessary for capital reimbursement of Company's assets. Neither Company nor any of its Subsidiaries has received notice from the regulatory authorities which enforce the statutory or regulatory provisions in respect of either the Medicare or the Medicaid program of any pending or threatened investigations or surveys, and neither Company nor any of its Subsidiaries has any reason to believe that any such investigations or surveys are pending, threatened or imminent which may have a Company Material Adverse Effect. All of Company's hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations. 5.17. Pooling of Interests; Tax Reorganization. To the actual knowledge of the executive officers of Company, Company has not taken or failed to take any action which would prevent the accounting for the Merger as a pooling of interests in accordance with Accounting Principles Board Opinion No. 16, the interpretative releases issued pursuant thereto, and the pronouncements of the SEC. To the actual knowledge of the executive officers of Company, Company has not taken or failed to take any action which would prevent the Merger from constituting a reorganization within the meaning of section 368(a) of the Code. 5.18 EPIC Transaction. To the actual knowledge of the executive officers of Company, the representations and warranties of EPIC Holdings, Inc. ("EPIC") set forth in the Agreement and Plan of Merger (the "EPIC Merger Agreement") dated as of January 9, 1994 among Company, Odyssey Acquisition Corp. and EPIC were true and correct in all material respects as of the closing date of the merger contemplated by the EPIC Merger Agreement. ARTICLE 6 6. Representations and Warranties of Columbia and Merger Sub. Except as set forth in the disclosure letter delivered at or prior to the execution hereof to Company (the "Columbia Disclosure Letter") or in the Columbia Reports (as defined below), Columbia and Merger Sub represent and warrant to Company as of the date of this Agreement as follows: 6.1. Existence; Good Standing; Corporate Authority; Compliance With Law. Each of Columbia and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Columbia is duly licensed or qualified to do business as a foreign corporation and is in good standing under the laws of any other state of the United States in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified or to be in good standing would not have a material adverse effect on the business, results of operations or financial condition of Columbia and its Subsidiaries taken as a whole (a "Columbia Material Adverse Effect"). Columbia has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted. Each of Columbia's Significant Subsidiaries is a corporation or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate or partnership power and authority to own its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing would not have a Columbia Material Adverse Effect. Neither Columbia nor any Columbia Subsidiary is in violation of any order of any court, governmental authority or arbitration board or tribunal, or any law, ordinance, governmental rule or regulation to which Columbia or any of its Subsidiaries or any of their respective properties or assets is subject, where such violation would have a Columbia Material Adverse Effect. Columbia and its Subsidiaries have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now conducted, where the failure to obtain any such item or to take any such action would have a Columbia Material Adverse Effect. The copies of Columbia's Certificate of Incorporation and Bylaws previously delivered to Company are true and correct. 6.2. Authorization, Validity and Effect of Agreements. Each of Columbia and Merger Sub has the requisite corporate power and authority to execute and deliver this Agreement and all agreements and documents contemplated hereby. The consummation by Columbia and Merger Sub of the transactions contemplated hereby has been duly authorized by all requisite corporate action. This Agreement constitutes, and all agreements and documents contemplated hereby (when executed and delivered pursuant hereto for value received) will constitute, the valid and legally binding obligations of Columbia and Merger Sub, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 6.3. Capitalization. The authorized capital stock of Columbia consists of 800,000,000 shares of Columbia Common Stock, 25,000,000 shares of nonvoting common stock, $.01 par value (the "Columbia Nonvoting Common Stock"), and 25,000,000 shares of preferred stock, $.01 par value (the "Columbia Preferred Stock"). As of September 30, 1994, there were 347,845,336 shares of Columbia Common Stock, 14,189,999 shares of Columbia Nonvoting Common Stock, and no shares of Columbia Preferred Stock, issued and outstanding. Since such date, no additional shares of capital stock of Columbia have been issued except pursuant to the exercise of options outstanding under Columbia's stock option and employee stock purchase plans (the "Columbia Stock Option Plans"). Columbia has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of Columbia on any matter. All such issued and outstanding shares of Columbia Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. Except as contemplated by this Agreement, there are not at the date of this Agreement any existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate Columbia or any of its Subsidiaries to issue, transfer or sell any shares of capital stock of Columbia or any of its Subsidiaries. 6.4 Subsidiaries. (a) Columbia owns directly or indirectly each of the outstanding shares of capital stock of each of Columbia's Subsidiaries (or other ownership interests having by their terms ordinary voting power to elect a majority of directors or others performing similar functions with respect to such Columbia Subsidiary). Each of the outstanding shares of capital stock of each of Columbia's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and is owned, directly or indirectly, by Columbia free and clear of all liens, pledges, security interests, claims or other encumbrances other than liens imposed by local law which are not material. The following information for each Subsidiary of Columbia has been previously provided to Company, if applicable: its name and jurisdiction of incorporation or organization; (ii) its authorized capital stock or share capital; and (iii) the number of issued and outstanding shares of capital stock or share capital. (b) The authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock, $.01 par value, all of which shares are issued and outstanding and owned by Columbia. Notwithstanding any provisions to the contrary, Columbia may, in its sole discretion, increase the number of shares of authorized Common Stock of Merger Sub and the number of shares of Common Stock of Merger Sub issued and outstanding owned by Columbia. Merger Sub has not engaged in any activities other than in connection with the transactions contemplated by this Agreement. 6.5. Other Interests. Except for interests in the Columbia Subsidiaries, neither Columbia nor any Columbia Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in Quorum Health Group Inc., investments held by two captive insurance companies and investments in short term investment securities and corporate partnering, development, cooperative marketing and similar undertakings and arrangements entered into in the ordinary course of business and other investments the aggregate market value of which is less than $50,000,000). 6.6. No Violation. Neither the execution and delivery by Columbia and Merger Sub of this Agreement, nor the consummation by Columbia and Merger Sub of the transactions contemplated hereby in accordance with the terms hereof, will: (i) conflict with or result in a breach of any provisions of the Certificate of Incorporation or Bylaws of Columbia or Merger Sub; (ii) result in a breach or violation of, a default under, or the triggering of any payment or other material obligations pursuant to, or accelerate vesting under, any of the Columbia Stock Option Plans, or any grant or award under any of the foregoing; (iii) violate, conflict with, result in a breach of any provision of, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the termination or in a right of termination or cancellation of, accelerate the performance required by, result in the triggering of any payment or other material obligations pursuant to, result in the creation of any lien, security interest, charge or encumbrance upon any of the material properties of Columbia or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any material license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which Columbia or any of its Subsidiaries is a party, or by which Columbia or any of its Subsidiaries or any of their respective properties is bound or affected, except for any of the foregoing matters which would not have a Columbia Material Adverse Effect; or (iv) other than the Regulatory Filings, require any material consent, approval or authorization of, or declaration, filing or registration with, any domestic governmental or regulatory authority, the failure to obtain or make which would have a Columbia Material Adverse Effect. 6.7. SEC Documents. Columbia has delivered to Company each registration statement, report, proxy statement or information statement prepared by it since December 31, 1993, including, without limitation, (i) its Annual Report on Form 10-K for the year ended December 31, 1993, as amended, (ii) its Quarterly Reports on Form 10-Q for the periods ended March 31, 1994 and June 30, 1994, (iii) its Proxy Statement for the Annual Meeting of Stockholders held May 12, 1994, and (iv) its Registration Statement on Form S-4, as amended, Registration No. 33-54475, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Columbia Reports"). As of their respective dates, the Columbia Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each of the consolidated balance sheets included in or incorporated by reference into the Columbia Reports (including the related notes and schedules) fairly presents the consolidated financial position of Columbia and the Columbia Subsidiaries as of its date, and each of the consolidated statements of income, retained earnings and cash flows included in or incorporated by reference into the Columbia Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings or cash flows, as the case may be, of Columbia and the Columbia Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year end audit adjustments which would not be material in amount or effect), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Neither Columbia nor any of the Columbia Subsidiaries has any material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of Columbia or in the notes thereto, prepared in accordance with generally accepted accounting principles consistently applied, except liabilities arising in the ordinary course of business since December 31, 1993. 6.8. Litigation. There are no actions, suits or proceedings pending against Columbia or the Columbia Subsidiaries or, to the actual knowledge of the executive officers of Columbia, threatened against Columbia or the Columbia Subsidiaries, at law or in equity, or before or by any federal or state commission, board, bureau, agency or instrumentality, that are reasonably likely to have a Columbia Material Adverse Effect. 6.9. Absence of Certain Changes. Since December 31, 1993, Columbia has conducted its business only in the ordinary course of such business, and there has not been (i) any Columbia Material Adverse Effect (other than as a result of changes in conditions, including economic or political developments, applicable to the health care industry generally); (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock (other than the regular quarterly cash dividends of $.03 per share, payable on the Columbia Common Stock and the Columbia Nonvoting Common Stock); or (iii) any material change in its accounting principles, practices or methods. 6.10. Taxes. Columbia and each of its Subsidiaries (i) have timely filed all material federal, state and foreign tax returns required to be filed by any of them for tax years ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request shall have been granted and not expired, and all such returns are complete in all material respects, (ii) have paid or accrued all taxes shown to be due and payable on such returns, (iii) have properly accrued all such taxes for such periods subsequent to the periods covered by such returns, and (iv) have "open" years for federal income tax returns only as set forth in the Columbia Disclosure Letter. 6.11. Employee Benefit Plans. All employee benefit plans and other benefit arrangements covering employees of Columbia and the Columbia Subsidiaries (the "Columbia Benefit Plans") and all employee agreements providing compensation, severance or other benefits to any employee or former employee of Columbia or any of the Columbia Subsidiaries are listed in the Columbia Reports, except Columbia Benefit Plans which are not material. True and complete copies of the Columbia Benefit Plans have been made available to Company. To the extent applicable, the Columbia Benefit Plans comply, in all material respects, with the requirements of ERISA and the Code, and any Columbia Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified. Neither Columbia nor any ERISA Affiliate of Columbia l(during the period of its affiliated status and prior thereto, to its knowledge) maintains, contributes to or has in the past maintained or contributed to any benefit plan which is covered by Title IV of ERISA or Section 412 of the Code. No Columbia Benefit Plan nor Columbia has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each Columbia Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code to the extent applicable thereto. To the knowledge of the executive officers of Columbia, there are no pending or anticipated claims against or otherwise involving any of the Columbia Benefit Plans, and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Columbia Benefit Plan activities) has been brought against or with respect to any such Columbia Benefit Plan, except for any of the foregoing which would not have a Columbia Material Adverse Effect. All material contributions required to be made as of the date hereof to the Columbia Benefit Plans have been made or provided for. Since September 25, 1980, neither Columbia nor any ERISA Affiliate of Columbia (during the period of its affiliated status and prior thereto to its knowledge) has contributed to, or been required to contribute to, any "multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA). Columbia does not maintain or contribute to any plan or arrangement which provides or has any liability to provide life insurance or medical or other employee welfare benefits to any employee or former employee upon his retirement or termination of employment, and Columbia has never represented, promised or contracted (whether in oral or written form) to any employee or former employee that such benefits would be provided. Except as disclosed in the Columbia Reports, the execution of, and performance of the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit plan, policy, arrangement or agreement or any trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee. 6.12. Labor Matters. Neither Columbia nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of the executive officers of Columbia, threatened against Columbia or its Subsidiaries relating to their business, except for any such proceeding which would not have a Columbia Material Adverse Effect. To the knowledge of the executive officers of Columbia, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened involving employees of Columbia or any of its Subsidiaries. 6.13. Opinion of Financial Advisor. Columbia has received the opinion of Morgan Stanley & Co. Incorporated to the effect that as of the date hereof, the consideration to be paid by Columbia pursuant to the Merger is fair to Columbia from a financial point of view. 6.14. Company Stock Ownership. Neither Columbia nor any of its Subsidiaries owns any shares of Company Common Stock or other securities convertible into shares of Company Common Stock. 6.15. Columbia Common Stock. The issuance and delivery by Columbia of shares of Columbia Common Stock in connection with the Merger and this Agreement have been duly and validly authorized by all necessary corporate action on the part of Columbia. The shares of Columbia Common Stock to be issued in connection with the Merger and this Agreement, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable. 6.16. Convertible Securities. Columbia has no outstanding options, warrants or other securities exercisable for, or convertible into, shares of Columbia Common Stock, the terms of which would require any anti-dilution adjustments by reason of the consummation of the transactions contemplated hereby. 6.17. Medicare Participation/Accreditation. All of Columbia's hospitals are certified for participation or enrollment in the Medicare and Medicaid programs, have a current and valid provider contract with the Medicare and Medicaid programs, are in substantial compliance with the conditions of participation of such programs and have received all approvals or qualifications necessary for capital reimbursement of the Columbia assets. Neither Columbia nor any of its Subsidiaries has received notice from the regulatory authorities which enforce the statutory or regulatory provisions in respect of either the Medicare or the Medicaid program of any pending or threatened investigations or surveys, and neither Columbia nor any of its Subsidiaries has any reason to believe that any such investigations or surveys are pending, threatened or imminent which may have a Columbia Material Adverse Effect. All of Columbia's hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations. 6.18. Pooling of Interests; Tax Reorganization. To the actual knowledge of the executive officers of Columbia, Columbia has not taken or failed to take any action which would prevent the accounting for the Merger as a pooling of interests in accordance with Accounting Principles Board Opinion No. 16, the interpretative releases issued pursuant thereto, and the pronouncements of the SEC. To the actual knowledge of the executive officers of Columbia, Columbia has not taken or failed to take any action which would prevent the Merger from constituting a reorganization within the meaning of section 368(a) of the Code. 6.19. No Brokers. Columbia has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Company or Columbia to pay any finder's fee, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Columbia has retained Morgan Stanley & Co. Incorporated as its financial advisor, the arrangements with which have been disclosed in writing to Company prior to the date hereof. Other than the foregoing arrangements, Company is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. ARTICLE 7 7. Covenants. 7.1. Alternative Proposals. Prior to the Effective Time, Company agrees (a) that neither it nor any of its Subsidiaries shall, and it shall direct and use its best efforts to cause its officers, directors, employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries) not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its stockholders) with respect to a merger, acquisition, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities of, Company or any of its Significant Subsidiaries (any such proposal or offer being hereinafter referred to as an "Alternative Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Alternative Proposal, or otherwise facilitate any effort or attempt to make or implement an Alternative Proposal; (b) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing, and it will take the necessary steps to inform the individuals or entities referred to above of the obligations undertaken in this Section 7.1; and (c) that it will notify Columbia immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it; provided, however, that nothing contained in this Section 7.1 shall prohibit the Board of Directors of Company from (i) furnishing information to or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide proposal to acquire Company pursuant to a merger, consolidation, share exchange, purchase of a substantial portion of assets, business combination or other similar transaction, if, and only to the extent that, (A) the Board of Directors of Company determines in good faith that such action is required for the Board of Directors to comply with its fiduciary duties to stockholders imposed by law, (B) prior to furnishing such information to, or entering into discussions or negotiations with, such person or entity, Company provides written notice to Columbia to the effect that it is furnishing information to, or entering into discussions or negotiations with, such person or entity, and (C) subject to any confidentiality agreement with such person or entity (which Company determined in good faith was required to be executed in order for its Board of Directors to comply with fiduciary duties to stockholders imposed by law), Company keeps Columbia informed of the status (not the terms) of any such discussions or negotiations; and (ii) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Alternative Proposal. Nothing in this Section 7.1 shall (x) permit Company to terminate this Agreement (except as specifically provided in Article 9 hereof), (y) permit Company to enter into any agreement with respect to an Alternative Proposal during the term of this Agreement (it being agreed that during the term of this Agreement, Company shall not enter into any agreement with any person that provides for, or in any way facilitates, an Alternative Proposal (other than a confidentiality agreement in customary form)), or (z) affect any other obligation of Company under this Agreement. 7.2. Interim Operations. (a) Prior to the Effective Time, except as set forth in the Company Disclosure Letter or as contemplated by any other provision of this Agreement, unless Columbia has consented in writing thereto, Company: (i) Shall, and shall cause each of its Subsidiaries to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; (ii) Shall use its reasonable efforts, and shall cause each of its Subsidiaries to use its reasonable efforts, to preserve intact their business organizations and goodwill, keep available the services of their respective officers and employees and maintain satisfactory relationships with those persons having business relationships with them; (iii) Shall not amend its Certificate of Incorporation or Bylaws or comparable governing instruments; (iv) Shall promptly notify Columbia of any material emergency or other material change in its condition (financial or otherwise), business, properties, assets, liabilities, prospects or the normal course of its business or of its properties any material litigation or material governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or the breach in any material respect of any representation or warranty contained herein; (v) Shall promptly deliver to Columbia true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement; (vi) Shall not (x) except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement, issue any shares of its capital stock, effect any stock split or otherwise change its capitalization as it existed on the date hereof, (y) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital stock, other than employee stock options, stock benefits and stock purchases under any stock option, stock benefit or stock purchase plan existing on the date hereof, provided that the aggregate amount of employee stock options granted pursuant to such employee stock option plans shall not exceed 50,000, (z) increase any compensation or enter into or amend any employment agreement with any of its present or future officers or directors, except for normal increases consistent with past practice and the payment of cash bonuses to officers pursuant to and consistent with existing plans or programs, or (aa) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend any existing employee benefit plan in any material respect, except for changes which are less favorable to participants in such plans; (vii) Shall not (i) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or other ownership interests or (ii) except in connection with the use of shares of capital stock to pay the exercise price or tax withholding in connection with its stock based employee benefit plans, directly or indirectly redeem, purchase or otherwise acquire any shares of its capital stock or capital stock of any of its Subsidiaries, or make any commitment for any such action; and (viii) Shall not, and shall not permit any of its Subsidiaries to, sell, lease or otherwise dispose of any of its assets (including capital stock of Subsidiaries) which are material, individually or in the aggregate, except in the ordinary course of business. (b) Prior to the Effective Time, except as set forth in the Columbia Disclosure Letter or as contemplated by any other provision of this Agreement, unless Company has consented in writing thereto, Columbia: (i) Shall conduct its operations in the ordinary course in substantially the same manner as heretofore conducted; (ii) Shall not amend its Certificate of Incorporation; (iii) Shall promptly deliver to Company true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement; (iv) Shall not sell, lease or otherwise dispose of any of its assets (including capital stock of Subsidiaries) which are material, individually or in the aggregate, except in the ordinary course of business; (v) Shall not redeem, purchase or otherwise acquire, or propose to redeem, purchase or acquire, a material amount of the outstanding Columbia Common Stock; and (vi) Shall not declare or make any extraordinary distributions with respect to its capital stock, which distributions are individually, or in the aggregate, material; provided, however, that scheduled quarterly cash dividends payable on the Columbia Common Stock shall not be deemed "extraordinary." 7.3. Meetings of Stockholders. Each of Columbia and Company will take all action necessary in accordance with applicable law and its Certificate of Incorporation and Bylaws to convene a meeting of its stockholders as promptly as practicable to consider and vote upon (i) in the case of Columbia, the approval of the issuance of the shares of Columbia Common Stock pursuant to the Merger contemplated hereby and the approval of an amendment to Columbia's Certificate of Incorporation to increase the maximum number of directors constituting the entire Board of Directors of Columbia from 15 to 18 persons and (ii) in the case of Company, the approval of this Agreement and the transactions contemplated hereby. The Board of Directors of each of Columbia and Company shall recommend such approval and Columbia and Company shall each take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement/Prospectus (as defined in Section 7.7); provided, however, that such recommendation or solicitation is subject to any action (including any withdrawal or change of its recommendation) taken by, or upon authority of, the Board of Directors of Columbia or Company, as the case may be, in the exercise of its good faith judgment as to its fiduciary duties to its stockholders imposed by law. It shall be a condition to the mailing of the Proxy Statement/Prospectus that (i) Columbia shall have received a "comfort" letter from Ernst & Young, independent public accountants for Company, dated the date of the Proxy Statement/Prospectus, with respect to the financial statements of Company included in the Proxy Statement/Prospectus, substantially in the form described in Section 8.3(c), and (ii) Company shall have received a "comfort" letter from Ernst & Young, independent public accountants for Columbia, dated the date of the Proxy Statement/Prospectus, with respect to the financial statements of Columbia included in the Proxy Statement/Prospectus, substantially in the form described in Section 8.2(c). 7.4. Filings; Other Action. Subject to the terms and conditions herein provided, Company and Columbia shall: (a) promptly make their respective filings and thereafter make any other required submissions under the HSR Act with respect to the Merger; (b) use all reasonable efforts to cooperate with one another in (i) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, permits or authorizations are required to be obtained prior to the Effective Time from, governmental or regulatory authorities of the United States, the several states and foreign jurisdictions in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; and (c) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. With respect to obtaining approval under the HSR Act, Columbia's reasonable efforts shall be deemed to include divesting or otherwise holding separate, or taking such other action (or otherwise agreeing to do any of the foregoing) with respect to any of its Subsidiaries or any of the Surviving Corporation's assets and properties necessary to obtain such approval, except to the extent that such actions would, in the aggregate, have a material adverse effect on the business, financial condition or results of operations of Company and its Subsidiaries taken as a whole (it being understood that for purposes of applying this provision, if one or more assets or properties owned by Columbia in a particular market are divested or held separate, comparable assets or properties owned by Company in such market shall be deemed to have been divested or held separate). If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purpose of this Agreement, the proper officers and directors of Columbia and Company shall take all such necessary action. 7.5. Inspection of Records. From the date hereof to the Effective Time, each of Company and Columbia shall (i) allow all designated officers, attorneys, accountants and other representatives of the other reasonable access at all reasonable times to the offices, records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the business and affairs, of Company and Columbia and their respective Subsidiaries, as the case may be, (ii) furnish to the other, the other's counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such persons may reasonably request and (iii) instruct the employees, counsel and financial advisors of Company or Columbia, as the case may be, to cooperate with the other in the other's investigation of the business of it and its Subsidiaries. 7.6. Publicity. The initial press release relating to this Agreement shall be a joint press release and thereafter Company and Columbia shall, subject to their respective legal obligations (including requirements of stock exchanges and other similar regulatory bodies), consult with each other, and use reasonable efforts to agree upon the text of any press release, before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto. 7.7. Registration Statement. Columbia and Company shall cooperate and promptly prepare and Columbia shall file with the SEC as soon as practicable a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act, with respect to the Columbia Common Stock issuable in the Merger, a portion of which Registration Statement shall also serve as the joint proxy statement with respect to the meetings of the stockholders of Company and of Columbia in connection with the Merger (the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. Columbia shall use all reasonable efforts, and Company will cooperate with Columbia, to have the Form S-4 declared effective by the SEC as promptly as practicable. Columbia shall use its best efforts to obtain, prior to the effective date of the Form S-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement and will pay all expenses incident thereto. Columbia agrees that the Proxy Statement/Prospectus and each amendment or supplement thereto at the time of mailing thereof and at the time of the respective meetings of stockholders of Company and Columbia, or, in the case of the Form S-4 and each amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a material fact was made by Columbia in reliance upon and in conformity with written information concerning Company furnished to Columbia by Company specifically for use in the Proxy Statement/Prospectus. Company agrees that the written information concerning Company provided by it for inclusion in the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of stockholders of Company and Columbia, or, in the case of written information concerning Company provided by Company for inclusion in the Form S-4 or any amendment or supplement thereto, at the time it is filed or becomes effective, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. No amendment or supplement to the Proxy Statement/Prospectus will be made by Columbia or Company without the approval of the other party. Columbia will advise Company, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Columbia Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. 7.8. Listing Application. Columbia shall promptly prepare and submit to the NYSE a listing application covering the shares of Columbia Common Stock (and associated Rights) issuable in the Merger, and shall use its best efforts to obtain, prior to the Effective Time, approval for the listing of such Columbia Common Stock (and associated Rights), subject to official notice of issuance. 7.9. Further Action. Each party hereto shall, subject to the fulfillment at or before the Effective Time of each of the conditions of performance set forth herein or the waiver thereof, perform such further acts and execute such documents as may be reasonably required to effect the Merger. 7.10. Affiliate letters. (i) At least 30 days prior to the Closing Date, Company shall deliver to Columbia a list of names and addresses of those persons who were, in Company's reasonable judgment, at the record date for its stockholders' meeting to approve the Merger, "affiliates" (each such person, an "Affiliate") of Company within the meaning of Rule 145 of the rules and regulations promulgated under the Securities Act. Company shall provide Columbia such information and documents as Columbia shall reasonably request for purposes of reviewing such list. Company shall use all reasonable efforts to deliver or cause to be delivered to Columbia, prior to the Closing Date, from each of the Affiliates of Company identified in the foregoing list, an Affiliate Letter in the form attached hereto as Exhibit A. Columbia shall be entitled to place legends as specified in such Affiliate letters on the certificates evidencing any Columbia Common Stock to be received by such Affiliates pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the Columbia Common Stock, consistent with the terms of such Affiliate Letters. (ii) At least 30 days prior to the Closing Date, Columbia shall deliver to Company a list of names and addresses of those persons who were, in Columbia's reasonable judgment, at the record date for its stockholders' meeting to approve the issuance of the Columbia Common Stock in the Merger, Affiliates of Columbia. Columbia shall provide Company such information and documents as Company shall reasonably request for purposes of reviewing such list. Columbia shall use all reasonable efforts to deliver or cause to be delivered to Company, prior to the Closing Date, from each of the Affiliates of Columbia identified in the foregoing list, an Affiliate Letter in the form attached hereto as Exhibit B. 7.11. Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses except as expressly provided herein and except that (a) the filing fee in connection with the HSR Act filing, (b) the filing fee in connection with the filing of the Form S-4 or Proxy Statement/Prospectus with the SEC and (c) the expenses incurred in connection with printing and mailing the Form S-4 and the Proxy Statement/Prospectus, shall be shared equally by Company and Columbia. 7.12. Insurance; Indemnity. (al From and after the Effective Time, Columbia shall indemnify, defend and hold harmless to the fullest extent permitted under applicable law each person who is now, or has been at any time prior to the date hereof, an officer, director, employee, trustee or agent of Company (or any Subsidiary or division thereof), including, without limitation, each person controlling any of the foregoing persons (individually, an "Indemnifiied Party" and collectively, the "Indemnified Parties"), against all losses, claims, damages, liabilities, costs or expenses (including attorneys' fees), judgments, fines, penalties and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to acts or omissions, or alleged acts or omissions, by them in their capacities as such, whether commenced, asserted or claimed before or after the Effective Time and including, without limitation, liabilities arising under the Securities Act, the Exchange Act and state corporation laws in connection with the Merger. In the event of any such claim, action, suit, proceeding or investigation (an "Action"), (i) Columbia shall pay the reasonable fees and expenses of counsel selected by the Indemnified Party, which counsel shall be reasonably acceptable to Columbia, in advance of the final disposition of any such Action to the full extent permitted by applicable law, upon receipt of any undertaking required by applicable law, and (ii) the Surviving Corporation will cooperate in the defense of any such matter; provided, however, that Columbia shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld) and provided, further, that Columbia shall not be obligated pursuant to this Section to pay the fees and disbursements of more than one counsel for all Indemnified Parties in any single Action except to the extent that, in the opinion of counsel for the Indemnified Parties, two or more of such Indemnified Parties have conflicting interests in the outcome of such action. (b) Columbia shall cause the Surviving Corporation to keep in effect provisions in its Certificate of Incorporation and Bylaws providing for exculpation of director and officer liability and its indemnification of the Indemnifiied Parties to the fullest extent permitted under the DGGL, which provisions shall not be amended except as required by applicable law or except to make changes permitted by law that would enlarge the Indemnified Parties' right of indemnification. (c) For a period of six years after the Effective Time, Columbia shall cause to be maintained officers' and directors' liability insurance covering the Indemnified Parties who are currently covered, in their capacities as officers and directors, by Company's existing officers' and directors' liability insurance policies on terms substantially no less advantageous to the Indemnified Parties than such existing insurance; provided, however, that Columbia shall not be required in order to maintain or procure such coverage to pay an annual premium in excess of three times the current annual premium paid by Company for its existing coverage (the "Cap"); and provided, further, that if equivalent coverage cannot be obtained, or can be obtained only by paying an annual premium in excess of the Cap, Columbia shall only be required to obtain as much coverage as can be obtained by paying an annual premium equal to the Cap. (d) Columbia shall pay all expenses, including attorneys' fees, that may be incurred by any Indemnified parties in enforcing the indemnity and other obligations provided for in this Section 7.12. (e) The rights of each Indemnified Party hereunder shall be in addition to any other rights Indemnified Party may have under the Certificate of Incorporation or Bylaws of Company, under the DGCL or otherwise. The provisions of this Section shall survive the consummation of the Merger and expressly are intended to benefit each of the Indemnified Parties. 7.13. Restructuring of Merger. Upon the mutual agreement of Columbia and Company, the Merger shall be restructured in the form of a forward subsidiary merger of Company into Merger Sub, with Merger Sub being the surviving corporation, or as a merger of Company into Columbia, with Columbia being the surviving corporation. In such event, this Agreement shall be deemed appropriately modified to reflect such form of merger. 7.14. Rights Agreement. Company shall take all necessary action prior to the Effective Time to cause the dilution provisions of that certain Rights Agreement dated as of July 8, 1993, between Company and First Union National Bank of North Carolina, as Rights Agent, to be inapplicable to the Merger, without any payment to holders of rights issued pursuant to such Rights Agreement. 7.15. Governance. (a) Subject to approval by the stockholders of Columbia of the amendment to Columbia's Certificate of Incorporation referred to in Section 7.3, Columbia's Board of Directors shall take all action necessary to cause the directors comprising the full Board of Directors of Columbia at the Effective Time to be increased by three directors and shall take all such action necessary to cause R. Clayton McWhorter to be elected as a director of Columbia for a term expiring at the third annual meeting of stockholders following the Effective Time, and two other members of the present Board of Directors of Company designated by Company and reasonably acceptable to Columbia to be elected as directors of Columbia for terms expiring at the first and second annual meetings of stockholders following the Effective Time, in order to fill the vacancies resulting from such newly created directorships. If, prior to the Effective Time, any of such persons shall decline or be unable to serve as a director, Company shall designate another person to serve in such person's stead, which person shall be reasonably acceptable to Columbia. (b) Richard L. Scott shall continue to be President and Chief Executive Officer of Columbia at the Effective Time and David T. Vandewater shall continue to be Chief Operating Officer of Columbia at the Effective Time. The Board of Directors of Columbia shall take all necessary action to cause R. Clayton McWhorter to be elected as Chairman of the Board of Columbia and Dr. Thomas F. Frist, Jr. to be elected as Vice Chairman of the Board of Columbia at the Effective Time. Carl F. Pollard shall continue to be Chairman of the Executive Committee of Columbia at the Effective Time. The Board of Directors of Columbia shall take all necessary action to cause R. Clayton McWhorter to be elected to the Executive Committee of Columbia at the Effective Time. 7.16. Pooling; Reorganization. From and after the date hereof and until the Effective Time, neither Columbia nor Company nor any of their respective subsidiaries or other affiliates shall (i) knowingly take any action, or knowingly fail to take any action, that would jeopardize the treatment of the Merger as a "pooling of interests" for accounting purposes; (ii) knowingly take any action, or knowingly fail to take any action, that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code; or (iii) enter into any contract, agreement, commitment or arrangement with respect to either of the foregoing. Following the Effective Time, Columbia shall use its best efforts to conduct its business in a manner that would not jeopardize the characterization of the Merger as a "pooling of interests" for accounting purposes and as a reorganization within the meaning of Section 368(al of the Code. 7.17. Employee Benefit Plans. As of the Closing Date, Company shall take, or cause to be taken, all such action as may be necessary to effect the cessation of active participation of employees in the Company Benefit Plans and the future accrual of benefits thereunder. With respect to Company's retirement plans, Company and Columbia shall mutually agree as to the future disposition of such plans and their assets. After the Effective Time Columbia shall provide benefits to employees of Company and its Subsidiaries which are substantially similar to the benefits provided to similarly situated employees of Columbia and its Subsidiaries. With respect to the Columbia Benefit Plans, Columbia shall grant all employees of Company and its Subsidiaries who become participants in such plans after the Closing Date credit for all service with the Company and its Subsidiaries and their respective predecessors prior to the Closing Date for all purposes for which such service was recognized by Company. To the extent the Columbia Benefit Plans provide medical or dental welfare benefits after the Closing Date, Columbia shall cause all pre-existing condition exclusions and actively at work requirements to be waived and Columbia shall provide that any expenses incurred on or before the Closing Date shall be taken into account under the Columbia Benefit Plans for purposes of satisfying the applicable deductible, coinsurance and maximum out of pocket provisions for such employees and their covered dependents. ARTICLE 8 8. Conditions. 8.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) This Agreement and the transactions contemplated hereby shall have been approved in the manner required by applicable law or by the applicable regulations of any stock exchange or other regulatory body, as the case may be, by the holders of the issued and outstanding shares of capital stock of Company and Columbia, respectively. (b) The waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (c) Neither of the parties hereto shall be subject to any order or injunction of a court of competent jurisdiction which prohibits the consummation of the transactions contemplated by this Agreement. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. (d) The Form S-4 shall have become effective and shall be effective at the Effective Time, and no stop order suspending effectiveness of the Form S-4 shall have been issued, no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been initiated and be continuing, and all necessary approvals under state securities laws relating to the issuance or trading of the Columbia Common Stock to be issued to Company stockholders in connection with the Merger shall have been received. (e) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board or other regulatory body required in connection with the execution, delivery and performance of this Agreement shall have been obtained or made, except for filings in connection with the Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a material adverse effect on the business of Columbia and Company (and their respective Subsidiaries), taken as a whole, following the Effective Time. (f) Columbia and Company shall each have received from Ernst & Young an opinion that the Merger will be treated as a "pooling of interests" under applicable accounting standards. (g) The Columbia Common Stock to be issued to Company stockholders in connection with the Merger shall have been approved for listing on the NYSE, subject only to official notice of issuance. 8.2. Conditions to Obligation of Company to Effect the Merger. The obligation of Company to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) Columbia shall have performed in all material respects its agreements contained in this Agreement required to be performed on or prior to the Closing Date, the representations and warranties of Columbia and Merger Sub contained in this Agreement and in any document delivered in connection herewith shall be true and correct as of the Closing Date, and Company shall have received a certificate of the President or a Vice President of Columbia, dated the Closing Date, certifying to such effect; provided however, that notwithstanding anything herein to the contrary, this Section 8.2(a) shall be deemed to have been satisfied even if such representations or warranties are not true and correct, unless the failure of any of the representations or warranties to be so true and correct would have or would be reasonably likely to have a Columbia Material Adverse Effect. (b) Company shall have received the opinion of Dewey Ballantine, special counsel to Company, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that Company and Columbia will each be a party to that reorganization within the meaning of Section 368(b) of the Code. (c) Company shall have received a "comfort" letter from Ernst & Young, of the kind contemplated by the Statement of Auditing Standards with respect to Letters to Underwriters promulgated by the American Institute of Certified Public Accountants (the "AICPA Statement"), dated the Closing Date, in form and substance reasonably satisfactory to Company, in connection with the procedures undertaken by them with respect to the financial statements of Columbia and its Subsidiaries contained in the Form S-4 and the other matters contemplated by the AICPA Statement and customarily included in comfort letters relating to transactions similar to the Merger. (d) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business, operations or prospects of Columbia and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have a Columbia Material Adverse Effect, other than as a result of changes in conditions, including economic or political developments, applicable to the health care industry generally. 8.3. Conditions to Obligation of Columbia and Merger Sub to Effect the Merger. The obligations of Columbia and Merger Sub to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) Company shall have performed in all material respects its agreements contained in this Agreement required to be performed on or prior to the Closing Date, the representations and warranties of Company contained in this Agreement and in any document delivered in connection herewith shall be true and correct as of the Closing Date, and Columbia shall have received a certificate of the President or a Vice President of Company, dated the Closing Date, certifying to such effect; provided, however, that notwithstanding anything herein to the contrary, this Section 8.3(a) shall be deemed to have been satisfied even if such representations or warranties are not true and correct, unless the failure of any of the representations or warranties to be so true and correct would have or would be reasonably likely to have a Company Material Adverse Effect. (b) Columbia shall have received the opinion of Fried, Frank, Harris, Shriver & Jacobson, special counsel to Columbia, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that Company and Columbia will each be a party to that reorganization within the meaning of Section 368(b) of the Code. (c) Columbia shall have received a "comfort" letter from Ernst & Young, of the kind contemplated by the AICPA Statement, dated the Closing Date, in form and substance reasonably satisfactory to Columbia, in connection with the procedures undertaken by them with respect to the financial statements and other financial information of Company and its Subsidiaries contained in the Form S-4 and the other matters contemplated by the AICPA Statement and customarily included in comfort letters relating to transactions similar to the Merger. (d) From the date of this Agreement through the Effective Time, there shall not have occurred any change in the financial condition, business, operations or prospects of Company and its Subsidiaries, taken as a whole, that would have or would be reasonably likely to have a Company Material Adverse Effect, other than as a result of changes in conditions, including economic or political developments, applicable to the health care industry generally. ARTICLE 9 9. Termination. 9.1. Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval of this Agreement by the stockholders of Company, by the mutual consent of Columbia and Company. 9.2. Termination by Either Columbia or Company. This Agreement may be terminated and the Merger may be abandoned by action of the Board of Directors of either Columbia or Company if (a) the Merger shall not have been consummated by May 31, 1995, or (b) the approval of Company's stockholders required by Section 8.1(a) shall not have been obtained at a meeting duly convened therefor or at any adjournment thereof, or (c) the approval of Columbia's stockholders required by Section 8.1(a) shall not have been obtained at a meeting duly convened therefor or at any adjournment thereof, or (d) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable; provided, that the party seeking to terminate this Agreement pursuant to this clause (d) shall have used all reasonable efforts to remove such injunction, order or decree; and provided, in the case of a termination pursuant to clause (a) above, that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the failure to consummate the Merger by May 31, 1995. 9.3. Termination by Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption and approval by the stockholders of Company referred to in Section 8.1(a), by action of the Board of Directors of Company, if (a) in the exercise of its good faith judgment as to fiduciary duties to its stockholders imposed by law, the Board of Directors of Company determines that such termination is required by reason of an Alternative Proposal being made, or (b) there has been a breach by Columbia or Merger Sub of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Columbia Material Adverse Effect, or (c) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of Columbia, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Company to Columbia. 9.4. Termination by Columbia. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval by the stockholders of Columbia referred to in Section 8.1(a), by action of the Board of Directors of Columbia, if (a) the Board of Directors of Company shall have withdrawn or modified in a manner materially adverse to Columbia its approval or recommendation of this Agreement or the Merger or shall have recommended an Alternative Proposal to Company stockholders, or (b) there has been a breach by Company of any representation or warranty contained in this Agreement which would have or would be reasonably likely to have a Company Material Adverse Effect, or (c) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of Company, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Columbia to Company. 9.5. Effect of Termination and Abandonment. (a) In the event that any person shall have made an Alternative Proposal for Company and thereafter this Agreement is terminated by either party (other than pursuant to the breach of this Agreement by Columbia), then Company shall promptly, but in no event later than two days after such termination, pay Columbia a fee of $100,000,000, which amount shall be payable by wire transfer of same day funds. Company acknowledges that the agreements contained in this Section 9.5(a) are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Columbia and Merger Sub would not enter into this Agreement; accordingly, if Company fails to promptly pay the amount due pursuant to this Section 9.5(a), and, in order to obtain such payment, Columbia or Merger Sub commences a suit which results in a judgment against Company for the fee set forth in this Section 9.5(a), Company shall pay to Columbia its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the rate of 12% per annum. (b) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article 9, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 9.5 and Section 7.11 and except for the provisions of Sections 10.3, 10.4, 10.6, 10.8, 10.9, 10.12, 10.13 and 10.14. Moreover, in the event of termination of this Agreement pursuant to Section 9.3 or 9.4, nothing herein shall prejudice the ability of the non breaching party from seeking damages from any other party for any breach of this Agreement, including without limitation, attorneys' fees and the right to pursue any remedy at law or in equity; and provided further, that in the event Columbia has received the fee payable under Section 9.5(a) hereof, it shall not (i) assert or pursue in any manner, directly or indirectly, any claim or cause of action based in whole or in part upon alleged tortious or other interference with rights under this Agreement against any entity or person submitting an Alternative Proposal or (ii) assert or pursue in any manner, directly or indirectly, any claim or cause of action against Company or any of its officers or directors based in whole or in part upon its or their receipt, consideration, recommendation, or approval of an Alternative Proposal. 9.6. Extension; Waiver. At any time prior to the Effective Time, any party hereto, by action taken by its Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE 10 10. General Provisions 10.1. Nonsurvival of Representations, Warranties and Agreements. All representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall be deemed to the extent expressly provided herein to be conditions to the Merger and shall not survive the Merger, provided, however, that the agreements contained in Article 4, Sections 7.12, 7.15, 7.16 and 7.17 and this Article 10 and the agreements delivered pursuant to this Agreement shall survive the Merger. 10.2. Notices. Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first class postage prepaid), addressed as follows: If to Columbia or Merger Sub: If to Company: Richard L. Scott R. Clayton McWhorter President and Chairman of the Board, Chief Executive Officer Chief Executive Officer and President Columbia/HCA Healthcare Healthtrust, Inc. - The Corporation Hospital Company 201 West Main Street 4525 Harding Road Louisville, KY 40202 Nashville, Tennessee 37205 Facsimile: (502) 572-2161 Facsimile: (615) 298-6122 With copies to: With copies to: Mr. Stephen T. Braun Mr. Philip Wheeler Senior Vice President Senior Vice President and General Counsel and General Counsel Columbia/HCA Healthcare Healthtrust, Inc. - The Hospital Corporation Company 201 West Main Street 4525 Harding Road Louisville, KY 40201-7433 Nashville, Tennessee 37205 Facsimile: (502) 572-2163 Facsimile: (615) 298-6122 Jeffrey Bagner Morton A. Pierce Fried, Frank, Harris, Dewey Ballantine Shriver & Jacobson 1301 Avenue of the Americas One New York Plaza New York, New York 10019 New York, New York 10004 Facsimile: (212) 259-6333 Facsimile: (212) 820-8586 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. 10.3. Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except for the provisions of Article 4 and Sections 3.1, 7.12, 7.15 and 7.16 nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 10.4. Entire Agreement. This Agreement, the Exhibits, the Company Disclosure Letter, the Columbia Disclosure Letter, the Confidentiality Agreement dated May 18, 1994, between Company and Columbia and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 10.5. Amendment. This Agreement may be amended by the parties hereto, by action taken by their respective Boards of Directors, at any time before or after approval of matters presented in connection with the Merger by the stockholders of Company and Columbia, but after any such stockholder approval, no amendment shall be made which by law requires the further approval of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 10.6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its rules of conflict of laws. Each of Company and Columbia hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Delaware and of the United States of America located in the State of Delaware (the "Delaware Courts") for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the Delaware Courts and agrees not to plead or claim in any Delaware Court that such litigation brought therein has been brought in an inconvenient forum. 10.7. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 10.8. Headings. Headings of the Articles and Sections of this Agreement are for the convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever. 10.9. Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations and partnerships and vice versa. 10.10. Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. 10.11. Incorporation of Exhibits. The Company Disclosure Letter, the Columbia Disclosure Letter and all Exhibits attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. 10.12. Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 10.13. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Delaware Court, this being in addition to any other remedy to which they are entitled at law or in equity. 10.14. Subsidiaries. As used in this Agreement, the word "Subsidiary" when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, or any organization of which such party is a general partner. When a reference is made in this Agreement to Significant Subsidiaries, the words "Significant Subsidiaries" shall refer to Subsidiaries (as defined above) which constitute "significant subsidiaries" under Rule 405 promulgated by the SEC under the Securities Act. IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. COLUMBIA/HCA HEALTHCARE CORPORATION By: s/Richard L. Scott Richard L. Scott President and Chief Executive Officer ATTEST: By: s/Stephen T. Braun Stephen T. Braun Secretary COL ACQUISITION CORPORATION By: s/Richard L. Scott Richard L. Scott President ATTEST: By: s/Stephen T. Braun Stephen T. Braun Secretary HEALTHTRUST, INC. - THE HOSPITAL COMPANY By: s/R. Clayton McWhorter R. Clayton McWhorter Chairman of the Board, Chief Executive Officer and President ATTEST: By: s/Philip D. Wheeler EXHIBIT A FORM OF AFFILIATE LETTER Columbia/HCA Healthcare Corporation 201 West Main Street Louisville, Kentucky 40202 Ladies and Gentlemen: I have been advised that as of the date of this letter I may be deemed to be an "affiliate" of [Company], a Delaware corporation ("Company"), as the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), or (ii) used in and for purposes of Accounting Series, Releases 130 and 135, as amended, of the Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as of October 4, 1994 (the "Agreement"), between Columbia/HCA Healthcare Corporation, a Delaware corporation ("Columbia"), COL Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Columbia ("Merger Sub"), and Company, Merger Sub will be merged with and into Company (the "Merger"). As a result of the Merger, I may receive shares of Common Stock, par value $.01 per share, of Columbia (the "Columbia Securities") in exchange for shares owned by me of Common Stock, par value $.001 per share, of Company. I represent, warrant and covenant to Columbia that in the event I receive any Columbia Securities as a result of the Merger: A. I shall not make any sale, transfer or other disposition of the Columbia Securities in violation of the Act or the Rules and Regulations. B. I have carefully read this letter and the Agreement and discussed the requirements of such documents and other applicable limitations upon my ability to sell, transfer or otherwise dispose of the Columbia Securities to the extent I felt necessary, with my counsel or counsel for Company. C. I have been advised that the issuance of Columbia Securities to me pursuant to the Merger has been registered with the Commission under the Act on a Registration Statement on Form S-4. However, I have also been advised that, since at the time the Merger was submitted for a vote of the stockholders of Company, I may be deemed to have been an affiliate of Company and the distribution by me of the Columbia Securities has not been registered under the Act, I may not sell, transfer or otherwise dispose of the Columbia Securities issued to me in the Merger unless (i) such sale, transfer or other disposition has been registered under the Act, (ii) such sale, transfer or other disposition is made in conformity with Rule 145 promulgated by the Commission under the Act, or (iii) in the opinion of counsel reasonably acceptable to Columbia, or pursuant to a "no action" letter obtained by the undersigned from the staff of the Commission, such sale, transfer or other disposition is otherwise exempt from registration under the Act. D. I understand that Columbia is under no obligation to register the sale, transfer or other disposition of the Columbia Securities by me or on my behalf under the Act or to take any other action necessary in order to make compliance with an exemption from such registration available. E. I also understand that stop transfer instructions will be given to Columbia's transfer agents with respect to the Columbia Securities and that there will be placed on the certificates for the Columbia Securities issued to me, or any substitutions therefor, a legend stating in substance: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED BETWEEN THE REGISTERED HOLDER HEREOF AND COLUMBIA/HCA HEALTHCARE CORPORATION, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF COLUMBIA/HCA HEALTHCARE CORPORATION " F. I also understand that unless the transfer by me of my Columbia Securities has been registered under the Act or is a sale made in conformity with the provisions of Rule 145, Columbia reserves the right to put the following legend on the certificates issued to my transferee: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." It is understood and agreed that the legends set forth in paragraphs E and F above shall be removed by delivery of substitute certificates without such legend if such legend is not required for purposes of the Act or this Agreement. It is understood and agreed that such legends and the stop orders referred to above will be removed if (i) two years shall have elapsed from the date the undersigned acquired the Columbia Securities received in the Merger and the provisions of Rule 145(d)(2) are then available to the undersigned, (ii) three years shall have elapsed from the date the undersigned acquired the Columbia Securities received in the Merger and the provisions of Rule 145(d)(3) are then available to the undersigned, or (iii) Columbia has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Columbia, or a "no action" letter obtained by the undersigned from the staff of the Commission, to the effect that the restrictions imposed by Rule 145 under the Act no longer apply to the undersigned. I further represent to and covenant with Columbia that I will not sell, transfer or otherwise dispose of any Columbia Securities received by me in the Merger or any other shares of the capital stock of Columbia until after such time as results covering at least 30 days of combined operations of Company and Columbia have been published by Columbia, in the form of a quarterly earnings report, an effective registration statement filed the Commission, a report to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing or announcement which includes such combined results of operations. Columbia shall notify the "affiliates" of the publication of such results. Notwithstanding the foregoing, I understand that I will not be prohibited from selling up to 10% of the Columbia Securities received by me in the Merger during the aforementioned period. Execution of this letter should not be considered an admission on my part that I am an "affiliate" of Company as described in the first paragraph of this letter or as a waiver of any rights I may have to object to any claim that I am such an affiliate on or after the date of this letter. Very truly yours, Name: Accepted this day of , 199_ by COLUMBIA/HCA HEALTHCARE CORPORATION By: Name: Title: EXHIBIT B FORM OF AFFILIATE LETTER Columbia/HCA Healthcare Corporation 201 West Main Street Louisville, Kentucky 40202 Ladies and Gentlemen: I have been advised that as of the date of this letter I may be deemed to be an "affiliate" of Columbia/HCA Healthcare Corporation, a Delaware corporation ("Columbia"), as the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), or (ii) used in and for purposes of Accounting Series, Releases 130 and 135, as amended, of the Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as of October 4, 1994 (the "Agreement"), between Columbia, COL Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Columbia ("Merger Sub"), [Company], a Delaware corporation ("Company"), Merger Sub will be merged with and into Company (the "Merger"). I represent to and covenant with Company that I will not sell, transfer or otherwise dispose of any shares of Common Stock, par value $.01 per share, of Columbia ("Columbia Common Stock") that I may hold until after such time as results covering at least 30 days of combined operations of Company and Columbia have been published by Columbia, in the form of a quarterly earnings report, an effective registration statement filed with the commission, a report to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing or announcement which includes such combined results of operations. Notwithstanding the foregoing, I understand that I will not be prohibited from selling up to 10% of the Columbia Common Stock held by me at the time of the Merger during the aforementioned period. Execution of this letter should not be considered an admission on my part that I am an "affiliate" of Columbia as described in the first paragraph of this letter, or as a waiver of any rights I may have to object to any claim that I am such an affiliate on or after the date of this letter. Very truly yours, Name: Accepted this day of , 199_ by Company By: Name: Title: EX-2 3 BYLAWS OF HEALTHTRUST, INC. - THE HOSPITAL COMPANY (hereinafter called the "Corporation") ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. In the absence of any such designation, stockholders' meeting shall be held at 4525 Harding Road, in the City of Nashville, State of Tennessee. Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect, in accordance with the Certificate of Incorporation as amended or restated from time to time, by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. Special Meetings. Unless otherwise prescribed by law or by the Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Chairman, (ii) the President, (iii) any Vice President, (iv) the Secretary or (v) any Assistant Secretary and shall be called by any such officer at the request in writing of a majority of the Board of Directors or at the request in writing by one or more stockholders holding not less than one-fifth (1/5) of any class of equity securities of the Corporation. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 4. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Section 5. Voting. Unless otherwise required by law, the certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Unless otherwise required by law or the Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years form its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stock holders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 6. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without proper notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 7. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make available, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 8. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. ARTICLE III DIRECTORS Section 1. Number and Election of Directors. The number of directors which shall constitute the whole Board shall be fixed by the Certificate of Incorporation. Subject to the Certificate of Incorporation as amended or restated from time to time, except as provided in Section 2 of this Article, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting for the year in which his term expires in accordance with the terms of the Certificate of Incorporation as amended or restated from time to time, and until his successor is duly elected and qualified, or until his earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. Section 2. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may filled, in accordance with the Certificate of Incorporation as amended or restated from time to time, and the directors so chosen shall hold office until the next annual election for the year in which his term expires, or such earlier time, in accordance with the terms of the Certificate of Incorporation as amended or restated from time to time, and until their successors are duly elected and qualified, or until their earlier resignation or removal. Section 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, the President or any director. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 5. Quorum. Except as may be otherwise specifically proved by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of the Board. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, be resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation of the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. The Executive Committee shall have and may exercise all the powers and authority of the Board of Directors during the intervals between the meetings of the Board of Directors, including the power and authority to declare a dividend and to authorize the issuance of stock options and stock, subject only to such limitations as may be provided by applicable law, these bylaws, or resolutions of the Board of Directors. A majority of the members of the Executive Committee shall constitute a quorum. Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as 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 compensation for attending committee meetings. Section 10. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors of officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorized the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors may be less than a quorum; (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director) and one or more Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice-President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, be resolution, from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors. He shall be the Chief Executive Officer of the Corporation, and except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors. Section 5. President. The President shall, subject to the control of the Board of Directors and the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, the President shall preside at all meetings of the stockholders and the Board od Directors. If there be no Chairman of the Board of Directors, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors. Section 6. Vice-Presidents. At the request of the President or in his absence or in the event of his inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice-President or the Vice-Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice-President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice-President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attests the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 9. Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, the Vice-President, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as form time to time may be assigned to them by the Board of Directors, the President, any Vice-President, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 11. Other Officers. Such other officers as of the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE V STOCK Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Signatures. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to 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, stolen or destroyed. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable. Section 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property or in shares of the capital stock of the Corporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 4. Corporation Seal. The Corporation shall have no seal, and any instruments or documents upon which a seal might be imprinted will have the same legal efficacy as if there were a corporate seal imprinted thereon, as executed by duly authorized officers of the Corporation. ARTICLE VIII INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, 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, suit or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or 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 action, suit or 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 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, 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 is or was a director, officer, employee or agent of the Corporation, or is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise 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 of Chancery sitting in the State of Delaware or 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 of Chancery sitting in the State of Delaware or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, 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, (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or (iii) by the stockholders. To the extent, however, that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in 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 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, 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 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 in this Section 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 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 1 or 2 of this Article VIII, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director, officer, employee or agent may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director, officer, employee or agent seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director, officer, employee or agent seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. Section 6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any provision of the Certificate of Incorporation or any Bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligations to indemnify him against such liability under the provisions of this Article VIII. Section 9. Certain Definitions. For purposes of this Article VIII, 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, officers, employees or agents, so that any person who is or was a director, officer, employee or agent 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 VIII 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 VIII, 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, officer, employee or agent 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 VIII. Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE IX AMENDMENTS Section 1. These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by the stockholders or by the Board of Directors; provided, however, that notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. Section 2. Entire Board of Directors. As used in this Article IX and in these Bylaws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. AMENDMENT TO THE BYLAWS OF Healthtrust, Inc. - The Hospital Company I. Delete in its entirety Article IV, Section 1 entitled, "General," and substitute in lieu thereof the following: The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of directors (who must be a director) and one or more Vice-Presidents, (one or more of whom may be designated as Senior Vice-President), Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. II. Delete in its entirety Article IV, Section 6 entitled "Vice-Presidents," and substitute in lieu thereof the following: At the request of the President or in his absence or in the event of his inability or refusal to act (and if there be no Chairman of the Board of Directors), the Senior Vice-President or the Senior Vice-Presidents if there is more than one, or the Vice-President or the Vice-Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice-President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors, no Senior Vice-President, and no Vice-President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. III. This Amendment is effective October 10, 1990. IV. In all other respects, said Bylaws are ratified. AMENDMENT TO THE BYLAWS OF HEALTHTRUST, INC. - THE HOSPITAL COMPANY I. Add to the end of Section I, Article III entitled "Number and Election of Directors" the following sentences: "No person who shall have attained the age of 72 years shall be eligible for election as a Director of the Corporation. Any person elected a Director prior to age 72 shall retire at the next Annual Meeting of the Shareholders after attaining that age, provided, however, that any person serving as a Director on the date of the adoption of this Bylaw provision shall be entitled to serve out the remainder of his term." II. This Amendment is effective April 10, 1992. III. In all other respects, said Bylaws are ratified. AMENDMENT TO THE BYLAWS OF HEALTHTRUST, INC. - THE HOSPITAL COMPANY I. Amend the last two sentences of Section 1, Article III entitled "Number and Election of Directors" to read as follows: No person who shall have attained the age of 72 years shall be eligible for election as a Director of the Corporation. Any person elected a Director prior to age 72 shall retire at the next Annual Meeting of the Shareholders after attaining that age, provided, however, than any person serving as a Director on April 10, 1992 shall not be subject to any such age limitation contained in these Bylaws. II. This Amendment is effective November 1, 1994. III. In all other respects, said Bylaws are ratified. EX-3 4 [EXECUTION COPY] SUBSIDIARY GUARANTY THIS SUBSIDIARY GUARANTY AGREEMENT (this "Guaranty"), dated as of April 28, 1994, made by each of the undersigned Subsidiaries (as defined below) of HEALTHTRUST, INC. - THE HOSPITAL COMPANY, a Delaware corporation (the "Company") and any Subsidiary of the Company that after the date hereof executes an acknowledgment to this Guaranty substantially in the form of Exhibit A hereto (each such undersigned and other Subsidiary being referred to individually as a "Guarantor" and collectively as the "Guarantors"), in favor of and for the benefit of THE BANK OF NOVA SCOTIA ("Scotiabank"), as collateral agent for and representative of the Guarantied Parties (as defined below) (in such capacity, together with any successor, or other representative for the Guarantied Parties being collectively referred to herein as the "Collateral Agent"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement referred to below. W I T N E S S E T H WHEREAS each Guarantor is a direct or indirect wholly-owned Subsidiary (other than a JV Subsidiary) of the Company; and WHEREAS, the Company has heretofore entered into a certain Credit Agreement, dated as of September 29, 1992 (as amended, modified or amended and restated or otherwise modified to the date hereof, the "1992 Credit Agreement") with the financial institutions parties thereto, Scotiabank, ABN AMRO Bank N.V., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, N.A., Citibank, N.A., Continental Bank N.A., Deutsche Bank A.G., New York Branch, LTCB Trust Company, Swiss Bank Corporation, and The Toronto-Dominion Bank, as co-agents and Scotiabank, as administrative agent for the lenders; and WHEREAS, pursuant to a Credit Agreement, dated as of April 28, 1994 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Company, the various financial institutions (individually a "Lender" and collectively the "Lenders") as are, or may from time to time become, parties thereto, Scotiabank and ABN AMRO Bank, N.V., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, N.A., Chemical Bank, Citicorp USA, Inc., Continental Bank N.A., Deutsche Bank AG, New York Branch, First Union National Bank of North Carolina, General Electric Capital Corporation, The Industrial Bank of Japan, Limited, New York Branch, The Long-Term Credit Bank of Japan, Limited, New York Branch, NationsBank of Tennessee, N.A., Swiss Bank Corporation, San Francisco Branch, Third National Bank in Nashville, and The Toronto-Dominion Bank, as co-agents, and Scotiabank, as administrative agent, the Lenders have agreed to refinance all amounts outstanding or otherwise due under the 1992 Credit Agreement and have extended commitments to make Credit Extensions to the Company; and WHEREAS, the Company has and may hereafter from time to time enter into arrangements designed to protect the Company against fluctuations in interest rates (such arrangements (if any) which are entered into with one or more Lenders or which have been entered into with one or more lenders under the 1992 Credit Agreement (collectively, the "Interest Rate Exchangers", and together with the Lenders, collectively, the "Guarantied Parties") being collectively referred to herein as the "Interest Rate Aqreements"); and WHEREAS, as a condition precedent to the making of the initial Credit Extensions under the Credit Agreement, each Guarantor is required to execute and deliver this Guaranty; and WHEREAS, each Guarantor has duly authorized the execution, delivery and performance of this Guaranty; and WHEREAS, each Guarantor will derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Company pursuant to the Credit Agreement and the entering into of Interest Rate Agreements with Interest Rate Exchangers, which benefits are hereby acknowledged, and each Guarantor, accordingly, desires to enter into this Guaranty in order to satisfy the condition precedent described in the foregoing recital; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Guarantor hereby agrees as follows: A G R E E M E N T : Guarantors hereby, jointly and severally, unconditionally and irrevocably guarantee as primary obligors and not merely as sureties the prompt payment in full when due, whether at stated maturity, by acceleration, demand or otherwise (including, without limitation, obligations that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. 362(a)) (a) to the Lenders, of Obligations of the Company and (b) to each Interest Rate Exchanger, if any, of all obligations of the Company owing to such Interest Rate Exchanger under any Interest Rate Agreement whether, in the case of clauses (a) and (b), now existing or hereafter arising, whether, in each case, for principal, premium, interest (including, without limitation, interest that, but for the filing of a petition in bankruptcy with respect to the Company would accrue on such obligations, whether or not a claim is allowed against the Company for interest in any such proceeding), payments for early termination, fees, expenses or otherwise (all such liabilities and obligations described in the foregoing clauses (a) and (b) being the "Guarantied Obligations" provided, however, that the guarantee made under this Guaranty shall be effective as to (i) any obligations refinancing all or any portion of the Obligations under the Credit Agreement only if the holders of such obligations or their representative shall have executed an acknowledgment to this Guaranty substantially in the form of Exhibit C hereto acknowledged by each Guarantor, (ii) any Interest Rate Obligations only if the Interest Rate Exchanger to whom such Interest Rate Obligations are owed shall have executed and delivered an acknowledgment to this Guaranty substantially in the form of Exhibit C hereto acknowledged by each Guarantor and (iii) EPIC and its Subsidiaries only from and after the 90th day following the Closing Date. Anything contained in this Guaranty to the contrary notwithstanding if the transactions contemplated hereby would be usurious under applicable law, then, in that event, it is agreed that the aggregate of all that is taken, reserved, contracted for, charged or received under this Guaranty shall under no circumstances exceed the maximum amount of interest allowed by applicable law. If under any circumstances the Guarantied Parties should ever receive as interest an amount that would exceed the highest lawful rate, then such amount that would be excessive interest shall be applied to the reduction of the principal amount owing under the Credit Agreement and not to the payment of interest. In addition, the liability of each Guarantor under this Guaranty shall not exceed the greater of (a) the net value of the benefits realized by such Guarantor (including the value of the benefits realized by the subsidiaries of such Guarantor) as of the Ending Date (as defined in Exhibit B hereto) from Credit Extensions and (b) the Maximum Guaranty Amount (as defined in Exhibit B hereto) for such Guarantor determined as of the Ending Date (such limitation being the "Net Worth Cap"). Each Guarantor agrees that the Guarantied Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, that such Guarantor will remain bound upon this Guaranty notwithstanding any extension, renewal or other alteration of any Guarantied Obligation and that the guaranty herein made shall apply to the Guarantied Obligations as so amended, renewed or altered. Each Guarantor waives notice of acceptance of this Guaranty and notice of any liability to which it may apply, and waives presentation of, demand of, and protest of any of the Guarantied Obligations and also waives notice of protest for nonpayment. The obligations of each Guarantor under this Guaranty are absolute and unconditional and shall not be impaired by: (a) the failure of any Guarantied Party to assert any claim or demand or to enforce any right or remedy against the Company under the provisions of the Credit Agreement, any other Loan Document or any other agreement or otherwise; (b) any extension, renewal or other alteration of any provision thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of the Credit Agreement, any other Loan Document or any instrument or agreement executed pursuant thereto; (d) the Guarantied Obligations, or any agreement relating thereto at any time being found to be illegal, invalid or unenforceable in any respect; (e) the failure of any Guarantied Party to exercise any right or remedy against any other guarantor of any of the Guarantied Obligations; (f) the sale, exchange, release, surrender, realization upon, failure to perfect with respect to or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the Guarantied Obligations or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof or any offset there-against; (g) the settlement or compromise of any of the Guarantied Obligations, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, or any subordination of the payment of all or any part thereof to the payment of any liability (whether due or not) of the Company to creditors of the Company other than Guarantied Parties and Guarantors; (h) application of any sums by whomsoever paid or h~wsoever realized to any liability or liabilities of the Company to the Guarantied Parties regardless of what liability or liabilities of the Company remain unpaid; or (i) the act or failure to act in any manner referred to in this Guaranty which may deprive any Guarantor of its right to subrogation against the Company to recover full indemnity for any payments made pursuant to this Guaranty. Each Guarantor further agrees that this Guaranty constitutes a guaranty of payment when due and not of collection and waives any right to require that any resort be had by any Guarantied Party to any of the security held for payment of any of the Guarantied Obligations or to any balance of any deposit account or credit on the books of any Guarantied Party in favor of the Company or any other Person. Except as expressly limited by the second paragraph of this Guaranty and the Net Worth Cap, the obligations of each Guarantor under this Guaranty shall not be subject to any reduction, limitation, impairment, or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise of any of the Guarantied Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Guarantied Obligations or any discharge of the Company from any of the Guarantied Obligations in a bankruptcy or similar proceeding or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor under this Guaranty shall not be discharged or impaired or otherwise affected by the failure of any Guarantied Party to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document, or any other agreement, by any waiver or modification of any thereof, by any default, waiver or delay, or by any other act or thing or omission or delay to do any other act or thing that may or might in any manner or to any extent vary the risk of any Guarantor or that would otherwise operate as a discharge of any Guarantor as a matter of law or equity. Each Guarantor assumes all responsibility for being and keeping itself informed of the condition (financial or otherwise) and assets of the Company and its Subsidiaries, and of all other circumstances bearing upon the risk of nonpayment of the indebtedness and the nature, scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that no Guarantied Party shall have any duty to advise Guarantor of information known to any of them regarding such circumstances or rlsks. Each Guarantor further agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment, or any part thereof, of principal of, interest on or any other amount with respect to any Guarantied Obligations is rescinded or must otherwise be restored by any Guarantied Party upon the bankruptcy or reorganization of the Company, any other Person or otherwise. Each Guarantor further agrees, in furtherance of the foregoing and not in limitation of any other right that any Guarantied Party may have at law or in equity against such Guarantor by virtue hereof, upon the failure of the Company to pay any of the Guarantied Obligations when and as the same shall become due, whether by required prepayment, declaration or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. 362(a)), such Guarantor will, subject to the second paragraph of this Guaranty and to the Net Worth Cap, forthwith pay, or cause to be paid, in cash, to Collateral Agent for the ratable benefit of Guarantied Parties, an amount equal to the sum of the unpaid principal amount of such Guarantied Obligations then due as aforesaid, accrued and unpaid interest on sucn Guarantied Obligations (including, without limitation, interest that, but for the filing of a petition in bankruptcy with respect to the Company, would have accrued on such Guarantied Obligations, whether or not a claim is allowed against the Company for such interest in any such bankruptcy proceeding) and all other Guarantied Obligations then owed to Guarantied Parties as aforesaid. All such payments shall be applied promptly, from time to time, by Collateral Agent: first, to the payment of the costs and expenses of any collection or other realization under this Guaranty, including reasonable compensation to Collateral Agent as it may be entitled thereto under the tenms of the Loan Documents and its agents and counsel, and all reasonable expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith; second, after payment in full of the amounts specified in the preceding subparagraph, to the ratable payment of all other Guarantied Obligations; and third, after payment in full of all Guarantied Obligations, to such Guarantor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such payments. Each Guarantor further agrees that any rights of subrogation such Guarantor may have against the Company or against any collateral or security, and any rights of contribution such Guarantor may have against the Company or against any collateral or security, and any rights of contribution such Guarantor may ha~e against any other guarantor, shall be junior and subordinate to any rights any Guarantied Party may have against the Company, to all right, title and interest any Guarantied Party may have in any such collateral or security, and to any right any Guarantied Party may have against such other guarantor. Collateral Agent, on behalf of Guarantied Parties, may use, sell or dispose of any item of collateral or security as it sees fit without regard to any surrogation rights arising out of this Guaranty such Guarantor may have, and upon any such disposition or sale any rights of subrogation such Guarantor may have shall terminate. If any amount shall be paid to such Guarantor on account of such subrogation rights at any time when all Guarantied Obligations shall not have been paid in full, such amount shall be held in trust for Collateral Agent on behalf of Guarantied Parties and shall forthwith be paid over to Collateral Agent for the benefit of Guarantied Parties to be credited and applied against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement or any applicable Loan Document. No delay or omission by any Guarantied Party in the exercise of any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise of any other right. Anything contained in this Guaranty to the contrary notwithstanding, no Guarantied Party shall be entitled to take any action whatsoever to enforce any term or provision of this Guaranty except through the Collateral Agent in accordance with the terms of the Credit Aqreement. No amendment, modification or waiver to this Guaranty shall be binding (i) on the Collateral Agent without the written consent of the Collateral Agent or (ii) on any Guarantor without the written consent of such Guarantor. No waiver of any single breach or default under this Guaranty shall be deemed a waiver of any other breach or default. This Guaranty is a continuing guaranty and shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of Guarantied Parties and, in the event of any transfer or assignment of rights by any Guarantied Party, the rights and privileges herein conferred upon that Guarantied Party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof; provided, that if (a) a Permitted Disposition occurs and the assets subject to such Permitted Disposition are Securities owned by the Company in a Guarantor and, after giving effect to such Permitted Disposition, such Guarantor ceases to be a Subsidiary of the Company, (b) the corporate existence of a Guarantor is terminated in accordance with the Credit Agreement or (c) a Guarantor becomes a JV Subsidiary, then in the case of clauses (a), (b) and (c), the obligations of any such Guarantor under this Guaranty shall be deemed terminated upon the occurrence of such Permitted Disposition or termination or upon the occasion of such Guarantor becoming a JV Subsidiary, as the case may be. Upon the termination of the obligation of any Guarantor under this Guaranty, in accordance with the provisions of the preceding sentence, the Collateral Agent will, upon the reguest of the Company, execute and deliver to the Company such instruments as may be reasonably requested by the Company to evidence such termination. In addition to any rights now or hereafter granted under applicable law (including, without limitation, Section 151 of the New York Debtor and Creditor Law) and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Guarantied Party is hereby authorized at any time or from time to time, without notice to any Guarantor or to any other Person, any such notice being expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other indebtness at any time held or owing by such Guarantied Party to or for the credit or the account of a Guarantor, against and on account of the obligations and liabilities of such Guarantor to such Guarantied Party under this Guaranty, irrespective of whether or not such Guarantied Party shall have made any demand hereunder and although said obligations, liabilities, deposits or claims, or any of them, shall be contingent or unmatured. This Guaranty is the independent and several obligation of each Guarantor and may be enforced against each Guarantor separately, whether or not enforcement of any right or remedy hereunder has been sought against any other Guarantor. THIS GUARANTY, AND ANY INSTRUNENT OR AGREEMENT REQUIRED HEREUNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WRITE THIS GUARANTY. EACH GUARANTOR HEREBY DESIGNATES AND APPOINTS DEWEY BALLANTINE, 1301 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019, ATTENTION: MORTON A. PIERCE, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY SUCH GUARANTOR IRREVOCABLY AGREEING IN WRITING TO SO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN SUCH COURT, SUCH SERVICE BEING EEREBY ACKNOWLEDGED BY EACH SUCH GUARANTOR TO BE EPFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO GUARANTORS AT THE ADDRESS PROVIDED IN THE APPLICABLE SIGNATURE PAGE HERETO EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY A GUARANTOR REFUSES TO ACCEPT SERVICE, SUCH GUARANTOR EEREBY AGREES THAT SERVICE UPON IT BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY GUARANTIED PARTY OTHERWISE SO ENTITLED TO BRING PROCEEDINGS AGAINST ANY GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. EACH OF THE PARTIES TO THIS GUARANTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each Guarantor and, by its acceptance of the benefits hereof, the Collateral Agent each (i) acknowledges that this waiver is a material inducement for Guarantor and the Collateral Agent to enter into a business relationship, that Guarantor and Collateral Agent have already relied on this waiver in entering into this Guaranty or accepting the benefits thereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF THIS GUARANTY. In the event of litigation, this Guaranty may be f iled as a written consent to a trial by the court. IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be executed as of the date first above written by their respective officers thereunto duly authorized. COMMUNITY HOSPITAL OF ANDALUSIA, INC. CRESTWOOD HOSPITAL & NURSING HOME, INC. DOCTORS HOSPITAL OF MOBILE, INC. SELMA MEDICAL CENTER HOSPITAL, INC. TRI-CITY MED, INC. HTI TUCSON REHABILITATION, INC. HOSPITAL CORPORATION OF ARIZONA HOSPITAL CORPORATION OF NORTHWEST, INC. DEQUEEN HEALTH SERVICES. INC. CH SYSTEMS C.H.L.H, INC. CHINO COMMUNITY HOSPITAL CORPORATION, INC. COMMUNITY HOSPITAL OF GARDENA CORPORATION, INC. ENCINO HOSPITAL CORPORATION, INC. SEBASTOPOL HOSPITAL CORPORATION UKIAH HOSPITAL CORPORATION GENERAL HEALTH SERVICES, INC. HOSPITAL DEVELOPMENT PROPERTIES, INC. ODYSSEY ACQUISITION CORP. EASTE POINT HOSPITAL, INC. EAST POINTE PHO, INC. EDWARD WHITE HOSPITAL, INC. HOSPITAL CORPORATION OF LAKE WORTH HOSPITAL DEVELOPMENT & SERVICE CORP MEDICAL CARE OF BROWARD, INC. MEDICAL CENTER OF SANTA ROSA, INC. NORTH BEACH HOSPITAL, INC. NORTH OKALOOSA MEDICAL CENTER, INC. PALMS WEST HOSPITAL, INC. PHYSICIAN SERVICES OF PALM BEACH COUNTY, INC. SANTA ROSA EMERGENCY MEDICAL SERVICES, INC. SOUTH SEMINOLE HOSPITAL, INC. ST. AUGUSTINE HOSPITAL, INC. SUN CITY HOSPITAL, INC. VISIONS HEALTHCARE, INC. COLUMBUS CARDIOLOGY INC. COLUMBUS DOCTORS HOSPITAL, INC. GAINESVILLE CARDIOLOGY, INC. HOSPITAL CORPORATION OF LANIER, INC. EASTERN IDAHO HEALTH SERVICES, INC. MED CENTRAL, INC. WEST VALLEY MEDICAL CENTER, INC. HTI HEALTH SERVICES OF INDIANA, INC. TERRE HAUTE REGIONAL HOSPITAL, INC. COMMUNITY HOSPITAL, INC. LOGAN MEMORIAL HOSPITAL, INC. HOSPITAL CORPORATION OF KENTUCKY SPRINGVIEW HOSPITAL, INC. DAUTERIVE HOSPITAL CORPORATION HAMILTON MEDICAL CENTER, INC. MEDICAL CENTER OF BATON ROUGE, INC. WOMEN'S AND CHILDREN'S HOSPITAL, INC. HTI HEALTH SERVICES, INC. HTI HEALTH SERVICES OF NORTH CAROLINA, INC. HERITAGE HOSPITAL, INC. HOSPITAL CORPORATION OF NORTH CAROLINA EDMOND PHYSICIAN HOSPITAL ORGANIZATION, INC. HOSPITAL CORPORATION OF SEILING, INC. HOSPITAL CORPORATION OF DOUGLAS, INC. MCMINNVILLE HOSPITAL, INC. ROSEBURG AMBULANCE, INC. CHESTERFIELD GENERAL HOSPITAL, INC. HTI SOUTH CAROLINA, INC. WALTERBORO COMMUNITY HOSPITAL, INC. BENTON COMMUNITY HOSPITAL, INC. CROCKETT GENERAL HOSPITAL, INC. EASTERN TENNESSEE MEDICAL SERVICES, INC. HTI EDGEFIELD, INC. HTI MEDICAL SERVICES CORPORATION HTI MEMORIAL HOSPITAL CORPORATION HTI TRI-CITIES REHABILITATION, INC. HEALTHTRUST, INC. - THE HOSPITAL COMPANY HENDERSONVILLE HOSPITAL CORPORATION HOSPITAL CORPORATION OF SMITH AND OVERTON COUNTY HUMBOLDT CEDAR CREST HOSPITAL, INC. IPN SERVICES, INC. JOHNSON CITY EYE & EAR HOSPITAL,INC. JOHNSON CITY MEDICAL SERVICES, INC. MEDICAL RESOURCE GROUP, INC. MIDDLE TENNESSEE MEDICAL SERVICES CORPORATION NORTH SIDE HOSPITAL, INC. RIVER PARK HOSPITAL, INC. SP ACQUISITION CORP. STONES RIVER HOSPITAL, INC. SYCAMORE SHOALS HOSPITAL, INC. TRINITY HOSPITAL CORPORATION AUSTIN MEDICAL CENTER, INC. BEDFORD - NORTHEAST COMMUNITY HOSPITAL, INC. BROWNSVILLE - VALLEY REGIONAL MEDICAL CENTER, INC. BROWNWOOD REGIONAL HOSPITAL, INC. CONROE HOSPITAL CORPORATION CORONADO COMMUNITY HOSPITAL, INC. DETAR HOSPITAL, INC. DFW PHYSICIAN SERVICES CORPORATION DOCTORS HOSPITAL (CONROE), INC. HTI GULF COAST, INC. LONGVIEW REGIONAL HOSPITAL, INC. MANSFIELD HOSPITAL, INC. MIDWAY PARK HEALTH NETWORK, INC. MIDWAY PARK MEDICAL CENTER CORPORATION NORTHEAST PHO, INC. PASADENA BAYSHORE HOSPITAL, INC. SUNBELT REGIONAL MEDICAL CENTER, INC. WHARTON HOSPITAL CORPORATION WOODLAND HEIGHTS GENERAL HOSPITAL,INC. BRIGHAM CITY COMMUNITY HOSPITAL, INC. CASTLEVIEW HOSPITAL, INC. HTI OF UTAH, INC. HTI - MANAGED CARE OF UTAH, INC. HTI PHYSICIAN SERVICES OF UTAH, INC. HOSPITAL CORPORATION OF UTAH MEDICAL SERVICES OF SALT LAKE CITY, INC. MOUNTAIN VIEW HOSPITAL, INC. OGDEN MEDICAL CENTER, INC. PIONEER VALLEY HOSPITAL, INC. WEST JORDAN HOSPITAL CORPORATION MONTGOMERY REGIONAL HOSPITAL, INC. NEW RIVER HEALTHCARE PLAN, INC. NORTHERN VIRGINIA HOSPITAL CORPORATION PULASKI COMMUNITY HOSPITAL, INC. OLYMPIA HOSPITAL CORPORATION RAINIER REGIONAL REHABILITATION HOSPITAL, INC. WYOMING HEALTH SERVICES, INC. By: S/Glenn D. Davis Name: Title: Address: c/o Healthtrust, Inc. - The Hospital Company 4525 Harding Road Nashville, Tennesee 37205 Telecopier No.: (615) 298-6377 Attention: President THE BANK OF NOVA SCOTIA, as Collateral Agent By: s/Mary K. Munoz Authorized Signatory Address: 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Telecopier No.: (404) 888-8998 Attention: Ms. Mary Munoz EXHIBIT A TO THE SUBSIDIARY GUARANTY FORM OF ACKNOWLEDGEMENT (SUBSIDIARY) TO SUBSIDIARY GUARANTY [TO BE EXECUTED AND DELIVERED BY EPIC AND ITS SUBSIDIARIES AND EACH OTHER PERSON THAT BECOMES A SUBSIDIARY OF THE COMPANY (OTHER THAN A JV SUBSIDIARY) AFTER THE CLOSING DATE] Reference is hereby made to the Subsidiary Guaranty Agreement, dated as of April 28, 1994 (the "Guaranty"; capitalized terms defined therein being used herein as therein defined) in which this Acknowledgement is incorporated. The undersigned acknowledges the terms of the Guaranty and agrees to be bound thereby. [NAME] By Title Notice Address: A-1 EXHIBIT B TO THE SUBSIDIARY GUARANTY Set forth below are the definitions used in the Guaranty to determine the maximum liability of a Guarantor thereunder with respect to the Guarantied Obligations. These definitions and their use in the Guaranty should be construed in a manner that gives effect to the following intent: the parties intend that each Guarantor shall be liable in an amount equal to the benefit it has received or, if greater, in an amount equal to 95% of the value of its assets after subtracting its liabilities (as determined using the definitions below), in either case with the goal of maximizing the amount payable by such Guarantor without rendering it insolvent, leaving it with an unreasonably small amount of capital with which to conduct its business or leaving it unable to pay its debts as they mature. Each of the defined terms set forth below is intended to apply to each of the Guarantors separately. "Endinq Date" means the earlier of the date of the commencement of a case under Title 11 of the United States Code involving the Company or such Guarantor or the date enforcement of this Guaranty is sought. "Fair Saleable Value" of any assets means the amount which may be realized, as of a Calculation Date, within a reasonable time, either through collection of such assets or sale of such assets at the regular market value, understanding "regular market value" to mean the amount which could be obtained for the assets in question within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions. "Adjusted Indebtedness" means the present value, as of a Calculation Date, of known probable liabilities, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent, but excluding (i) any liabilities of such Guarantor under this Guaranty and (ii) all intercompany indebtedness, up to an amount not exceeding the amount of the Guarantied Obligations, owed by such Guarantor to the Company, it being understood that a portion of such indebtedness shall be discharged in full in an amount equal to the amount paid by such Guarantor hereunder. Contingent or unliquidated liabilities shall be valued as of a Calculation Date at the amount which, in light of all the facts and circumstances existing at such time, represents the amount which could reasonably be expected to become an actual matured liability. "Adjusted Net Worth" means, as of a Calculation Date, the excess of (i) the Fair Saleable Value of the assets of such Guarantor on such Calculation Date, over (ii) the amount of Adjusted Indebtedness of such Guarantor on such Calculation Date. "Calculation Date" means the date of the initial Credit Extension and each date thereafter on or prior to the Ending Date. "Calculation Date Amount" shall be calculated as of each Calculation Date, and means the lesser of (i) the aggregate amount of outstanding Credit Extensions on such Calculation Date, and (ii) 95% of Adjusted Net Worth as of such Calculation Date. "Maximum Guaranty Amount" means the greatest Calculation Date Amount; provided that if the aggregate amount of Credit Extensions decreases after the Calculation Date in respect of such Calculation Date Amount, the Maximum Guaranty Amount shall be the lesser of (i) such Calculation Date Amount and (ii) the lowest aggregate amount of Credit Extensions on any date after such Calculation Date; provided further that if there are one or more Calculation Dates after such Calculation Date with respect to which there is a higher Calculation Date Amcunt than the Ma~imum Guaranty Amount calculated in accordance with the preceding proviso, the Maximum Guaranty Amount shall be determined on the basis that the greatest of the Calculation Date Amounts in respect of such subsequent Calculation Dates is the "Greatest Calculation Date Amount" first referred to above and the procedures contained in the preceding proviso and this proviso shall be repeated if the provisions of the preceding proviso would then be applicable. B-2 EXHIBIT C TO THE SUBSIDIARY GUARANTY ACKNOWLEDGMENT (GUARANTEED PARTY) TO SUBSIDIARY GUARANTY The undersigned, as representative of the holders of obligations refinancing or extending all or any portion of the Obligations under the Credit Agreement, hereby acknowledges the terms of this Guaranty and agrees to be bound hereby. The Credit Agreement to which the undersigned is a party [Insert description of new Credit Agreement].] [The undersigned has entered into an Interest Rate Agreement with the Company pursuant to which obligations thereunder are to be guaranteed under this Guaranty. The undersigned acknowledges the terms of this Guaranty and agrees to be bound hereby.] [Collateral Agent: [Insert name of successor Collateral Aqent] [INTEREST RATE EXCHANGER] By: Title: Date: Address: Acknowledged and agreed: GUARANTORS: By: Title: Date: C - 1 EX-4 5 [EXECUTION COPY] BORROWER STOCK PLEDGE AGREEMENT THIS BORROWER STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of April 28, 1994, made by HEALTHTRUST, INC. - THE HOSPITAL COMPANY, a Delaware corporation (the "Pledgor"), in favor of THE BANK OF NOVA SCOTIA ("Scotiabank") in its individual capacity and as collateral agent for and representative of the Lender Parties (as defined below) (in such capacity, together with any successor, or other representative for the Lender Parties being collectively referred to herein as the "Collateral Agent"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement referred to below. W I T N E S S E T H WHEREAS, the Pledgor has heretofore entered into a certain Credit Agreement, dated as of September 29, 1992 (as amended, modified or amended and restated or otherwise modified to the date hereof, the "1992 Credit Agreement") with the financial institutions parties thereto, Scotiabank, ABN AMRO Bank, N.V., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, N.A., Citibank, N.A., Continental Bank N.A., Deutsche Bank AG, New York Branch, LTCB Trust Company, Swiss Bank Corporation, and The Toronto-Dominion Bank, as co-agents and Scotiabank, as administrative agent for the lenders; and WHEREAS, pursuant to a Credit Agreement, dated as of April 28, 1994 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Pledgor, the various financial institutions (individually a "Lender" and collectively the "Lenders") as are, or may from time to time become, parties thereto, Scotiabank and ABN AMRO Bank, N.V., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, N.A., Chemical Bank, Citicorp USA, Inc., Continental Bank N.A., Deutsche Bank AG, New York Branch, First Union National Bank of North Carolina, General Electric Capital Corporation, The Industrial Bank of Japan, Limited, New York Branch, The Long Term Credit Bank of Japan, Limited, New York Branch, NationsBank of Tennessee, N.A., Swiss Bank Corporation, San Francisco Branch, Third National Bank in Nashville, and The Toronto-Dominion Bank, as co-agents, and Scotiabank, as administrative agent, the Lenders have agreed to refinance all amounts outstanding or otherwise due under the 1992 Credit Agreement and have extended Commitments to make Credit Extensions to the Pledgor; and WHEREAS, the Pledgor has and may hereafter from time to time enter into arrangements designed to protect the Pledgor against fluctuations in interest rates (such arrangements (if any) which are entered into with one or more Lenders or which have been entered into with one or more lenders under the 1992 Credit Agreement (collectively, the "Lender Interest Rate Exchangers") being collectively referred to herein as the "Lender Interest Rate Agreements") and it is desired that the obligations of the Pledgor under such agreements, including the obligation to make payments in the event of early termination thereunder (all such obligations owed to the Lender Interest Rate Exchangers being the "Lender Interest Rate Obligations"; and WHEREAS, the Lenders have agreed to permit the Indebtedness evidenced by the Lender Interest Rate Agreements to be secured pari passu with the Obligations; and WHEREAS, the Pledgor desires to enter into this Agreement to grant to the Collateral Agent for the benefit of the Lenders a first priority security interest in the Pledged Collateral and to grant to the Lender Interest Rate Exchangers a first priority security interest in the Pledged Collateral pari passu with the Lenders (the Lender Interest Rate Exchangers and the Credit Agreement Parties are collectively referred to herein as the "Secured Parties"); and WHEREAS, the Pledgor has duly authorized the execution, delivery and performance of this Agreement; NOW THEREFORE, in consideration of the foregoing premises the parties hereto agree as follows: A G R E E M E N T: SECTION 1. Pledges; Agreements to Share. The Pledgor hereby pledges and grants to the Collateral Agent for the benefit of the Secured Parties a first priority security interest in the following (the "Pledged Collateral") to secure the Secured Obligations (as defined in Section 2); (a) the Pledged Shares and the certificates representing the Pledged Shares and any interest of the Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and, subject to Section 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) from and after the 90th day following the Closing Date, all of the issued and outstanding shares of EPIC and the certificates representing such Pledged Shares and any interest of the Pledgor in the entries on the books of any financial intermediary pertaining to such Pledged Shares, and, subject to Section 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; (c) all additional shares of stock of any issuer of the Pledged Shares from time to time acquired by the Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), and the certificates representing such additional shares and any interest of the Pledgor in the entries on the books of any financial intermediary pertaining to such additional shares, and, subject to Section 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (d) all shares of any Person directly owned or held by the Pledgor which, after the date of this Agreement, is or becomes, as a result of any occurrence, a Subsidiary of the Pledgor (which shares shall be deemed to be part of the Pledged Shares) and the certificates representing such shares and any interest of the Pledgor in the entries on the books of any financial intermediary pertaining to such shares, and subject to Section 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (e) all proceeds of the foregoing items described in clauses (a). (b). (c), and (d). The Lenders hereby agree that the pledge and grant of a security interest in the Pledged Collateral to the Collateral Agent for the benefit of the Secured Parties shall rank pari passu with the security interest of the Lenders pledged and granted hereby. SECTION 2. Secured Obligations. This Agreement secures, and the Pledged Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by acceleration or otherwise (including the payment of amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C 362(a)), of all Obligations now or hereafter existing under or in respect of the Credit Agreement (the "Credit Agreement Obligations"), all Obligations of the Pledgor now or hereafter existing under all other Loan Documents and all obligations of the Pledgor now or hereafter existing under the Lender Interest Rate Agreements, in each case whether for principal, premium or interest (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to the Pledgor would accrue on such obligations) payments for early termination, fees, expenses or otherwise and all obligations of the Pledgor now or hereafter existing under this Agreement (all such obligations being the "Secured Obligations"); provided, however, that the pledge made and the security interest granted in Section 1 and any other provisions of this Agreement shall be effective as to any obligations in respect of any obligations refinancing or extending all or any portion of the Credit Agreement Obligations, or Lender Interest Rate Agreements, only if the holders of such obligations or their representatives, or the Lender Interest Rate Exchangers, as the case may be, shall have executed and delivered to the Collateral Agent an acknowledgement to this Agreement acknowledged by the Pledgor. SECTION 3. Delivery of Pledqed Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by, as applicable, the Pledgor's endorsement where necessary, or appropriate stock powers or other instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time upon or after the occurrence of an Event of Default and without notice to the Pledgor, to transfer to or register in the name of the Collateral Agent or any of its nominees any or all of the Pledged Collateral. In addition, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. Representations and Warranties. The Pledgor represents and warrants as follows: (a) The Pledgor is, and at the time of delivery of the Pledged Collateral to the Collateral Agent pursuant to Section 3 of this Agreement will be, the legal and beneficial owner of the Pledged Collateral free and clear of any Lien except for the liens and security interests created or continued by this Agreement. (b) The Pledgor has full power, authority and legal right to pledge all the Pledged Collateral pursuant to this Agreement. (c) No consent of any other party (including, without limitation, stockholders or creditors of the Pledgor) and no consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (x) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor or (y) for the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement other than as set forth in the Credit Agreement. (d) All of the Pledged Shares have been duly authorized and validly issued and are fully paid and nonassessable. (e) The pledge of the Pledged Shares pursuant to this Agreement creates a valid and perfected first priority se~urity interest in the Pledged Shares securing the payment of the Secured Obligations. (f) As of the date hereof, the Pledged Shares consisting of capital stock of the Persons identified in Schedule I hereto constitute the percentage of the issued and outstanding shares of stock of such Persons as identified in Schedule I hereto. (g) Except as otherwise permitted by the Credit Agreement, the Pledgor at all times will be the sole beneficial owner of the Pledged Collateral. (h) All information set forth herein relating to the Pledged Collateral is accurate and complete in all material respects. (i) The pledge of the Pledged Collateral pursuant to this Agreement does not violate Regulations G, U or X of the Federal Reserve Board. (j) The Pledgor does not directly own any other shares of capital stock of any Subsidiary of the Pledgor other than the shares of capital stock described in Schedule I hereto. SECTION 5. Supplements; Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all instruments and documents, and take all further action, that may be necessary or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Pledqed Collateral. The Pledgor further agrees that it will, upon obtaining any shares of any Person required to be pledged pursuant to clauses (c) or (d) of Section 1, promptly (and in any event within five (5) Business Days) deliver to the Collateral Agent a pledge amendmen., duly executed by the Pledgor, in substantially the form cf Schedule II hereto (a "Pledge Amendment"), in respect of the additional Pledged Shares which are to be pledged pursuant to this Agreement. ~he Pledgor hereby authorizes the Collateral Agent to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to the Collateral Agent shall for all purposes hereunder be considered Pledged Collateral. SECTION 6. Votinq Riqhts; Dividends; etc. (a) So long as no Event of Default has occurred and is continuing: (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the tenms of this Agreement or the Credit Agreement. (ii) The Pledgor shall be entitled to receive and retain any and all cash dividends or other distributions in respect of the Pledged Shares. (b) Upon the occurrence and during the continuance of an Event of Default (i) Upon written notice from the Collateral Agent to the Pledgor, all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to clause (a)(i) of Section 6 above shall cease, and all such rights shall thereupon become vested in the Collateral Agent which shall thereupon have the sole right to exercise such voting and other consensual rights during the continuance of such Event of Default. (ii) All rights of the Pledgor to receive the dividends or other distributions which it would otherwise be authorized to receive and retain pursuant to clause (a)(ii) of Section 6 above shall cease and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends or other distributions during the continuance of such Event of Default. (c) In order to permit the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to clause (a)(i) of Section 6 above and to receive the dividends or other distributions which it is authorized to receive and retain pursuant to clause (a)(ii) of Section 6 above, the Collateral agent shall, if necessary, upon written request of the Pledgor from time to time execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies, dividend payment orders and other instruments as the Pledgor may reasonably request. In order to permit the Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to clause (b)(i) of Section 6 above, and to receive all dividends or other distributions which it may be entitled to receive under clause (b)(ii) of Section 6 above, the Pledgor shall, if necessary, upon written notice from the Collateral Agent, from time to time execute and deliver to the Collateral Agent appropriate proxies, dividend payment orders and other instruments as the Collateral Agent may reasonably reguest. (d) All dividends and distributions which are received by the Pledgor contrary to the provisions of clause (b)(ii) of Section 6 above shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). SECTION 7. Transfers and Other Liens: Additional Shares. A. Transfers and Other Liens. The Pledgor agrees that it will not, except as permitted by the Credit Agreement (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral, (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the liens and security interests under this Agreement, or (iii) permit any issuer of Pledged Shares to merge or consolidate unless all the outstanding capital stock of the surviving or resulting corporation is, upon such merger or consolidation, pledged hereunder and no cash, securities, or other property is distributed in respect of the outstanding shares of any other constituent corporation; provided, however, that in the event of a sale of Pledged Shares permitted by the Credit Agreement, the Collateral Agent shall release the Pledged Shares that are the subject of such sale to the Pledgor free and clear of the lien and security interest under this Agreement (a) so long as any Credit Agreement Obligations remain outstanding, concurrently with the receipt of advice from the Administrative Agent that arrangements satisfactory to it have been made for delivery to it of the Net Disposition Proceeds received in connection with any Permitted Disposition to which the Lenders are entitled under the Credit Agreement and the other Loan Documents, (b) after such time as all Credit Agreement Obligations have been indefeasibly paid in full in the event that any other Secured Parties are entitled to receive any portion of the Net Disposition Proceeds received in connection with any Perm~tted Disposition, concurrently with the receipt of advice from the agent or trustee for such Secured Parties that arrangements satisfactory to it have been made for delivery to it of the amounts required to be paid to such Secured Parties out of the Net Disposition Proceeds received in connection with any Permitted Disposition and (c) in the event no Secured Party is entitled to receive any portion of the Net Disposition Proceeds received in connection with any Permitted Disposition, concurrently with the sale of such Pledged Shares. B. Additional Shares. Except as otherwise permitted by the Credit Agreement, the Pledgor agrees that it will (i) cause each issuer of Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to the Pledgor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other equity securities of each issuer of Pledged Shares. SECTION 8. Collateral Agent Appointed Attorney-In-Fact. The Pledgor hereby appoints the Collateral Agent the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Collateral Agent's discretion to take any action and to execute any instrument which the Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharqe for the same. SECTION 9. Collateral Aqent May Perform. If the Pledgor fails to perform any agreement contained herein after receipt of a written request to do so from the Collateral Agent, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent, including the reasonable fees and expenses of its counsel, incurred in connection therewith shall be payable by the Pledgor under Section_13 hereof. SECTION 10. Reasonable Care. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equivalent to that which the Collateral Agent, in its individual capacity, accords its own property consisting of negotiable securities, it being understood that neither the Collateral Agent nor any other Secured Party shall have responsibility for (i) acscertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Collateral Agent or any other Secured Party has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any Person with respect to any Pledged Collateral. SECTION 11. Remedies Upon Default: Decisions Relating to Exercise of Remedies. A. Remedies Upon Default. Subject to Section llB, if any Event of Default or, after such time as the Credit Agreement Obligations shall have been indefeasibly paid in full and provided that the Pledged Collateral then secures the payment and performance of Lender Interest Rate Obligations, if any event of default under any Lender Interest Rate Agreement or, after such time as all Secured Obligations shall have been indefeasibly paid in full: (a) (i) The Collateral Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") in effect in the State of New York at that time, and the Collateral Agent may also in its sole discretion, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. The Collateral Agent or any other Secured Party may be the purchaser of any or all of the Pledged Collateral at any such sale but shall not be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at such sale, to use and apply any of the Secured Obligations owed to such Person as a credit on account of the purchase price of any Pledged Collateral payable by such Person at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of the Pledgor, and the Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Piedgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was adjourned. The Pledgor, to the fullest extent allowable under applicable law, hereby waives and agrees not to assert any rights or privileges it may acquire under Sections 9-504 or 9-507 of the Code and any claims against the Collateral Agent arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (ii) The Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act), and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if the Pledgor would aqree to do so. (b) If the Collateral Agent determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, the Pledgor shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by the Collateral Agent as exempt transactions under the Securities Act and the rules of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. B. Decisions Relating to Exercise of Remedies. Notwithstanding anything in this Agreement to the contrary, the Collateral Agent shall exercise, or shall refrain from exercising, any remedy provided for in Section llA in accordance with the instructions of the Required Lenders and the Co-Agents, the Administrative Agent, the Lenders and the Lender Interest Rate Exchangers shall be bound by such instructions; and the sole rights of the Administrative Agent, the Lenders and the Interest Rate Exchangers under this Agreement shall be secured by the Pledged Collateral and to receive the payments provided for in Section 12 hereof. SECTION 12. Application of Proceeds. After and during the continuance of an Event of Default or event of default described in Section llA, any cash held by the Collateral Agent as Pledged Collateral and all cash proceeds received by the Collateral Agent (all such cash being "Proceeds") in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral pursuant to the exercise by the Collateral Agent of its remedies as a secured creditor as provided in Section 11 of this Agreement shall be applied promptly from time to time by the Collateral Agent as follows: first, to the payment of the costs and expenses of such sale, collection or other realization, including reasonable fees of the Collateral Agent and reasonable fees and expenses of its agents and counsel, and all other expenses, liabilities, and advances made or incurred by the Collateral Agent in connection therewith; second, to the payment of the Secured Obligations; third, after payment in full of all Secured Obligations and any other amount required by any provision of law, including, without limitation, Section 9-502(2) and 9504(1)(a) of the Code, to the Pledgor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such Proceeds. SECTION 13. Expenses. The Pledgor will upon demand pay to the Collateral Agent the amount of any and all expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent or any other Secured Party hereunder or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. SECTION 14. No Waiver. No failure on the part of the Collateral Agent to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are to the fullest extent permitted by law cumulative and are not exclusive of any remedies provided by law. SECTION 15. Indemnification. The Pledgor hereby agrees to indemnify the Collateral Agent for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in any way relating to or arising out of this Agreement, the Credit Agreement, the other Loan Documents, the Lender Interest Rate Agreements, or any other documents contemplated by or referred to therein or the transactions contemplated thereby or the enforcement of any of the terms hereof or of any such other documents; provided, however, that the Pledgor shall not be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Collateral Agent or failure by the Collateral Agent to exercise reasonable care in the custody and preservation of the Pledged Collateral as provided in Section 10. SECTION 16. Amendments. etc. No amendment, modification or waiver to this Agreement shall be binding (i) on the Collateral Agent without the written consent of the Collateral Agent or (ii) on the Pledgor without the written consent of the Pledgor. SECTION 17. Termination. When all Secured Obligations have been indefeasibly paid in full and no Commitment or Letter of Credit remains outstanding, this Agreement shall terminate, and the Collateral Agent shall, upon the request and at the expense of the Pledgor, forthwith assign, transfer and deliver, against receipt and without recourse to the Collateral Agent, such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof to or on the order of the Pledgor and shall execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such terminations. SECTION 18. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopy communication) and mailed, telegraphed, telecopied or delivered, if to the Pledgor, addressed to it at the address set forth on the signature page of this Agreement or as to any party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section 18. All such notices and other communications shall, when mailed or telegraphed, respectively, be effective when deposited in the mails or delivered to the telegraph company, respectively, addressed as aforesaid and shall, when delivered or telecopied, be effective when received SECTION 19. Continuinq Security Interest; Releases. Subject to Section 17 hereof and to the Credit Agreement, this Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until indefeasible payment in full of all Secured Obligations and all Commitments have been terminated and all Letters of Credit cancelled, (ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and each other Secured Party and each of their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) and subject to the provisions of the Credit Agreement, any Secured Party may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Secured Party herein or otherwise. SECTION 20. Governinq Law; Terms. THIS AGREEMENT, AND ANY INSTRUMENT OR AGREEMENT REQUIRED HEREUNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Unless otherwise defined herein or in the Credit Agreement, terms defined in Articles 8 and 9 of the Code in the State of New York are used herein as therein defined. SECTION 21. Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORY AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION 0F THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH PLEDGOR HEREBY DESIGNATES AND APPOINTS DEWEY BALLANTINE, 1301 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019, ATTENTION: MORTON A. PIERCE, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY SUCH PLEDGOR IRREVOCABLY AGREEING IN WRITING TO SO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESSING ANY SUCH PROCEEDINGS IN SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH SUCH PLEDGOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE PLEDGORS AT THE ADDRESS PROVIDED IN THE APPLICABLE SIGNATURE PAGE HERETO EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY ANY PLEDGOR REFUSES TO ACCEPT SERVICE, SUCH PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO BRING PROCEEDINGS AGAINST ANY PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction including, without limitation, contract claims, tort claims, breach of duty claims and all other common law and statutory claims. The Collateral Agent and the Pledgors each (i) acknowledge that this waivers material inducement for the Collateral Agent and the Pledgors to enter into a business relationship, that the Collateral Agent and the Pledgors have already relied on this waiver in entering into this Agreement or accepting the benefits thereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrant and represent that each has reviewed this waiver with its legal counsel and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF THIS AGREEMENT. In the event of litigation, the Agreement may be filed as a written consent to a trial by the Court. SECTION 22. Security Interest Absolute. All rights of the Collateral Agent and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Credit Agreement, the other Loan Documents, the Lender Interest Rate Agreements or any other agreement or instrument relating thereto. (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the other Loan Documents or the Lender Interest Rate Agreements; (iii) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guaranty, for all or any of the Secured Obligations; or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor. IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By s/Glenn D. Davis Name: Title: Address: 4225 Harding Road Nashville, Tennessee 37205 Telecopier No.: (615) 298-6377 Attention: President THE BANK OF NOVA SCOTIA, as Collateral Agent By s/Mary K. Munoz Authorized Signatory Address: 600 Peachtree Street, N. E . Suite 2700 Atlanta, Georgia 30308 Telecopier No.: (404) 888-8998 Attention: Ms. Mary Munoz IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. HEALTHTRUST,- INC. - THE HOSPITAL COMPANY By Name: Title: Address: 4225 Harding Road Nashville, Tennessee 37205 Telecopier No (615) 298-6377 Attention: President THE BANK OF NOVA SCOTIA, as Collateral Agent By Authorized Signatory Address: 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Telecopier No.: (404) 888-8998 Attention: Ms. Mary Munoz EX-5 6 [EXECUTION COPY] SUBSIDIARY STOCK PLEDGE AGREEMENT THIS SUBSIDIARY STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of April 28, 1994, made by each of the undersigned Subsidiaries (as defined below) of HEALTHTRUST, INC. - THE HOSPITAL COMPANY, a Delaware corporation (the "Company") and any Subsidiary of Company that after the date hereof executes an acknowledgment to this Agreement substantially in the form of Exhibit B hereto (each such undersigned Subsidiary and other Subsidiary being referred to individually as a "Pledgor" and collectively as the "Pledgors"), in favor of and for the benefit of THE BANK OF NOVA SCOTIA ("Scotiabank"), as collateral agent for and representative of the Secured Parties (as defined below) (in such capacity, together with any successor or other representative of the Secured Parties being collectively referred to herein as the "Collateral Agent"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement referred to below. W I T N E S E T H WHEREAS, the Company has heretofore entered into a certain Credit Agreement, dated as of September 29, 1992 (as amended, modified or amended and restated or otherwise modified to the date hereof, the "1992 Credit Agreement") with the financial institutions parties thereto, Scotiabank, ABN AMRO Bank, N.V., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, N.A., Citibank, N.A., Continental Bank N.A., Deutsche Bank AG, New York Branch, LTCB Trust Company, Swiss Bank Corporation, and The Toronto-Dominion Bank, as co-agents and Scotiabank, as administrative agent for the lenders; and WHEREAS, pursuant to a Credit Agreement, dated as of April 28, 1994 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Company, the various financial institutions (individually a "Lender" and collectively the "Lenders") as are, or may from time to time become, parties thereto, Scotiabank and ABN AMRO Bank, N.V., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, N.A., Chemical Bank, Citicorp USA, Inc., Continental Bank N.A., Deutsche Bank AG, New York Branch, First Union National Bank of North Carolina, General Electric Capital Corporation, The Industrial Bank of Japan, Limited, New York Branch, The Long-Term Credit Bank of Japan, Limited, New York Branch, NationsBank of Tennessee, N.A., Swiss Bank Corporation, San Francisco Branch, Third National Bank in Nashville, and The Toronto-Dominion Bank, as co-agents, and Scotiabank, as administrative agent, the Lenders have agreed to refinance all amounts outstanding or otherwise due under the 1992 Credit Agreement and have extended commitments to make Credit Extensions to the Company; and WHEREAS, the Company has and may hereafter from time to time enter into arrangements designed to protect the Company against fluctuations in interest rates (such arrangements (if any) which have been or are entered into with one or more Lenders or one or more lenders under the 1992 Credit Agreement (collectively, the "Interest Rate Exchangers" and together with the Lenders, collectively, the "Secured Parties") being collectively referred to herein as the "Interest Rate Agreements" and the obligations of the Company under such agreements, including the obligation to make payments in the event of early termination thereunder, being the "Interest Rate Obligations"); and WHEREAS, each Pledgor has entered into the Subsidiary Guaranty, dated as of April 28, 1994 (as amended from time to time, the "Subsidiary Guaranty"), pursuant to which such Pledgor guarantees the Obligations under the Credit Agreement and the Interest Rate Obligations; and WHEREAS, each Pledgor wishes to grant pledges, and security interests in favor of the Collateral Agent for the benefit of the Secured Parties to secure the obligations of such Pledgor with respect to the Subsidiary Guaranty; WHEREAS, as a condition precedent to the making of the initial Credit Extensions under the Credit Agreement, each Pledgor is required to execute and deliver this Agreement; and WHEREAS, each Pledgor has duly authorized the execution, delivery and performance of this Agreement; and WHEREAS, each Pledgor will derive substantial direct and indirect benefits from the Credit Extensions made from time to time to the Company pursuant to the Credit Agreement and the entering into of Interest Rate Agreements with Interest Rate Exchangers, which benefits are hereby acknowledged, and each Pledgor, accordingly, desires to enter into this Agreement in order to satisfy the condition precedent described in the foregoing recital; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Pledgor hereby agrees as follows: A G R E E M E N T : SECTION 1. Grants of Security. Each Pledgor, to the extent of its interest therein, hereby pledges and grants to the Collateral Agent for its benefit and the benefit of the Secured Parties, and hereby grants to the Collateral Agent for its benefit and the benefit of the Secured Parties, a first priority security interest in, the following (the "Collateral") to secure the Secured Obligations (as defined in Section 2): (i) the shares of capital stock listed in Exhibit A hereto and in Annex A to each Exhibit B hereto executed by each Pledgor (the "Pledqed Shares"), the certificates representing the Pledged Shares and all interest in the entries on the books of any Person registering ownership of all Pledged Shares that are not represented by certificates and all dividends, cash, instruments and other properties from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (ii) from and after the 90th day following the Closing Date (or if an earlier date, upon delivery thereof), all of the issued and outstanding shares of EPIC and its Subsidiaries (other than EPIC Properties, Inc.), and from and after the date on which all of the CMOs have been redeemed or otherwise retired, all of the issued and outstanding shares of EPIC Properties, Inc., in each case together with the certificates representing all such Pledged Shares and any interest of the Pledgor in the entries on the books of any financial intermediary pertaining to all such Pledged Shares, and, subject to Section 6, all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; (iii) all additional shares of stock of any issuer of the Pledged Shares from time to time acquired by the Pledgors in any manner (which shares shall be deemed to be part of the Pledged Shares), and the certificates representing such additional shares and all interest in the entries on the books of any Person registering ownership of such additional shares that are not represented by certificates and all dividends, cash, instruments and other properties from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (iv) all proceeds of any and all of the foregoing Collateral. SECTION 2. Secured Obliqations. This Agreement secures, and the Collateral pledged by each Pledgor is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by acceleration or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. 362(a)), of all obligations of such Pledgor under the Subsidiary Guaranty, whether now or hereafter existing, whether for principal, premium or interest (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to the Company or a particular Pledgor, would accrue on such obligations), payments for early termination, fees, expenses or otherwise, together with all obligations of each Pledgor now or hereafter existing under this Agreement (all such obligations being the "Secured Obligations") provided, however, that the pledge made and the security interest granted in Section 1 and any other provision of this Agreement shall be effective as to any obligations under the Subsidiary Guaranty in respect of (a) any obligations refinancing or extending all or any portion of the Obligations under the Credit Agreement only if the holders of such obligations or their representatives shall have executed and delivered an acknowledgement to this Agreement substantially in the form of Exhibit C hereto acknowledged by each Pledgor, and (b) any Interest Rate Obligations only if the Interest Rate Exchanger to whom such Interest Rate Obligations are owed shall have executed and delivered an acknowledgement to this Agreement acknowledged by each Pledgor, and provided, further, that the provisions of this Agreement shall not be effective as to EPIC and its Subsidiaries until the 91st day following the Closing Date. SECTION 3. Delivery of Pledqed Collateral. All certificates or instruments representing or evidencing the Collateral shall be delivered in accordance with Section 5.1.5 of the Credit Agreement or Section 7.1.9 of the Credit Agreement, as the case may be, to and held by the Collateral Agent on behalf of the Secured Parties pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time upon or after the occurrence and during the continuance of an Event of Default in its discretion and without notice to any Pledgor, except as required by clause (b)(l) of Section 10, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Collateral. SECTION 4. Representations and Warranties. Each Pledgor, as of the date of execution of this Agreement or as of the date of execution by such Pledgor of an acknowledgment to this Agreement substantially in the form of Exhibit B hereto, as applicable, represents and warrants as follows as to itself and any Collateral pledged by it: (a) Such Pledgor is duly organized, validly existing and, in the case of each Pledgor that is a corporation, in good standing under the laws of its respective jurisdiction of incorporation or organization and has full corporate, partnership or other appropriate power and authority to own its assets and properties, to operate its business as now conducted and proposed to be conducted, to enter into this Agreement, to invest in the subject Subsidiary, and to carry out the transactions contemplated hereby. (b) The subject Subsidiary is a corporation, partnership or other similar arrangement duly organized, validly existing and, in the case of each subject Subsidiary that is a corporation, in good standing under the laws of its respective jurisdiction of incorporation or organization and has full corporate, partnership or other appropriate power and authority to own its assets and properties, to operate its business as now conducted and proposed to be conducted, to issue the Pledged Shares, if any, or partnership or other ownership interests, as the case may be, and to carry out the transactions contemplated thereby. (c) Each of such Pledgor and such subject Subsidiary that is a corporation is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing has no material adverse effect on the Company and its Subsidiaries, taken as a whole. (d) The execution, delivery and performance by such Pledgor of this Agreement, and the issuance of the Pledged Shares, if any, or partnership or other ownership interests have been duly authorized by all necessary corporate, partnership or other appropriate action by the Pledgor and the subject Subsidiary. (e) The execution, delivery and performance by such Pledgor of this Agreement, and the issuance of the Pledged Shares, if any, or partnership or other ownership interests do not and will not (i) violate any provision of law applicable to such Pledgor or the subject Subsidiary, the Certificate or Articles of Incorporation or Bylaws or any partnership or other appropriate charter documents, as applicable, of such Pledgor or any order, judgment or decree of any court or other agency of government binding on such Pledgor or the subject Subsidiary, (ii) conflict with, result in a ~reach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of such Pledgor or the subject Subsidiary, (iii) result in or require the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of such Pledgor or the subject Subsidiary, other than as provided in the Collateral Documents or as permitted under Section 7.2.3 of the Credit Agreement, or (iv) require any approval of stockholders, partners or other owners of security interests or any approval or consent of any Person under any material contractual obligation of such Pledgor or the subject ~ubsidiary, other than approvals or consents which have been obtained and disclosed in writing to the Secured Parties. (f) This Agreement constitutes the legally valid and binding obligation of such Pledgor enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles (whether at law or in equity) relating to or limiting creditors' rights generally. (g) There is no action, suit, proceeding or arbitration (whether or not purportedly on behalf of such Pledgor or the subject Subsidiary) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of such Pledgor, threatened against or affecting such Pledgor or the subject Subsidiary, or any of their respective properties which would materially adversely affect the ability of ~uch Pledgor to perform its obligations under this Agreement, and there is no basis known to such Pledgor for any such action, suit or proceeding. Neither such Pledgor nor the subject Subsidiary is (i) in violation of any applicable law which materially adversely affects or may materially adversely affect the ability of such Pledgor to perform its obligations under this Agreement, (ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which would materially adversely affect the ability of such Pledgor to perform its obligations under this Agreement. There is no action, suit, proceeding or investigation pending, or to the knowledge of such Pledgor, threatened against or affecting the Pledgor or the subject Subsidiary, which contests the validity or enforceability of this Agreement. (h) All of the Pledged Shares, if any, ha~e been duly authorized and validly issued and are fully paid and nonassessable. (i) Such Pledgor is the legal and beneficial owner, or at the time of delivery of such Collateral to the Collateral Agent pursuant to Section 3 of this Agreement will be such owner, of the Collateral free and clear of any Lien except for the security interest created by this Agreement. (j) The pledge of the Pledged Shares pursuant to this Agreement and the pledge and delivery of the certificates and other instruments evidencing the same create a valid and perfected first priority security interest therein, securing the payment of the Secured Obligations. (k) Except as has already been obtained by Pledgor, no consent of any other party (including, without limitation, stockholders or partners, or other Persons owning equity interests in, or creditors of such Pledgor) and no consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the pledge by such Pledgor of the Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by such Pledgor or (ii) for the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally). (l) The Pledged Shares, if any, constitute the percentage of the issued and outstanding shares of capital stock of the issuer thereof set forth opposite the name of such issuer in Part I of Exhibit A hereto and in Part I of Annex A to Exhibit B hereto executed and delivered by such Pledgor. (m) Such Pledgor has received all permission necessary by the subject Subsidiary and the equity participants therein to encumber the Collateral. SECTION 5. Further Assurances. (a) Each Pledgor agrees that at any time and from time to time, at the expense of such Pledgor, such Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that the Collateral Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. (b) Each Pledgor further agrees that it will, upon obtaining any shares of any Person required to be pledged pursuant to clause (iii) of Section 1, promptly (and in any event within five (5) Business Days) deliver to the Collateral Agent a pledge amendment, duly executed by such Pledgor, in substantially the form of Exhibit D hereto (a "Pledge Amendment"), in respect of the additional Pldged Shares which are to be pledged pursuant to this Agreement. Each Pledgor hereby authorizes the Collateral Agent to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to the Collateral Agent shall for all purposes hereunder be considered Collateral. (c) Each Pledgor will not make any changes in its corporate name or conduct its business operations under any fictitious business name or trade name without giving to the Collateral Agent at least 30 days prior written notice of such changes or new name. SECTION 6. Transfers and Other Liens. Except as otherwise permitted by the Credit Agreement, no Pledgor shall: (i) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral to secure the debt of any person or entity, except for the security interest created by this Agreement, or (iii) permit any issuer of any Pledged Shares pledged by such Pledgor to terminate its corporate, partnership or other existence; provided, however, that if a Permitted Disposition occurs and the assets subject to such Penmitted Disposition are Collateral, the Collateral Agent shall release the Pledged Shares that are the subject of such Permitted Disposition to the applicable Pledgor free and clear of the Lien and security interest under this Agreement effective as of the time of such Permitted Disposition; provided, further, that notwithstanding anything herein to the contrary, the Collateral Agent may release such Collateral from the lien and security interest of this Agreement upon the approval of the release of such Collateral by the Lenders under the Credit Agreement. SECTION 7. The Collateral Aqent Appointed Attorney-in-Fact Each Pledgor hereby irrevocably appoints the Collateral Agent its attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor, the Collateral Agent or otherwise, from time to time in the Collateral Agent's discretion (which discretion shall be exercised reasonably) to take any action and to execute any instrument that the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (i) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (ii) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) above, and (iii) to file any claims or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral; and, in the case of each of clauses (i). (ii) and (iii) above, the Collateral Agent shall use its best efforts to give the affected Pledgor notice of any action taken by the Collateral Agent in accordance with this Section 7 as soon as practicable after such action is taken; provided, however, that a failure to give such notice shall not in any way impair the authority of the Collateral Agent pursuant to this Section 7 or the validity of any action taken by the Collateral Agent pursuant thereto; provided, further, that it is expressly agreed that (y) in the case of any JV Subsidiary that is a partnership, the exercise by the Collateral Agent of the authority granted pursuant to this Section 7 shall not cause the Collateral Agent to become subject to any of the liabilities or obligations of a general partner of the subject JV Subsidiary and (z) each Pledgor hereby agrees to indemnify the Collateral Agent against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in any way relating to or arising out of the Collateral or any action taken by the Collateral Agent with respect thereto pursuant to this Section 7, except as such result from the Collateral Agent's gross negligence or willful misconduct or the failure by the Collateral Agent to exercise reasonable care in the custody and preservation of the Collateral as provided in Section 9. SECTION 8. The Collateral Agent May Perform. If any Pledgor fails to perform any agreement contained herein after written request to do so by the Collateral Agent, the Collateral Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses so incurred in connection therewith shall be payable by such Pledgor pursuant to Section 13. SECTION 9. The Collateral Agent's Duties. The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for treatment of the Collateral in its possession in a manner substantially equivalent to that which the Collateral Agent, in its individual capacity, accords its own property of a similar nature, and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 10. Voting Riqhts; Dividends; etc. (a) So long as no Event of Default has occurred and is continuing: (i) Each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that such Pledgor shall not exercise or refrain from exercising any such right if the Collateral Agent shall have notified such Pledgor that, in the Collateral Agent's reasonable judgment, such action would have a material adverse effect on the value of the Collateral or any part thereof. (ii) Each Pledgor shall be entitled to receive and retain any and all dividends paid in respect of the Collateral pledged by such Pledgor; provided, however, that any and all dividends paid or payable in the form of Securities shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Collateral and shall, if received by such Pledgor, be received in trust for the benefit of the Collateral Agent, be segregated from the property or funds of such Pledgor, and be forthwith delivered to the Collateral Agent as Collateral in the same form as so received (with any necessary indorsement). (iii) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to each Pledgor all such proxies and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the voting and other rights that it is entitled to exercise pursuant to paraqraph (i) above and to receive the dividends that it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default: (i) All rights of each Pledgor to exercise the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to clause (a)(i) of Section 10 and to receive the dividends that it would otherwise be authorized to receive and retain pursuant to clause (a) of Section 10 shall cease, and all such right shall thereupon become vested in the Collateral agent who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such dividends; provided, however, that the right of any Pledgor to exercise such voting and other consensual rights shall cease only upon written notice from the Collateral Agent to such Pledgor. ii) All dividends that are received by any Pledgor contrary to the provisions of paragraph (i) of this clause (b) shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Pledgor and shall be forthwith paid over to the Collateral Agent as Collateral in the same form as so received twith any necessary indorsement). (iii) Each Pledgor shall execute and deliver (or cause to be executed and delivered) to the Collateral Agent all such proxies and other instruments as the Collateral Agent may reasonably request for the purpose of enabling the Collateral Agent to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends that it is authorized to receive and retain pursuant to paragraph (ii) above. SECTION 11. Remedies upon Default: Decisions Relating to Exercise of Remedies. A. Remedies Upon Default. If any Event of Default under the Credit Agreement shall have occurred and be continuing: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party in default under the Uniform Commercial Code (the "UCC") in effect in the State of New York at that time, and the Collateral Agent may also without notice (except as specified below) sell the Collateral or any part thereof in one or more parcels, at public or private sale, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Collateral. The Collateral Agent or any Secured Party may be the purchaser of any or all of the Collateral at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations owed to such Person as a credit on account of the purchase price of any Collateral payable by such Person at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal that it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was 80 adjourned. Each Pledgor hereby waives, to the fullest extent permitted by law, any claims against the Collateral Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Collateral to more than one offeree. (b) Each Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as from time to time amended (the "Securities Act"), and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Collateral conducted without prior registration or gualification of such Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acguire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to a registration statement under the Securities Act) and such Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws. (c) If the Collateral Agent determines to exercise its right to sell any or all of the Collateral, upon written request, each Pledgor shall, and shall cause each issuer of any Pledged Shares pledged by such Pledgor to be sold hereunder from time to time to, furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the number of shares and other instruments included in the Collateral which may be sold by the Collateral Agent as exempt transactions under the Securities Act and the rules of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. B. Decisions Relating to Exercise of Remedies. Notwithstanding anything in this Agreement to the contrary, as provided in the Credit Agreement, the Collateral Agent shall exercise, or shall refrain from exercising, any remedy provided for in Subsection A above in accordance with the instructions of the Required Lenders and the Co-Agents, the Administrative Agent, the Lenders and the Interest Rate Exchangers shall be bound by such instructions; Agent, the Lenders Agreement shall be and the sole rights of the Administrative and the Interest Rate Exchangers under this to be secured by the Pledged Collateral and receive the payments provided for in Section 12 hereof. SECTION 12. Application of Proceeds. All proceeds received by the Collateral Agent in respect of any sale of, collection from, or any realization upon all or any part of the Collateral shall be applied promptly in whole or in part by the Collateral Agent against the Secured Obligations in the following order of priority: first, to the payment of the costs and expenses of such sale, collection or other realization, including reasonable compensation to the Collateral Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith, in accordance with Section 13; second, to the payment of all or any part of the Secured Obligations; and third, after payment in full of the amounts specified in the preceding subparagraphs, to the payment to or upon the order of the applicable Pledgor, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 13. Indemnity and Expenses. (a) Each Pledgor agrees to indemnify the Collateral Agent and each Secured Party from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement, the Credit Agreement, or any other documents contemplated by or referred to therein or herein or the transactions contemplated thereby or hereby or the enforcement of any of the terms hereof or of any such other documents, except claims, losses or liabilities resulting from the Collateral Agent's or that Secured Party's gross negligence or willful misconduct or failure by the Collateral Agent to exercise reasonable care in the custody and preservation of the Collateral as provided in Section 9. (b) Each Pledgor agrees to pay upon demand to the Collateral Agent the amount of any and all expenses, including the reasonable fees and disbursements of counsel and of any experts and agents, that the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the failure by such Pledgor to perform or observe any of the provisions hereof. SECTION 14. Amendments; Termination. (a) No amendment, modification or waiver to this Agreement shall be binding (i) on the Collateral Agent without the written consent of the Collateral Agent or (ii) on any Pledgor without the written consent of such Pledgor. (b) When all Secured Obligations have been indefeasibly paid in full and no Commitment or Letter of Credit remains outstanding, this Agreement #hall tenminate, and the Collateral Agent shall, upon the reguest and at the expense of any Pledgor, forthwith assign, transfer and deliver, against receipt and without recourse to the Collateral Agent, such of the Collateral pledged by such Pledgor as shall not have been sold or otherwise applied pursuant to the terms hereof to or on the order of such Pledgor and shall execute and deliver to such Pledgor such documents as such Pledgor shall reasonably request to evidence such termination. SECTION 15. Addresses for Notices. All notices and other communications to any party provided for hereunder shall be in writing and may be personally delivered, telecopied, telexed or sent by United States mail. For the purposes hereof, the addresses of the parties hereto shall be as set forth under each party's name on the appropriate signature page hereof, or as to any party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section 15. All such notices and other collullunications shall be deemed to have been given when delivered in person, upon receipt of telecopy or telex, or four Business Days after deposit in the United States mail, registered or certified, with postage prepaid and properly addressed as aforesaid. SECTION 16. Continuing Security Interest; Assignments by the Secured Parties. Subject to the provisos to Section 6 hereof and to Section 14 hereof and to the Credit Agreement, this Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until indefeasible payment in full of the Secured Obligations and all Commitments have been terminated and all Letters of Credit cancelled, (ii) be binding upon each Pledgor, its successors and assigns and (iii) inure to the benefit of the Secured Parties and the Collateral Agent, on behalf of the Secured Parties, and their successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) but subject to the provisions of the Credit Agreement, any Secured Party may assign or otherwise transfer the indebtedness held by it to any other Person and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Secured Party herein or otherwise. SECTION 17. Governinq Law; Terms. THIS AGREEMENT, AND ANY INSTRUMENT OR AGREEMENT REQUIRED EERE~NDBR, SHALL BE GOVERNED BY, AND SHALL BB CONSTRUED AND ENFORCED IN ACCORDANCB WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the UCC as in effect in the State of New York are used herein as therein defined. SECTION 18. Consent to Jurisdiction and Service of Process ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH PLEDGOR HEREBY DESIGNATES AND APPOINTS DEWEY BALLANTINB, 1301 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019, ATTENTION: MORTON A. PIERCE, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY SUCH PLEDGOR IRREVOCABLY AGREEING IN WRITING TO SO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESSING ANY SUCH PROCBEDINGS IN SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH SUCH PLEDGOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE PLEDGORS AT THE ADDRESS PROVIDED IN THE APPLICABLE SIGNATURE PAGE HERETO EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY ANY PLEDGOR REFUSES TO ACCEPT SERVICE, SUCH PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO BRING PROCEEDINGS AGAINST ANY PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction including, without limitation, contract claims, tort claims, breach of duty claims and all other common law and statutory claims. The Collateral Agent and the Pledgors each (i) acknowledge that this waiver is a material inducement for The Collateral Agent to enter into a business relationship, that The Collateral Agent and the Pledgors have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings and (ii) further warrant and represents that each has reviewed this waiver with its legal counsel and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF THIS AGREEMENT. In the event of litigation, the Agreement may be filed as a written consent to a trial by the Court. SECTION 19. Counterparts This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each pledgor and the Collaterall Agent have caused this Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. TRI-CITY MED, INC MED CENTRAL, INC. ROSEBURG AMBULANCE, INC. By s/Glenn D. Davis Name: Title: Address: c/o Healthtrust, Inc. - The Hospital Company 4525 Harding Road Nashville, TN 37205 Telecopier No.: (615) 298-6377 Attention: President THE BANK OF NOVA SCOTIA, as Collateral Agent By s/ Mary K. Munoz Authorized Signatory Address: 600 Peachtree Street, N.E. Suite 2700 Altanta, GA 30308 Telecopier No.: (404) 888-8998 Attention: Ms. Mary Munoz EX-6 7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of December 31, 1994, by and between HEALTHTRUST, INC. - THE HOSPITAL COMPANY, a Delaware corporation (the "Corporation"), and R. CLAYTON MCWHORTER ("Employee"). W I T N E S S E T H WHEREAS, the Corporation desires to recognize the outstanding contributions made by Employee to the Corporation and to secure the continuation of his services with the Corporation; and WHEREAS, the Compensation Committee of the Board of Directors of the Corporation (the "Board") at a meeting held on December 31, 1993, at which meeting a quorum was present and voted, authorized and directed the Corporation to enter into an Employment Agreement with Employee; NOW THEREFORE, in consideration of the foregoing and of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Terms and Duties (a) The Corporation hereby employs Employee for a term commencing on September 1, 1993, and ending on August 31, 1996 and Employee hereby agrees to serve as Chairman of the Board, Chief Executive Officer and President of the Corporation during said period upon the terms and conditions herein contained. As used in this Agreement, the phrase "term of this Agreement" shall mean the period of time from September 1, 993, to August 31, 1996, unless the parties agree to extend this Agreement, pursuant to Paragraph 1(c) below, in which case the term of this Agreement shall also include the extension of such period pursuant to such agreement. (b) During the term of this Agreement, Employee shall perform such duties and assignments for the Corporation as may be determined from time to time by the Board of Directors of the Corporation and as are reasonable and customary for a Chairman of the Board, Chief Executive Officer and President. (c) The Corporation and Employee hereby acknowledge that this Agreement may be extended for an additional period, provided both parties agree on the terms and conditions in writing at any time prior to September 1, 1996. 2. Minimum Base Compensation and Bonus (a) Commencing as of September 1, 1993, the Corporation agrees to pay Employee a base salary (in addition to the other compensation and benefits provided herein) at the rate per year of $800,000.00 Employee's annual base salary payable pursuant to this Paragraph (including any changes thereto pursuant to Paragraph 2(b) below) is hereinafter sometimes referred to as "Employee's Base Compensation". Employee's Base Compensation shall be payable in accordance with the customary payroll practices of the Corporation, but in no event less frequently than monthly. The Board may increase but no decrease Employee's Base Compensation at any time by such amounts as it deems proper. (b) Employer shall be eligible to receive such bonus awards or other incentive compensation as shall be determined from time to time by the Board in its sole discretion. Nothing contained in this Agreement shall preclude the Board from eliminating, reducing or otherwise changing any term or condition of any such bonus award. 3. Participation in Benefit Plans While employed under this Agreement, Employee shall be eligible to participate in all executive compensation and employee benefit plans or programs generally applicable to senior management employees of the Corporation. Except as otherwise provided herein, any such participation shall be in accordance with the provisions of such plans or programs and nothing contained in this Agreement is intended to or shall be deemed to affect adversely any of the Employee's rights as a participant under any such plan or program. Nothing in this Agreement shall preclude the Corporation from terminating or amending any such plan or program so as to eliminate, reduce or otherwise change any benefit payable thereunder. 4. Vacation Employee shall be entitled to vacation in accordance with the policies of the Corporation in effect from to time. 5. Reimbursement of Business Expenses Employee is authorized to incur reasonable expenses related to and for promoting the business of the Corporation, including expenses for entertainment, travel and similar items, and any such expenses paid by Employee from his own funds shall be promptly reimbursed to him by the Corporation in accordance with the policies and procedures of the Corporation in effect from time to time. 6. Source of Payments In any case were coverage or benefits are required to be provided under this Agreement but cannot be provided in accordance with the terms of the Corporation's plans which are maintained for the Corporation's senior executive or other employees generally, or both, such coverage and benefits shall be provided from the general assets of the Corporation. No special or separate fund shall be established and no other segregation of assets shall be made to assure the payment of any such amounts. To the extent that any person acquires a right to receive payments from the Corporation under this Agreement, such right shall be no greater than the right of an unsecured general creditor of the Corporation. 7. Termination by the Corporation of Employee's Employment for Cause (a) Notwithstanding any other provision of this Agreement, the Corporation shall have the right to terminate Employee's employment upon written notice to Employee that the Board has found, based upon reasonable evidence presented in writing to Employee, that Employee has materially breached this Agreement by engaging in dishonest or fraudulent actions or willful misconduct or has materially harmed the Corporation by performing his duties in a grossly negligent manner. Employee shall upon receipt of such written notice and evidence immediately cease to be an employee of the Corporation. (b) In case of a termination by the Corporation on account of breach hereunder pursuant to Paragraph 7(a) above, the Corporation's obligations to Employee under this Agreement shall cease upon the effective date of such termination and the Corporation shall not be liable to continue paying Employee the Employee's Base Compensation nor shall Employee be entitled to any rights or benefits pursuant to Paragraph 3 above, other than as may be provided under the terms of such plans which are generally applicable to participants who have terminated employment under similar circumstances. 8. Disability (a) In the event of the total disability (as hereinafter defined) of Employee during the term of this Agreement, the Corporation shall continue to pay Employee's Base Compensation and shall continue Employee's participation in its various executive compensation and employee benefit plans and programs pursuant to Paragraph 3 above during the period of this total disability until the end of the term of this Agreement; provided, however, that in the event Employee is totally disabled for a continuous period exceeding one hundred fifty (150) days the Corporation may, at its election, terminate Employee's employment upon thirty (30) days' written notice, in which event Employee shall be entitled to receive the benefits described in Paragraph 8(b) below. As used in this Agreement, the term "total disability" shall mean the complete inability of Employee to perform all of the duties of his position with the Corporation by reason of any physical or mental ailment. (b) In the event that Employee is totally disabled for a period described in Paragraph 8(a) above and the Corporation elects to terminate Employee's employment, the Corporation shall continue to pay Employee a disability benefit ("Disability Benefit") equal to Employee's Base Compensation in effect at the time of such termination for the greater of (i) the entire term of this Agreement and (ii) one year from the date of termination. Payment of the Disability Benefit under this Paragraph 8(b) shall commence within thirty (30) days of the termination of Employee's participation (including dependent coverage) in any life, accident, disability, health and dental insurance plans, and any other similar welfare plans of the Corporation in effect immediately prior to the effective date of the termination shall be continued, or equivalent benefits provided, by the Corporation during the period in which the Disability Benefit is paid at no cost to Employee or his dependents. (c) If Employee becomes entitled to and receives other disability benefits under any disability payment plan paid for by the Corporation, including disability insurance, the Disability Benefit otherwise payable by the Corporation to Employee pursuant to Paragraph 8(b) above shall be reduced (but not below zero) by the amount of any such other disability benefits received by him, but only to the extent such benefits are attributable to payments made by the Corporation. 9. Death If Employee should die during the term of this Agreement, the Corporation shall continue to pay his estate or designated beneficiary or beneficiaries a death benefit ("Death Benefit") equal to Employee's Base Compensation in effect at the date of his death for the greater of (i) the entire term of this Agreement or (ii) one year from the date of his death. Payment of the Death Benefit shall commence within thirty (30) days of the date of Employee's death. The Corporation shall also pay Employee's estate or designated beneficiary or beneficiaries such other death benefits as become payable under the terms of such travel accident, life insurance, and employee stock ownership plan, and other executive compensation and employee benefit plans and programs of the Corporation in which Employee was a participant on his date of death. In addition, dependent coverage provided by any life, accident, disability, health and dental insurance plans, and any other similar welfare plans of the Corporation in effect immediately prior to the date of Employee's death shall be continued, or equivalent benefits provided, by the Corporation during the period in which the Death Benefit is paid at no cost to Employee or his dependents. 10. Resignation as Board Member In any instance where Employee ceases to be an employee of the Corporation, no matter what the reason, and if Employee is then a member of the board, Employee hereby agrees that, unless otherwise requested by the board, he shall simultaneously submit his resignation as a member of the Board in writing on or before the date he ceases to be an employee of the Corporation. If Employee fails or neglects to submit such resignation in writing, this Paragraph 10 may be deemed by the Corporation to constitute Employee's written resignation as a member of the Board effective on the same date that Employee ceases to be an employee of the Corporation. 11. Waiver Failure of either party hereto to insist upon strict compliance by the other party with any term, covenant or condition hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment or failure to insist upon strict compliance of any right or power hereunder at any one time or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 12. Withholding of Taxes The Corporation may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 13. Facility of Payment If the Board shall find the person to whom any amount is or was payable hereunder is unable to care his affairs because of illness or accident, or is a minor, or has dies, then the Board, if it so elects, may direct than any payment due him or his estate (unless a prior claim therefore has been made by a duly appointed legal representative) or any part hereof be paid or applied for the benefit of such person or to or for the benefit of his spouse, children or other dependents, an institution maintaining or having custody of such person, any other person deemed by said Board to be a proper recipient on behalf of such person otherwise entitled to payment, or any of them, in such manner and proportion as the Board may deem proper. Any such payment shall be in complete discharge of the liability of the Corporation therefor. 14. Prior Agreements This instrument sets forth the entire agreement between the parties hereto with respect to the subject matter hereof. 15. Consolidation or Merger Nothing in this Agreement shall preclude the Corporation from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation or other entity (the "Successor Employer") which assumes this Agreement and all obligations of the Corporation hereunder by operation of law or affirmative action. Upon such a consolidation, merger or transfer of assets and assumption, the term "Corporation" shall refer to the Successor Employer and this Agreement shall continue in full force and effect. 16. Unsecured Creditor Status Employee shall have no right, title or interest whatsoever in or to any investments which the Corporation may make to aid it in meeting its obligations under this Agreement. Nothing contained in this Agreement, and no action taken pursuant to its provision, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Corporation and Employee, his beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Corporation under this Agreement, such right shall be no greater than the right of an unsecured general creditor of the Corporation. All payments to be made hereunder shall be paid from the general funds of the Corporation and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts. 17. Non-Alienation of Benefits Except insofar as applicable law may otherwise require, no amount payable to or in respect of Employee at any time under this Agreement shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, change or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable shall be void; provided, however, that nothing in this Paragraph 17 shall preclude Employee from designating a beneficiary or beneficiaries to receive any benefit on his death. 18. Benefits Except as otherwise expressly provided herein, this Agreement shall inure to the benefit of and be binding upon the Corporation, its successors and assigns, and upon Employee, his beneficiaries, heirs, executors and administrators. 19. Amendment No amendment or modification of this Agreement shall be deemed effective unless and until executed in writing by Employee and the Corporation. 20. Severability If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and all other such provisions shall t the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the remaining portion of such provision not held so invalid, and the remaining portion of such provision, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 21. Headings The headings of paragraphs are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 22. Governing Law This Agreement shall be governed by the laws of the State of Tennessee. 23. Notices Any notices required or desired to be given pursuant to this Agreement shall be sufficient if in writing and transmitted by hand delivery or by registered or certified mail. All communications to Employee shall be addressed to: R. Clayton McWhorter 4500 Post Road, #F66 Nashville, TN 37205 All communications to the Corporation shall be addressed to: Board of Directors Healthtrust, Inc. - The Hospital Company 4525 Harding Road Nashville, TN 37205 Notwithstanding the foregoing, the Corporation and Employee may, by notice in accordance herewith, designate a different address than contained herein. IN WITNESS WHEREOF, the Corporation has caused its name to be ascribed to this Agreement by its duly authorized representative and Employee has executed this Agreement as of the day and year first above written. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By: s/Richard W. Hanselman Name: Richard W. Hanselman Title: Chairman of the Compensation Committee s/R. Clayton McWhorter R. Clayton McWhorter EX-7 8 CONSULTING AGREEMENT This Agreement, dated as of April 14, 1994, is by and between Healthtrust, Inc. - The Hospital Company, a Delaware corporation ("HTI") and Donald S. MacNaughton, ("Consultant"). 1. Engagement. HTI hereby engages the Consultant, as an independent contractor, for services to be rendered to HTI from time to time as reasonably and specifically requested by HTI (the "Services"), and the Consultant hereby accepts the engagement upon the terms and conditions of this Agreement. 2. Term. The term of this Agreement shall begin on January 1, 1994 and shall terminate on December 31, 1994. 3. Compensation. The Consultant shall be paid by HTI for the Services at a rate of $135,000 per year (less Board of Director fees, if any) payable in monthly installments during the term hereof beginning February 1, 1994 and ending on January 1, 1995. For any monthly period in which this Agreement is terminated, Consultant shall be paid on a prorata basis for Services rendered up to the date of termination. In addition, HTI shall provide bookkeeping services to Consultant up to an aggregate amount not to be reimbursed by Consultant. 4. Expenses. HTI will reimburse Consultant for reasonable travel expenses in connection with any meetings attended by Consultant at the request of HTI upon the Consultant presenting an itemized statement of such expenses. Other expenses shall not be reimbursed by HTI without HTI's prior authorization. 5. Business Practices. Consultant will comply with all applicable laws in acting on HTI's behalf. 6. Confidentiality. (a) Consultant agrees that documents, data and other information furnished Consultant by HTI shall be held in strict confidence and Consultant shall not use such data or information or disclose the same to others or use such data or information for the Consultant's own benefits except such data or information as is published, is a matter of public record or is required to be disclosed to governmental or health care agencies. (b) The parties to this Agreement agree that the Controller General of the United States, Secretary of the HHS and their duly authorized representatives, may, upon written request, have access to those books, documents and records relating to the services provided under this Agreement, for a period of four (4) years after the furnishing of such services in accordance with the applicable regulations issued pursuant to 42 CFR, Part 420, Regulation 420.300. Any subcontractor or related party to the contracts privileged under the applicable attorney-client, accountant-client, or other legal privilege shall not be deemed waived by virtue of this contract. (c) In the event of a breach or threatened breach by the Consultant of the provisions of this paragraph, HTI shall be entitled to an injunction restraining the Consultant from disclosing, in whole or in part, documents, dates or other information. Nothing herein shall be construed as prohibiting HTI from pursuing any other remedies available to HTI for breach or threatened breach, including the recovery of damages from the Consultant. 7. Termination Without Cause. Without cause, either Consultant or HTI may terminate this Agreement at any time upon 10 days' prior written notice to the other party. In such event, Consultant, if requested by HTI, shall continue to render services, and shall be paid up to the date of termination. 8. Notices. Any notice required or desired to be given under this Agreement shall be deemed given if in writing sent by certified mail as follows: If to HTI: Healthtrust, Inc. - The Hospital Company 4525 Harding Road Nashville, Tennessee 37205 Attention: Chairman and Chief Executive Officer If to Consultant: Donald S. MacNaughton 7017 S. E. Harbor Circle Stuart, FL 34996 9. Waiver of Breach. The waiver by HTI of a breach of any provision of this Agreement by the Consultant shall not operate or be construed as a waiver of any subsequent breach by the Consultant. No waiver shall be valid unless in writing and signed by an authorized officer of HTI. 10. Assignment. The Consultant acknowledges that the services to be rendered by it are unique and personal. Accordingly, the Consultant may not assign any of its rights or delegate any of its duties or obligations under this Agreement. The rights and obligations of HTI under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of HTI. 11. Relationship of Parties. Consultant is an independent contractor, and neither Healthtrust nor any of its affiliates shall have any actual, potential, or other control or authority over Consultant. Consultant shall not have the right or authority to assume or create any obligation or responsibility whatsoever, express or implied, on behalf of or in the name of Healthtrust or its affiliates or to bind any of them in any respect whatsoever. The parties do not intend to create a partnership, joint venture or similar relationship. 12. Entire Agreement. This Agreement contains the entire understanding of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. IN WITNESS WHEREOF the parties have executed this Agreement on the date first above written. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By: s/R. Clayton McWhorter Title: Chairman of the Board, Chief Executive Officer and President s/Donald S. MacNaughton Donald S. MacNaughton EX-8 9 CONSULTING AGREEMENT Agreement dated as of February 28, 1994 between Healthtrust, Inc. - The Hospital Company, a Delaware corporation ("HTI") and Alethea O. Caldwell, ("Consultant"). 1. Engagement. HTI hereby engages the Consultant, as an independent contractor, for services to be rendered to HTI from time to time as reasonably and specifically requested by HTI (the "Services"), and the Consultant hereby accepts the engagement upon the terms and conditions of this Agreement. 2. Term. The term of this Agreement shall begin on February 1, 1994 and shall terminate on August 31, 1994. 3. Compensation. The Consultant shall be paid by HTI for the Services on a per diem basis at a rate of $1,000.00 per day payable within 15 days after HTI's receipt of appropriate invoices describing the Services performed and time spent during the previous month pursuant to this Agreement. 4. Expenses. HTI will reimburse Consultant for reasonable travel expenses in connection with any meetings attended by Consultant at the request of HTI upon the Consultant presenting an itemized statement of such expenses. Other expenses shall not be reimbursed by HTI without HTI's prior authorization. 5. Business Practices. Consultant will comply with all applicable laws in acting on HTI's behalf. 6. Confidentiality. (a) Consultant agrees that documents, data and other information furnished Consultant by HTI shall be held in strict confidence and Consultant shall not use such data or information or disclose the same to others or use such data or information for the Consultant's own benefits except such data or information as is published, is a matter of public record or is required to be disclosed to governmental or health care agencies. (b) The parties to this Agreement agree that the Controller General of the United States, Secretary of the HHS and their duly authorized representatives, may, upon written request, have access to those books, documents and records relating to the services provided under this Agreement, for a period of four (4) years after the furnishing of such services in accordance with the applicable regulations issued pursuant to 42 CFR, Part 420, Regulation 420.300. Any subcontractor or related party to the contract shall also be deemed to have agreed to these terms and conditions. The parties agree that any documents privileged under the applicable attorney-client, accountant-client, or other legal privilege shall not be deemed waived by virtue of this contract. (c) In the event of a breach or threatened breach by the Consultant of the provisions of this paragraph, HTI shall be entitled to an injunction restraining the Consultant from disclosing, in whole or in part, documents, dates or other information. Nothing herein shall be construed as prohibiting HTI from pursuing any other remedies available to HTI for breach or threatened breach, including the recovery of damages from the Consultant. 7. Termination Without Cause. Without cause, either Consultant or HTI may terminate this Agreement at any time upon 10 days' prior written notice to the other party. In such event, Consultant, if requested by HTI, shall continue to render services, and shall be paid up to the date of termination. 8. Notices. Any notice required or desired to be given under this Agreement shall be deemed given if in writing sent by certified mail as follows: If to HTI: Healthtrust, Inc. - The Hospital Company 4525 Harding Road Nashville, Tennessee 37205 Attention: Chairman and Chief Executive Officer If to Consultant: Alethea O. Caldwell 6880 Pico Del Monte Tucson, AZ 85715 9. Waiver of Breach. The waiver by HTI of a breach of any provision of this Agreement by the Consultant shall not operate or be construed as a waiver of any subsequent breach by the Consultant. No waiver shall be valid unless in writing and signed by an authorized officer of HTI. 10. Assignment. The Consultant acknowledges that the services to be rendered by it are unique and personal. Accordingly, the Consultant may not assign any of its rights or delegate any of its duties or obligations under this Agreement. The rights and obligations of HTI under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of HTI. 11. Relationship of Parties. Consultant is an independent contractor, and neither Healthtrust nor any of its affiliates shall have any actual, potential, or other control or authority over Consultant. Consultant shall not have the right or authority to assume or create any obligation or responsibility whatsoever, express or implied, on behalf of or in the name of Healthtrust or its affiliates or to bind any of them in any respect whatsoever. The parties do not intend to create a partnership, joint venture, or similar relationship. 12. Entire Agreement. This Agreement contains the entire understanding of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. IN WITNESS WHEREOF the parties have executed this Agreement on the date first above written. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By:s/Robert A. Vraciu Title: Vice-President s/Alethea O. Caldwell Alethea O. Caldwell EX-9 10 SEVERANCE PROTECTION AGREEMENT THIS AGREEMENT made as of the ___ day of ________________, by and between the "Company" (as hereinafter defined) and _____________________ (the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event the Executive's employment is terminated as a result of, or in connection with, a Change in Control. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. This Agreement shall commence as of October 1, 1994 and shall continue in effect until October 1, 1996; provided, however, that the term of this Agreement shall not expire prior to the expiration of 24 months after the occurrence of a Change in Control. 2. Definitions. 2.1 Accrued Compensation. For purposes of this Agreement, "Accrued Compensation" shall mean an amount which shall include all amounts earned or accrued through the "Termination Date" (as hereinafter defined) but not paid as of the Termination Date including (i) base salary and (ii) vacation pay. 2.2 Base Amount. For purposes of this Agreement, "Base Amount" shall mean the Executive's annual base salary in effect as of the date of this Agreement, determined without regard to any salary reduction elections made by the Executive. 2.3 Cause. For purposes of this Agreement, a termination of employment is for "Cause" if the Executive has been convicted of a felony or the Executive (a) failed substantially to perform reasonably assigned duties with the Company (other than a failure resulting from the Executive's incapacity due to physical or mental illness), or (b) engaged in conduct in connection with his or her employment which is dishonest, fraudulent or unlawful or which constitutes gross negligence or willful misconduct and which results in economic harm to the Company. 2.4 Change in Control. For purposes of this Agreement, a "Change in Control" shall mean any of the following events: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a trust forming a part thereof) maintained by (x) the Company or (y) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Subsidiary"), (2) the Company or any Subsidiary, or (3) any Person in connection with a "Non-Control Transaction" (as hereinafter defined). (b) The individuals who, as of October 1, 1994, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) Approval by stockholders of the Company of: (1) A merger, consolidation or reorganization involving the Company; unless (i) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, and (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the Surviving Corporation or the ultimate parent of the Surviving Corporation, and (iii) no Person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities) has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities, and (iv) a transaction described in clauses (i) through (iii) shall herein be referred to as a "Non-Control Transaction"; (2) A complete liquidation or dissolution of the Company; or (3) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 2.5 Company. For purposes of this Agreement, the "Company" shall mean Healthtrust, Inc. - The Hospital Company. 2.6 Disability. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs the Executive's ability to substantially perform his or her duties with the Company for a period of one hundred twenty (120) consecutive days and the Executive has not returned to his or her full time employment prior to the Termination Date as stated in the "Notice of Termination" (as hereinafter defined). 2.7 Good Reason. (a) For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the events or conditions described in subsections (1) through (4) hereof: (1) a significant adverse change in the Executive's duties or responsibilities as in effect at any time within ninety (90) days preceding the date of a Change in Control, it being understood that the failure of the Executive to have duties or responsibilities for the consolidated enterprise after the Change in Control comparable to those in effect immediately prior to the Change in Control shall constitute a significant adverse change in duties or responsibilities; (2) a material reduction in the Executive's base salary; (3) the failure by the Company to provide employee benefits to the Executive which are comparable to those provided to similarly situated employees of the Company or its ultimate parent corporation; (4) the relocation of the Executive's office at which he or she is to perform his or her duties, to a location more than fifty (50) miles from the location at which the Executive performed his or her duties immediately prior to the Change in Control, except for required travel on the Company's business to an extent substantially consistent with his or her business travel obligations prior to the Change in Control; (b) The Executive must notify the Company within thirty (30) days of the occurrence of an event or condition he or she believes constitutes "Good Reason" and such event will not constitute Good Reason for purposes of this Agreement if the Company, within a reasonable period of time not to exceed thirty (30) days after receipt of such notice, cures or remedies the event or condition identified in such notice. 2.8 Notice of Termination. For purposes of this Agreement, following a Change in Control, "Notice of Termination" shall mean a written notice of termination of the Executive's employment which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 2.9 Successors and Assigns. For purposes of this Agreement, "Successors and Assigns" shall mean a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. 2.10 Termination Date. For purposes of this Agreement, "Termination Date" shall mean in the case of the Executive's death, his or her date of death, in the case of Good Reason, the last day of his or her employment (which shall not be more than five (5) days after the date the Notice of Termination is delivered), and in all other cases, the date specified in the Notice of Termination. 3. Termination of Employment. 3.1 If, during the term of this Agreement, the Executive's employment with the Company and its affiliates shall be terminated within twenty-four (24) months following a Change in Control, the Executive shall be entitled to the following compensation and benefits: (a) If the Executive's employment with the Company and its affiliates shall be terminated (1) by the Company for Cause or Disability, (2) by reason of the Executive's death, or (3) by the Executive other than for Good Reason, the Company shall pay to the Executive the Accrued Compensation. (b) If the Executive's employment with the Company and its affiliates shall be terminated for any reason other than as specified in Section 3.1(a), the Executive shall be entitled to the following: (i) the Company shall pay the Executive all Accrued Compensation; (ii) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment an amount in cash equal to [one, two or three, as the case may be] times the Executive's Base Amount; (iii) the Company shall maintain in full force and effect for the benefit of the Executive and the Executive's dependents and beneficiaries, at the Company's expense (less the amount such individual would have paid for such coverage had his or her employment not terminated) until the earlier of (A) the expiration of 18 months following the Termination Date or (B) the effective date of the Executive's coverage under a medical benefit plan of a new employer (which is comparable in the aggregate to coverage under the Company's medical benefit plan), all medical insurance, under plans and programs in which the Executive and/or the Executive's dependents and beneficiaries participated immediately prior to the Termination Date, provided that continued participation is possible under the general terms and provisions of such plans and programs. If participation in any such plan or program is barred, the Company shall arrange at its own expense (less the amount such individual would have paid for such coverage had his or her employment not terminated) to provide the Executive with benefits substantially similar to those which he or she was entitled to receive under such plans and programs; (iv) the Company shall pay a pro rata bonus for the fiscal year of employment in which the Termination Date occurs, which shall equal the product obtained by multiplying the Executive's target bonus percentage for such year by (A) the monthly Base Salary rate in effect at the Termination Date and (B) the number of complete and partial calendar months that have elapsed in the fiscal year through the Termination Date; provided, however, that notwithstanding anything contained in this Agreement to the contrary, to the extent that the payments and benefits provided under this Agreement and benefits provided to, or for the benefit of, the Executive under any other Company plan or agreement (such payments or benefits are collectively referred to as the "Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Payments shall be reduced (but not below zero) to the extent necessary so that no Payment to be made or benefit to be provided to the Executive shall be subject to the Excise Tax. Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the limitation in the preceding sentence, the Company shall reduce or eliminate the Payments, by first reducing or eliminating those payments or benefits which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Executive's Termination Date. (c) The amounts provided for in Sections 3.1(a) and 3.1(b)(i), (ii) and (iv) shall be paid in a single lump sum cash payment within fifteen (15) days after the Executive's Termination Date (or earlier, if required by applicable law). (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 3.1(b)(iii). (e) The severance pay and benefits provided for in this Section 3 shall be in lieu of any other severance or termination pay to which the Executive may be entitled. 4. Notice of Termination. Following a Change in Control, any purported termination of the Executive's employment by the Company and/or the Employer shall be communicated by Notice of Termination to the Executive. 5. Successors; Binding Agreement. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its Successors and Assigns and the Company shall require any Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his or her beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 6. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled by arbitration, conducted before a panel of three arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his or her principal place of employment in accordance with the commercial rules of the American Arbitration Association then in effect. Judgment may be entered on the award of the arbitrators in any court having jurisdiction. The Company shall pay any fees and expenses associated with the arbitration, including the reasonable fees and disbursements of the Executive's attorney. Any determination by such panel of arbitrators shall be consistent with the provisions of this Agreement as set forth herein. 7. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 9. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Tennessee without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in Davidson County in the State of Tennessee. 10. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By:___________________________ Name: Title: ATTEST: ______________________________ [Name] Schedule to Exhibit 10.11 Form of Severance Protection Agreement The following are the differences in the Severance Protection Agreements authorized to be executed with the Company's executive officers: Executive Section 3.1(b)(ii) R. Clayton McWhorter The Company shall pay the W. Hudson Connery, Jr. Executive as severance pay Michael A. Koban, Jr. and in lieu of any further Richard E. Francis, Jr. compensation for periods Kenneth C. Donahey subsequent to the Termination Philip D. Wheeler Date, in a single payment an amount in cash equal to three times the Executive's Base Amount. Clifford G. Adlerz The Company shall pay the O. Ernest Bacon Executive as severance pay Yolanda D. Chesley and in lieu of any further James M. Fleetwood, Jr. compensation for periods William L. Hough subsequent to the Termination Jone Law Koford Date, in a single payment an Robert M. Martin amount in cash equal to two Dana C. McLendon, Jr. times the Executive's Base R. Parker Sherrill Amount. David L. Smith Robert A. Vraciu Kent H. Wallace EX-10 11 EXECUTIVE MANAGEMENT TOTAL DIRECT COMPENSATION PROGRAM November 22, 1994 EXECUTIVE MANAGEMENT TOTAL DIRECT COMPENSATION PROGRAM OVERVIEW - - - - Executive Compensation Program Goals: - - - - Facilitate and encourage stock ownership by executives - - - - Promote a firm-wide culture - - - - Emphasize performance-sensitivity in the executive compensation area - - - - Shift pay from fixed to variable, from short-term to long-term - - - - Provide a program which is viewed favorably by shareholders EXECUTIVE MANAGEMENT TOTAL DIRECT COMPENSATION PROGRAM OVERVIEW - - - - Compensation Objective: Salary Total Annual Compensation (TAC) (Salary + Target Bonus) Total Direct Compensation (TDC) (TAC + Long-Term Incentive Opportunity) Relative to the Marketplace 60th Percentile* Expected Performance: 75th Percentile Expected Performance: 75th Percentile TOTAL DIRECT COMPENSATION (TDC) TDC = Annual Salary + Annual Bonus + Long Term Incentives EXECUTIVE MANAGEMENT TOTAL DIRECT COMPENSATION PROGRAM PROGRAM COMPONENTS 1) ANNUAL SALARY 2) ANNUAL BONUS 3) LONG TERM INCENTIVE PLANS (LTIP) - Stock Option Program - Purchased Restricted Stock Program EXECUTIVE MANAGEMENT TOTAL DIRECT COMPENSATION PROGRAM ANNUAL SALARY ANNUAL SALARY - - - - Amount Determined By: - Market Competitive Data Provided by The HAY Group, a National Compensation Consulting Firm - Executive Management Recommendations - Compensation Committee of the Board Approval - - - - General Guidelines: - 50-60th Percentile of Market Competitive Data Used as the Midpoint Range - For-Profit Hospital Management Companies Used as Benchmarks (See Appendix A) - Comparisons also made to General Industry and Not-For-Profit Hospital Companies EXECUTIVE MANAGEMENT TOTAL DIRECT COMPENSATION PROGRAM ANNUAL BONUS ANNUAL BONUS - - - - Bonus Percent Determined By: - Market Competitive Data as Reported by The HAY Group - Executive Management Recommendations - Compensation Committee of the Board Approval - - - - General Guidelines: - Base Salary + Annual Bonus = Total Annual Compensation (TAC) - TAC = 75th Percentile of Market Competitive Data ANNUAL BONUS - - - - Bonus Objectives: Each participant in the program will have specific objectives established for each criterion. Corporate objectives will be established by Executive Management. Business Unit and Individual* objectives will be established by the participant and his/her supervisor. *Individual and/or Business Unit objectives should contain specific goals pertaining to the Employee Attitude Survey ANNUAL BONUS - - - - Targeted Incentive: Percent of Base Salary (Varies by Position) - - - - Bonus Opportunity: Each participant will be assigned a Target Incentive Award opportunity. Executive Management will review performance contributions and achievement of objectives after the end of the fiscal year to determine what, if any, bonus is paid. Individuals who exceed the performance expectations in a material manner may be eligible for a bonus award greater than the Targeted Incentive. EXAMPLE Target Incentive Award: 15% of Base Salary ANNUAL BONUS - - - - BONUS CRITERIA: Corporate Business Unit Individual - - - - CRITERIA WEIGHTINGS: Varies by Position EXAMPLE VP, HRD Corporate: 50% Business Unit: 35% Individual: 15% RVP Corporate: 35% Business Unit: 55% Individual: 10% ANNUAL BONUS - - - - CRITERIA ACCOMPLISHMENTS: - Each criterion will be evaluated based on its own merit * Corporate: If the corporation meets its financial goals, a bonus will be paid to the executive (as long as he/she is actively employed at the time bonuses are paid out and as long as individual performance throughout the fiscal year was satisfactory) * Business Unit: If the executive does not meet all of his/her business unit objectives, executive management (and for executive management, the Board) will determine the portion, if any, of the bonus payout to be made * Individual: If the executive does not meet all of his/her individual objectives, executive management (and for executive management, the Board) will determine the portion, if any, of the bonus payout to be made -- See the plan document for plan details -- ANNUAL BONUS - - - - CRITERIA DEFINITIONS: - Corporate: Accomplishment of Pro Forma financial objectives - Business Unit: Performance and contributions of business unit(s) in supporting the overall strategies of the company - Individual: The accomplishment of specific objectives; contributions considered "above and beyond" ANNUAL BONUS EXAMPLE HUMAN RESOURCES - - - - Target Bonus Potential: 15% of Base Salary Corporate (50%) 7.5% Business Unit (35%) 5.0% Individual (15%) 2.5% ANNUAL BONUS EXAMPLE HUMAN RESOURCES - Corporate: Accomplishment of Company Pro Forma Financial Objectives - Business Units: (Specific objectives for each unit to be established) 1) Benefits 2) Recruiting 3) Compensation 4) Employee Relations 5) General Services - Individual 1) Management of Staff 2) Management Development (Personal & Staff) 3) Community Involvement 4) Employee Attitude Survey (Human Resources Department plus Corporate Office) 5) Teamwork EXECUTIVE MANAGEMENT TOTAL DIRECT COMPENSATION PROGRAM LONG TERM INCENTIVE PLAN (LTIP) LONG TERM INCENTIVE PLAN (LTIP) - - - - PARTICIPANTS AND PLAN SPECIFICATIONS - Executive Management Recommendations - Compensation Committee of the Board Approval - - - - PLAN COMPONENTS: 1) Stock Options Program 2) Purchased Restricted Stock (PRS) Program LONG TERM INCENTIVE PLAN (LTIP) - - - - PARTICIPATION: - Stock Options Program: Company Directed* - Purchased Restricted Stock (PRS) Program: Individual Directed * Subject to eligibility rules, performance, vesting and other provisions as outlined in the plan document LONG TERM INCENTIVE PLAN (LTIP) - - - - STOCK OPTION PROGRAM - Non-Qualified Stock Options - Stock Option Formula: LTIP Award Percent (%) times annual salary ($) times 50% divided by the fair market value (FMV) of stock options. The LTIP Award % is determined by Executive Management at the beginning of each fiscal year and approved by the Compensation Committee of the Board. - Fair market value (FMV) of the stock option is determined by Compensation Committee of the Board (expected to be approximately one- fourth of Market Price of Common Stock LONG TERM INCENTIVE PLAN (LTIP) - - - - STOCK OPTIONS PROGRAM (Continued) - Price = 100% of the fair market value on the date of grant - Granted to participants regardless of participation in the Purchased Restricted Stock (PRS) Program - No option to take cash instead of Stock Options - Option awards granted at the beginning of the program year, but will be subject to satisfactory performance of bonus criteria - Three-year cumulative (cliff) vesting - Option Term = 10 years LONG TERM INCENTIVE PLAN (LTIP) - - - - STOCK OPTIONS PROGRAM (Continued) EXAMPLE Annual Salary: $100,000 Target Annual Bonus: $ 15,000 (15%) Fair Mkt Value of Stock Option: $6.00 Stock Options Granted: 2,500 shares (Formula: Annual Salary x LTIP Award % x 50% Divided by FMV) ($100,000 x 15% x 50% = $7,500 divided by $6.00 = 2,500 Options Granted) LONG TERM INCENTIVE PLAN (LTIP) - - - - PURCHASED RESTRICTED STOCK PROGRAM - Participation in this program is optional - Opportunity to give up portion or all of bonus to purchase Restricted Stock at 50% of current stock price (discounted stock price) - Executive determines the percent of bonus (or flat dollar amount) to allocate toward the purchase of discounted restricted stock EXAMPLES (A) (B) Annual Salary = $100,000 $100,000 Target Bonus = 15% or $15,000 15% or $15,000 LTIP Award % = 15% 15% Elected Deferral = 50% of Target Bonus 1st $10,000 Actual Award = $10,000 $10,000 Amount Deferred = $5,000 $10,000 Cash Received = $5,000 $0.00 LONG TERM INCENTIVE PLAN (LTIP) - - - - PURCHASED RESTRICTED STOCK PROGRAM (Continued) - Allocations to the Purchased Restricted Stock Program must be made in advance consistent with deferred compensation rules - Vesting = 3-year cliff vesting - Maximum deferral: 100% of Annual Bonus LONG TERM INCENTIVE PLAN (LTIP) TREATMENT OF CHANGES IN EXECUTIVES' STATUS CHANGE IN EMPLOYMENT TREATMENT STATUS DURING PURCHASED RESTRICTION RESTRICTED REQUIRED STOCK OPTIONS Death, Disability, Retirement Restrictions 100% vesting lapse on shares Termination by the Company without cause (layoff) Stock payment equal Vesting to the to the stock's fair to the date of market value on the termination. last day of Other options employment. forfeit Termination by Cash payment equal Forfeiture the Company with to the lesser of Cause the stock's fair market value on the last day of employment or the purchase amount of the stock Other Terminations Cash payment equal to Forfeiture the lesser of the stock's fair market value on the last day of employment or the purchase amount of the stock LONG TERM INCENTIVE PLAN (LTIP) - - - - PURCHASED RESTRICTED STOCK PROGRAM (CONTINUED) EXAMPLE A - Annual Salary: $100,000 - Annual Bonus: $ 15,000 - Elected Deferral to Stock: 60% of Bonus or $42,000 - Cash Received $28,000 - Current Stock Price: $25.00 per share - Discounted Stock Price (50%): $12.50 per share - LTIP Purchased Restricted Stock: 3,360 shares - Value of PRS shares:$84,000 (3,360 x $25) LONG TERM INCENTIVE PLAN (LTIP) - - - - PURCHASED RESTRICTED STOCK PROGRAM (CONTINUED) EXAMPLE B - - - - Annual Salary: $200,000 - - - - Annual Bonus: $ 70,000 - - - - Elected Deferral to Stock: 30% of Bonus or $21,000 - - - - Cash Received $49,000 - - - - Current Stock Price: $25.00 per share - - - - Discounted Stock Price (50%): $12.50 per share - - - - LTIP Purchased Restricted Stock: 1,680 shares - - - - Value of PRS shares: $42,000 (1,680 x $25) TOTAL DIRECT COMPENSATION EXAMPLE A: CURRENT VALUE Annual Salary $200,000 Annual Cash Bonus Paid ($70,000 - $42,000 Deferred) $ 28,000 Long Term Incentives* $119,000 Total Direct Compensation $347,000 *Long Term Incentives LTIP Stock Options 5,600 x $ 6.25 $ 35,000 LTIP PR Stock 3,360 x $25.00 $ 84,000 Estimated Value of LTIP Incentives $119,000 TOTAL DIRECT COMPENSATION EXAMPLE B: CURRENT VALUE Annual Salary $200,000 Annual Cash Bonus Paid ($70,000 - $21,000) $ 49,000 Long Term Incentives* $ 77,000 Total Direct Compensation $326,000 *Long Term Incentives LTIP Stock Options 5,600 x $ 6.25 $ 35,000 LTIP PR Stock 1,680 x $25.00 $ 42,000 Estimated Value of LTIP Incentives $ 77,000 TOTAL DIRECT COMPENSATION STOCK OWNERSHIP GUIDELINES NUMBER OF TIMES SALARY FOR EXECUTIVES WHO RETENTION GOALS FOR DIDN'T PARTICIPATE THOSE WHO ALREADY IN FOUNDERS STOCK OWN SIGNIFICANT GROUP STOCK Chairman and CEO - 7x SVP and COO - 5x SVP, Finance - 5x SVP, G.C. & Corp Sec'y SVP, Development SVP, Controller .5x 3x RVPs .5x 3x Other Officers .5x 1x Regional AVPs .5x 1x Certain Corporate Directors/Managers .15x .5x Hospital CEOs .25x - Hospital CNOs, CFOs, COOs .15x - - - - - Goal to be met in three years APPENDIX A ANNUAL SALARY For-Profit Hospital Management Companies - - - - American Healthcare Management, Inc. - - - - American Medical Holdings, Inc. - - - - Charter Medical Corporation - - - - Galen Health Care, Inc. - - - - Hospital Corporation of America - - - - National Medical Enterprises, Inc. EX-11 12 Healthtrust, Inc. - The Hospital Company Exhibit 11 - Statement RE: Computation of Per Share Earnings Three Years Ended August 31, 1994 (Dollars in Thousands, except per share data)
Year Ended August 31 1994 1993 1992 Primary: Average shares outstanding 84,344,108 81,209,686 74,968,388 Net effect of dilutive warrants 2,123,265 2,112,334 1,742,167 Net effect of dilutive stock options 976,692 218,795 58,926 Total weighted average common shares 87,444,065 83,540,815 76,769,481 Net income before extraordinary charges $ 173,196 $ 135,191 $ 68,660 Extraordinary charges - 13,633 136,352 Net income (loss) $ 173,196 $ 121,558 $ (67,692) Net income per share before extraordinary charges $ 1.98 $ 1.62 $ 0.90 Extraordinary charges - 0.16 1.78 Net income (loss) per common share $ 1.98 $ 1.46 $ (0.88) Fully Diluted: Average shares outstanding 84,344,108 81,209,686 74,968,388 Net effect of dilutive warrants 2,165,914 2,296,859 1,742,167 Net effect of dilutive stock options 1,175,219 466,804 62,720 Total weighted average common shares 87,685,241 83,973,349 76,773,275 Net income before extraordinary charges $ 173,196 $ 135,191 $ 68,660 Extraordinary charges - 13,633 136,352 Net income (loss) $ 173,196 $ 121,558 $ (67,692) Net income per share before extraordinary charges $ 1.98 $ 1.61 $ 0.90 Extraordinary charges - 0.16 1.78 Net income (loss) per common share $ 1.98 $ 1.45 $ (0.88)
EX-12 13 Exhibit 22 Healthtrust Subsidiary Corporations Alabama Community Hospital of Andalusia, Inc. Crestwood Hospital & Nursing Home, Inc. Doctors Hospital of Mobile, Inc. Four Rivers Medical Center PHO, Inc. Selma Medical Center Hospital, Inc. Arizona HTI Tuscon Rehabilitation, Inc. Hospital Corporation of Arizona Hospital Corporation of Northwest, Inc. Tri-City Med, Inc. Arkansas DeQueen Health Services, Inc. HCMH, Inc. California Amisub (Westside), Inc. CH Systems C.H.L.H., Inc. Chino Community Hospital Corporation, Inc. Community Hospital of Gardena Corporation, Inc. Encino Hospital Corporation, Inc. Healdsburg General Hospital, Inc. Mission Bay Memorial Hospital, Inc. Notami Hospitals of California, Inc. Sebastopol Hospital Corporation Ukiah Hospital Corporation VMC-GP, Inc. VMC Management, Inc. Visalia Community Hospital, Inc. West Los Angeles Physicians' Hospital, Inc. Westside Hospital Delaware Alice Physicians and Surgeons Hospital, Inc. Alvin Community Hospital, Inc. BMC-CT, Inc. CBH-CT, Inc. Coastal Bend Hospital, Inc. Coastal Healthcare Services, Inc. Coralstone Management, Inc. Cornerstone Health Management Company DHL Corporation DHL Management, Inc. Danforth Hospital, Inc. Denton Regional Medical Center, Inc. Doctors' Hospital of Laredo, Inc. Drake Development Company Drake Development Company II Drake Development Company III Drake Development Company IV Drake Development Company V Drake Development Company VI Drake Management Company EPIC Development, Inc. EPIC Diagnostic Management Company EPIC Holdings, Inc. EPIC Healthcare Group, Inc. EPIC Healthcare Services, Inc. EPIC Healthcare Management Company EPIC Master Leasing, Inc. EPIC Surgery Centers, Inc. EPIC Technology, Inc. Earthstone HomeHealth Company Eastside Hospital Holding, Inc. Forest Park Surgery Pavilion, Inc. Fort Bend Hospital, Inc. GPCH-GP, Inc. GPCH Management, Inc. General Health Services, Inc. Greystone Healthcare, Inc. Healthtrust Texas Management Services, Inc. Hearthstone Home Health, Inc. Hearthstone Management Company Hospital Development Properties, Inc. Katy Medical Center, Inc. Keystone HomeHealth Management, Inc. Lake City Health Centers, Inc. Loon Investments, Inc. MRT & C, Inc. Mallard Finance Company Medical Arts Corporation Medical Arts Hospital of Texarkana, Inc. Medical Plaza Hospital, Inc. Medistone Healthcare Ventures, Inc. Medistone Management Company Mid-Continent Health Services, Inc. Milestone Healthcare, Inc. Milestone Healthcare Management, Inc. North Texas Medical Center, Inc. Notami Holdco, Inc. Notami (Texas), Inc. Notami Service Company NTMC Venture, Inc. NTMC Management Company PSS-GP, Inc. Parkway Cardiac Center Management Company Parkway Hospital, Inc. Pinnacle Management Group, Inc. Riverside Hospital, Inc. Round Rock Hospital, Inc. Westbury Hospital, Inc. Florida CCH Management, Inc. CCH-GP, Inc. Easte Point Hospital, Inc. Gateway Medical Services Organization,Inc. Home Health of Citrus County, Inc. Hospital Corporation of Lake Worth Hospital Development & Service Corp. Medical Care of Broward, Inc. Medical Center of Santa Rosa,Inc. Notami (Clearwater), Inc. Notami Hospitals of Florida, Inc. North Beach Hospital, Inc. North Okaloosa Medical Center, Inc. Palms West Hospital, Inc. Palms West Physician Hospital Organization, Inc. Physician Services of Palm Beach County, Inc. Santa Rosa Emergency Medical Services,Inc. South Bay Physician Clinics, Inc. South Seminole Hospital, Inc. St. Augustine Hospital, Inc. Sun City Hospital,Inc. Visions Healthcare, Inc. Georgia Amisub of Georgia, Inc. Barrow Medical Ventures, Inc. Barrow Mesh Enterprises, Inc. Columbus Cardiology, Inc. Columbus Doctors Hospital, Inc. Gainesville Cardiology, Inc. Hospital Corporation of Lanier, Inc. Hawaii Nenalani Insurance Services Corporation Idaho Eastern Idaho Health Services, Inc. Med Central, Inc. West Valley Medical Center, Inc. Indiana HTI Health Services of Indiana, Inc. Terre Haute Regional Hospital, Inc. Kentucky Community Hospital, Inc. Hospital Corporation of Kentucky Logan Memorial Hospital, Inc. Medical Services of Kentucky, Inc. Springview Hospital, Inc. Louisiana Acadiana Practice Management, Inc. Dauterive Hospital Corporation Doctors Hospital of Opelousas Management, Inc. Hamilton Medical Center, Inc. Highland Park Hospital, Inc. Mandeville Surgery Center, Inc. Medical Center of Baton Rouge, Inc. Notami Hospitals of Louisiana, Inc. Notami (Opelousas), Inc. Riverview Medical Center, Inc. Select Healthcare Services, Inc. Women's and Children's Hospital, Inc. Mississipi Brookwood Medical Center of Gulfport, Inc. Coastal Imaging Center of Gulfport, Inc. GOSC-GP, Inc. Gulf Coast Medical Ventures, Inc. HTI Health Services, Inc. Missouri Notami Hospitals of Missouri, Inc. North Carolina Brunswick Health Alliance, Inc. HTI Health Services of North Carolina, Inc. Heritage Hospital, Inc. Hospital Corporation of North Carolina Oklahoma Claremore Regional Hospital, Inc. Doctors' Hospital - Tulsa, Inc. Edmond Physician Hospital Organization, Inc. Hospital Corporation of Seiling, Inc. Lake Region Health Alliance Corporation Medical Imaging, Inc. Notami Hospitals of Oklahoma, INc. Southwestern Medical Center, Inc. Oregon Hospital Corporation of Douglas, Inc. McMinnville Hospital, Inc. Roseburg Ambulance, Inc. South Carolina Chesterfield General Hospital, Inc. Doctors Memorial Hospital, Inc. DMH Spartanburg Management, Inc. DMH Spartanburg, Inc. HTI South Carolina, Inc. Walterboro Community Hospital, Inc. Tennessee Benton Community Hospital, Inc. Crockett General Hospital,Inc. Eastern Tennessee Medical Services, Inc. HTI Edgefield, Inc. HTI Medical Services Corporation HTI Memorial Hospital Corporation HTI Tri-Cities Rehabilitation, Inc. Healthtrust, Inc. - The Hospital Company Hendersonville Hospital Corporation HomeTrust Management Services, Inc. Hospital Corporation of Smith and Overton County Humboldt Cedar Crest Hospital, Inc. IPN Services, Inc. Johnson City Eye & Ear Hospital, Inc. Johnson City Medical Services, Inc. Medical Resource Group, Inc. Middle Tennessee Medical Services Corporation North Side Hospital, Inc. River Park Hospital, Inc. SP Acquisition Corp. Southern Tennessee Ambulance Service, Inc. Stones River Hospital, Inc. Sycamore Shoals Hospital, Inc. Trinity Hospital Corporation Texas Austin Medical Center, Inc. Bedford-Northeast Community Hospital, Inc. Brownsville-Valley Regional Medical Center, Inc. Brownwood Regional Hospital, Inc. Conroe Hospital Corporation Coronado Community Hospital, Inc. DFW Physician Services Corporation DeTar Hospital, Inc. Doctors Hospital (Conroe), Inc. EPIC Properties, Inc. HTI Gulf Coast, Inc. Longview Regional Hospital, Inc. Mansfield Hospital, Inc. Medical Arts Hospital of Dallas, Inc. Midway Park Health Network, Inc. Midway Park Medical Center Corporation Northeast PHO, Inc. Panhandle Medical Management Services, Inc. Pasadena Bayshore Hospital, Inc. Terrell Community Hospital, Inc. Texas Medical Technologies, Inc. Trucare Health Systems, Inc. Trucare Physical Therapy Services, Inc. Trucare Rehabilitation Services, Inc. Wharton Hospital Corporation Woodland Heights General Hospital, Inc. Utah Brigham City Community Hospital, Inc. Castleview Hospital, Inc. HTI HomeMed of Utah, Inc. HTI of Utah, Inc. HTI - Managed Care of Utah, Inc. HTI Physician Services of Utah, Inc. HTI Utah Data Corporation Healthtrust Utah Management Services, Inc. Hospital Corporation of Utah MHHE Corporation Medical Services of Salt Lake City, Inc. Mountain View Hospital, Inc. Ogden Medical Center, Inc. Pioneer Valley Hospital, Inc. West Jordan Hospital Corporation Virginia Montgomery Regional Hospital, Inc. New River Healthcare Plan, Inc. Northern Virginia Hospital Corporation Pulaski Community Hospital, Inc. Washington Capital Network Services, Inc. Olympia Hospital Corporation Rainier Regional Rehabilitation Hospital, Inc. Wyoming Riverton MSO, Inc. Wyoming Health Services, Inc. EX-13 14 Exhibit 24 Consent of Independent Auditors We consent to the incorporation by reference in the following Healthtrust, Inc. - The Hospital Company Registration Statements: a. Form S-8 Registration Statement (No. 33-44636) pertaining to the 1988 Supplemental Stock Plan, filed on December 19, 1991; b. Form S-8 Registration Statement (No. 33-44732) pertaining to the Amended and Restated 1990 Directors Stock Compensation Plan, filed on December 23, 1991; c. Form S-8 Registration Statement (No. 33-44733) pertaining to the Amended and Restated 1990 Stock Compensation Plan, filed on December 23, 1991; d. Form S-8 Registration Statement (No. 33-44730) pertaining to 47,645 shares of Common Stock issuable under the Employee Stock Ownership Plan (the "ESOP"), filed on December 23, 1991; e. Form S-8 Registration Statement (No. 33-47161) pertaining to 59,290 shares of Common Stock issuable under the ESOP, filed on April 13, 1992; f. Form S-8 Registration Statement (No. 33-53090) pertaining to 78,392 shares of Common Stock issuable under the ESOP, filed on October 8, 1992; g. Form S-8 Registration Statement (No. 33-54958) pertaining to 26,122,193 shares of Common Stock issuable under the ESOP, filed November 24, 1992; of our report dated October 14, 1994 with respect to the consolidated financial statements and schedules of Healthtrust, Inc. - The Hospital Company included in the Annual Report (Form 10-K) for the year ended August 31, 1994. ERNST & YOUNG LLP Nashville, Tennessee November 22, 1994 EX-14 15 POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K FOR HEALTHTRUST, INC. - THE HOSPITAL COMPANY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints R. Clayton McWhorter, Chairman, President and Chief Executive Officer of Healthtrust, Inc. - The Hospital Company (hereinafter referred to as the "Company") Michael A. Koban, Jr., Senior Vice-President of the Company, and Philip D. Wheeler, Senior Vice-President, Secretary and General Counsel of the Company, and each of them, jointly and severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute and file, or cause to be filed, with the Securities and Exchange Commission (hereinafter referred to as the "Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1994, and all amendments thereto, and all matters required by the Commission in connection with such report under The Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. s/Donald S. MacNaughton 10/28/94 Donald S. MacNaughton Date Director POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K FOR HEALTHTRUST, INC. - THE HOSPITAL COMPANY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints R. Clayton McWhorter, Chairman and Chief Executive Officer of Healthtrust, Inc. - The Hospital Company (hereinafter referred to as the "Company") Michael A. Koban, Jr., Senior Vice-President of the Company, and Philip D. Wheeler, Senior Vice-President, Secretary and General Counsel of the Company, and each of them, jointly and severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute and file, or cause to be filed, with the Securities and Exchange Commission (hereinafter referred to as the "Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1994, and all amendments thereto, and all matters required by the Commission in connection with such report under The Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. s/W. Hudson Connery, Jr. 10/31/94 W. Hudson Connery, Jr. Date Senior Vice-President, Chief Operating Officer and Director POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K FOR HEALTHTRUST, INC. - THE HOSPITAL COMPANY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints R. Clayton McWhorter, Chairman and Chief Executive Officer of Healthtrust, Inc. - The Hospital Company (hereinafter referred to as the "Company"), Michael A. Koban, Jr., Senior Vice-President of the Company, and Philip D. Wheeler, Senior Vice-President, Secretary and General Counsel of the Company, and each of them, jointly and severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute and file, or cause to be filed, with the Securities and Exchange Commission (hereinafter referred to as the "Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1994, and all amendments thereto, and all matters required by the Commission in connection with such report under The Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. s/Richard W. Hanselman 11/22/94 Richard W. Hanselman Date Director POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K FOR HEALTHTRUST, INC. - THE HOSPITAL COMPANY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints R. Clayton McWhorter, Chairman and Chief Executive Officer of Healthtrust, Inc. - The Hospital Company (hereinafter referred to as the "Company"), Michael A. Koban, Jr., Senior Vice President of the Company, and Philip D. Wheeler, Senior Vice-President, Secretary and General Counsel of the Company, and each of them, jointly and severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute and file, or cause to be filed, with the Securities and Exchange Commission (hereinafter referred to as the "Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1994, and all amendments thereto, and all matters required by the Commission in connection with such report under The Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. s/William T. Hjorth 10/31/94 William T. Hjorth Date Director POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K FOR HEALTHTRUST, INC. - THE HOSPITAL COMPANY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints R. Clayton McWhorter, Chairman and Chief Executive Officer of Healthtrust, Inc. - The Hospital Company (hereinafter referred to as the "Company"), Michael A. Koban, Jr., Senior Vice-President of the Company, and Philip D. Wheeler, Senior Vice-President, Secretary and General Counsel of the Company, and each of them, jointly and severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute and file, or cause to be filed, with the Securities and Exchange Commission (hereinafter referred to as the "Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1994, and all amendments thereto, and all matters required by the Commission in connection with such report under The Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. s/Robert F. Dee 10/30/94 Robert F. Dee Date Director POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K FOR HEALTHTRUST, INC. - THE HOSPITAL COMPANY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints R. Clayton McWhorter, Chairman and Chief Executive Officer of Healthtrust, Inc. - The Hospital Company (hereinafter referred to as the "Company"), Michael A. Koban, Jr., Senior Vice President of the Company, and Philip D. Wheeler, Senior Vice-President, Secretary and General Counsel of the Company, and each of them, jointly and severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute and file, or cause to be filed, with the Securities and Exchange Commission (hereinafter referred to as the "Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1994, and all amendments thereto, and all matters required by the Commission in connection with such report under The Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. s/Alethea O. Caldwell 10/31/94 Alethea O. Caldwell Date Director POWER OF ATTORNEY ANNUAL REPORT ON FORM 10-K FOR HEALTHTRUST, INC. - THE HOSPITAL COMPANY KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints R. Clayton McWhorter, Chairman and Chief Executive Officer of Healthtrust, Inc. - The Hospital Company (hereinafter referred to as the "Company"), Michael A. Koban, Jr., Senior Vice-President of the Company, and Philip D. Wheeler, Senior Vice-President, Secretary and General Counsel of the Company, and each of them, jointly and severally, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute and file, or cause to be filed, with the Securities and Exchange Commission (hereinafter referred to as the "Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1994, and all amendments thereto, and all matters required by the Commission in connection with such report under The Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. s/Harry N. Beaty 11/1/94 Harry N. Beaty, M.D. Date Director EX-15 16 [ARTICLE] 5 [MULTIPLIER] 1000 [PERIOD-TYPE] YEAR YEAR [FISCAL-YEAR-END] AUG-31-1994 AUG-31-1993 [PERIOD-END] AUG-31-1994 AUG-31-1993 [CASH] 92327 151346 [SECURITIES] 0 0 [RECEIVABLES] 725392 454249 [ALLOWANCES] 175838 107758 [INVENTORY] 86576 51740 [CURRENT-ASSETS] 842209 670922 [PP&E] 2990559 2168365 [DEPRECIATION] 736863 600853 [TOTAL-ASSETS] 3967282 2536713 [CURRENT-LIABILITIES] 559065 451819 [BONDS] 1740872 948604 [COMMON] 0 0 [PREFERRED-MANDATORY] 0 0 [PREFERRED] 91 81 [OTHER-SE] 1025513 655576 [TOTAL-LIABILITY-AND-EQUITY] 3967282 2536713 [SALES] 0 0 [TOTAL-REVENUES] 2970036 2394567 [CGS] 0 0 [TOTAL-COSTS] 2211257 1786283 [OTHER-EXPENSES] 159755 137093 [LOSS-PROVISION] 196013 145538 [INTEREST-EXPENSE] 113741 99787 [INCOME-PRETAX] 289270 225866 [INCOME-TAX] 116074 90675 [INCOME-CONTINUING] 173196 135191 [DISCONTINUED] 0 0 [EXTRAORDINARY] 0 13633 [CHANGES] 0 0 [NET-INCOME] 173196 121558 [EPS-PRIMARY] 1.98 1.46 [EPS-DILUTED] 1.98 1.45
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