-----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, cZxbsSA5f1Pl+fkdifSbc/J8sRD7r+NuUhCcwX0mJ9UHxIdV7AgrrYMAMeCs7WPr 7VI3zrq/e8gkfbXLNOI9Dg== 0000950144-94-000882.txt : 19940425 0000950144-94-000882.hdr.sgml : 19940425 ACCESSION NUMBER: 0000950144-94-000882 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19940422 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: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-52401 FILM NUMBER: 94523852 BUSINESS ADDRESS: STREET 1: 4525 HARDING RD CITY: NASHVILLE STATE: TN ZIP: 37205 BUSINESS PHONE: 6153834444 S-3/A 1 HEALTHTRUST, INC. AMENT #3 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1994 REGISTRATION NO. 33-52401 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ HEALTHTRUST, INC. - THE HOSPITAL COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 4525 HARDING ROAD NASHVILLE, TENNESSEE 37205 (615) 383-4444 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) DELAWARE 62-1234332 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
------------------------ Philip D. Wheeler, Esq. Senior Vice President, General Counsel and Secretary Healthtrust, Inc. - The Hospital Company 4525 Harding Road Nashville, Tennessee 37205 (615) 383-4444 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: MORTON A. PIERCE, ESQ. WINTHROP B. CONRAD, ESQ. DEWEY BALLANTINE DAVIS POLK & WARDWELL 1301 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE NEW YORK, NY 10019 NEW YORK, NY 10017 (212) 259-8000 (212) 450-4000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE This registration statement contains a prospectus relating to a public offering of securities in the United States and Canada (the "U.S. Offering") together with separate prospectus pages relating to a concurrent offering of securities outside the United States and Canada (the "International Offering"). The complete prospectus for the U.S. Offering follows immediately after this Explanatory Note. After such prospectus are the following alternate pages for the International Offering: a front cover page, an "Underwriting" section and a back cover page. All other pages of the prospectus for the U.S. Offering are to be used for both the U.S. Offering and the International Offering. Final forms of each prospectus will be filed with the Securities and Exchange Commission pursuant to Rule 424(b). 3 *************************************************************************** * * * INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * * REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED * * WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT * * BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * * REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT * * CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY * * NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION * * IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO * * REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH * * JURISDICTION. * * * *************************************************************************** SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED APRIL 22, 1994 PROSPECTUS 6,220,404 SHARES HEALTHTRUST INC. The Hospital Company COMMON STOCK ------------------------ Of the 6,220,404 shares of Common Stock (par value $.001 per share) offered hereby, 4,976,323 shares are being offered hereby in the United States and Canada by the U.S. Underwriters and 1,244,081 shares are being offered in a concurrent offering outside the United States and Canada by the International Underwriters. The offering price and the aggregate underwriting discount per share are identical for both offerings. See "Underwriting." Of the 6,220,404 shares of Common Stock offered, 5,200,000 shares are being sold by Healthtrust, Inc. - The Hospital Company and 1,020,404 shares are being sold by certain non-management selling stockholders upon the exercise of warrants which were issued in connection with the formation of the Company. See "Selling Stockholders." The Company will not receive any of the proceeds from the sale of shares by the selling stockholders. The Underwriters have agreed to purchase the shares to be sold by the Company regardless of whether certain conditions to the Underwriters' obligations to purchase the selling stockholders' shares are met. See "Underwriting." Concurrently with the Offerings, the Company is publicly offering $200 million aggregate principal amount of % Subordinated Notes due 2004. The Offerings and the offering of the Subordinated Notes are being made as part of the financing of the Company's acquisition of EPIC Holdings, Inc. and certain related transactions. The Offerings and the offering of the Subordinated Notes are contingent upon the consummation of the acquisition. See "The Acquisition and the Financing Plan." The Common Stock of the Company is traded on the New York Stock Exchange under the symbol "HTI." On April 5, 1994, the last sale price of the Company's Common Stock, as reported on the New York Stock Exchange, was $30.75 per share. FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS - -------------------------------------------------------------------------------------------------- Per Share......................... $ $ $ $ - -------------------------------------------------------------------------------------------------- Total(3).......................... $ $ $ $ - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses of the offerings payable by the Company estimated at $ . (3) The Company has granted the U.S. Underwriters and the International Underwriters options exercisable within 30 days after the date hereof to purchase up to 624,000 and 156,000 additional shares, respectively, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to various prior conditions, including the right to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about , 1994. ------------------------ MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ------------------------ The date of this Prospectus is , 1994. 4 (Map, see Appendix) ------------------------ IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 5 THE COMPANY Healthtrust, Inc. - The Hospital Company (together with its subsidiaries, "Healthtrust" or the "Company") is one of the largest providers of health care services in the United States, delivering a full range of inpatient, outpatient and other health care services principally through its affiliated hospitals. At February 1, 1994, the Company owned or leased through its subsidiaries or joint ventures 81 acute care hospitals (the "affiliated hospitals") and is an investor, through joint ventures, in four other acute care hospitals. The Company's affiliated hospitals are located in rural, suburban and urban communities in 21 southern and western states. Approximately 40% of Healthtrust's affiliated hospitals are the sole providers of general acute care hospital services in their communities, and an additional 20% are one of two general acute care hospitals in their communities. The Company's affiliated hospitals generally provide a full range of inpatient and outpatient health care services, including medical/surgical, diagnostic, obstetric, pediatric and emergency services. Many of the Company's affiliated hospitals also offer certain specialty programs and services, including occupational medicine programs, home health care services, skilled nursing services, physical therapy programs, rehabilitation services, alcohol and drug dependency programs and selected mental health services. The Company has experienced consistent growth since it began operations through the acquisition of a group of hospitals and related assets (the "Formation") from Hospital Corporation of America ("HCA") in September 1987. The 81 affiliated hospitals presently operated by the Company generated approximately $2.4 billion of net operating revenue, net income before extraordinary charges and preferred stock dividends of $135.2 million and net income of $121.6 million for the fiscal year ended August 31, 1993, compared with approximately $1.8 billion of net operating revenue, a net loss before extraordinary charges and preferred stock dividends of $101.3 million and a net loss of $159.9 million for the fiscal year ended August 31, 1989 generated by the 94 hospitals then operated by the Company. In addition, for the same periods, the Company's operating cash flow (net operating revenue less hospital service costs) increased from $339.2 million to $506.0 million. Operating cash flow should not be considered as a substitute for cash provided by operating activities or any consolidated income statement data prepared in accordance with generally accepted accounting principles ("GAAP"). See "Selected Historical Financial Information." The Company's principal objective is to be a significant and growing provider of low cost, high quality health care services in the markets in which it operates. Although the means of achieving this objective will vary depending upon the local market and the relative position of the Company's affiliated hospitals and other health care businesses in that market, the strategies employed generally include (i) expanding market share through improvements in quality and reductions in cost for existing services and through the provision of new or expanded services to meet underserved needs, (ii) participating in quality health care delivery networks through affiliations, joint ventures, partnerships and other arrangements with physicians, other hospitals and providers of other health care related services, (iii) continuously improving operating and financial performance, and (iv) developing the resources needed by management to operate more effectively in the changing health care environment. In addition, the Company has pursued and will continue to pursue other opportunities to grow through the acquisition, construction or development of hospital facilities or other health care related businesses that are or can be positioned competitively in their markets consistent with the Company's objectives. The Company recently acquired Nashville Memorial Hospital in Madison, Tennessee and executed a definitive agreement to purchase Holy Cross Hospital of Salt Lake City, Utah, Holy Cross-Jordan Valley Hospital in Jordan Valley, Utah and St. Benedict's Hospital in Ogden, Utah. On March 22, 1994, the Federal Trade Commission ("FTC") informed the Company that it will challenge the acquisition of the three Utah hospitals. The Company is seeking to resolve the issues raised by the FTC. Consistent with the Company's strategy, Healthtrust entered into an agreement on January 9, 1994 to acquire EPIC Holdings, Inc. ("EPIC Holdings" and, together with its subsidiaries, "EPIC") (the "Acquisition"). EPIC is a health care services provider that owns and operates 34 general acute care hospitals providing inpatient, outpatient and other specialty services in 10 southern, southwestern and western states. Approximately 29% of EPIC's hospitals are the sole providers of general acute care hospital services in their communities, and an additional 27% of EPIC's hospitals are one of two general acute care hospitals in their communities. Following the Acquisition, Healthtrust will be the second largest hospital management company 3 6 in the United States, operating 115 hospitals in 22 states. Of these 115 hospitals, approximately 37% are the sole providers of general acute care hospital services in their communities and an additional 22% are one of two such providers in their communities. Total pro forma combined net operating revenue, operating cash flow and net income before extraordinary charges for Healthtrust and EPIC for their 1993 fiscal years were approximately $3.4 billion, $651.4 million and $127.7 million, respectively, after giving effect to the Acquisition and the Financing Plan, assuming 100% of each issue of Specified EPIC Debt Securities is purchased in the Tender Offers (all as hereinafter defined). See "Selected Pro Forma Financial Information." The Company believes that the Acquisition will enhance the Company's presence in the geographic areas it presently serves and provide access to new markets. In addition, the Acquisition will allow the Company to expand its health care delivery capabilities in such areas as home health care, geropsychiatric care, rehabilitation services and physical therapy services, thereby enhancing the Company's development of integrated health care delivery networks designed to provide a full range of health care services to managed care plans, self-insured employers and certain government payors. Healthtrust also expects to realize operating cost savings of approximately $50 million during the fiscal year ending August 31, 1995 resulting from increased economies of scale and improved operating efficiencies following the Acquisition. After giving effect to these savings, the Acquisition is expected to add $0.10 to $0.12 per share to the Company's earnings during fiscal year 1995. See "Investment Considerations -- Acquisition-Related Considerations," "The Acquisition and the Financing Plan" and the Unaudited Pro Forma Condensed Combined Financial Statements of the Company included elsewhere in this Prospectus. THE FINANCING PLAN In connection with the Acquisition, on March 15, 1994, EPIC and certain of its subsidiaries commenced offers to purchase up to 100% of five series of outstanding debt securities of EPIC (the "Specified EPIC Debt Securities") in an aggregate principal amount of approximately $608.5 million (representing an aggregate accreted value of approximately $529.9 million as of December 31, 1993). In connection therewith, the consent of the holders of the Specified EPIC Debt Securities is being solicited to eliminate or modify substantially all of the restrictive covenants and certain event of default provisions related thereto. The offers to purchase the Specified EPIC Debt Securities and the related solicitation of consents are hereinafter referred to as the "Tender Offers." In addition, following the consummation of the Acquisition, it is anticipated that approximately $220.8 million aggregate principal amount of certain other outstanding EPIC indebtedness (representing an aggregate accreted value of approximately $142.6 million as of December 31, 1993) will be redeemed or prepaid in accordance with the provisions thereof (the "Debt Redemption"). The Acquisition, the Tender Offers and the Debt Redemption will be financed through the following: (i) the offering by the Company of the Common Stock offered hereby, (ii) the public offering by the Company of $200.0 million aggregate principal amount of a new series of subordinated notes (the "Subordinated Debt Offering"), (iii) the refinancing of the Company's existing bank credit facility with a new bank credit facility (the "1994 Credit Agreement") providing for aggregate commitments of up to $1.2 billion and (iv) cash on hand. The offering of the Common Stock offered hereby is expected to occur substantially contemporaneously with the Acquisition, the Subordinated Debt Offering, the Debt Redemption and the 1994 Credit Agreement, and is conditioned upon the consummation of the Acquisition. It is anticipated that the Tender Offers will remain open until approximately five business days after the consummation of the Acquisition. See "The Acquisition and the Financing Plan" and the Unaudited Pro Forma Condensed Combined Financial Statements of the Company included elsewhere in this Prospectus. 4 7 THE OFFERINGS Of the 6,220,404 shares of Common Stock offered hereby, 4,976,323 shares are being offered in the United States and Canada by the U.S. Underwriters and 1,244,081 shares are being offered in a concurrent offering outside the United States and Canada by the International Underwriters (the "Offerings"). Of the shares of Common Stock offered hereby, 1,020,404 shares (the "Secondary Shares") are being offered by certain non-management selling stockholders (the "Selling Stockholders"). Common Stock Offered by: The Company................................. 5,200,000 shares The Selling Stockholders.................... 1,020,404 shares(1) Common Stock Outstanding after the Offerings................................... 87,438,489 shares(2) Use of Proceeds............................... The proceeds of the sale of the shares of Common Stock offered by the Company in the Offerings, together with the proceeds of the Subordinated Debt Offering, borrowings under the 1994 Credit Agreement and cash on hand, will be used to finance the Acquisition, the Tender Offers and the Debt Redemption. See "Use of Proceeds." The Company will not receive any of the proceeds of the sale of the shares of Common Stock offered by the Selling Stockholders. New York Stock Exchange Symbol................ HTI
- --------------- (1) 1,015,312 of the Secondary Shares are being offered by the holders thereof upon exercise of Warrants to purchase Common Stock issued in 1987 in connection with the Formation of the Company ("Warrants") at an exercise price of $3.18 per share. 3,772 and 1,320 of the Secondary Shares were purchased by the holders thereof upon exercise of Warrants at exercise prices of $7.95 and $5.30 per share, respectively. See "Selling Stockholders." (2) As of March 25, 1994. Does not include (i) 4,304,107 shares of Common Stock issuable upon exercise of options granted under the Company's stock option plans (of which options for 916,100 shares are presently exercisable) as of January 31, 1994 (ii) 2,393,907 shares of Common Stock issuable upon exercise of Warrants and (iii) approximately 900,000 shares of Common Stock to be issued and contributed to the Company's 401(k) Retirement Program (the "Plan") on or about May 15, 1994. 5 8 INVESTMENT CONSIDERATIONS Prospective investors should consider carefully, in addition to the other information contained in this Prospectus, the following factors before purchasing the Common Stock offered hereby. SUBSTANTIAL INDEBTEDNESS Following the consummation of the Acquisition and the Financing Plan, the Company will continue to have substantial indebtedness and, as a result, significant debt service obligations. As of February 28, 1994, the Company's ratio of long-term debt to stockholders' equity was 1.3 to 1 and approximately $150.3 million of the Company's $967.0 million of long-term debt was subject to variable interest rates (in each case including current maturities). After giving effect to the Acquisition and the transactions contemplated by the Financing Plan (as hereinafter defined), at February 28, 1994, the ratio of the Company's long-term debt to stockholders' equity would have been 2.0 to 1, and the portion of the Company's $1,749.8 million of long-term debt subject to variable interest rates would have been approximately $712.7 million (in each case including current maturities), in each case assuming 100% of each issue of the outstanding Specified EPIC Debt Securities is purchased in the Tender Offers. See "Capitalization" and the Unaudited Pro Forma Condensed Combined Financial Statements of the Company included elsewhere in this Prospectus. The degree to which the Company is leveraged could have important consequences to holders of the Common Stock, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for its operations; (iii) certain of the Company's borrowings are and will continue to be at variable rates of interest, which causes the Company to be vulnerable to increases in interest rates; and (iv) such indebtedness contains numerous financial and other restrictive covenants, including those restricting the incurrence of indebtedness, the creation or existence of liens, the declaration or payment of dividends, certain investments, the acquisition of securities of the Company, and certain extraordinary corporate transactions. Failure by the Company to comply with such covenants may result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. The Company's ability to make scheduled payments or to refinance its obligations with respect to its indebtedness depends on its financial and operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond its control. Although the Company's cash flow from its operations has been sufficient to meet its debt service obligations in the past, there can be no assurance that the Company's operating results will continue to be sufficient for payment of the Company's indebtedness. HEALTH CARE REFORM On November 20, 1993, President Clinton submitted proposed comprehensive health care reform legislation ("Administration's Proposal") to Congress. A central component of the Administration's Proposal is the restructuring of health insurance markets through the use of "managed competition." Under the Administration's Proposal, states would be required to establish regional purchasing cooperatives, known as "regional alliances," that would be the exclusive source of coverage for individuals and employers with less than 5,000 employees. All employers would be required to make coverage available to their employees and contribute 80% of the premium, and all individuals would be required to enroll in an approved health plan. Regional alliances would contract with health plans that demonstrate an ability to provide consumers with a full range of benefits, including hospital services, and the provision of such benefits would be mandated by the federal government. The federal government would provide subsidies to low income individuals and certain small businesses to help pay for the cost of coverage. These subsidies and other costs of the Administration's Proposal would be funded in significant part by reductions in payments by the Medicare and Medicaid programs to providers, including hospitals. The Administration's Proposal would also place stringent limits on the annual growth in health plan premiums. Other comprehensive reform proposals have been or are expected 6 9 to be introduced in Congress. These other proposals contain or are expected to contain coverage guarantees, benefit standards, financing and cost control mechanisms which are different than the Administration's Proposal. The Company is unable to predict what, if any, reforms will be adopted, or when any such reforms will be implemented. No assurance can be given that such reforms will not have a material adverse impact on the Company's revenues or earnings. REIMBURSEMENT AND REGULATION The Company derives a substantial portion of its revenue from Medicare and Medicaid programs. Such programs are highly regulated and subject to frequent and in certain cases substantial changes. Significant changes in Medicare and Medicaid reimbursement programs have resulted in reduced levels of reimbursement for a substantial portion of hospital procedures and costs. Changes in other existing reimbursement programs are scheduled or anticipated in the future which changes are likely to result in further reductions in reimbursement levels. In addition, the Company's revenue could be affected by any implementation of federal government sequestration under the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. The health care industry is subject to extensive federal, state and local regulation relating to licensure, conduct of operations, addition of facilities and services and cost containment. Over the past several years, federal and state initiatives have been undertaken to evaluate the impact that financial arrangements between health care providers and physicians may have on Medicare and state health care programs. As a result of such initiatives, the U.S. Department of Health and Human Services ("HHS") issued final regulations outlining certain "safe harbor" practices which, although potentially capable of inducing prohibited referrals of business, would not be subject to enforcement action under the Social Security Act of 1935, as amended (the "Social Security Act"). In addition, certain provisions of Section 1877 of the Social Security Act, commonly known as the "Stark Bill," have recently been amended to significantly broaden the scope of prohibited physician self-referrals thereunder. Certain of the Company's current financial arrangements with physicians do not qualify for the safe harbor exemptions and, as a result, risk scrutiny by HHS and may be subject to enforcement action. Additionally, the Company believes that certain of EPIC's financial arrangements with physicians do not qualify for the safe harbor exemptions. The Company's participation in and development of joint ventures and other financial arrangements with physicians could be adversely affected by the recent HHS regulations and Stark Bill amendments. The Company is unable to predict the future course of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations. Further changes in the regulatory framework could have an adverse impact on the Company. DEPENDENCE ON PHYSICIANS AND OTHER KEY PERSONNEL Since physicians generally control the majority of hospital admissions, the success of the Company, in part, is dependent upon the number and quality of physicians on its hospitals' medical staffs. The Company's operations also are dependent on the efforts, ability and experience of its key corporate and hospital management teams. The loss of some or all of these key personnel or an inability to attract and retain sufficient numbers of qualified physicians could adversely affect the Company's hospitals. COMPETITION The health care business is highly competitive and subject to excess capacity. Competition among hospitals and other health care providers for patients has intensified in recent years. During this period, hospital occupancy rates in the United States have declined as a result of cost containment pressures, changing technology, changes in regulations and reimbursement, changes in practice patterns from inpatient to outpatient treatment, an increasing supply of physicians and other factors. In many geographic areas in which the Company operates, there are other hospitals or facilities that provide inpatient or outpatient services comparable to those offered by the Company's hospitals. Certain of these hospitals have greater financial resources than the Company's hospitals and offer a wider range of services than the Company's hospitals. Even in communities in which the Company's hospitals are the sole providers of general acute care hospital services, the Company may face competition from local providers of outpatient services and hospitals and 7 10 other health care providers in nearby communities. The competitive position of the Company's hospitals also has been, and in all likelihood will continue to be, affected by the increased initiatives undertaken during the past several years by federal and state governments and other major purchasers of health care, including insurance companies and employers, to revise payment methodologies and monitor health care expenditures in order to contain health care costs. Due in part to these initiatives, managed care organizations such as health maintenance organizations ("HMOs") and preferred provider organizations ("PPOs"), which offer prepaid and discounted medical services packages, represent an increasing segment of health care payors, tending to reduce the historical rate of growth of hospital revenue. In addition, hospitals owned by governmental agencies or other tax-exempt entities benefit from endowments, charitable contributions and tax-exempt financing, which advantages are not enjoyed by the Company's hospitals. LEGAL PROCEEDINGS Certain of the Company's Utah hospitals, along with other Utah hospitals, were the subject of a federal grand jury investigation of possible criminal violations of the federal antitrust laws in connection with nursing compensation practices. The Company has been informed by the Antitrust Division of U.S. Department of Justice that the Government does not intend to pursue criminal charges against the Company but may pursue civil proceedings in connection with the actions of its Utah facilities. Although the Company attempts to structure its compensation practices to comply with federal and state law, the Company cannot predict with certainty the outcome of this ongoing civil investigation. On March 9, 1994, Memorial Hospital at Gulfport ("Memorial") filed suit against EPIC and the Company in Mississippi State court, alleging that EPIC agreed to sell Garden Park Community Hospital ("Garden Park") in Garden Park, Mississippi to Memorial for approximately $23.3 million. The suit seeks specific performance of the alleged agreement and actual and punitive damages. In addition, Memorial is seeking a preliminary injunction to prohibit consummation of the Acquisition until the final disposition of its suit or, in the alternative, a preliminary injunction prohibiting EPIC and the Company from encumbering or disposing of the assets comprising Garden Park. Following a bench trial, the court concluded that no contract for the sale of Garden Park was reached, and denied Memorial's motion for specific performance and injunctive relief. In addition, in April 1994, Lawrence Lacroix filed suit against EPIC in Texas state court alleging that the payment to certain EPIC executives of severance and other benefits in connection with the Acquisition, the payment of the Acquisition consideration with respect to outstanding EPIC stock appreciation rights and the cash contribution to the EPIC Employee Stock Ownership Plan (the "EPIC ESOP") contemplated by the ESOP Agreement (as defined herein) are fraudulent transfers, the effect of which would be to deplete the assets of EPIC available to satisfy Mr. Lacroix's claims as a potential judgment creditor. EPIC has informed the Company that it believes Mr. Lacroix's suit is without merit. PROFESSIONAL LIABILITY As is typical in the health care industry, the Company is subject to claims and legal actions by patients and others in the ordinary course of business. The Company generally self-insures against substantially all of its professional and general liabilities and maintains an unfunded reserve for liability risks. While the Company's cash flow has been adequate to provide for liability claims in the past, there can be no assurance that the Company's cash flow will continue to be adequate. If payments with respect to self-insured liabilities increase in the future, the results of operations of the Company could be adversely affected. PRINCIPAL STOCKHOLDER As of December 31, 1993, the trustee (the "Plan Trustee") of the Plan held approximately 31% of the outstanding Common Stock. After giving effect to the Offerings, as of December 31, 1993, the Plan Trustee would have held approximately 28% of the outstanding Common Stock. Shares of Common Stock held by the Plan Trustee are held in the accounts of participants in the Plan. Such participants are able to direct the Plan Trustee to vote the shares allocated to their accounts, except when the Plan Trustee believes its fiduciary duties obligate it to override such directions. As a principal stockholder, the Plan Trustee may have the ability to influence the policies and affairs of the Company to a greater extent than other stockholders. 8 11 FORMATION-RELATED CONSIDERATIONS In connection with the Formation of Healthtrust in 1987, HCA agreed to indemnify the Company against tax claims, professional liability claims and claims covered by standard public liability insurance relating to the acquired assets, in each case relating to periods prior to the Formation. In the past HCA has satisfied its obligation to indemnify the Company for all such claims, and the Company has no reason to believe that HCA would not continue to do so. However, if HCA should fail to meet its indemnification obligations, the Company would be responsible for the satisfaction of any such claims in the future, which claims, if substantial, could have a material adverse effect on the Company. With respect to certain taxable periods ending on or prior to the Formation in September 1987, the Company and certain of its subsidiaries filed federal income tax returns on a consolidated basis with HCA and, as a result, under federal income tax law, the Company and such subsidiaries are severally liable with HCA for the federal income taxes of HCA's consolidated group for such periods. However, in connection with the Formation, HCA agreed that it would be responsible for the payment of all taxes, assessments, interest and penalties imposed by any taxing authority for any periods prior to and including the date of the Formation. HCA has disclosed that following a recent examination of HCA's federal income tax returns for tax years 1981 through 1990, the Internal Revenue Service has proposed certain adjustments to such returns, and HCA has received notices of deficiencies for certain years, which it is contesting through litigation. Should HCA be unable to sustain its position on disputed matters, additional taxes would approximate $383 million, plus accrued interest of approximately $640 million as of December 31, 1993, for taxable periods in which the Company and certain of its subsidiaries were members of HCA's consolidated group. If the additional taxes that have been asserted by the Internal Revenue Service were finally determined to be due and HCA were unable to, or for any other reason did not, pay such taxes or related interest, the Company could be responsible for such payment, which payment could have a material adverse effect on the Company. ERISA MATTERS In connection with the Formation in 1987, the Company's Employee Stock Ownership Plan (the "ESOP") purchased approximately 50.9 million shares of Common Stock for $810 million. The purchase price was based on the determination of the committee administering the ESOP (the "ESOP Committee") as to the fair market value of such shares at that time. Based on such determination, and subject to limitations contained in the Internal Revenue Code of 1986, as amended (the "Code"), the Company has claimed income tax deductions for contributions to the ESOP for the years to which such contributions relate. Contributions to the ESOP were used by the ESOP to pay interest and principal on the loans owed to the Company. These payments were in turn used by the Company to pay interest and principal on the ESOP term loans under the Company's previous bank credit agreement and certain other indebtedness related to the ESOP. As a result, the Company was effectively able to obtain a deduction for principal, as well as interest payments, on ESOP-related borrowings. If the ESOP Committee's determination of fair market value was incorrect, the Company's contribution to the ESOP might not be fully deductible, which could have a material adverse effect on the Company. It was intended that qualified holders of the ESOP term loans and the other indebtedness incurred in connection with the ESOP be entitled to exclude from taxable income 50% of the interest received on such indebtedness. In addition, the loans to the ESOP and the purchase of Common Stock by the ESOP were intended to qualify for exemption from the "prohibited transaction" rules under the Code and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which rules generally prohibit sale and loan transactions between an employer and a qualified retirement plan. The 50% interest exclusion and the prohibited transaction exemption were available only if the plan was designed to invest primarily in "employer securities." It is likely that if Healthtrust and HCA were deemed to have been members of the same "controlled group of corporations" for purposes of the relevant section in the Code or ERISA, the stock of HCA, and not Healthtrust's Common Stock, would have been "employer securities" for these purposes. Healthtrust and HCA concluded that they were not in the same "controlled group of corporations" (as defined in Section 409(1) of the Code). If, notwithstanding such conclusion, HCA's common stock were deemed to have been "employer securities" for such purposes, there could be severe adverse consequences to Healthtrust, 9 12 including violation of the prohibited transaction rules discussed above (which could subject Healthtrust or other disqualified persons with respect to the ESOP to an excise tax and could require that certain corrective action be taken) and retroactive increases in the rate of interest payable on certain of the Company's previously outstanding ESOP-related indebtedness as a result of the loss of the 50% interest exclusion. In addition, the 50% interest exclusion and the prohibited transaction exemption were available only if the price paid by the ESOP reflected the fair market value of the employer securities as determined in good faith by the plan fiduciaries. Accordingly, if the ESOP Committee's determination of fair market value was incorrect, the 50% interest exclusion might not have been fully available and the Company or other disqualified persons may have committed prohibited transactions, either of which events could have a material adverse effect on the Company. See Note 6 to "Capitalization." ACQUISITION-RELATED CONSIDERATIONS The purchase of EPIC common stock by the EPIC ESOP in connection with EPIC's acquisition (the "EPIC Formation") of its facilities from American Medical International, Inc. ("AMI") in 1988 was structured in a manner similar to the purchase of Common Stock by the ESOP in connection with the Formation of Healthtrust and was intended to (i) qualify for exemption from the "prohibited transaction" rules of the Code and ERISA, (ii) permit EPIC to deduct for federal income tax purposes its contributions to the EPIC ESOP used to pay principal and interest on loans made by EPIC to the EPIC ESOP and (iii) permit qualified holders of indebtedness incurred in connection with the EPIC ESOP to benefit from the 50% interest exclusion provision referred to in "-- ERISA Matters" above. Exemption from the prohibited transaction rules and the availability of the ESOP-related benefits described above depends on (i) the amount the EPIC ESOP paid for EPIC common stock not having exceeded the fair market value of that EPIC common stock, (ii) the EPIC common stock being "employer securities" and (iii) compliance with the other relevant provisions of the Code and ERISA. If (i) the EPIC ESOP paid an amount in excess of fair market value for the EPIC common stock, (ii) the EPIC common stock were to fail to qualify as "employer securities" or (iii) the EPIC ESOP were to fail to comply with the other relevant provisions of the Code or ERISA, such events could result in material adverse consequences to EPIC similar to those described with respect to the Company under "-- ERISA Matters" above, which could have a material adverse effect on the Company following consummation of the Acquisition. See "The Acquisition and the Financing Plan" and Note 6 to "Capitalization." In addition, although the Company believes that the actions which the parties intend to take with respect to the EPIC ESOP pursuant to the ESOP Agreement (as hereinafter defined) should not give rise to any adverse tax or other consequences to EPIC or the Company, if the Internal Revenue Service or the Department of Labor were to successfully challenge certain aspects of such actions, the Company or EPIC could be subject to certain taxes or penalties, which could have a material adverse effect on the Company following consummation of the Acquisition. Additionally, the termination of contributions to the EPIC ESOP in connection with the Acquisition will result in a default on the EPIC ESOP Notes (as hereinafter defined). If the EPIC ESOP Notes are not redeemed pursuant to the Debt Redemption, such default could adversely affect the Company. See "The Acquisition and the Financing Plan." In connection with the EPIC Formation, AMI agreed to indemnify EPIC against certain losses, including the loss of certain expected tax benefits. If AMI is unable to or otherwise does not satisfy such indemnification obligations, EPIC could be responsible for such losses, which could adversely affect the Company following the Acquisition. The Company will use the proceeds of the Offerings to fund the Acquisition. While the Company believes that it can improve the profitability of the operations acquired from EPIC, there can be no assurance that this will be the case. In addition, there can be no assurance that the Company will be able to realize expected operating and economic efficiencies following the Acquisition or that the Acquisition will not adversely affect the Company's results of operations or financial condition. See the Unaudited Pro Forma Condensed Combined Financial Statements of the Company included elsewhere in this Prospectus. 10 13 THE ACQUISITION AND THE FINANCING PLAN On January 9, 1994, Healthtrust, Odyssey Acquisition Corp., a wholly-owned subsidiary of Healthtrust ("Odyssey") and EPIC entered into a merger agreement pursuant to which Odyssey will merge into EPIC and EPIC will become a wholly-owned subsidiary of Healthtrust. Upon consummation of the Acquisition, the holders of EPIC common stock (and securities exercisable therefor) will become entitled to receive $7.00 per share in cash from Healthtrust. It is anticipated that the Company will purchase approximately 35.7 million shares of EPIC common stock (and securities exercisable therefor) at the closing of the Acquisition, for an aggregate purchase price of approximately $250.2 million, comprised of the following securities: (i) approximately 13.6 million shares of EPIC common stock allocated or allocable to EPIC ESOP participants, (ii) approximately 15.9 million other shares of outstanding EPIC common stock and (iii) outstanding stock appreciation rights, warrants and options exercisable for approximately 6.2 million shares of EPIC common stock. The consummation of the Acquisition is subject to certain conditions, including, among others, the approval of the stockholders of EPIC, certain regulatory approvals and the consent solicitation in connection with the Specified EPIC Debt Securities described below. The approval of the Acquisition requires the affirmative vote of the holders of a majority of the outstanding shares of EPIC common stock entitled to vote thereon. Subject to certain conditions, each of AMI and the EPIC ESOP Trustee has agreed to vote the shares of EPIC common stock over which it exercises voting power (in the aggregate approximately 52% of the EPIC common stock outstanding on January 8, 1994) in favor of the Acquisition. In connection with the Acquisition, the Company entered into an Amended and Restated ESOP Agreement (the "ESOP Agreement") with EPIC Holdings, EPIC Healthcare Group, Inc. ("EPIC Group"), U.S. Trust Company of California, N.A., the trustee of the trust established under the EPIC ESOP (the "EPIC ESOP Trustee") and the EPIC Committee administering the EPIC ESOP. Pursuant to the ESOP Agreement, all shares of EPIC common stock held by the EPIC ESOP Trustee and not allocated or allocable to EPIC ESOP participants as of the closing of the Acquisition (approximately 10.6 million shares) will be returned to EPIC in full satisfaction of certain loans granted by EPIC to the EPIC ESOP Trustee, and contributions to the EPIC ESOP will be terminated. Subject to certain Code limitations, EPIC has agreed to contribute approximately $27.6 million in cash to the EPIC ESOP upon consummation of the Acquisition or within one business day thereafter, which contribution will not be applied to repay EPIC ESOP loans but will be allocated directly to participants' accounts. In addition, following the Acquisition, the EPIC ESOP participants who continue to be employed by the Company will be entitled to participate in the Plan or in a similar plan to be established by the Company (the Plan or such other plan, the "Healthtrust Plan"). Subject to Code limitations, EPIC will contribute to the EPIC ESOP an aggregate dollar amount equivalent to the 4% profit sharing contribution (described below) to which EPIC ESOP participants would have been entitled had they participated in the Plan from March 1, 1994 through the Acquisition closing date. In addition, the Company has agreed to provide certain minimum retirement benefits in accordance with the terms of the Plan and subject to Code limitations, including (i) a profit sharing contribution by the Company on behalf of EPIC ESOP participants who participate in the Healthtrust Plan of 4% of aggregate compensation from the Acquisition closing date through December 31, 1994 and (ii) a matching contribution by the Company of 100% of participants' salary deferrals for each EPIC ESOP participant who participates in the Healthtrust Plan, up to a maximum of 3% of compensation, for the period from the Acquisition closing date through December 31, 1998. In the event that fewer shares are so allocated or allocable to EPIC ESOP participants as of the closing or the full amount of contributions to the Healthtrust Plan are not permitted to be made due to Code limitations, additional contributions will be made in the future in lieu of any shares not so allocated or allocable and any contributions not so permitted to be made. The obligations of the parties under the ESOP Agreement are conditioned upon, among other things, the consummation of the Acquisition. The foregoing does not purport to be a complete description of the ESOP Agreement and reference is hereby made to the ESOP Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. In connection with the Acquisition and the related merger agreement, on March 15, 1994, EPIC and certain of its subsidiaries commenced offers to purchase up to 100% of the following outstanding debt securities of EPIC at the following purchase prices: (i) $250.0 million aggregate principal amount (represent- 11 14 ing an aggregate accreted value of approximately $172.2 million as of December 31, 1993) of 12% Senior Deferred Coupon Notes due 2002 of EPIC Holdings (the "EPIC 12% Notes") for 112% of accreted value (expected to be approximately $178.8 million at the time of purchase), or an aggregate purchase price of $200.3 million, (ii) $160 million aggregate principal amount of 10 7/8% Senior Subordinated Notes due 2003 of EPIC Group (the "EPIC 10 7/8% Notes") for 116% of principal amount, or an aggregate purchase price of $185.6 million, (iii) $100 million aggregate principal amount (representing an aggregate accreted value of approximately $99.6 million as of December 31, 1993) of 11 3/8% Class B-1 First Priority Mortgage Notes due 2001 of EPIC Properties (the "EPIC Class 1 Mortgage Notes"), for 118 3/4% of principal amount, or an aggregate purchase price of $118.8 million, (iv) approximately $83.5 million aggregate principal amount (representing an aggregate accreted value of approximately $83.1 million as of December 31, 1993) of 11 1/2% Class B-2 First Priority Mortgage Notes due 2001 of EPIC Properties (the "EPIC Class 2 Mortgage Notes") for 121 1/8% of principal amount, or an aggregate purchase price of $101.1 million and (v) $15 million aggregate principal amount of Floating Rate Class B-3 First Priority Mortgage Notes due 1998 (with an interest rate of 6 3/8% at February 1, 1994) of EPIC Properties (the "EPIC Class 3 Mortgage Notes" and, together with the EPIC Class 1 Mortgage Notes and EPIC Class 2 Mortgage Notes, the "EPIC Mortgage Notes") for 103 1/8% of principal amount, or an aggregate purchase price of $15.5 million. In connection therewith, the consent of the holders of the Specified EPIC Debt Securities is being solicited to eliminate or modify substantially all of the restrictive covenants and certain event of default provisions relating to any Specified EPIC Debt Securities which remain outstanding after the offers to purchase are completed. Consent payments of $20 per $1,000 of principal amount will be made with respect to the Specified EPIC Debt Securities for which consents have been validly delivered (and not revoked) on or prior to April 13, 1994, the date on which such consents were accepted. The obligation to make the consent payments is subject to certain conditions, including the acceptance for purchase and payment of the applicable issue of Specified EPIC Debt Securities in the Tender Offers. The obligation to purchase and pay for the Specified EPIC Debt Securities in the Tender Offers is conditioned upon, among other things, (i) the consummation of the Acquisition, the Offerings and the Subordinated Debt Offering, (ii) the Company having entered into the 1994 Credit Agreement and having received sufficient proceeds of borrowings thereunder to consummate the Tender Offers, (iii) receipt of validly delivered and unrevoked consents from holders of a majority in aggregate principal amount of each of the EPIC 12% Notes, EPIC 10 7/8% Notes and EPIC Mortgage Notes and (iv) there having been validly tendered and not withdrawn at least a majority in aggregate principal amount of each of the EPIC 12% Notes, EPIC 10 7/8% Notes and EPIC Mortgage Notes. On April 14, 1994, after receiving tenders and related consents from the holders of 100%, 100% and 95.1% of the outstanding EPIC 12% Notes, EPIC 10 7/8% Notes and EPIC Mortgage Notes, respectively (the "Current Tender Amounts"), supplemental indentures giving effect to the proposed modifications to the Specified EPIC Debt Securities were executed. Holders of tendered Specified EPIC Debt Securities will no longer be entitled to withdraw such securities or their related consents (except as otherwise provided pursuant to the terms of the Tender Offers). Following the consummation of the Acquisition, it is anticipated that 100% of the following outstanding indebtedness of EPIC Group (collectively, the "EPIC Redeemable Debt") will be redeemed or prepaid in accordance with the provisions thereof: (i) approximately $74.8 million aggregate principal amount (representing an aggregate accreted value of approximately $72.3 million as of December 31, 1993) of 11 7/8% Senior ESOP Notes due 1998 (the "EPIC ESOP Notes"), (ii) approximately $96.4 million aggregate principal amount (representing an aggregate accreted value of approximately $31.9 million as of December 31, 1993) of Zero Coupon Notes due 2001 (the "EPIC Zero Coupon Notes") (with an effective interest rate of 14.8% at December 31, 1993), (iii) approximately $30.9 million aggregate principal amount (representing an aggregate accreted value of approximately $20.0 million as of December 31, 1993) of 11% Junior Subordinated Pay-In-Kind Notes due 2003 and (iv) approximately $18.7 million principal amount outstanding under EPIC's existing bank credit facility. During the first quarter of EPIC's 1993 fiscal year, a subsidiary of EPIC Group purchased $5.4 million of EPIC ESOP Notes in the open market. The Acquisition, the Tender Offers and the Debt Redemption will be financed through the following: (i) the Offerings by the Company; 12 15 (ii) the public offering by the Company of $200 million aggregate principal amount of a new series of Subordinated Notes due 2004; (iii) the refinancing of the Company's existing bank credit facility with a new bank credit facility described below, which will provide for aggregate commitments of up to $1.2 billion; and (iv) cash on hand. The Company and The Bank of Nova Scotia, as administrative agent (the "Administrative Agent") on behalf of a syndicate of banks to be formed, have executed a commitment letter dated March 15, 1994 (the "Commitment Letter") providing for the Company and such banks to enter into the 1994 Credit Agreement. Pursuant to the Commitment Letter, the Company will be able to borrow up to an aggregate of $1.2 billion, consisting of (i) a revolving facility in an aggregate amount of $400.0 million (the "Revolving Facility"), with the proceeds thereof being available to pay in part the cash consideration for the Acquisition, the Financing Plan (as hereinafter defined) and the acquisition of certain other health care related facilities and assets (the "Other Transactions"), and financing the Company's ongoing working capital and general corporate needs, (ii) a term loan facility in an aggregate amount of $415.0 million (the "Term Facility"), with the proceeds thereof being available solely to pay in part the cash consideration of the Tender Offers and (iii) a declining delayed term loan facility in an initial aggregate amount of $385.0 million (the "Delayed Term Facility"), with the proceeds thereof being available solely to pay in part the cash consideration for the Debt Redemption and the Other Transactions. Under the 1994 Credit Agreement, and after giving effect to the Acquisition and the Financing Plan, the Company expects to have available an aggregate of approximately $487.3 million of unutilized commitments, assuming 100% of each issue of Specified EPIC Debt Securities is purchased in the Tender Offers. The loans to be provided under the 1994 Credit Agreement (the "1994 Loans") will bear interest at fluctuating rates equal, at the Company's option, to either (a) an alternate base rate (equal to the higher of the Administrative Agent's base rate for dollar loans or the federal funds rate plus 50 basis points) plus 50 basis points or (b) the Administrative Agent's reserve-adjusted LIBOR rate plus 150 basis points, and in each case subject to mutually agreed upon increases and reductions. The 1994 Loans will be secured by pledges of the shares of capital stock of, and will be guaranteed by, virtually all of the Company's direct and indirect subsidiaries. Pursuant to the Commitment Letter, the Company will be required to deliver pledges of capital stock and guarantees of certain EPIC entities within a specified period of time after the initial borrowings. If the Debt Redemption is not consummated, such pledges and guarantees will result in a default under certain outstanding EPIC indebtedness. The 1994 Loans provided pursuant to the Term Facility will be subject to semiannual repayment requirements commencing on the six month anniversary of the initial borrowings and the 1994 Loans provided pursuant to the Delayed Term Facility will be subject to semiannual repayment requirements commencing on the two year anniversary of the initial borrowings. The 1994 Loans must be repaid in full not later than the seven year anniversary of the initial borrowings. In addition to the scheduled repayments, the Company also will be required, subject to certain exceptions, to repay the 1994 Loans with all or a portion of the cash proceeds from sales of assets, subsidiary stock, or accounts receivable or the cash proceeds from any refinancing of the 1994 Credit Agreement. The Commitment Letter provides that the 1994 Credit Agreement will contain a number of customary covenants, including those restricting the incurrence of indebtedness, the creation or existence of liens, the declaration or payment of dividends, certain other investments, the acquisition of debt and equity securities of the Company, certain corporate transactions such as sales of substantial assets, mergers or consolidations or other transactions outside of the ordinary course of business. The Company will also be required to comply with certain financial maintenance covenants. The obligations of the Administrative Agent under the Commitment Letter are conditioned upon, among other things, (i) the execution and delivery of the 1994 Credit Agreement and related documentation; (ii) the Company's receipt of gross cash proceeds from the Subordinated Debt Offering of not less than $200.0 million; (iii) the Company's receipt of gross cash proceeds from the Offerings of not less than $140.0 million; (iv) the sum of (w) the gross cash proceeds received from the Subordinated Debt Offering, (x) the gross cash proceeds received from the Offerings, (y) cash on hand and (z) the amounts available under the 1994 Credit Agreement being sufficient to consummate the Acquisition, the Tender Offers, the Debt Redemption and the Other Transactions; (v) the consummation of the Tender Offers and (vi) the absence of any event of default 13 16 having occurred as a result of the Acquisition, the Tender Offer, the Debt Redemption or the Other Transactions under any of the indentures governing the Specified EPIC Debt Securities or the EPIC Redeemable Debt. If, for any reason, the conditions to the Administrative Agent's obligations under the Commitment Letter cannot be satisfied, the Company anticipates that its existing credit facility will be amended or that a new credit agreement will be entered into in order to permit the Company to proceed with the Acquisition. The Tender Offers, the Debt Redemption, the Offerings, the Subordinated Debt Offering and the 1994 Credit Facility are hereinafter referred to as the "Financing Plan." The Offerings are expected to occur substantially contemporaneously with the Acquisition, the Subordinated Debt Offering, the Debt Redemption and the 1994 Credit Agreement and are conditioned upon the consummation of the Acquisition. It is anticipated that the Tender Offers will remain open until approximately five business days after the consummation of the Acquisition. The following table sets forth the sources of funds to be used to effect the Acquisition, the Tender Offers and the Debt Redemption, assuming (i) 5,200,000 shares of Common Stock are sold by the Company in the Offerings at a public offering price of $30.50 per share (the average of the high and low prices for the Common Stock reported on the NYSE for March 31, 1994), (ii) $200 million aggregate principal amount of Subordinated Notes are sold by the Company in the Subordinated Debt Offering at a public offering price of 100% of principal amount, (iii) approximately 35,746,000 shares of EPIC common stock (and securities exercisable therefor) are acquired pursuant to the Acquisition; and (iv) 100% of each issue of the outstanding Specified EPIC Debt Securities is purchased in the Tender Offers. ACQUISITION AND FINANCING PLAN (DOLLARS IN MILLIONS) SOURCES OF FUNDS Cash on hand(1).......................................... $ 186.4 1994 Credit Agreement.................................... 712.7 The Offerings............................................ 158.6 The Subordinated Debt Offering........................... 200.0 -------- Total............................................... $1,257.7 -------- -------- USE OF FUNDS Purchase of EPIC equity in Acquisition................... $ 250.2 Tender Offers(2)......................................... 633.4 Debt Redemption.......................................... 157.5 Refinancing of existing bank credit facility............. 150.3 Payment in connection with EPIC ESOP termination......... 27.6 Estimated Fees and Expenses(3)........................... 38.7 -------- Total............................................... $1,257.7 -------- --------
- --------------- (1) Cash on hand of $186.4 million consists of as reported Healthtrust cash of $159.8 million, plus as reported EPIC cash of $55.1 million, less cash used in connection with EPIC's redemption of its 15% Senior Subordinated Notes of $8.5 million, less a cash balance to be maintained of $20.0 million. (2) Represents (a) the principal amount of the EPIC 10 7/8% Notes and the EPIC Class 3 Mortgage Notes, (b) the accreted value as of December 31, 1993 of the EPIC 12% Notes, EPIC Class 1 Mortgage Notes and EPIC Class 2 Mortgage Notes and (c) $103.5 million of aggregate premiums and consent payments. (3) Includes underwriting discounts and commissions with respect to the Company, bank fees and legal and accounting expenses. 14 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the Common Stock in the Offerings are estimated to be approximately $ million (approximately $ million if the Underwriters' over-allotment options are exercised in full), after giving effect to the receipt of an aggregate of approximately $ from the exercise of warrants by the Selling Stockholders. The Company intends to use the net proceeds from its sale of Common Stock in the Offerings, together with the net proceeds of the Subordinated Debt Offering, borrowings under the 1994 Credit Agreement and cash on hand, to effect the Acquisition, the Tender Offers and the Debt Redemption. The EPIC 10 7/8% Notes, which are subject to repurchase pursuant to the Tender Offers, were issued by EPIC Group in June 1993 to refinance certain outstanding long-term indebtedness. See "The Acquisition and the Financing Plan." 15 18 CAPITALIZATION The following table sets forth the capitalization of the Company as of February 28, 1994, of EPIC as of December 31, 1993 and combined as adjusted to reflect the Acquisition, the Offerings, the Subordinated Debt Offering and the other transactions contemplated by the Financing Plan. This table should be read in conjunction with "The Acquisition and the Financing Plan," the Unaudited Pro Forma Condensed Combined Financial Statements of the Company and the historical financial statements of the Company and EPIC and the notes thereto included or incorporated by reference in this Prospectus.
AS OF FEBRUARY 28, 1994 HEALTHTRUST EPIC COMBINED ACTUAL ACTUAL AS ADJUSTED ----------- ------- ----------------- (DOLLARS IN MILLIONS) LONG-TERM DEBT: Bank Indebtedness.................................................. $ 150.3 $ -- $ 712.7 10 3/4% Subordinated Notes due 2002................................ 500.0 -- 500.0 8 3/4% Subordinated Debentures due 2005............................ 300.0 -- 300.0 Subordinated Debt Offering......................................... -- -- 200.0 Specified EPIC Debt Securities..................................... -- 529.9 --(1) EPIC Redeemable Debt............................................... -- 142.6 -- EPIC Group 15% Senior Subordinated Notes(2)........................ -- 40.3 -- Other Debt......................................................... 16.7 20.4 37.1 ----------- ------- -------- Less Current Portion............................................. (35.6) (48.0) (43.9) ----------- ------- -------- Total Long-Term Debt......................................... 931.4 685.2 1,705.9 STOCKHOLDERS' EQUITY: Common Stock, $.001 par value: 400,000,000 shares authorized, 81,221,108 shares issued and outstanding (86,421,108 shares issued and outstanding, as adjusted)(3).......................... 0.1 -- 0.1 EPIC common stock, $.01 par value: 100,000,000 shares authorized, 40,167,753 shares issued and outstanding(4)...................... -- 0.4 -- Additional paid-in capital(6)...................................... 828.3 245.8 828.3 Common Stock Offerings(5)........................................ -- -- 152.3 Deferred compensation.............................................. (0.6) (137.4) (0.6) Retained deficit................................................... (83.4) (191.7) (83.4) ----------- ------- -------- Total Stockholders' Equity................................... 744.4 (82.9) 896.7 ----------- ------- -------- Total Capitalization......................................... $ 1,675.8 $ 602.3 $ 2,602.6 ----------- ------- -------- ----------- ------- --------
- --------------- (1) Assumes 100% of each issue of Specified EPIC Debt Securities is purchased in the Tender Offers. (2) EPIC redeemed such indebtedness in February 1994. (3) Excludes (i) 7,812,849 shares of Common Stock reserved for issuance under the Company's stock plans and upon exercise of options granted under the Company's stock option plans; and (ii) 3,409,219 shares of Common Stock reserved for issuance upon the exercise of Warrants. Also excludes approximately 900,000 shares of Common Stock to be issued and contributed by the Company to the Plan on or about May 15, 1994. (4) As of January 8, 1994. Excludes 6,227,165 shares reserved for issuance upon exercise of certain options, stock appreciation rights and warrants. (5) Excludes 3,409,219 shares of Common Stock issuable upon the exercise of Warrants, of which 1,015,312 shares will be sold in the Offerings by the Selling Stockholders. Holders of Warrants that are outstanding following consummation of the Offerings remain entitled to certain demand and incidental registration rights in connection with their securities. (6) Additional paid-in capital with respect to the Company equals the total amount of (i) the net proceeds of the Company's initial public offering of Common Stock, (ii) the net proceeds of the sales of Common Stock to the ESOP, (iii) the estimated value of shares of Common Stock awarded under the Company's stock plans, (iv) the estimated aggregate fair market value of Warrants that were issued to HCA and certain other investors in connection with the Formation and the financing thereof and (v) the estimated aggregate fair market value of the Company's preferred stock surrendered by HCA upon exercise of Warrants to receive Common Stock, minus (vi) dividends paid and accrued and accretion of discount on preferred stock. In connection with the Formation, the Company issued Warrants exercisable for an aggregate of 36,874,551 shares of Common Stock (33,460,240 shares for HCA and 3,414,311 shares of certain other investors). The Company initially recorded its Warrants at an aggregate fair value of $117.0 million, or $3.18 per Warrant, as determined by an independent investment banking firm subsequent to the Formation. HCA recorded the fair value of its investment in the Warrants at $37.0 million or $1.11 per Warrant, based upon a valuation range determined by another investment banking firm. These respective values were based upon a number of assumptions and projections as to financial results, including estimates by the investment banking firms of the discounted present value of a share of Common Stock at September 17, 1987 ($3.38 in the case of the Warrant value recorded by the Company and a range of $.66 to $1.59 in the case of the Warrant value recorded by HCA). Each such estimate was based upon, among other things, certain different assumptions in the valuation of the Warrants as to the investment objectives of a purchaser of such Warrants (and, accordingly, an annual yield assumption for discounting to the date of the Formation the estimated value of a share of Common Stock at a future date) and the number of shares of Common Stock subject to the Warrants. After further review, the Company decreased the amount recorded for Warrants to $52.0 million, or $1.41 per Warrant. In addition, EPIC has received determinations of the fair value of the EPIC common stock from independent financial advisors that valued such stock at prices lower than the amount paid therefor by the EPIC ESOP in connection with the EPIC Formation. 16 19 SELECTED HISTORICAL FINANCIAL INFORMATION The following tables set forth selected historical financial information for (i) the Company for each of the years in the five-year period ended August 31, 1993 and for the six months ended February 28, 1994 and 1993; and (ii) EPIC for each of the years in the five-year period ended September 30, 1993 and for the three months ended December 31, 1993 and 1992. The selected financial information for the Company and EPIC for each of the years in the five-year periods ended August 31, 1993 and September 30, 1993, respectively, are derived from the consolidated financial statements of the Company and EPIC, each of which have been audited by Ernst & Young, independent auditors. The selected financial information for the Company for the six months ended February 28, 1994 and 1993 and for EPIC for the three months ended December 31, 1993 and 1992, are derived from unaudited condensed consolidated financial statements of the Company and EPIC and reflect all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of such information. Operating results for the six months ended February 28, 1994 and the three months ended December 31, 1993 are not necessarily indicative of the results that may be expected for the Company's fiscal year ending August 31, 1994. All information contained in the following tables should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the consolidated financial statements and related notes of the Company and EPIC included or incorporated by reference herein. 17 20 HEALTHTRUST, INC. - THE HOSPITAL COMPANY
SIX MONTHS ENDED FEBRUARY 28, YEAR ENDED AUGUST 31, --------------------- ------------------------------------------------------------ 1994 1993 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net operating revenue.................. $1,274.6 $1,189.7 $2,394.6 $2,265.3 $2,025.7 $1,856.9 $1,769.1 Hospital service costs................. 1,000.9 926.0 1,888.6 1,796.0 1,615.8 1,488.2 1,429.9 Depreciation and amortization.......... 69.7 64.9 132.7 127.5 120.8 119.2 121.5 Interest expense....................... 42.3 50.9 99.8 119.6 152.6 161.1 189.8 ESOP/pension expense................... 20.5 23.1 39.0 38.7 97.0 100.7 138.6 Deferred compensation expense.......... 0.6 3.0 4.3 8.1 18.7 31.1 27.2 Other (income) expense, net............ (8.7) (6.3) (7.6) (4.6) (14.5) 23.1 14.8 -------- -------- -------- -------- -------- -------- -------- Income (loss) before minority interests, taxes and extraordinary charges............................ 149.3 128.1 237.8 180.0 35.3 (66.5) (152.7) Minority interests..................... 4.1 7.4 11.9 15.3 13.3 8.6 1.7 Income tax expense (benefit)........... 59.0 49.4 90.7 71.4 15.4 (21.9) (53.1) Extraordinary charges (net of taxes)(1)............................ -- -- 13.6 136.4 -- 5.8 -- -------- -------- -------- -------- -------- -------- -------- Net income (loss).................... 86.2 71.3 121.6 (43.1) 6.6 (59.0) (101.3) Redeemable preferred stock dividends... -- -- -- 24.6 76.3 65.7 58.6 -------- -------- -------- -------- -------- -------- -------- Net income (loss) to common stockholders....................... $ 86.2 $ 71.3 $ 121.6 $ (67.7) $ (69.7) $ (124.7) $ (159.9) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- EARNINGS (LOSS) PER SHARE: Before extraordinary charges........... $ 1.02 $ 0.85 $ 1.62 $ 0.90 $ (1.15) $ (2.03) $ (2.78) Extraordinary charges.................. -- -- 0.16 1.78 -- 0.10 -- -------- -------- -------- -------- -------- -------- -------- Net income (loss) per common share..... $ 1.02 $ 0.85 $ 1.46 $ (0.88) $ (1.15) $ (2.13) $ (2.78) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Ratio of earnings to fixed charges(2)(3)........................ 3.6x 3.0x 2.8x 2.2x 1.1x -- --
AS OF AS OF AUGUST 31, FEBRUARY 28, ------------------------------------------------------------ 1994 1993 1992 1991 1990 1989 ------------ -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) BALANCE SHEET DATA: Cash and short-term investments.................. $ 159.8 $ 151.3 $ 172.6 $ 302.6 $ 230.7 $ 12.2 Working capital.................................. 291.6 219.1 245.3 390.2 309.8 72.9 Total assets..................................... 2,515.8 2,536.7 2,379.7 2,445.4 2,293.8 2,210.6 Long-term debt................................... 931.4 948.6 1,033.9 1,150.0 1,155.6 1,151.3 Redeemable preferred stock....................... -- -- -- 575.9 499.6 433.9 Stockholders' equity............................. 744.4 655.7 530.8 88.0 42.1 34.9
SIX MONTHS ENDED FEBRUARY 28, YEAR ENDED AUGUST 31, -------------------- ------------------------------------------------------------ 1994 1993 1993 1992 1991 1990 1989 -------- ------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) OTHER DATA: Additions to property, plant and equipment............................. $ 83.7 $ 85.9 $ 219.5 $ 178.1 $ 170.3 $ 120.8 $ 98.4 Acquisitions............................ -- 1.6 101.9 -- -- -- -- Ratio of operating cash flow to interest expense(4)............................ 6.5x 5.2x 4.8x 3.9x 2.7x 2.3x 1.8x
- --------------- (1) Extraordinary after-tax charges relate to the early extinguishment of debt. (2) The ratio of earnings to fixed charges was computed by dividing (i) income from continuing operations before fixed charges and income taxes by (ii) fixed charges, which consist of interest charges (interest expense plus interest charged to construction) and the portion of rent expense which is deemed to be equivalent to interest expense. (3) The Company's earnings were inadequate to cover fixed charges for the years ended August 31, 1990 and 1989 by $75.5 million and $154.5 million, respectively. (4) Operating cash flow represents net operating revenue less hospital service costs. For purposes of calculating the ratio of operating cash flow to interest expense, hospital service costs have been adjusted to include $25.5 million of cash ESOP/pension expense for the year ended August 31, 1993 (the only period presented which included cash ESOP/pension expense). Operating cash flow and the ratio of operating cash flow to interest expense do not take into account certain expenses that are reflected in the calculation of net income in accordance with GAAP, are not intended to represent any measure of performance in accordance with GAAP, and should not be considered in isolation or as a substitute for cash provided by operating activities, net income or any other consolidated income statement data prepared in accordance with GAAP. The ratio of operating cash flow to interest expense is included herein because the Company believes that it may be a useful tool for investors in measuring a company's ability to service its debt. 18 21 EPIC HOLDINGS, INC.
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, -------------------- ------------------------------------------------------------ 1993 1992 1993 1992 1991 1990 1989 -------- ------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net operating revenue................... $ 272.5 $ 244.4 $1,019.1 $ 941.3 $ 802.7 $ 742.4 $ 613.2 Hospital service costs.................. 236.2 215.1 873.7 809.9 683.3 631.7 520.1 Depreciation and amortization........... 13.1 13.8 57.9 53.0 49.3 47.5 44.4 Interest expense........................ 23.8 22.0 89.9 79.8 68.3 69.2 76.2 ESOP expense............................ 5.7 5.2 20.7 20.7 23.1 15.4 16.9 Deferred compensation expense........... 0.7 (0.5) 3.8 11.8 8.1 5.8 15.6 Other income, net....................... (0.8) (0.6) (7.2) (2.8) (4.9) (5.1) (8.2) -------- ------- -------- -------- -------- -------- -------- Loss before minority interests, taxes and extraordinary charges........... (6.2) (10.6) (19.7) (31.1) (24.5) (22.1) (51.8) Minority interests...................... 1.7 0.6 3.5 2.0 2.1 1.8 0.1 Income tax expense (benefit)............ 0.4 0.2 2.0 (9.3) (7.6) (6.6) (17.0) Extraordinary charges (net of taxes)(1)............................. -- 0.6 21.9 1.3 2.6 -- -- -------- ------- -------- -------- -------- -------- -------- Net loss.............................. (8.3) (12.0) (47.1) (25.1) (21.6) (17.3) (34.9) Redeemable preferred stock dividends.... -- -- -- 11.1 22.8 19.0 18.1 -------- ------- -------- -------- -------- -------- -------- Net loss to common stockholders....... $ (8.3) $ (12.0) $ (47.1) $ (36.2) $ (44.4) $ (36.3) $ (53.0) -------- ------- -------- -------- -------- -------- -------- -------- ------- -------- -------- -------- -------- -------- LOSS PER SHARE: Before extraordinary charges............ $ (0.21) $ (0.28) $ (0.63) $ (1.07) $ (1.71) $ (1.48) $ (2.16) Extraordinary charges................... -- 0.01 0.55 0.04 0.11 -- -- -------- ------- -------- -------- -------- -------- -------- Net loss per common share............... $ (0.21) $ (0.29) $ (1.18) $ (1.11) $ (1.82) $ (1.48) $ (2.16) -------- ------- -------- -------- -------- -------- -------- -------- ------- -------- -------- -------- -------- -------- Ratio of earnings to fixed charges(2)(3)......................... -- -- -- -- -- -- --
AS OF AS OF SEPTEMBER 30, DECEMBER 31, ------------------------------------------------------------ 1993 1993 1992 1991 1990 1989 ----------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) BALANCE SHEET DATA: Cash and short-term investments........... $ 89.3 $ 112.5 $ 53.8 $ 84.6 $ 69.1 $ 71.3 Working capital........................... 37.6 35.1 41.3 53.7 8.3 2.8 Total assets.............................. 898.5 875.0 780.8 763.4 758.0 743.2 Long-term debt............................ 685.2 679.6 619.4 478.3 462.5 481.4 Redeemable preferred stock................ -- -- -- 186.0 163.2 144.2 Stockholders' equity (deficit)............ (82.9) (85.3) (58.4) (101.7) (79.9) (58.9)
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, -------------------- ------------------------------------------------------------ 1993 1992 1993 1992 1991 1990 1989 -------- ------- -------- -------- -------- -------- -------- (DOLLARS IN MILLIONS) OTHER DATA: Additions to property, plant and equipment............................. $ 23.4 $ 7.4 $ 60.8 $ 47.8 $ 25.6 $ 40.2 $ 19.4 Acquisitions............................ 1.0 4.1 54.5 12.3 -- -- -- Ratio of operating cash flow to interest expense(4)............................ 1.5x 1.3x 1.6x 1.6x 1.7x 1.6x 1.2x
- --------------- (1) Extraordinary after-tax charges relate to the early extinguishment of debt. (2) The ratio of earnings to fixed charges was computed by dividing (i) income from continuing operations before fixed charges and income taxes by (ii) fixed charges, which consist of interest charges (interest expense plus interest charged to construction) and the portion of rent expense which is deemed to be equivalent to interest expense. (3) EPIC's earnings were inadequate to cover fixed charges for the three months ended December 31, 1993 and 1992 by $7.9 million and $11.5 million, respectively, and the years ended September 30, 1993, 1992, 1991, 1990 and 1989 by $24.2 million, $34.1 million, $27.7 million, $24.9 million and $51.9 million, respectively. (4) Operating cash flow represents net operating revenue less hospital service costs. Operating cash flow and the ratio of operating cash flow to interest expense do not take into account certain expenses that are reflected in the calculation of net income in accordance with GAAP, are not intended to represent any measure of performance in accordance with GAAP, and should not be considered in isolation or as a substitute for cash provided by operating activities, net income or any other consolidated income statement data prepared in accordance with GAAP. The ratio of operating cash flow to interest expense is included herein because the Company believes that it may be a useful tool for investors in measuring a company's ability to service its debt. 19 22 SELECTED PRO FORMA FINANCIAL INFORMATION The following selected pro forma financial information is derived from the Unaudited Pro Forma Condensed Combined Financial Statements included elsewhere in this Prospectus and is based upon the consolidated financial statements of each of the Company and EPIC, adjusted to give effect to the Acquisition and the Financing Plan. The selected pro forma statement of operations data for the year ended August 31, 1993 and the six months ended February 28, 1994 gives effect to the Acquisition and the Financing Plan as if they had occurred on September 1, 1992. The pro forma balance sheet data as of February 28, 1994 gives effect to the Acquisition and the Financing Plan as if they had occurred on February 28, 1994. All information contained in the following tables should be read in conjunction with "The Acquisition and the Financing Plan," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Unaudited Pro Forma Condensed Combined Financial Statements of the Company and the consolidated financial statements and related notes of the Company and EPIC included or incorporated by reference herein.
PRO FORMA ----------------------------------------- SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 1994 1993 -------------------- ---------------- (UNAUDITED) (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net operating revenue............................................... $1,811.8 $3,413.7 Hospital service costs.............................................. 1,463.4 2,762.3 Depreciation and amortization....................................... 104.3 201.2 Interest expense.................................................... 71.1 158.1 ESOP/pension expense................................................ 31.3 59.7 Deferred compensation expense....................................... 0.6 4.3 Other income, net................................................... (4.0) (6.9) -------- -------- Income before minority interests, taxes and extraordinary charges... 145.1 235.0 Minority interests.................................................. 6.9 15.4 Income tax expense.................................................. 57.6 91.9 -------- -------- Net income before extraordinary charges............................. $ 80.6 $ 127.7 -------- -------- -------- -------- Earnings per share before extraordinary charges..................... $ 0.90 $ 1.44 -------- -------- -------- -------- Ratio of earnings to fixed charges(1)............................... 2.5x 2.1x -------- --------
AS OF FEBRUARY 28, 1994 --------------------- (UNAUDITED) (DOLLARS IN MILLIONS) BALANCE SHEET DATA: Cash and short-term investments................................... $ 20.0 Working capital................................................... 132.9 Total assets...................................................... 3,665.8 Long-term debt.................................................... 1,705.9 Stockholders' equity.............................................. 896.7
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 1994 1993 -------------------- ---------------- OTHER DATA: Ratio of operating cash flow to interest expense(2)................. 4.9x 4.0x
- --------------- (1) The ratio of earnings to fixed charges was computed by dividing (i) income from continuing operations before fixed charges and income taxes by (ii) fixed charges, which consist of interest charges (interest expense plus interest charged to construction) and the portion of rent expense which is deemed to be equivalent to interest expense. (2) Operating cash flow represents net operating revenue less hospital service costs. For purposes of calculating the ratio of operating cash flow to interest expense, the Company's hospital service costs have been adjusted to include $25.5 million of cash ESOP/pension expense for the year ended August 31, 1993 (the only period presented which included cash ESOP/pension expense). Operating cash flow and the ratio of operating cash flow to interest expense do not take into account certain expenses that are reflected in the calculation of net income in accordance with GAAP, are not intended to represent any measure of performance in accordance with GAAP, and should not be considered in isolation or as a substitute for cash provided by operating activities, net income or any other consolidated income statement data prepared in accordance with GAAP. The ratio of operating cash flow to interest expense is included herein because the Company believes that it may be a useful tool for investors in measuring a company's ability to service its debt. 20 23 SELECTED OPERATING STATISTICS The following tables set forth certain operating statistics for the hospitals operated by the Company and EPIC for each of the periods indicated. HEALTHTRUST, INC. - THE HOSPITAL COMPANY
YEAR ENDED AUGUST 31, ------------------------------------ 1993 1992 1991 ---------- ---------- ---------- (DOLLARS IN MILLIONS) HISTORICAL OPERATING DATA: Number of hospitals........................................ 81 81 85 Bed capacity(1)............................................ 11,233 11,374 11,607 Gross revenue:(2) Inpatient................................................ $ 2,594.2 $ 2,439.3 $ 2,148.6 Outpatient............................................... $ 1,181.6 $ 1,021.9 $ 814.2 Net operating revenue(3)................................... $ 2,394.6 $ 2,265.3 $ 2,025.7 Patient days............................................... 1,541,536 1,616,340 1,658,061 Adjusted patient days(4)................................... 2,243,677 2,293,453 2,286,357 Average length of stay (days).............................. 5.4 5.5 5.7 Admissions................................................. 284,606 291,599 293,344 Adjusted admissions(5)..................................... 414,239 413,755 404,502 Occupancy rate(6).......................................... 40.5% 40.2% 40.4% Operating margin(7)........................................ 21.1% 20.7% 20.2%
EPIC HOLDINGS, INC.
YEAR ENDED SEPTEMBER 30, ------------------------------------ 1993 1992 1991 ---------- ---------- ---------- (DOLLARS IN MILLIONS) HISTORICAL OPERATING DATA: Number of hospitals........................................ 34 35 34 Bed capacity(1)............................................ 4,444 4,332 4,296 Net operating revenue:(3) Acute inpatient net revenue.............................. $ 469.2 $ 489.1 $ 454.4 Outpatient net revenue................................... 317.2 282.1 234.7 Other net revenue(8)..................................... 232.7 170.1 113.6 ---------- ---------- ---------- Net operating revenue(3)................................... $ 1,019.1 $ 941.3 $ 802.7 Patient days............................................... 589,283 641,373 643,210 Adjusted patient days(4)................................... 943,355 940,046 906,640 Average length of stay (days).............................. 5.8 6.0 6.0 Admissions................................................. 101,487 106,990 106,534 Adjusted admissions(5)..................................... 162,466 156,813 150,134 Occupancy rate(6).......................................... 39% 40% 41% Operating margin(7)........................................ 14.3% 14.0% 14.9%
- --------------- (1) Average number of licensed beds during the period. "Licensed beds" are those beds for which a facility has been granted approval to operate from the appropriate state licensing agency. (2) Gross revenue represents the hospitals' standard charges for services performed prior to any contractual adjustments and/or policy discounts. (3) Net operating revenue represents gross revenue less any contractual adjustments and/or policy discounts. (4) Represents actual patient days adjusted to include outpatient and emergency room services by multiplying actual patient days by the sum of inpatient revenue and outpatient revenue and dividing the result by inpatient revenue. (5) Represents actual admissions adjusted to include outpatient and emergency room services by multiplying actual admissions by the sum of inpatient revenue and outpatient revenue and dividing the result by inpatient revenue. (6) Based on the number of licensed beds in service. (7) Operating margin for each period presented refers to the result obtained by dividing (i) net operating revenue less hospital service costs by (ii) net operating revenue. (8) Other net revenue includes revenue from skilled nursing, rehabilitation and geropsychiatric units, home health visits and management contract fees. 21 24 DESCRIPTION OF EPIC EPIC is a health care services provider that owns and operates acute care hospitals and related health care businesses. EPIC owns and operates 34 general acute care hospitals with a total of 4,444 licensed beds and has approximately 11,200 full time equivalent employees. EPIC's hospitals offer inpatient, outpatient and other specialty services and are situated primarily in suburban locations and cities in 10 southern, southwestern and western states. In addition, EPIC offers, as an extension of its basic health care services, certain specialty programs and services, including home health care, rehabilitation services, skilled nursing care, health care management services and selected mental health services. Twenty-seven of EPIC's hospitals are located in Texas, California, Oklahoma or Louisiana. EPIC also owns or manages (i) associated medical office buildings, as well as related health care businesses, (ii) two long-term care facilities, (iii) certain vacant developed and undeveloped properties and (iv) a 238,000 square foot office facility in Dallas, Texas which serves as its administrative support center. EPIC is also constructing a 125-bed acute care facility in Mandeville, Louisiana which is expected to be completed in June 1994. As of December 6, 1993, the EPIC ESOP, which was established to increase incentives to EPIC employees and to finance the EPIC Formation, owned approximately 60.8% (53% on a fully-diluted basis) of the EPIC common stock outstanding. Pursuant to the ESOP Agreement and in connection with the Acquisition, contributions to the EPIC ESOP will be terminated. See "Properties," "Price Range of Common Stock," "Dividend Policy" and "EPIC Managements' Discussion and Analysis of Financial Condition and Results of Operations." PROPERTIES The following table sets forth certain information relating to each of the hospitals operated by the Company at November 1, 1993 and by EPIC at September 30, 1993, grouped by state. Hospitals operated by EPIC appear in italicized type. Unless otherwise noted below, all hospitals are wholly-owned by subsidiaries of the Company or EPIC.
NUMBER OF STATE NAME LOCATION LICENSED BEDS - --------------------------------------------------------------- ------------------------------- Alabama Andalusia Hospital Andalusia 77 Crestwood Hospital Huntsville 120 Selma Medical Center Selma 214 Arizona El Dorado Hospital & Medical Center Tucson 166 Northwest Hospital Tucson 150 Arkansas DeQueen Regional Medical Center DeQueen 122 *Medical Park Hospital Hope 91 California Chino Community Hospital Chino 118 Palm Drive Hospital Sebastopol 56 *Healdsburg General Hospital Healdsburg 49 *Mission Bay Memorial Hospital San Diego 150 *Visalia Community Hospital Visalia 52 Westside Hospital(1) Los Angeles 87 Florida North Okaloosa Medical Center Crestview 110 Palm Beach Regional Hospital Lake Worth 200 East Pointe Hospital Lehigh Acres 88 Palms West Hospital Loxahatchee 117 Santa Rosa Medical Center(2) Milton 129 Plantation General Hospital(3) Plantation 264 Edward White Hospital St. Petersburg 167 South Bay Hospital Sun City Center 112 *Clearwater Community Hospital(4) Clearwater 133 *Lake City Medical Center Lake City 75
22 25
NUMBER OF STATE NAME LOCATION LICENSED BEDS - --------------------------------------------------------------- ------------------------------- Georgia Doctors Hospital(5) Columbus 248 Lanier Park Regional Hospital Gainesville 124 *Barrow Medical Center Winder 60 Idaho West Valley Medical Center Caldwell 150 Eastern Idaho Regional Medical Center Idaho Falls 286 Indiana Terre Haute Regional Hospital Terre Haute 284 Kentucky Scott General Hospital Georgetown 75 Spring View Hospital Lebanon 113 PineLake Medical Center Mayfield 116 Meadowview Regional Hospital Maysville 111 Bourbon General Hospital Paris 60 Logan Memorial Hospital Russellville 100 Louisiana Medical Center of Baton Rouge Baton Rouge 225 Medical Center of SW Louisiana Lafayette 166 Women's and Children's Hospital(6) Lafayette 93 Lakeside Hospital Metairie 186 Dauterive Hospital New Iberia 113 Doctor's Hospital of Opelousas(7)(8) Opelousas 133 *Highland Park Hospital Covington 104 *Riverview Medical Center Gonzales 104 Mississippi Vicksburg Medical Center Vicksburg 144 *Garden Park Community Hospital(9) Gulfport 120 Missouri Springfield Community Hospital Springfield 200 North Carolina Davis Community Hospital Statesville 149 The Brunswick Hospital(10) Supply 60 Heritage Hospital Tarboro 127 Oklahoma Edmond Regional Medical Center Edmond 139 Wagoner Community Hospital(11) Wagoner 100 *Claremore Hospital Claremore 89 *Doctor's Medical Center Tulsa 211 *Southwestern Medical Center Lawton 108 Oregon McMinnville Community Hospital McMinnville 80 Douglas Community Hospital Roseburg 118 South Carolina Marlboro Park Hospital Bennettsville 111 Chesterfield General Hospital Cheraw 72 Colleton Regional Hospital Walterboro 131 Doctor's Memorial Hospital(8)(12) Spartanburg 108
23 26
NUMBER OF STATE NAME LOCATION LICENSED BEDS - --------------------------------------------------------------- ------------------------------- Tennessee Smith County Memorial Hospital Carthage 66 Sycamore Shoals Hospital Elizabethton 100 Trinity Hospital Erin 40 Hendersonville Hospital(13) Hendersonville 120 Johnson City Specialty Hospital(14) Johnson City 39 North Side Hospital(15) Johnson City 154 Crockett Hospital Lawrenceburg 106 Livingston Regional Hospital Livingston 106 River Park Hospital(16) McMinnville 89 South Pittsburg Municipal Hospital(17) South Pittsburg 107 Southern Tennessee Medical Center(18) Winchester 212 Stones River Hospital Woodbury 85 Texas Northeast Community Hospital Bedford 200 Valley Regional Medical Center Brownsville 158 Brownwood Regional Hospital(19) Brownwood 218 Doctors Hospital(20) Conroe 135 Medical Center Hospital Conroe 182 El Campo Memorial Hospital El Campo 41 Gilmer Medical Center Gilmer 46 Sun Belt Regional Medical Center(21) Houston 273 Midway Park Medical Center Lancaster 90 Longview Regional Hospital Longview 80 Woodland Heights Medical Center Lufkin 117 Coronado Hospital Pampa 115 Bayshore Medical Center Pasadena 469 Detar Hospital Victoria 303 Gulf Coast Medical Center Wharton 161 *Alice Physicians & Surgeons Hospital Alice 131 *Alvin Community Hospital Alvin 86 *Coastal Bend Hospital Aransas Pass 75 *Denton Regional Medical Center Denton 297 Doctor's Hospital of Laredo(22) Laredo 91 *Fort Bend Community Hospital Missouri City 80 *Katy Medical Center Katy 103 Mainland Regional Healthcare System(23) Texas City 430 Medical Arts Hospital(8) Dallas 72 Medical Arts Hospital(8) Texarkana 110 *Medical Plaza Hospital Sherman 164 North Texas Medical Center McKinney 270 *Parkway Hospital Houston 262 *Riverside Hospital Corpus Christi 89 *Round Rock Community Hospital Round Rock 75 Terrell Community Hospital(23) Terrell 101 *Westbury Hospital Houston 134 Utah Lakeview Hospital Bountiful 128 Brigham City Community Hospital Brigham City 50 Mountain View Hospital Payson 118 Castleview Hospital Price 88 Ashley Valley Medical Center Vernal 39 Pioneer Valley Hospital West Valley City 139
24 27
NUMBER OF STATE NAME LOCATION LICENSED BEDS - --------------------------------------------------------------- ------------------------------- Virginia Northern Virginia Doctors Hospital Arlington 267 Montgomery Regional Hospital Blacksburg 146 Pulaski Community Hospital Pulaski 153 Washington Capital Medical Center Olympia 110 Wyoming Riverton Memorial Hospital Riverton 70
- --------------- * The land, building, and improvements are owned by EPIC Properties, are subject to the Mortgages (as hereinafter defined), and are leased to EPIC Master Leasing, Inc. ("Master Leasing") pursuant to a lease. (1) Owned by a limited partnership of which 28.7% of the interest is held by non-EPIC limited partners. The limited partnership has leased the hospital to a joint venture of which approximately 23.7% is held by non-EPIC minority owners. (2) Lease expires in 2005, unless landlord exercises option to purchase facility for book value in 1995. (3) Operated by a partnership of which the Company is the general partner owning 53% and certain physicians are limited partners owning 47%. (4) Operated by a limited partnership of which approximately 18% of the interest is held by non-EPIC limited partners. (5) Owned by the Company as a tenancy in common with physicians having a minority interest of 40.5%. (6) Ground lease expires in 2011; there are two ten-year optional renewal terms. (7) Operated by a limited partnership of which approximately 23% of the interest is held by non-EPIC limited partners. (8) The facility is leased from a third party other than EPIC Properties. (9) Operated by a limited partnership in which investors other than EPIC receive the first $2 million earned by the partnership after payment of the lease payments due to EPIC ($3 million per year, increasing by 15% per year), and EPIC is entitled to 60% of all additional earnings. (10) Lease expires in 2024. (11) Lease expires in 2007. (12) Operated by a limited partnership of which approximately 15% of the interest is held by non-EPIC limited partners. With the consent of the Company, EPIC has not renewed the lease for this facility. Such lease will expire in July 1994. (13) Owned by a partnership of which the Company is the general partner owning 83% and certain physicians are limited partners owning 17%. (14) Owned by a partnership of which the Company is the general partner owning 87% and certain physicians are limited partners owning 13%. (15) Owned by the Company as a tenancy in common with physicians having a minority interest of 30.25%. (16) Owned by a partnership of which the Company is the general partner owning 78% and certain physicians are limited partners owning 22%. (17) Managed by the Company for profits and losses attributable thereto with an option to buy for $50,000 and the provision for full payment of all outstanding indebtedness issued in connection with the construction of the hospital. The Company's management contract for this facility expires in 1999. (18) Includes a leased (lease expires in 2020) hospital campus located in Sewanee, Tennessee with 50 licensed beds. (19) Lease expires in 2000; there are two optional renewal terms of ten years each. (20) Initial term of lease expires in 2006; there are three optional renewal terms of ten years each. The Company has an option to buy this facility for an amount determined in accordance with a specified formula. (21) Includes a hospital campus located at Channelview, Texas with 96 licensed beds. (22) Operated by a limited partnership of which approximately 22.125% of the interest is held by non-EPIC limited partners. (23) The hospital consists of two facilities, one of which is leased from a third party. The Company is engaged from time to time in discussions relating to proposed sales of certain of its hospitals and of minority interests in, or joint ventures with medical staff physicians or others with respect to, certain other facilities. However, except as noted in the table above, as of November 1, 1993, no definitive arrangements with respect to any sales or joint ventures had been agreed upon by the Company. The Company also owns (i) a 50% interest in a general partnership with Orlando Regional Medical Center, Inc., which partnership owns South Seminole Community Hospital (126 beds) in Longwood, Florida; (ii) a 50% interest in a general partnership with Presbyterian Hospital of Charlotte, which partnership owns Orthopaedic Hospital of Charlotte (166 beds) in Charlotte, North Carolina; and (iii) a 25% interest in a general partnership with AMI, which partnership owns Encino Hospital (188 beds) in Encino, California and Tarzana Medical Center (177 beds) in Tarzana, California. The Company has also formed a joint venture with Austin Diagnostic Clinic, P.A. for the purpose of constructing and operating an integrated healthcare facility in Austin, Texas. This facility, currently under construction, will consist of a 180-bed hospital, a diagnostic and treatment center and a medical office building. Following completion of construction the Company will manage the hospital. In addition, the Company, through its subsidiaries or joint venture arrangements, owns, leases or manages approximately 120 medical office buildings with physicians' office 25 28 space and various parcels of undeveloped land, substantially all of which are adjacent to its hospitals. The Company also occupies approximately 65,000 square feet of corporate office space in Nashville, Tennessee. Twenty-four of the 34 EPIC hospitals are owned by EPIC Properties, a wholly-owned subsidiary of EPIC, and are subject to mortgages (the "Mortgages") granted in connection with the issuance of the EPIC Mortgage Notes. EPIC Properties leases these 24 hospitals to Master Leasing, a wholly-owned subsidiary of EPIC. With respect to these 24 hospitals, EPIC has agreed to indemnify EPIC Properties, the trustee under the indenture governing the EPIC Mortgage Notes (the "Mortgage Notes Trustee"), all holders of the EPIC Mortgage Notes and each of their respective subsidiaries, directors, officers, agents, successors and assigns from liabilities relating to the presence of hazardous wastes, any medical or infectious wastes, or substances in the soil or ground water of any real property on which such hospitals are located in concentrations that the applicable federal or state environmental agency would require remedial action to correct (the "Environmental Indemnity"). Pursuant to the Environmental Indemnity, EPIC is obligated to remediate or to cause to be remediated any spill, leak, disposal, discharge or release of certain materials on or beneath any property occurring during the period that the EPIC Mortgage Notes remain outstanding. EPIC Properties has collaterally assigned the Environmental Indemnity to the Mortgage Notes Trustee. 26 29 PRICE RANGE OF COMMON STOCK HEALTHTRUST The Common Stock is listed on the NYSE under the symbol "HTI." On April 5, 1994, the last sale price of the Common Stock, as reported on the NYSE, was $30 3/4 per share. The following table sets forth the high and low sale prices of the Common Stock for the periods indicated as reported by the NYSE Composite Tape since the initial public offering of the Common Stock on December 13, 1991:
FISCAL YEAR ENDED AUGUST 31, 1992 HIGH LOW ------------------------------------------------------------------- ---- ---- Second Quarter (beginning December 13, 1991).................. $23 3/4 $13 5/8 Third Quarter................................................. 20 5/8 14 1/8 Fourth Quarter................................................ 17 1/4 13 1/8 FISCAL YEAR ENDED AUGUST 31, 1993 ------------------------------------------------------------------- First Quarter................................................. 17 7/8 11 7/8 Second Quarter................................................ 19 7/8 12 Third Quarter................................................. 19 1/8 13 3/8 Fourth Quarter................................................ 21 7/8 17 3/8 FISCAL YEAR ENDING AUGUST 31, 1994 ------------------------------------------------------------------- First Quarter................................................. 24 3/4 19 3/4 Second Quarter................................................ 29 5/8 22 1/2 Third Quarter (through April 5, 1994)......................... 33 1/4 27 7/8
EPIC There is no established trading market for the common stock of EPIC Holdings. The EPIC Holdings common stock is not listed on any securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System. As of December 14, 1993, there were 43 holders of record of the EPIC Holdings common stock. In addition, there is no established trading market for the common stock of EPIC Group, and as of December 14, 1993, EPIC Holdings was the only holder of record thereof. DIVIDEND POLICY The Company has never paid dividends on its Common Stock. The Company currently intends to retain earnings for working capital, capital expenditures, general corporate purposes and reduction of outstanding indebtedness. Accordingly, the Company does not expect to pay dividends in the foreseeable future. In addition, the declaration and payment of dividends on the Common Stock are prohibited by the terms of the Company's existing bank credit facility and restricted by the indentures governing certain of the Company's other long term indebtedness (including the indenture pursuant to which the indebtedness to be issued in the Subordinated Debt Offering will be issued), and the Company anticipates that similar prohibitions will be included in the 1994 Credit Agreement. Each share of EPIC Holdings common stock and EPIC Group common stock has an equal and ratable right to receive dividends to be paid from EPIC's assets legally available therefor when, as and if declared by the Board of Directors of EPIC Holdings or EPIC Group, as the case may be. No dividends have been paid on the EPIC Holdings common stock. Cash dividends of $1,022,000 were paid on the EPIC Group common stock in September 1993. The declaration and payment of dividends on the EPIC Holdings common stock and EPIC Group common stock are restricted by the terms of the instruments governing certain of EPIC's outstanding long-term indebtedness. It is anticipated that if the Acquisition and the Financing Plan (including the Tender Offers or the related consent solicitation) are consummated, such restrictions will be eliminated. 27 30 EPIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion has been taken from the Annual Report on Form 10-K for the fiscal year ended September 30, 1993 and the Quarterly Report on Form 10-Q for the quarter ended December 31, 1993 of EPIC Holdings and EPIC Group. Such discussion should be read in conjunction with the historical financial statements of EPIC Holdings and EPIC Group appearing elsewhere in this Prospectus. EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES The following table summarizes certain operating results and statistics of EPIC Group for the years ended September 30, 1993, 1992 and 1991 (dollars in thousands).
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1993 1992 1991 ------------------ ---------------- ---------------- Operating result(s) Net operating revenue................ $1,019,149 100% $941,266 100% $802,689 100% Costs and expenses: Salaries and wages................. 354,326 35 319,868 34 271,007 34 Employee benefits.................. 84,615 8 81,365 9 68,434 9 ESOP expense....................... 20,715 2 20,714 2 23,076 3 Supplies........................... 121,986 12 116,145 12 99,882 12 Uncompensated care................. 80,643 8 69,308 7 59,425 7 Professional liability insurance... 13,570 1 13,268 2 14,878 2 Other.............................. 222,200 22 221,611 24 177,755 22 Depreciation and amortization...... 57,917 6 53,013 6 49,354 6 Interest expense................... 70,934 7 71,000 7 68,266 9 Interest income...................... (3,627) -- (3,822) (1) (5,405) (1) (Gain) loss on sale of assets........ (3,521) -- 1,123 -- 543 -- ---------- --- -------- --- -------- --- Loss before income tax benefit, minority interests and extraordinary item................. $ (609) -- $(22,327) (2)% $(24,526) (3)% ---------- --- -------- --- -------- --- ---------- --- -------- --- -------- --- Other Data: EBDAIT(1)(2)......................... $ 145,058 14% $129,383 14% $117,902 15% Operating Statistics Equivalent admissions(3)............. 162,466 156,813 150,134 Admissions(4) Medicare and Medicaid.............. 65,867 65% 65,659 61% 60,701 57% Private and other.................. 35,620 35 41,331 39 45,833 43 ---------- --- -------- --- -------- --- Total........................... 101,487 100% 106,990 100% 106,534 100% Outpatient: Visits............................. 1,002,547 918,187 789,244 Surgeries.......................... 69,153 66,965 62,892 Home health visits................... 1,094,842 502,998 202,946 Equivalent patient days(5)........... 943,355 940,046 906,640 Patient days......................... 589,293 641,373 643,210 Licensed beds occupancy rate......... 39% 40% 41% Licensed beds at end of period....... 4,444 4,332 4,296
28 31
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1993 1992 1991 ------------- ------------- ------------- Net revenues by payor: Medicare....................................... 48% 44% 39% Medicaid....................................... 7 7 7 Private and other.............................. 45 49 54 --- --- --- Total....................................... 100% 100% 100% --- --- --- --- --- ---
- --------------- (1) Percentages are expressed as percentages of net operating revenue. (2) This item represents earnings before depreciation, amortization, interest expense, interest income, income tax benefit, ESOP expense, non-cash SAR expense, minority interests, gain on sale of assets and extraordinary item. It is not intended to represent cash flow or any other measure of performance in accordance with generally accepted accounting principles. EBDAIT is included herein because EPIC management believes that certain investors find it to be a useful tool for measuring the ability to service debt. (3) Represents actual admissions as adjusted to include outpatient services by adding to actual admissions an amount derived by dividing outpatient revenue by inpatient revenue per admission. EPIC Group believes that this statistic is frequently used as a benchmark to analyze the volume of total services provided to patients and has become more meaningful than occupancy rates and patient days as a result of industry trends toward increased use of outpatient services. (4) Percentages are expressed as percentage of total admissions. (5) Represents actual patient days as adjusted to include outpatient services by adding to actual patient days an amount derived by dividing outpatient revenue by inpatient revenue per patient day. RESULTS OF OPERATIONS -- EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NET OPERATING REVENUE EPIC Group recorded net operating revenue of $1,019.1 million for the year ended September 30, 1993. Net operating revenue increased $77.9 million (8%) in 1993 and $138.6 million (17%) in 1992. Acute inpatient net revenue, which totalled $469.2 million for the year ended September 30, 1993, decreased $19.9 million (4%) in 1993, and increased $34.7 million (8%) in 1992. Approximately 50% of the decrease in 1993 was due to the sale of two hospitals during the second quarter of fiscal 1993. This decrease was offset by additional Medicare and Medicaid payments during 1993. The increase during 1992 was due to additional Medicare and Medicaid payments and price increases of up to 10% in selected markets and services. Acute inpatient admissions, which totalled 89,247 in 1993, decreased 7% in 1993 and 1% in 1992, and acute patient days, which totalled 408,216 in 1993, decreased 8% in 1993 and 3% in 1992, as the direction of healthcare services shifted toward outpatient services, inpatient specialty units, and home health services. Outpatient net revenue, which totalled $317.2 million for the year ended September 30, 1993, increased $35.1 million (12%) in 1993 and $47.4 million (20%) in 1992. The number of outpatient surgeries, which totalled 69,153 in 1993, increased 3% in 1993 and 6% in 1992, respectively, and selected price increases were implemented in 1992. Other outpatient visits, which totalled 1,002,547 in 1993, increased 9% in 1993 and 16% in 1992. Inpatient specialty unit net revenue, which totalled $111.3 million for the year ended September 30, 1993, and for which EPIC Group generally receives payment on a cost reimbursement basis, increased $.7 million (1%) in 1993 and $12.6 million (13%) in 1992. Specialty unit admissions increased 13% in 1993 and 15% in 1992. The number of specialty care units, which include skilled nursing, rehabilitation, and geriatric psychiatric units, were 56, 57 and 52 at September 30, 1993, 1992 and 1991, respectively. Net revenue from home health visits, which totalled $85.7 million for the year ended September 30, 1993, increased $47.9 million (127%) in 1993 and $24.8 million (191%) in 1992. Home health visits increased 118% in 1993 and 148% in 1992. Approximately 34% and 19% of the increases in home health visits in 1993 and 1992, respectively, resulted from the purchase of existing home health businesses in EPIC Group's current markets. 29 32 Other revenue which totaled $36.0 million for the year ended September 30, 1993, increased $14.3 million (66%) in 1993 and $9.5 million (78%) in 1992. Of this revenue, total geriatric psychiatric, rehabilitation and home healthcare management contract fees increased $9.7 million and $4.4 million during 1993 and 1992, respectively. Net patient revenue attributable to patients covered under the Medicare, Medicaid and other government programs as a percentage of total net patient revenue was 55%, 51% and 46% for 1993, 1992 and 1991, respectively. Net revenue attributable to patients covered under various contracted discount programs totaled 18%, 18% and 20% of total net revenue for 1993, 1992 and 1991, respectively. The increase in net revenue was due, in part, to increased admissions of Medicare and Medicaid patients, including the continued increase in utilization of specialty care units and home health services for which EPIC is paid on a cost reimbursement basis, and the increase in rates paid by governmental entities under Medicare and Medicaid programs. COSTS AND EXPENSES Costs and expenses, as a percentage of net operating revenue decreased 2% in 1993 and 1% in 1992. Salaries and wages increased 1% as a percentage of net operating revenue in 1993 compared to 1992 due to the increase in home health net revenue, which is more labor intensive than inpatient care. Salaries and wages remained constant as a percentage of net operating revenue in 1992 compared to 1991. EPIC ESOP expense remained constant as a percentage of net operating revenue in 1993 compared to 1992 and decreased 1% as a percentage of net operating revenue in 1992 compared to 1991 due to increased contributions in 1991 to the EPIC ESOP. Other expenses decreased 2% as a percentage of net operating revenue in 1993 compared to 1992 and increased 2% as a percentage of net operating revenue in 1992 compared to 1991 due primarily to $2.9 million in expenditures to upgrade various computer software applications during 1992 not incurred in 1993, and a $6.6 million increase during 1992 in costs relating to programs to recruit new physicians. There were no significant fluctuations in employee benefits, supplies, uncompensated care and professional liability insurance as a percentage of net operating revenue from 1991 to 1993. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased by $4.9 million in 1993 compared to 1992 and $3.6 million in 1992 compared to 1991. The increases resulted from property and equipment additions, net of asset sales and retirements. Fiscal 1993 and 1992 also include depreciation on $9.8 million of property and equipment relating to Colonial Hospital, which was purchased October 1, 1991. INTEREST EXPENSE AND INTEREST INCOME AND GAIN ON SALE OF ASSETS Interest expense decreased $.1 million in 1993 compared to 1992 and increased $2.7 million in 1992 compared to 1991. The 1993 change was due to an increase in the amount of debt outstanding beginning in the third quarter offset by a decrease in interest rates. The 1992 increase was due to accretion of non-cash interest on certain notes and termination of an interest rate cap agreement in 1992. Interest income did not fluctuate significantly over the three-year period. During the second quarter of fiscal 1993, EPIC Group sold Valley Medical Center ("Valley") in El Cajon, California, which resulted in a gain on sale of $4.6 million. Other dispositions during fiscal 1993, including Westpark Community Hospital in Hammond, Louisiana ("Westpark"), resulted in losses on sale of $1.1 million. LOSS BEFORE INCOME TAX BENEFIT, MINORITY INTERESTS AND EXTRAORDINARY ITEM EPIC Group incurred a loss before income tax benefit, minority interests, and extraordinary item of $.6 million, $22.3 million and $24.5 million for the years ended September 30, 1993, 1992, and 1991, 30 33 respectively. The following non-cash charges are included in the loss before income tax benefit, minority interests and extraordinary item:
YEAR ENDED SEPTEMBER 30, ------------------------------ 1993 1992 1991 -------- -------- -------- (IN THOUSANDS) Depreciation and amortization.......................... $ 57,917 $ 53,013 $ 49,354 Non-cash portion of SAR Plan compensation expense...... 3,249 10,805 7,137 Non-cash portion of interest expense................... 18,286 18,417 13,975 Non-cash portion of professional liability risks....... 2,641 4,131 11,291 ESOP expense........................................... 20,715 20,714 23,076 -------- -------- -------- Total........................................ $102,808 $107,080 $104,833 -------- -------- -------- -------- -------- --------
LIQUIDITY AND CAPITAL RESOURCES At September 30, 1993, EPIC Group had working capital of $30.0 million (current assets of $210.1 million less current liabilities of $180.1 million), which included approximately $107.9 million of cash, cash equivalents and marketable securities. EPIC's existing bank credit facility requires $42.7 million in cash and marketable securities be restricted for the redemption of the remaining outstanding Senior Subordinated Notes. EPIC Group has available $30 million in loan commitments under the bank credit facility. EPIC Properties has a revolving line of credit of the lesser of $22.0 million or the annual interest accrual on the EPIC Mortgage Notes for the purpose of paying the EPIC Mortgage Notes interest and principal. Because AMI assumes all liability for professional liability incidents occurring prior to October 1, 1988 at EPIC Group's facilities acquired from AMI, EPIC Group continues to experience lower cash payments for its professional liability losses than has historically been the case for these hospitals. That fact, coupled with the relatively long lag time for settlement of professional liability claims, has led EPIC Group to expect that professional liability payments for which EPIC Group is self-insured, will be comparable to or less than the related expense in the next several years. On June 18, 1993, EPIC Group implemented a refinancing plan designated to improve its operating and financial flexibility by reducing its future interest expense (the "Refinancing"). The Refinancing included the following components: (i) the issuance and sale in a public offering of approximately $160 million aggregate principal amount of 10 7/8% Notes; (ii) redemption of $74.7 million of EPIC Group's 15% Senior Subordinated Notes; and (iii) the redemption of $53.7 million principal amount of EPIC Group's 11% Junior Subordinated Pay-in-Kind Notes with $20 million of the proceeds from the offering and $10 million of working capital. EPIC Group was required to call $40.3 million of the 15% Senior Subordinated Notes on February 1, 1994, with the remaining proceeds as required by EPIC Group's existing bank credit facility. As a result of the refinancing, EPIC Group incurred an extraordinary loss before tax of $21.4 million from the write-off of loan issue costs and unamortized discount on the 15% Senior Subordinated Notes and the redeemed 11% Pay-in-Kind Notes, payments to the holders of the 15% Senior Subordinated Notes and the 11 7/8% Senior ESOP Notes for waivers of certain provisions of the respective indentures and the accrual of the call premium to be paid on redemption of $40.3 million of the 15% Senior Subordinated Notes. Cash provided by operating activities totalled $119.2 million and $57.9 million for the years ended September 30, 1993 and 1992, respectively. The increase in operating cash in fiscal 1993 was due to a decrease in the loss before income tax benefit (expense), minority interests and extraordinary item of $21.7 million in fiscal 1993. Also, accounts receivable increased $35.2 million in fiscal 1992, which was attributable primarily to an increase of $41.8 million in net operating revenue in the fourth quarter of fiscal 1992. Cash used in investing activities totalled $123.5 million and $61.0 million for the years ended September 30, 1993 and 1992, respectively. EPIC Group added other property and equipment totalling $60.8 million and $47.9 million during fiscal 1993 and 1992, respectively. EPIC Group's investments in marketable securities increased $36.7 million during fiscal 1993 and decreased $5.2 million during fiscal 1992. 31 34 The County of Galveston, Texas, entered into an agreement with EPIC providing for the lease for 20 years of Mainland Center Hospital ("Mainland"), the County's 310-bed facility, and the purchase of certain of the hospital's net current assets and equipment. The lease payments, which were paid in full upon execution of the lease, and purchase price of the net assets and equipment acquired totaled $46 million, a portion of which was offset by the cash included in Mainland's current assets (approximately $5 million). The lease also provides EPIC with two additional ten year options to extend the lease and the right to purchase the facility on the first anniversary of the lease for approximately $.5 million. During fiscal 1993, EPIC purchased two imaging centers for $7.8 million and two home health agencies for $4.0 million. On October 1, 1991, EPIC Group purchased Colonial Hospital, a 49-bed hospital in Terrell, Texas, for $10.4 million. EPIC sold Westpark in January 1993 for $6.2 million in cash and recorded a net loss on the sale of $.6 million in 1993 and $.8 million in fiscal 1992 in anticipation of the sale. EPIC sold Valley in March 1993 for $17 million in cash and recorded a gain on sale of $4.6 million. EPIC retained ownership of Westpark's and Valley's accounts receivable and other current assets. Cash provided by financing activities totalled $28.4 million for the year ended September 30, 1993 and cash used in financing activities totalled $33.1 million for the year ended September 30, 1992. The Refinancing provided $44.8 million of net proceeds in 1993. A subsidiary of EPIC Group purchased $5.4 million and $19.9 million of the 11 7/8% Senior ESOP Notes on the open market for $5.6 million and $20.3 million plus accrued interest in fiscal 1993 and 1992, respectively. During fiscal 1993, EPIC paid $5.5 million in debt issue costs relating to the Refinancing. On August 31, 1993, EPIC purchased Healthtrust's 40% interest in the North Texas Medical Center Joint Venture in McKinney, Texas, which owns and operates North Texas Medical Center, for $15.7 million. EPIC management believes EPIC Group's hospitals are well maintained and equipped and permitted expenditures will be sufficient to meet EPIC Group's ongoing capital requirements at its operating facilities. Capital expenditures totalling approximately $75 million are planned for fiscal 1994, including completion of construction of a new hospital near Covington, Louisiana, which commenced in June 1992, and continuation of construction of a new hospital in Denton, Texas, which commenced in June, 1993. The Internal Revenue Service (the "IRS") has audited EPIC's federal income tax return for the year ended September 30, 1989. As a result of the audit, the IRS had proposed the permanent capitalization of approximately $24 million of debt issuance costs. EPIC has fully protested its position with the IRS. EPIC was required to capitalize and amortize certain loan costs which were previously expensed. This adjustment resulted in the reduction of EPIC Holdings' current net operating loss by approximately $7 million. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which supersedes SFAS No. 96. Implementation of SFAS No. 109 for EPIC Group is required as of October 1, 1993. SFAS No. 109 requires that differences between the tax and financial statement bases of assets and liabilities ("temporary differences") be reflected in the same balance sheet category as the items that caused the temporary differences. Deferred tax assets, which would include tax net operating loss carryforwards, would require the determination of a related valuation allowance, based on the assets' expected realization. EPIC has completed the analysis necessary to determine the impact of adoption of SFAS No. 109 and it is not expected to have a material impact on its financial position or results of operations and will not impact cash flows. EPIC has reviewed its benefit programs and has determined it offers no post employment benefits that require accrual in accordance with SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Total scheduled debt maturities are $47.9, $9.5 and $43.5 million in fiscal 1994, 1995 and 1996, respectively, and expected annual cash interest payments are approximately $58 million through fiscal 1996. See Note 5 of the Notes to EPIC Group's Consolidated Financial Statements for information regarding EPIC's indebtedness. In addition to the indebtedness of EPIC, EPIC Holdings, the parent corporation of EPIC, has outstanding $250 million principal amount ($167.2 million value at September 30, 1993) of the EPIC 12% Notes, which require cash interest payments commencing in March 1997. Such interest payments, 32 35 as well as the principal payment upon maturity in 2002, are expected to be funded out of dividends from EPIC Group to EPIC Holdings. Although EPIC Group's indebtedness is substantial, EPIC management believes that cash, cash equivalents and marketable securities on hand, cash flow from operations, and the availability of funds under revolving bank credit facilities will provide sufficient liquidity to meet all cash requirements for the next several years. RESULTS OF OPERATIONS -- EPIC HOLDINGS, INC. AND SUBSIDIARIES GENERAL Net operating revenue, operating expenses, depreciation and amortization, and interest income of EPIC Holdings were substantially the same as those of EPIC Group for fiscal years 1993, 1992 and 1991 and reference is made to the discussion of EPIC Group's " -- Results of Operations," and " -- Liquidity and Capital Resources" above. Following is additional information relating to EPIC Holdings. INTEREST EXPENSE Interest expense increased $10.1 million and $11.5 million in 1993 and 1992, respectively, due to the issuance of the EPIC 12% Notes during fiscal 1992. LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST EPIC Holdings incurred losses before income tax benefit, minority interest, and extraordinary item of $19.7 million, $31.1 million and $24.5 million for the years ended September 30, 1993, 1992, and 1991, respectively. The following non-cash charges are included in the loss before income tax benefit and minority interests for the years ended September 30, 1993, 1992 and 1991 (in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------------------ 1993 1992 1991 -------- -------- -------- Depreciation and amortization.............. $ 57,917 $ 53,013 $ 49,354 Non-cash portion of SAR Plan compensation expense.................................. 3,249 10,805 7,137 Non-cash portion of interest expense....... 36,855 27,190 13,975 Non-cash portion of professional liability risks.................................... 2,641 4,131 11,291 ESOP expense............................... 20,715 20,714 23,076 -------- -------- -------- Total............................ $121,377 $115,853 $104,833 -------- -------- -------- -------- -------- --------
LIQUIDITY AND CAPITAL RESOURCES At September 30, 1993 EPIC Holdings had working capital of $35.1 million (current assets of $215.2 million less current liabilities of $180.1 million), which included approximately $112.5 million of cash, cash equivalents and marketable securities. EPIC's existing bank credit facility requires $42.7 million in cash and marketable securities be restricted for the redemption of the remaining outstanding 15% Senior Subordinated Notes. EPIC Group has available $30 million in loan commitments under EPIC's existing bank credit facility. EPIC Properties has a revolving line of credit of the lesser of $22.0 million or the annual interest accrual on the EPIC Mortgage Notes for the purpose of paying the EPIC Mortgage Notes interest and principal. EPIC expects to continue to incur federal income tax loss in the near term primarily as a result of the deductibility of contributions to the EPIC ESOP, higher depreciation for tax purposes than for financial reporting purposes, and high interest expense. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which supersedes SFAS No. 96. Implementation of SFAS No. 109 for EPIC is required on October 1, 1993. SFAS No. 109 requires that differences 33 36 between the tax and financial statement bases of asset and liabilities ("temporary differences") be reflected in the same balance sheet category as the items that caused the temporary differences. Deferred tax assets, which would include tax net operating loss carryforwards, would require the determination of a related valuation allowance, based on the assets' expected realization. EPIC has completed the analysis necessary to determine the impact of adoption of SFAS No. 109 and it is not expected to have a material impact on EPIC Holdings' financial position or results of operations and will not impact cash flows. EPIC has reviewed its benefit programs and has determined that it offers no post employment benefits that require accrual in accordance with SFAS No. 112, "Employers' Accounting for Postemployment Benefits." See " -- Liquidity and Capital Resources" of EPIC Group for further discussion of matters relating to liquidity and capital resources of EPIC Holdings. Although EPIC Holdings' indebtedness, including EPIC Group's indebtedness, is substantial, EPIC management believes cash, cash equivalents and marketable securities on hand, cash flow from operations, and the availability of funds under revolving bank credit facilities will provide sufficient liquidity to meet all cash requirements for the next several years. EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS -- THREE MONTHS ENDED DECEMBER 31, 1993 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1992 NET OPERATING REVENUE EPIC Group recorded net operating revenue of $272.5 million for the three-month period ended December 31, 1993, an increase of $28.1 million (12%) compared to the three-month period ended December 31, 1992. Acute inpatient net revenue, which totalled $118.3 million for the three-month period ended December 31, 1993, increased $2.9 million (2%) compared to the three-month period ended December 31, 1992, due primarily to increased reimbursement recognized from Medicare and Medicaid programs. Acute inpatient admissions remained constant and acute inpatient patient days decreased 4% in the three-month period, respectively, as the direction of healthcare services continues to shift toward outpatient services, inpatient specialty units and home health services. Outpatient net revenue, which totalled $87.3 million for the three-month period ended December 31, 1993, increased $9.4 million (12%) compared to the three-month period ended December 31, 1992 as a result of a 9% increase in clinic and other outpatient visits. Inpatient specialty unit net revenue, which totalled $27.8 million for the three-month period ended December 31, 1993, increased $0.8 million (3%) compared to the three-month period ended December 31, 1992. Net revenue from home health visits, which totalled $25.9 million for the three-month period ended December 31, 1993, increased $8.8 million (52%) compared to the three-month period ended December 31, 1992. Home health visits increased 46% in the three-month period. Approximately 31% of the increase in home health visits resulted from the purchase of existing home health businesses. Other revenue, which totalled $13.2 million for the three-month period ended December 31, 1993, increased $6.2 million compared to the three-month period ended December 31, 1992. Geriatric psychiatric, rehabilitation and home healthcare management contract fees increased $3.3 million in the three-month period. Net patient revenue attributable to Medicare and Medicaid patients as a percentage of total net revenue was 58% and 53% for the three-month periods ended December 31, 1993 and 1992, respectively. Net patient revenue attributable to patients covered under various managed care programs as a for the three-month periods ended December 31, 1993 and 1992, respectively. 34 37 COSTS AND EXPENSES Costs and expenses decreased 2% as a percentage of net operating revenue for the three-month period ended December 31, 1993 compared to the three-month period ended December 31, 1992. Salaries and wages increased 2% as a percentage of net operating revenue for the three-month period ended December 31, 1993 compared to the three-month period ended December 31, 1992 due to the increase in home health services, which is more labor intensive than inpatient care. Employee benefits decreased 2% as a percentage of net operating revenue for the three-month period ended December 31, 1993 compared to the three-month period ended December 31, 1992 primarily due to a decrease in the costs of providing medical benefits. EPIC Group made changes to its medical benefit plan effective January 1, 1993 to reduce these costs. These changes included increased utilization review, implementation of a managed care referral program, and increased deductibles and out-of-pocket maximums. EPIC ESOP expense remained constant as a percentage of net operating revenue for the three-month period ended December 31, 1993 compared to the three-month period ended December 31, 1992. Depreciation and amortization decreased 1% as a percentage of net operating revenue for the three-month period ended December 31, 1993 compared to the three-month period ended December 31, 1992 due to the increase in net revenue. Supplies, uncompensated care, other operating expenses, and interest expense remained constant as a percentage of net operating revenue for the three-month period ended December 31, 1993 compared to the three-month period ended December 31, 1992. LOSS BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY ITEM EPIC Group incurred a loss before income tax benefit (expense), minority interests and extraordinary item of $1.1 million, for the three-month period ended December 31, 1993, compared to a loss of $6.0 million for the three-month period ended December 31, 1992. Earnings before depreciation and amortization, interest expense, interest income, income tax benefit (expense), ESOP expense, non-cash SAR expense, minority interests and extraordinary items (EBDAIT) as a percentage of net operating revenue increased from 11.57% for the three-month period ended December 31, 1992 to 12.96% for the three-month period ended December 31, 1993. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1993, EPIC Group had working capital of $32.6 million (current assets of $222.8 million less current liabilities of $190.2 million), which included $84.6 million in cash, cash equivalents and marketable securities. The revolving credit agreement requires $42.7 million in cash and marketable securities be restricted for the redemption of the remaining 15% Senior Subordinated Notes by February 28, 1994. EPIC Group has available an additional $30 million in loan commitments from a group of banks under a revolving line of credit agreement. EPIC Properties has available a revolving line of credit of the lesser of $22 million or the annual interest accrual on the EPIC Mortgage Notes for the purpose of paying the EPIC Mortgage Notes interest and principal. Cash used in operating activities totalled $1.1 million and cash provided by operating activities totalled $15.0 million for the three-month periods ended December 31, 1993, and 1992, respectively. Accounts receivable increased $22.4 million during the first quarter of fiscal 1994 primarily due to an increase in net operating revenue. Cash used in investing activities totalled $11.8 million and $5.9 million for the three-month periods ended December 31, 1993, and 1992, respectively. EPIC Group made capital additions of approximately $23.4 million and $7.4 million during the three months ended December 31, 1993, and 1992, respectively. EPIC management believes that EPIC Group's hospitals are well maintained and equipped and that planned and permitted expenditures will be sufficient to meet EPIC Group's ongoing capital requirements at its operating facilities. Capital expenditures totalling approximately $52 million are planned for the remainder of fiscal 1994 including completion of construction of 35 38 a new hospital near Covington, Louisiana and continuation of construction of a new hospital in Denton, Texas. On December 31, 1992, EPIC Group purchased an imaging center for $4.1 million. Cash used in financing activities totalled $2.9 million and $7.3 million for the three-month periods ended December 31, 1993 and 1992, respectively. During the first quarter of fiscal 1993, a subsidiary of EPIC Group purchased $5.4 million of the 11 7/8% Senior ESOP Notes on the open market for $5.6 million plus accrued interest. Total scheduled debt maturities are $47.9, $9.5 and $43.5 million in fiscal 1994, 1995 and 1996, respectively. EPIC is expected to make cash interest payments of approximately $58 million per year through fiscal 1996. See Note 5 of the Notes to EPIC Group's Consolidated Financial Statements for the year ended September 30, 1993, for information regarding EPIC Group's indebtedness. In addition to the indebtedness of EPIC Group, EPIC Holdings, the parent corporation of EPIC Group, has outstanding $250 million principal amount ($172.2 million accreted value at December 31, 1993) of the EPIC Holdings Notes, which require cash interest payments commencing in March 1997. Such interest payments, as well as the principal payment upon maturity in 2002, is expected to be funded out of dividends to EPIC Holdings. Although EPIC's indebtedness is substantial, EPIC management believes that cash, cash equivalents and marketable securities on hand, cash flow from operations, and the availability of funds under revolving bank credit facilities will provide sufficient liquidity to meet all cash requirements for the next several years. EPIC HOLDINGS, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS -- THREE MONTHS ENDED DECEMBER 31, 1993 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1992 Operations of EPIC Holdings were substantially the same as those of EPIC Group for the three-month periods ended December 31, 1993 and 1992 with the exception of interest expense. EPIC Holdings' interest expense remained constant as a percentage of net operating revenue for the three-month period ended December 31, 1993, compared to the three-month period ended December 31, 1992. EPIC Holdings incurred a loss before income tax, minority interests and extraordinary item of $6.2 million for the three-month period ended December 31, 1993, compared to a loss of $10.6 million for the three-month period ended December 31, 1992. Earnings before depreciation and amortization, interest expense, interest income, income tax benefit (expense), EPIC ESOP expense, noncash SAR expense, minority interests and extraordinary items (EBDAIT) as a percentage of net operating revenue increased from 11.56% for the three-month period ended December 31, 1992 to 12.94% for the three-month period ended December 31, 1993. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1993, EPIC Holdings had working capital of $37.6 million (current assets of $227.9 million less current liabilities of $190.3 million), which included $89.3 million of cash, cash equivalents and marketable securities. The revolving credit agreement requires $42.7 million in cash and marketable securities be restricted for the redemption of the remaining outstanding 15% Senior Subordinated Notes by February 28, 1994. EPIC Group has available $30 million in loan commitments from a group of banks under a revolving credit agreement. EPIC Properties has available a revolving line of credit of the lesser of $22 million or the annual interest accrual on the EPIC Mortgage Notes for the purpose of paying the EPIC Mortgage Notes interest and principal. Although EPIC Holdings' indebtedness, including EPIC Group's indebtedness, is substantial, EPIC management believes cash, cash equivalents and marketable securities on hand, cash flow from operations, and the availability of funds under revolving bank credit facilities will provide sufficient liquidity to meet all cash requirements for the next several years. 36 39 SELLING STOCKHOLDERS The Selling Stockholders listed in the table below have agreed to sell the number of shares of Common Stock set forth opposite their respective names. Except as noted below, all such shares of Common Stock are being sold in the Offerings upon exercise of Warrants held by the Selling Stockholders at an exercise price of $3.18 per share. The table sets forth information with respect to the beneficial ownership of the Common Stock immediately prior to the consummation of the Offerings and as adjusted to reflect the sale of the Common Stock pursuant to the Offerings. Except as otherwise noted, none of the Selling Stockholders has had any position, office or other material relationship with the Company or its affiliates within the past three years. Following consummation of the Offerings, none of the Selling Stockholders will beneficially own any shares of Common Stock.
BENEFICIAL OWNERSHIP PRIOR TO THE OFFERINGS ------------------- NUMBER NUMBER OF OF SHARES SELLING STOCKHOLDERS SHARES PERCENT BEING OFFERED - --------------------------------------------------------- --------- ------- ------------- Base Assets Trust........................................ 645,955 * 645,955 Commonwealth Life Insurance.............................. 97,000 * 97,000 Guaranty Reassurance Corporation......................... 47,150 * 47,150 American Financial Corporation........................... 28,290 * 28,290 Flexi-Van Leasing, Inc................................... 28,290 * 28,290 Donaldson, Lufkin & Jenrette Securities Corporation(1)... 20,875 * 20,875 Western Financial Savings Bank........................... 18,860 * 18,860 Berkeley Atlantic Income Limited(2)...................... 14,145 * 14,145 Comdisco, Inc............................................ 14,145 * 14,145 Lexington Precision Corporation.......................... 14,145 * 14,145 Thomas Spiegel........................................... 14,145 * 14,145 EQJ Partnership(3)....................................... 10,362 * 10,362 Equitable Life Assurance Society(3)...................... 8,000 * 8,000 Wolfson Equities(4)...................................... 7,500 * 7,500 American Capital High Yield Investments Inc.(5).......... 5,994 * 5,994 John Chulick & Kathi Chulick............................. 5,752 * 5,752 Berkeley Technology Investments Limited(2)............... 5,658 * 5,658 General American Life Insurance Co....................... 4,715 * 4,715 National Western Life Insurance Co.(6)................... 3,772 * 3,772 Universal Medical Buildings L.P.......................... 3,750 * 3,750 South Ferry #2 L.P.(4)................................... 3,000 * 3,000 Christian Brothers Institute............................. 2,829 * 2,829 Stephen Swid............................................. 2,829 * 2,829 The Westwood Group, Inc.................................. 2,829 * 2,829 Worldwide Special Portfolio N.V.......................... 2,829 * 2,829 American Capital Income Trust(5)......................... 2,661 * 2,661 Merrill Lynch, Pierce, Fenner & Smith Incorporated(7).... 1,886 * 1,886 Warren F. Langford Trust(8).............................. 1,320 * 1,320 Citizens Trust Company, Agent for the Trustees of the Lawrence K. Fish Trust f/b/o Edward T. Fish, Emily T. Fish and Leah T. Fish.................................. 943 * 943 American Capital Life Investment Trust(5)................ 775 * 775
37 40 - --------------- * Less than one percent. (1) Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") is acting as a co-representative of the Underwriters in the Offerings and is acting in certain additional capacities in connection with the Acquisition and the Financing Plan. In addition, DLJ has from time to time performed investment banking and other financial services for the Company. See "Underwriting." (2) Berkeley Atlantic Income Limited and Berkeley Technology Investments Limited are affiliated entities. (3) EQJ Partnership and Equitable Assurance Society are affiliated with DLJ. See note 1 above. (4) Wolfson Equities is a limited partner in South Ferry #2 L.P. (5) American Capital High Yield Investments, Inc., American Capital Income Trust and American Capital Life Investment Trust are affiliated entities. (6) The shares of Common Stock being sold by such Selling Stockholder were purchased upon exercise of Warrants at an exercise price of $7.95 per share. (7) Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and one of its affiliates are acting as co-representatives of the Underwriters in the Offerings and Merrill Lynch is acting in certain additional capacities in connection with the Acquisition and the Financing Plan. In addition, Merrill Lynch has from time to time performed investment banking and other financial services for the Company. See "Underwriting." (8) The shares of Common Stock being sold by such Selling Stockholder were purchased upon exercise of Warrants at an exercise price of $5.30 per share. 38 41 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of (i) 400,000,000 shares of Common Stock and (ii) 78,000,000 shares of preferred stock, par value $.001 per share (the "Preferred Stock"), of which 1,000,000 shares have been designated as Series A Junior Preferred Stock. As of February 28, 1994, there were 81,221,108 shares of Common Stock outstanding and no shares of Preferred Stock outstanding. The following summary description of the Company's capital stock is qualified by reference to the Company's amended and restated Certificate of Incorporation (the "Certificate") and By-Laws and the Rights Agreement, dated as of July 8, 1993, between the Company and First Union National Bank of North Carolina, as Rights Agent (the "Rights Agreement"). Capital Stock Each share of Common Stock entitles the holder thereof to one vote on all matters submitted to a vote of stockholders. Subject to preferential rights that may be applicable to any outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and subject to the liquidation preference of any outstanding Preferred Stock. Holders of Common Stock have no cumulative voting rights and no preemptive, subscription, redemption or conversion rights. The transfer agent and registrar for the Common Stock is First Union National Bank of North Carolina. Pursuant to the Rights Agreement, attached to each share of Common Stock (including the Common Stock offered hereby) is one preferred stock purchase right (a "Right") that, when exercisable, entitles the holder thereof to purchase one one-hundredth of a share of Series A Junior Preferred Stock at a price (the "Exercise Price") of $75, subject to adjustment. The Rights generally become exercisable ten days after the earlier of (i) a public announcement that a person or group beneficially owns 15% or more of any class of the Company's voting stock (a "15% Interest") or (ii) the commencement, or announcement of the intent to commence, a tender offer which would result in any person or group acquiring a 15% Interest (in either case unless approved by the Company's Continuing Directors, as defined in the Rights Agreement). Following the acquisition by a person or group of a 15% Interest, the Rights held by such person or group (and certain affiliates, associates and transferees thereof) become null and void. Following certain events (including a person or group acquiring a 15% Interest, a merger or a sale of a majority of the Company's assets), exercise of the Rights entitles the holders thereof to receive Common Stock or common stock of the acquiring corporation, or cash, property or other securities, with a market value equal to twice the Exercise Price. The Rights expire on July 8, 2003 and may be redeemed by the Company (with the approval of the Continuing Directors) for $.01 per Right until the tenth day after a person or group acquires a 15% Interest. At any time after a person or group acquires a 15% Interest and until such person or group acquires 50% or more of any class of the Company's voting stock, the Company (with the approval of the Continuing Directors) may exchange each Right for one share of Common Stock. Certificate and By-laws The Certificate and the By-laws provide that (i) the Board of Directors consists of a minimum of five and a maximum of fifteen directors, divided into three classes serving staggered three-year terms, and such provisions may not be amended without the affirmative vote of the holders of at least 80% of the Company's outstanding voting stock; (ii) directors may be removed only for cause; and (iii) special meetings may be called only by the Board of Directors. In addition, the Board of Directors is authorized, without further stockholder approval, to establish and issue one or more series of Preferred Stock and determine the rights, preferences and limitations thereof. The foregoing provisions of the Certificate and By-laws, together with the ability of the Board of Directors to issue Preferred Stock and the effects of the Rights described above, could discourage or delay a change of control of the Company and the removal of the Company's management. Recent Developments On February 15, 1994, Mellon Bank corporation ("Mellon") filed with the Commission a report on Schedule 13G stating that Mellon and its subsidiaries, in various fiduciary capacities, beneficially own 5,230,000 shares of Common Stock, representing approximately 6.4% of the Common Stock outstanding on such date. 39 42 CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a general summary of certain United States federal income and estate tax consequences expected to result under current law from the purchase, ownership, sale or other taxable disposition of Common Stock by any person that is (as to the United States) a foreign corporation, a foreign partnership, a nonresident alien individual, or a nonresident alien fiduciary of an estate or trust the income of which is not subject to United States taxation regardless of its source (a "Non-U.S. Holder"). This summary does not address all aspects of United States federal income and estate taxes that may be relevant to Non-U.S. Holders in light of their personal circumstances or to certain types of Non-U.S. Holders that may be subject to special treatment under United States federal income tax laws (for example, insurance companies, tax exempt organizations, financial institutions or broker-dealers). Furthermore, this summary does not discuss any aspects of foreign, state or local taxation. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations promulgated thereunder and administrative and judicial interpretations thereof, all of which are subject to change. This summary does not constitute, and should not be viewed as, legal or tax advice to prospective purchasers. Each prospective purchaser of Common Stock is advised to consult its own tax advisor with respect to the tax consequences of acquiring, holding and disposing of Common Stock. DIVIDENDS The Company does not expect to pay dividends on its Common Stock in the foreseeable future. See "Dividend Policy." Except as described below and subject to the discussion below regarding the Foreign Investment in Real Property Tax Act ("FIRPTA"), dividends paid to a Non-U.S. Holder of Common Stock generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. In determining the applicability of a tax treaty that provides for a lower rate of withholding, dividends paid to an address in a foreign country are presumed under current Treasury regulations to be paid to a resident of that country. Under proposed Treasury regulations, however, a Non-U.S. Holder would be required to file certain forms in order to claim the benefit of an applicable treaty rate. Any dividends that are effectively connected with the conduct of a trade or business of the Non-U.S. Holder within the United States generally will not be subject to the 30% withholding tax (provided that the required forms are filed), but will be taxed at ordinary federal income tax rates. If the Non-U.S. Holder is a foreign corporation, such effectively connected income may also be subject to an additional United States "branch profits tax." The Company must report annually to the Internal Revenue Service (the "IRS") and to each Non-U.S. Holder the amount of dividends paid to, and tax withheld from dividends received by, such Non-U.S. Holder. These information reporting requirements apply even if withholding is reduced or eliminated by an applicable tax treaty. This information also may be made available to the tax authorities of the country in which the Non-U.S. Holder resides. SALE OR DISPOSITION OF COMMON STOCK Except as described below in this paragraph and subject to the discussion below regarding FIRPTA, a Non-U.S. Holder generally will not be subject to United States federal income tax (and no amount generally will be withheld) in respect of any gain recognized on a sale or other taxable disposition of Common Stock. However, capital gain that is effectively connected with the conduct of a trade or business of the Non-U.S. Holder in the United States will be taxed at ordinary federal income tax rates (subject to a 28% maximum tax rate for long-term capital gains of individuals). Capital gains of a Non-U.S. Holder also may be subject to tax if such Holder is subject to the provisions of the United States tax law applicable to certain United States expatriates. Moreover, a Non-U.S. Holder who is a nonresident alien individual and who holds the Common Stock as a capital asset generally will be taxed at a rate of 30% on capital gain if (i) he is present in the United States for 183 or more days in the taxable year of sale or other disposition and (ii) either the gain is attributable to a fixed place of business maintained by him in the United States or he has a "tax home" (as defined in the Code) in the United States. An applicable treaty may provide for different rules. 40 43 FEDERAL ESTATE TAXES Common Stock owned or treated as owned by an individual Non-U.S. Holder at the time of death will be included in such Non-U.S. Holder's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and may be subject to United States federal estate tax. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT If a Non-U.S. Holder's gain or loss upon the sale, exchange or redemption of Common Stock (including dividend distributions treated as redemptions or partial liquidations under United States federal income tax rules) is subject to FIRPTA, such gain or loss will be treated as effectively connected with a trade or business engaged in by such Non-U.S. Holder within the United States and thus will be subject to United States income tax at the ordinary rates. The FIRPTA provisions would apply to the Common Stock only if the Company has been or becomes a "United States real property holding corporation" within the meaning of the Code ("USRPHC"). It is possible that the Company is or, in the future, will be a USRPHC. However, even if the Company is a USRPHC, if the Common Stock is regularly traded on an established securities market, FIRPTA will apply only to a Non-U.S. Holder that beneficially owns, directly or indirectly, more than 5% of the fair market value of the Common Stock at any time during the 5-year period ending on the date of disposition (or such shorter period that such Common Stock was held). INFORMATION REPORTING AND BACKUP WITHHOLDING Backup withholding (which generally is a withholding tax imposed at the rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements) and information reporting with respect to backup withholding generally will not apply to dividends paid to Non-U.S. Holders at an address outside of the United States. The payment of the proceeds from the disposition of Common Stock to or through the United States office of a broker will be subject to information reporting and backup withholding unless the payee under penalties of perjury certifies, among other things, its status as a Non-U.S. Holder, or otherwise establishes an exemption. The payment of the proceeds from the disposition of Common Stock to or through a non-U.S. office of a non-U.S. broker will generally, except as noted below, not be subject to backup withholding and information reporting. In the case of the payment of proceeds from the disposition of Common Stock through a non-U.S. office of a broker that is a United States person or a "U.S. related person," existing regulations require information reporting on the payment unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder and the broker has no actual knowledge to the contrary. For this purpose, a "U.S. related person" is (i) a "controlled foreign corporation" for United States federal income tax purposes (generally, a foreign corporation controlled by United States shareholders) or (ii) a foreign person 50% or more of whose gross income from all sources for a certain period is derived from activities that are effectively connected with the conduct of a United States trade or business. Proposed regulations contain a similar rule with respect to information reporting by a non-U.S. office of a broker that is a United States person or a U.S. related person. However, under the proposed regulations, such a person may only rely on documentary evidence to avoid information reporting if the foreign office "effects" the sale at such foreign office. The existing backup withholding regulations state that payments of sale proceeds made through a foreign office of a broker that is a United States person or a U.S. related person will not be subject to backup withholding until provided otherwise, and the proposed regulations state that backup withholding will not apply to such payments (absent actual knowledge that the payee is a United States person) where the foreign office "effects" the sale at such foreign office. Amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund of or a credit against such Non-U.S. Holder's United States federal income tax, provided that the required information is furnished to the IRS. 41 44 UNDERWRITING Subject to the terms and conditions set forth in a U.S. purchase agreement (the "U.S. Purchase Agreement") among the Company, the Selling Stockholders and each of the underwriters named below (the "U.S. Underwriters"), and concurrently with the sale of 1,244,081 shares of Common Stock to the International Underwriters (as defined below), the Company and the Selling Stockholders severally have agreed to sell to the U.S. Underwriters, and each of the U.S. Underwriters severally has agreed to purchase from the Company and the Selling Stockholders, the aggregate number of shares of Common Stock set forth opposite its name below.
NUMBER OF U.S. UNDERWRITERS SHARES ------------------------------------------------------------------------ --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated .............................................. Donaldson, Lufkin & Jenrette Securities Corporation..................... --------- Total ..................................................... 4,976,323 --------- ---------
Merrill Lynch and DLJ are acting as representatives (the "U.S. Representatives") of the U.S. Underwriters. The Company and the Selling Stockholders also have entered into a purchase agreement (the "International Purchase Agreement") with certain underwriters outside the United States (the "International Underwriters" and, together with the U.S. Underwriters, the "Underwriters"), for whom Merrill Lynch International Limited and DLJ are acting as representatives (the "International Representatives"). Subject to the terms and conditions set forth in the International Purchase Agreement, and concurrently with the sale of 4,976,323 shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, the Company and the Selling Stockholders have agreed to sell to the International Underwriters, and the International Underwriters severally have agreed to purchase from the Company and the Selling Stockholders, an aggregate of 1,244,081 shares of Common Stock. The initial public offering price per share and the total underwriting discount per share are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement and the International Purchase Agreement, the several U.S. Underwriters and the several International Underwriters, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such Agreement if any of the shares of Common Stock being sold pursuant to each such agreement are purchased. The Underwriters have agreed, subject to the terms and conditions set forth in the U.S. Purchase Agreement and the International Purchase Agreement, to purchase the shares to be sold by the Company regardless of whether certain conditions to the Underwriters' obligations to purchase the Selling Stockholders' shares are met. Under certain circumstances, the commitments of non-defaulting U.S. Underwriters or International Underwriters (as the case may be) may be increased. Sales of Common Stock to be purchased by the U.S. Underwriters and the International Underwriters are conditioned upon one another. The U.S. Underwriters and the International Underwriters have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. The Underwriters are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to 42 45 sell or sell shares of Common Stock to persons who are non-United States persons or to persons they believe intend to resell to persons who are non-United States persons, and the International Underwriters and any dealer to whom they sell shares of Common stock will not offer to sell or sell shares of Common Stock to United States persons or to persons they believe intend to resell to United States persons, except in each case for transactions pursuant to such agreement. The U.S. Representatives have advised the Company that the U.S. Underwriters propose initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The U.S. Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted an option to the U.S. Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an aggregate of 624,000 additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less the underwriting discount. The U.S. Underwriters may exercise this option only to cover over-allotments, if any, made on the sale of Common Stock offered hereby. To the extent that the U.S. Underwriters exercise this option, each U.S. Underwriter will be obligated, subject to certain conditions, to purchase the number of additional shares of Common Stock proportionate to such U.S. Underwriter's initial amount reflected in the foregoing table. The Company also has granted an option to the International Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an aggregate of 156,000 additional shares of Common Stock to cover overallotments, if any, on terms similar to those granted to the U.S. Underwriters. The Company and certain of its executive officers have agreed, subject to certain exceptions, not to sell, offer to sell, contract to sell, grant any option for the sale of or otherwise dispose of, any Common Stock or securities convertible into Common Stock for a period of 90 days from the date of this Prospectus without the prior written consent of the U.S. Representatives. The Common Stock is listed on the NYSE under the symbol "HTI." The Company, the Selling Stockholders and the several Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Each of the U.S. Underwriters, from time to time, performs investment banking and other financial services for the Company. Merrill Lynch and DLJ are acting as financial advisors to the Company in connection with the Acquisition. In addition, the Company has retained DLJ and Merrill Lynch as Dealer Managers for the Tender Offers and as underwriters for the Subordinated Debt Offering. LEGAL MATTERS The validity of the Common Stock offered hereby and certain other legal matters relating to the Offerings will be passed upon for the Company by Dewey Ballantine, New York, New York. Certain legal matters will be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. Morton A. Pierce and Robert M. Smith, both members of Dewey Ballantine, are Assistant Secretaries of the Company. In addition, certain members of Dewey Ballantine and certain associates of the firm beneficially own shares of Common Stock. EXPERTS The consolidated financial statements of Healthtrust, Inc. - The Hospital Company, EPIC Holdings, Inc., and EPIC Healthcare Group, Inc. appearing or incorporated by reference in this Prospectus and Registration Statement have been audited by Ernst & Young, independent auditors, to the extent indicated in their reports thereon also appearing elsewhere herein and in the Registration Statement or incorporated by reference. Such consolidated financial statements have been included herein or incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 43 46 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (the "Registration Statement") on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), for the registration of the securities offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in exhibits and schedules to the Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement, including the exhibits thereto, and the financial statements and notes filed as a part thereof. Statements made in this Prospectus concerning the contents of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such contract, agreement or other document filed with the Commission as an exhibit, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; at the Commission's New York Regional Office, 7 World Trade Center, New York, New York 10048; and at its Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is listed on the New York Stock Exchange, Inc. (the "NYSE") and such reports, proxy statements and other information concerning the Company also can be inspected at the office of the NYSE, 20 Broad Street, New York, New York 10005. ------------------------ INFORMATION INCORPORATED BY REFERENCE The following documents of the Company, which have been filed by the Company with the Commission pursuant to the Exchange Act, are incorporated herein by reference: (i) Annual Report on Form 10-K for the fiscal year ended August 31, 1993; (ii) Current Report on Form 8-K dated January 10, 1994; (iii) Quarterly Report on Form 10-Q for the quarter ended November 30, 1993; (iv) Quarterly Report on Form 10-Q for the quarter ended February 28, 1994; (v) the description of the Common Stock contained in the Registration Statement on Form 8-A dated November 5, 1991, as amended by Amendment No. 1 on Form 8 dated December 4, 1991; and (vi) the description of the Company's preferred stock purchase rights contained in the Registration Statement on Form 8-A dated July 12, 1993. All documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering of the Common Stock, shall be deemed to be incorporated in this Prospectus by reference and to be a part hereof from the respective date of filing of each such document. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement herein or in any other subsequently filed document which also is, or is deemed to be, incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will furnish without charge to each person to whom this Prospectus is delivered, upon written or oral request, a copy of any or all of the documents incorporated by reference herein, other than exhibits to such documents. Requests should be directed to Philip D. Wheeler, Esq., Senior Vice President, General Counsel and Secretary, Healthtrust, Inc. - The Hospital Company, 4525 Harding Road, Nashville, Tennessee 37205, telephone number (615) 383-4444. 44 47 INDEX TO FINANCIAL STATEMENTS UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS Introduction to Unaudited Pro Forma Condensed Combined Financial Statements......... P-1 Unaudited Pro Forma Condensed Combined Balance Sheet................................ P-2 Notes to Unaudited Pro Forma Condensed Combined Balance Sheet....................... P-3 Unaudited Pro Forma Condensed Combined Statements of Operations..................... P-4 Notes to Unaudited Pro Forma Condensed Combined Statements of Operations............ P-6 EPIC HOLDINGS, INC. AND SUBSIDIARIES THREE MONTHS ENDED DECEMBER 31, 1993: Condensed Consolidated Balance Sheets............................................... F-1 Condensed Consolidated Statements of Operations..................................... F-2 Condensed Consolidated Statements of Cash Flows..................................... F-3 Notes to Condensed Consolidated Financial Statements................................ F-4 EPIC HOLDINGS, INC. AND SUBSIDIARIES THREE YEARS ENDED SEPTEMBER 30, 1993: Report of Independent Auditors...................................................... F-7 Consolidated Balance Sheets......................................................... F-8 Consolidated Statements of Operations............................................... F-9 Consolidated Statements of Stockholders' Equity (Deficit)........................... F-10 Consolidated Statements of Cash Flows............................................... F-11 Notes to Consolidated Financial Statements.......................................... F-12 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES THREE MONTHS ENDED DECEMBER 31, 1993: Condensed Consolidated Balance Sheets............................................... F-25 Condensed Consolidated Statements of Operations..................................... F-26 Condensed Consolidated Statements of Cash Flows..................................... F-27 Notes to Condensed Consolidated Financial Statements................................ F-28 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES THREE YEARS ENDED SEPTEMBER 30, 1993: Report of Independent Auditors...................................................... F-37 Consolidated Balance Sheets......................................................... F-38 Consolidated Statements of Operations............................................... F-39 Consolidated Statements of Stockholders' Equity (Deficit)........................... F-40 Consolidated Statements of Cash Flows............................................... F-41 Notes to Consolidated Financial Statements.......................................... F-42
45 48 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following Unaudited Pro Forma Condensed Combined Financial Statements are based on the consolidated financial statements of the Company and EPIC included or incorporated by reference in this Prospectus, combined and adjusted to give effect to the Company's Acquisition of EPIC, using the purchase method of accounting, and the related Financing Plan. The Unaudited Pro Forma Condensed Combined Balance Sheet as of February 28, 1994 gives effect to the Acquisition and Financing Plan as if they had occurred as of February 28, 1994. The Unaudited Pro Forma Condensed Combined Statements of Operations for the six months ended February 28, 1994 and year ended August 31, 1993, give effect to the Acquisition and Financing Plan as if they had occurred on September 1, 1992. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. The Unaudited Pro Forma Condensed Combined Financial Statements do not purport to represent what the combined financial position or results of operations would actually have been if the transactions had occurred on February 28, 1994 or September 1, 1992 or to project the combined financial position or combined results of operations for any future period. The Company will continue to report its financial information on the basis of an August 31 fiscal year. EPIC reports its financial information using a September 30 fiscal year. The Unaudited Pro Forma Condensed Combined Balance Sheet combines the Company's February 28, 1994 balance sheet and EPIC's December 31, 1993 balance sheet. The Unaudited Pro Forma Condensed Combined Statements of Operations combine the Company's statements of operations for the six months ended February 28, 1994 and fiscal year ended August 31, 1993 with EPIC's statements of operations for the six months ended December 31, 1993 and fiscal year ended September 30, 1993, respectively. The Unaudited Pro Forma Condensed Combined Financial Statements should be read in conjunction with "The Acquisition and the Financing Plan," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes of the Company and EPIC included or incorporated by reference in this Prospectus. P-1 49 HEALTHTRUST, INC. - THE HOSPITAL COMPANY UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (DOLLARS IN MILLIONS)
FEBRUARY 28, 1994 ------------------------------------------------------------ AS REPORTED AS REPORTED PRO FORMA COMBINED HEALTHTRUST EPIC ADJUSTMENTS PRO FORMA ----------- ----------- ------------ --------- CURRENT ASSETS Cash and cash equivalents..................... $ 159.8 $ 55.1 $ 152.3(1) $ 20.0 195.0(2) (157.5)(3) (633.4)(4) (250.2)(5) (27.6)(6) (8.5)(7) (27.4)(8) 562.4(9) Marketable securities......................... 34.1 (34.1)(7) 0.0 Accounts receivable........................... 392.1 99.4 491.5 Supplies...................................... 54.5 21.0 75.5 Other current assets.......................... 30.1 18.3 48.4 ----------- ----------- ------------ --------- TOTAL CURRENT ASSETS................... 636.5 227.9 (229.0) 635.4 PROPERTY, PLANT AND EQUIPMENT................... 2,243.7 810.0 (231.2)(10) 2,822.5 Less accumulated depreciation................. 660.2 231.2 (231.2)(10) 660.2 ----------- ----------- ------------ --------- 1,583.5 578.8 0.0 2,162.3 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED...................................... 177.5 52.5 17.3(3) 634.0 120.4(4) 292.9(5) 27.6(6) 25.8(8) (80.0)(11) OTHER ASSETS.................................... 118.3 39.3 5.0(2) 234.1 (2.4)(3) (16.9)(4) 10.8(8) 80.0(11) ----------- ----------- ------------ --------- TOTAL ASSETS........................... $ 2,515.8 $ 898.5 $ 251.5 $3,665.8 ----------- ----------- ------------ --------- ----------- ----------- ------------ --------- CURRENT LIABILITIES Accounts payable.............................. $ 77.7 $ 45.6 $ 9.2(8) $ 132.5 Other current liabilities..................... 267.2 144.8 (42.6)(7) 370.0 0.6(9) ----------- ----------- ------------ --------- TOTAL CURRENT LIABILITIES.............. 344.9 190.4 (32.8) 502.5 LONG-TERM DEBT.................................. 931.4 685.2 200.0(2) 1,705.9 (142.6)(3) (529.9)(4) 561.8(9) DEFERRED INCOME TAXES........................... 133.6 11.4 145.0 DEFERRED PROFESSIONAL LIABILITIES............... 148.9 46.5 195.4 OTHER LIABILITIES............................... 212.6 47.9 (40.2)(5) 220.3 STOCKHOLDERS' EQUITY Common stock(12).............................. 0.1 0.4 (0.4)(5) 0.1 Paid-in capital............................... 828.3 245.8 152.3(1) 980.6 (245.8)(5) Deferred compensation......................... (0.6) (137.4) 137.4(5) (0.6 ) Retained deficit.............................. (83.4) (191.7) 191.7(5) (83.4 ) ----------- ----------- ------------ --------- STOCKHOLDERS' EQUITY................... 744.4 (82.9) 235.2 896.7 ----------- ----------- ------------ --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $ 2,515.8 $ 898.5 $ 251.5 $3,665.8 ----------- ----------- ------------ --------- ----------- ----------- ------------ ---------
See notes to unaudited pro forma condensed combined balance sheet. P-2 50 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET 1. To record the net proceeds from the completion of the offering of 5.2 million shares of Healthtrust Common Stock at $30.50 per share, the average of the high and low prices for the Common Stock reported on the NYSE for March 31, 1994. Gross proceeds of $158.6 million, less estimated issuance costs of $6.3 million, provides net proceeds of $152.3 million. 2. To record the net proceeds from the completion of the $200 million Subordinated Debt Offering. Gross proceeds of $200.0 million, less estimated issuance costs of $5.0 million, provides net proceeds of $195.0 million. Maturities of pro forma long-term debt for the 12-month periods ending subsequent to February 28, 1994 are as follows: 1994 -- $43.9 million; 1995 -- $67.4 million; 1996 -- $100.4 million; 1997 -- $118.2 million; 1998 -- $124.2 million; and thereafter -- $1,295.7 million. 3. To record the Debt Redemption. The $157.5 million payment retires $142.6 million recorded value of EPIC indebtedness, the related deferred loan costs of $2.4 million are written off and the net payment excess of $17.3 million is recorded in excess of purchase price over net assets acquired. 4. To record the completion of the Tender Offers for the Specified EPIC Debt Securities (100% tender amount assumed). Assuming either the Current Tender Amount or 0% of each issue of the Specified EPIC Debt Securities is purchased in the Tender Offers, there would be no material effect on long-term indebtedness. The $633.4 million payment retires $529.9 million recorded value of Specified EPIC Debt Securities, the related deferred loan costs of $16.9 million are written off and the net payment excess of $120.4 million is recorded in excess of purchase price over net assets acquired. 5. To record the payment of $7 per share for 35,746,000 shares of EPIC common stock ($250.2 million). EPIC recorded a noncurrent liability of approximately $40.2 million related to the 5.9 million shares of EPIC Common Stock issued pursuant to the EPIC Stock Appreciation Rights Plan, which shares are included in the total number of shares of EPIC common stock to be purchased by the Company pursuant to the Acquisition. 6. To record the payment of $27.6 million in connection with the termination of contributions to the EPIC ESOP pursuant to the ESOP Agreement. 7. To record EPIC's required call of the outstanding 15% Senior Subordinated Notes of EPIC Group and pay the related call premium and accrued interest payable. 8. To record certain severance agreement liabilities and transaction costs (including estimated legal, accounting and valuation costs). 9. To record borrowings under the 1994 Credit Agreement of $712.7 million to complete the Acquisition and Financing Plan transactions ($150.3 million to refinance the existing bank credit facility and $562.4 million of additional borrowings) and maintain a $20.0 million cash balance. 10. To record EPIC's property, plant and equipment at historical net book value. No estimate of any purchase accounting adjustments to record such property, plant and equipment at fair value has been made at this time. The Company expects to obtain and record a valuation of EPIC's land and buildings within six months following the Acquisition. It is not expected that the reclassification between excess of purchase price over net assets acquired and property, plant and equipment will be significant to the combined balance sheet. 11. To record the deferred tax asset for the temporary differences related to the above transactions (assumes a 39% statutory combined federal and state tax rate). 12. No assumption has been made as to the exercise of all or a portion of the Warrants to purchase 3,409,219 shares of Common Stock. If all Warrants were exercised at a price of $3.18 per share, net proceeds to the Company would be approximately $10.8 million. P-3 51 HEALTHTRUST, INC. - THE HOSPITAL COMPANY UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS SIX MONTHS ENDED FEBRUARY 28, 1994 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
AS REPORTED AS REPORTED PRO FORMA COMBINED PRO HEALTHTRUST EPIC ADJUSTMENTS FORMA(1) ----------- ----------- ------------ ------------ Net operating revenue................... $ 1,274.6 $ 537.2 $ 1,811.8 Costs and expenses: Hospital service costs: Salaries and benefits.............. 468.4 227.4 695.8 Supplies........................... 179.0 64.4 243.4 Fees............................... 133.1 40.9 174.0 Other expenses..................... 131.7 87.0 218.7 Bad debt expense................... 88.7 42.8 131.5 ----------- ----------- ------------ ------------ 1,000.9 462.5 1,463.4 Depreciation and amortization........... 69.7 29.4 $ 5.2(2) 104.3 Interest................................ 42.3 46.7 (17.9)(3) 71.1 ESOP/pension expense.................... 20.5 10.8 31.3 Deferred compensation expense........... 0.6 2.3 (2.3)(4) 0.6 Other income (net)...................... (8.7) (1.5) 6.2(5) (4.0) ----------- ----------- ------------ ------------ 1,125.3 550.2 (8.8) 1,666.7 ----------- ----------- ------------ ------------ Income (Loss) before minority interests, income taxes and extraordinary charges............................... 149.3 (13.0) 8.8 145.1 Minority interests...................... 4.1 2.8 6.9 ----------- ----------- ------------ ------------ Income (Loss) before income taxes and extraordinary charges................. 145.2 (15.8) 8.8 138.2 Income tax expense (benefit)............ 59.0 0.8 (2.2)(6) 57.6 ----------- ----------- ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY CHARGES............................... $ 86.2 $ (16.6) $ 11.0 $ 80.6 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ (40,030,743)(7) Weighted average common shares.......... 84,639,121 40,030,743 5,200,000(7) 89,839,121 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ Income (loss) per share before extraordinary charges................. $ 1.02 $ (0.41) $ 0.90 ----------- ----------- ------------ ----------- ----------- ------------
See notes to unaudited pro forma condensed combined statements of operations. P-4 52 HEALTHTRUST, INC. - THE HOSPITAL COMPANY UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED AUGUST 31, 1993 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
COMBINED AS REPORTED AS REPORTED PRO FORMA PRO HEALTHTRUST EPIC ADJUSTMENTS FORMA(1) ----------- ----------- ------------ ----------- Net operating revenue.................... $ 2,394.6 $ 1,019.1 $ 3,413.7 Costs and expenses: Hospital service costs: Salaries and benefits............... 886.7 432.5 1,319.2 Supplies............................ 347.0 122.0 469.0 Fees................................ 270.1 75.7 345.8 Other expenses...................... 239.3 162.9 402.2 Bad debt expense.................... 145.5 80.6 226.1 ----------- ----------- ------------ ----------- 1,888.6 873.7 2,762.3
Depreciation and amortization............ 132.7 57.9 $ 10.6(2) 201.2 Interest................................. 99.8 89.9 (31.6)(3) 158.1 ESOP/pension expense..................... 39.0 20.7 59.7 Deferred compensation expense............ 4.3 3.8 (3.8)(4) 4.3 Other income (net)....................... (7.6) (7.2) 7.9(5) (6.9) ----------- ----------- ------------ ----------- 2,156.8 1,038.8 (16.9) 3,178.7 ----------- ----------- ------------ ----------- Income (Loss) before minority interests, income taxes and extraordinary charges................................ 237.8 (19.7) 16.9 235.0 Minority interests....................... 11.9 3.5 15.4 ----------- ----------- ------------ ----------- Income (Loss) before income taxes and extraordinary charges.................. 225.9 (23.2) 16.9 219.6 Income tax expense....................... 90.7 2.0 (0.8)(6) 91.9 ----------- ----------- ------------ ----------- INCOME (LOSS) BEFORE EXTRAORDINARY CHARGES................................ $ 135.2 $ (25.2) $ 17.7 $ 127.7 ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- (40,146,915)(7) Weighted average common shares........... 83,540,815 40,146,915 5,200,000(7) 88,740,815 ----------- ----------- ------------ ----------- ----------- ----------- ------------ ----------- Income (Loss) per share before extraordinary charges................................ $ 1.62 $ (0.63) $ 1.44 ----------- ----------- ----------- ----------- ----------- -----------
See notes to unaudited pro forma condensed combined statements of operations. P-5 53 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS 1. The pro forma condensed combined statements of operations do not give effect to any overhead reductions or cost savings, if any, which may be realized after the consummation of the Acquisition. Pension expense for EPIC employees has been assumed to be equivalent to historical EPIC ESOP expense (approximately 5.5% of salaries). 2. To adjust amortization as follows:
SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, 1994 AUGUST 31, 1993 ----------------- --------------- To record amortization related to the $456.5 million increase in the excess of purchase price over net assets acquired................................................. $ 6.5 $12.9 To eliminate the EPIC historical amortization of the excess of purchase price over net assets acquired........ (1.3) (2.3) ----- ------ $ 5.2 $10.6 ----- ------ ----- ------
The excess of purchase price over net assets acquired related to the EPIC acquisition will be amortized over 40 years using the straight-line method (for the purpose of the pro forma computations of amortization, $60.0 million of the excess of purchase price over net assets acquired has been amortized over 20 years using the straight-line method to provide an estimated effect for recording the acquired property, plant and equipment at fair value). 3. To adjust interest expense as follows:
SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, 1994 AUGUST 31, 1993 ----------------- --------------- To record interest expense on borrowings of $712.7 million related to the 1994 Credit Agreement (assumes average interest rate of 5.34% and 5.43%, respectively) and includes the amortization of deferred loan costs of $1.1 million and $2.2 million, respectively.............. $ 20.2 $ 40.9 To record interest expense related to the $200 million Subordinated Notes (assumes a 9.25% interest rate) and includes the amortization of deferred financing costs of $.3 million and $.7 million, respectively................ 9.6 19.2 To eliminate historical interest expense (including the amortization of the related deferred loan costs) on the tendered Specified EPIC Debt Securities, the called EPIC Redeemable Debt and the refinanced Company bank debt..... (47.7) (91.7) ------- ------- $ (17.9) $ (31.6) ------- ------- ------- -------
An increase or decrease of one-eighth of one percent (0.125%) in the interest rate assumption used to calculate interest expense on the proceeds of the Subordinated Debt Offering would increase or decrease interest expense and income before income taxes by approximately $0.1 million and $0.3 million, respectively. Assuming the Current Tender Amount or 0% of each issue of the Specified EPIC Debt Securities are purchased in the Tender Offers, pro forma interest expense would not increase by any material amount as the nonpurchased securities would be recorded at a current market interest rate using the purchase accounting method. 4. To eliminate the compensation expense related to EPIC'S SAR Plan. 5. To eliminate interest income on excess cash. 6. To record the pro forma provision for income taxes by applying the estimated statutory rates (39.0% and 38.6% for the six months ended February 28, 1994 and year ended August 31, 1993, respectively) to pro forma income before income taxes, adjusted for any nondeductible expenses. 7. To reflect the Company's purchase of EPIC's outstanding equity and completion of the offering of 5.2 million shares of Common Stock by the Company. P-6 54 EPIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30, 1993 1993 ------------ ------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents....................................... $ 45,563 $ 61,362 Cash restricted for interest payment............................ 9,573 3,820 Marketable securities........................................... 34,132 47,347 Accounts receivable, net of reserves for uncompensated care of $31,187 and $29,286.......................................... 99,392 76,957 Supply inventories.............................................. 20,973 20,687 Prepaid expenses and other...................................... 12,898 5,074 Deferred income taxes........................................... 5,384 -- ------------ ------------- TOTAL CURRENT ASSETS.............................................. 227,915 215,247 PROPERTY AND EQUIPMENT............................................ 810,055 786,798 ACCUMULATED DEPRECIATION AND AMORTIZATION......................... (231,239) (218,746) ------------ ------------- 578,816 568,052 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated amortization........................................ 52,461 52,965 OTHER ASSETS, net of accumulated amortization..................... 39,330 38,696 ------------ ------------- TOTAL ASSETS...................................................... $ 898,522 $ 874,960 ------------ ------------- ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Current maturities of long-term debt............................ $ 48,049 $ 47,914 Accounts payable................................................ 45,557 44,610 Accrued liabilities............................................. 96,746 87,604 ------------ ------------- TOTAL CURRENT LIABILITIES......................................... 190,352 180,128 LONG-TERM DEBT.................................................... 685,187 679,605 DEFERRED INCOME TAXES............................................. 11,378 5,994 RESERVE FOR PROFESSIONAL LIABILITY RISKS.......................... 46,557 46,612 OTHER DEFERRED LIABILITIES........................................ 42,013 42,450 COMMITMENTS AND CONTINGENT LIABILITIES............................ MINORITY INTERESTS................................................ 5,909 5,472 STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.01 par value.................................... 399 401 Paid-in capital................................................. 245,759 245,757 Notes receivable from EPIC ESOP................................. (137,381) (148,214) Retained earnings (deficit)..................................... (191,651) (183,245) ------------ ------------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT).............................. (82,874) (85,301) ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).............. $ 898,522 $ 874,960 ------------ ------------- ------------ -------------
See notes to condensed consolidated financial statements. F-1 55 EPIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED DECEMBER 31, --------------------------- 1993 1992 ----------- ----------- NET OPERATING REVENUE............................................. $ 272,451 $ 244,352 COSTS AND EXPENSES: Salaries and wages.............................................. 99,526 84,634 Employee benefits............................................... 21,094 22,997 ESOP expense.................................................... 5,635 5,182 Supplies........................................................ 32,025 30,041 Uncompensated care.............................................. 19,618 19,048 Other........................................................... 64,653 57,909 Depreciation and amortization................................... 13,130 13,791 Interest expense................................................ 23,834 21,954 ----------- ----------- TOTAL COSTS AND EXPENSES.......................................... 279,515 255,556 INTEREST INCOME................................................... 819 612 ----------- ----------- LOSS BEFORE INCOME TAX EXPENSE, MINORITY INTERESTS AND EXTRAORDINARY ITEM.............................................. (6,245) (10,592) INCOME TAX EXPENSE, net........................................... (375) (176) MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES, net of income tax expense.............................................. (1,667) (631) ----------- ----------- LOSS BEFORE EXTRAORDINARY ITEM.................................... (8,287) (11,399) EXTRAORDINARY ITEM, net of income tax expense..................... -- (570) ----------- ----------- NET LOSS.......................................................... $ (8,287) $ (11,969) ----------- ----------- ----------- ----------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING....................................... 39,943,524 40,156,780 LOSS PER COMMON SHARE: Before extraordinary item....................................... $ (.21) $ (.28) Extraordinary item.............................................. -- (.01) ----------- ----------- Net loss........................................................ $ (.21) $ (.29) ----------- ----------- ----------- -----------
See notes to condensed consolidated financial statements. F-2 56 EPIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED DECEMBER 31, --------------------- 1993 1992 -------- -------- OPERATING ACTIVITIES Net loss............................................................. $ (8,287) $(11,969) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization..................................... 13,130 13,791 Non-cash provision for professional liability risks............... (1,111) 437 ESOP expense...................................................... 5,635 5,182 Deferred SAR Plan compensation.................................... (274) (1,496) Minority interests in income of consolidated subsidiaries......... 1,667 631 Non-cash interest................................................. 8,995 9,227 Extraordinary item................................................ -- 570 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable............................................... (22,435) 342 Supply inventories and other assets............................... (8,399) (10,549) Accounts payable and other liabilities............................ 9,991 8,785 -------- -------- Net cash provided by (used in) operating activities.......... (1,088) 14,951 INVESTING ACTIVITIES Investments in marketable securities, net............................ 13,215 6,395 Cash paid for acquisitions........................................... (960) (4,100) Additions to property and equipment.................................. (23,431) (7,410) Other................................................................ (661) (811) -------- -------- Net cash used in investing activities........................ (11,837) (5,926) FINANCING ACTIVITIES Payments on debt obligations......................................... (1,415) (76) Line of credit borrowings, net....................................... -- 800 Purchase of Senior ESOP Notes........................................ -- (5,616) Purchase of treasury stock........................................... (119) (11) Distributions and dividends to minority interests.................... (1,132) (2,340) Payments of debt issue costs and other, net.......................... (208) (59) -------- -------- Net cash used in financing activities........................ (2,874) (7,302) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (15,799) 1,723 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 61,362 37,419 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 45,563 $ 39,142 -------- -------- -------- -------- SUPPLEMENTARY INFORMATION Cash paid for interest............................................... $ 8,513 $ 1,598 Cash paid for income taxes........................................... $ 199 $ 176
See notes to condensed consolidated financial statements. F-3 57 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of EPIC Holdings, Inc. and Subsidiaries ("Holdings") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three month period ended December 31, 1993 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1994. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in Holdings' annual report on Form 10-K for the year ended September 30, 1993. Certain prior period amounts have been reclassified to conform with the fiscal 1994 presentation. 2. SUBSEQUENT EVENT On January 9, 1994, Holdings entered into an Agreement and Plan of Merger (the "Merger Agreement") with HealthTrust, Inc. -- The Hospital Company, a Delaware corporation ("HTI"), and Odyssey Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of HTI ("HTI Sub"), providing for the merger (the "Merger") of HTI Sub with and into Holdings following which Holdings would become a wholly-owned subsidiary of HTI. The Merger is expected to result in a termination of the EPIC ESOP. Under the terms of the Merger Agreement, which was unanimously approved by the Boards of Directors of both HTI and Holdings, shareholders of Holdings will receive $7.00 per share of Holdings' common stock. HTI intends to offer to purchase the 12% Senior Deferred Coupon Notes due 2002, the 11.375% Class B-1 First Priority Mortgage Notes due 2001, the 11.5% Class B-2 First Priority Mortgage Notes due 2001, the Class B-3 First Priority Mortgage Notes, and the 10.875% Senior Subordinated Notes due 2003 and to redeem other outstanding EPIC indebtedness in accordance with their terms. HTI also plans to seek the consent of the holders of Holdings' indebtedness to amend certain restrictive provisions. Consummation of the Merger is subject to a number of conditions, including the approval of Holdings' shareholders and the consummation of certain debt consent solicitations. American Medical International, Inc. and the trustee of the EPIC ESOP (who controls the unallocated shares of the EPIC ESOP) have agreed, subject to the fulfillment of certain conditions, to vote their shares of Holdings common stock (approximately 52% combined) in favor of the Merger. The transaction is expected to close by May of 1994. 3. INCOME TAXES Effective October 1, 1993, Holdings changed its method of accounting for income taxes to the liability method as required by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which superseded SFAS No. 96. As permitted under the rules of SFAS No. 109, prior years' financial statements have not been restated. Adopting SFAS No. 109 had no effect on current period operations. Due to the uncertainty of the realization of the net deferred federal tax liability, Holdings established a valuation allowance against the deferred federal tax assets so that deferred federal tax assets equalled deferred federal tax liabilities. The net deferred tax liability reported relates primarily to state taxes. F-4 58 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Holdings' deferred tax assets and liabilities as of October 1, 1993 are as follows (in thousands): Deferred tax liabilities ------------------------------------------------------------------- Property and equipment basis difference.......................... $42,908 ESOP plan fees................................................... 1,547 ESOP contribution................................................ 3,455 State taxes and other............................................ 5,994 ------- Total deferred tax liabilities................................... 53,904 ------- Deferred tax assets ------------------------------------------------------------------- Bad debt reserve differences..................................... 6,593 Professional liability reserves.................................. 15,670 SAR compensation................................................. 14,034 Health plan and workers' compensation reserves................... 3,652 Paid time off reserve............................................ 1,788 Net operating losses............................................. 24,312 Other............................................................ 700 ------- Total deferred tax assets........................................ 66,749 Valuation allowance.............................................. (18,839) ------- Net deferred tax assets.......................................... 47,910 ------- Net deferred tax liability....................................... $ 5,994 ------- -------
No tax benefit was recorded for the current net operating loss and no federal taxes are anticipated for fiscal 1994. Current income tax expense of $375,000 relates to state income taxes. 4. LOSS PER COMMON SHARE Loss per common share has been computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. The exercise of the outstanding common stock warrants and other common stock equivalents has not been assumed as the effect would be antidilutive. 5. CHANGES IN STOCKHOLDER'S EQUITY During the three-month period ended December 31, 1993, Holdings purchased treasury stock for $119,000 and received a principal payment on the Notes receivable from the EPIC ESOP of $10,833,000 which was recorded as a reduction of the Notes receivable from EPIC ESOP. 6. GUARANTOR SUBSIDIARIES Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the loans under the Amended Credit Agreement, the Zero Coupon Notes, the Additional Zero Coupon Notes, the Senior ESOP Notes, the 10.875% Senior Subordinated Notes, the 15% Senior Subordinated Notes and the 11% Junior Subordinated F-5 59 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Pay-In-Kind Notes. Certain other subsidiaries, including EPIC Properties, Inc. ("EPIC Properties") are not Guarantor Subsidiaries (the "Nonguarantor Subsidiaries"). All equity interests in the Nonguarantor Subsidiaries, other than those held by minority interests, are held by EPIC. Condensed consolidating financial information of EPIC Healthcare Group, Inc. ("EPIC"), the Guarantor Subsidiaries, EPIC Properties and the other Nonguarantor Subsidiaries are included in the footnotes to the unaudited condensed consolidated financial statements of EPIC included elsewhere herein. F-6 60 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS The Board of Directors EPIC Holdings, Inc. We have audited the accompanying consolidated balance sheets of EPIC Holdings, Inc. and subsidiaries as of September 30, 1993 and 1992, and the related consolidated statements of operations, stockholder's equity (deficit), and cash flows for each of the three years in the period ended September 30, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EPIC Holdings, Inc. and subsidiaries at September 30, 1993, and 1992, and the results of its consolidated operations and its consolidated cash flows for each of the three years in the period ended September 30, 1993, in conformity with generally accepted accounting principles. ERNST & YOUNG Dallas, Texas December 3, 1993 F-7 61 EPIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, --------------------- 1993 1992 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents.................................................................. $ 61,362 $ 37,419 Cash restricted for interest payments...................................................... 3,820 5,768 Marketable securities...................................................................... 47,347 10,607 Accounts receivable, net of reserves for uncompensated care of $29,286 and $25,837, respectively............................................................................. 76,957 73,398 Supply inventories......................................................................... 20,687 20,000 Prepaid expenses and other................................................................. 5,074 5,222 -------- -------- TOTAL CURRENT ASSETS......................................................................... 215,247 152,414 PROPERTY AND EQUIPMENT Land....................................................................................... 53,030 57,492 Buildings and improvements................................................................. 476,570 451,292 Equipment.................................................................................. 234,656 192,367 Construction in progress................................................................... 22,542 9,333 -------- -------- 786,798 710,484 Accumulated depreciation and amortization.................................................. (218,746) (173,789) -------- -------- 568,052 536,695 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated amortization............................................................ 52,965 48,140 OTHER ASSETS, net of accumulated amortization................................................ 38,696 43,502 -------- -------- TOTAL ASSETS................................................................................. $874,960 $780,751 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Current maturities of long-term debt....................................................... $ 47,914 $ 2,330 Accounts payable........................................................................... 44,610 34,809 Accrued liabilities: Salaries and wages....................................................................... 36,475 33,031 Taxes other than on income............................................................... 7,946 7,589 Interest................................................................................. 11,027 7,658 Group health insurance................................................................... 4,902 5,656 Current reserve for professional liability risks......................................... 11,000 11,000 Other.................................................................................... 16,254 9,011 -------- -------- TOTAL CURRENT LIABILITIES.................................................................... 180,128 111,084 LONG-TERM DEBT............................................................................... 679,605 619,363 DEFERRED INCOME TAXES........................................................................ 5,994 5,994 RESERVE FOR PROFESSIONAL LIABILITY RISKS..................................................... 46,612 39,640 OTHER DEFERRED LIABILITIES................................................................... 42,450 39,607 COMMITMENTS AND CONTINGENT LIABILITIES....................................................... MINORITY INTERESTS........................................................................... 5,472 23,494 STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.01 par value -- Authorized: 100,000,000 shares; Issued: 40,319,245 shares; Outstanding: 40,099,441 and 40,154,545 shares, respectively.............................. 401 401 Paid-in capital............................................................................ 245,757 245,757 Notes receivable from EPIC ESOP............................................................ (148,214) (168,929) Retained earnings (deficit)................................................................ (183,245) (135,660) -------- -------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT)......................................................... (85,301) (58,431) -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)......................................... $874,960 $780,751 -------- -------- -------- --------
See notes to consolidated financial statements. F-8 62 EPIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED SEPTEMBER 30, ------------------------------------------ 1993 1992 1991 ----------- ----------- ---------- NET OPERATING REVENUE................................ $ 1,019,149 $ 941,266 $ 802,689 COSTS AND EXPENSES: Salaries and wages................................. 354,326 319,868 271,007 Employee benefits.................................. 84,615 81,365 68,434 ESOP expense....................................... 20,715 20,714 23,076 Supplies........................................... 121,986 116,145 99,882 Uncompensated care................................. 80,643 69,308 59,425 Other.............................................. 235,924 235,009 192,633 Depreciation and amortization...................... 57,917 53,013 49,354 Interest expense................................... 89,872 79,790 68,266 ----------- ----------- ---------- TOTAL COSTS AND EXPENSES............................. 1,045,998 975,212 832,077 INTEREST INCOME...................................... 3,648 3,936 5,405 GAIN (LOSS) ON SALE OF ASSETS........................ 3,521 (1,123) (543) ----------- ----------- ---------- LOSS BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY ITEM................................. (19,680) (31,133) (24,526) INCOME TAX BENEFIT (EXPENSE), net.................... (1,984) 9,252 7,603 MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES (net of income tax benefit of $1,008, and $1,063 in 1992 and 1991, respectively)................................ (3,499) (1,958) (2,064) ----------- ----------- ---------- LOSS BEFORE EXTRAORDINARY ITEM....................... (25,163) (23,839) (18,987) EXTRAORDINARY ITEM (net of income tax benefit of $652 and $1,330 in 1992 and 1991, respectively)......... (21,960) (1,265) (2,581) ----------- ----------- ---------- NET LOSS............................................. (47,123) (25,104) (21,568) REDEEMABLE PREFERRED STOCK DIVIDEND OF PREDECESSOR COMPANY............................................ -- (11,048) (22,873) ----------- ----------- ---------- NET LOSS APPLICABLE TO COMMON SHARES................. $ (47,123) $ (36,152) $ (44,441) ----------- ----------- ---------- ----------- ----------- ---------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........................................ 40,146,915 32,576,161 24,482,803 LOSS PER COMMON SHARE: Before extraordinary item.......................... $ (.63) $ (1.07) $ (1.71) Extraordinary item................................. (.55) (.04) (.11) ----------- ----------- ---------- Net loss........................................... $ (1.18) $ (1.11) $ (1.82) ----------- ----------- ---------- ----------- ----------- ----------
See notes to consolidated financial statements. F-9 63 EPIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (DOLLARS IN THOUSANDS)
NOTES RETAINED TOTAL COMMON PAID-IN RECEIVABLE EARNINGS STOCKHOLDERS' STOCK CAPITAL FROM EPIC ESOP (DEFICIT) EQUITY (DEFICIT) ------ -------- -------------- --------- ---------------- Balance at October 1, 1990.......... $245 $219,808 $ (212,738) $ (87,241) $(79,926) Dividends accrued and accretion of discount on redeemable preferred stock............................. -- (22,873) -- -- (22,873) Principal payments received on notes receivable from EPIC ESOP......... -- -- 23,095 -- 23,095 Treasury stock purchased............ (1) -- -- (468) (469) Net loss............................ -- -- -- (21,568) (21,568) ------ -------- -------------- --------- ---------------- Balance at September 30, 1991....... 244 196,935 (189,643) (109,277) (101,741) Dividends accrued and accretion of discount on redeemable preferred stock............................. -- (11,048) -- -- (11,048) Principal payments received on notes receivable from EPIC ESOP......... -- -- 20,714 -- 20,714 Treasury stock purchased............ (2) -- -- (1,279) (1,281) Warrant conversion.................. 65 (44) -- -- 21 Preferred stock transaction costs... -- (7,063) -- -- (7,063) Conversion of Class C Preferred Stock............................. 94 63,842 -- -- 63,936 Net book value of Class A and Class B Preferred Stock over cash paid.............................. -- 3,135 -- -- 3,135 Net loss............................ -- -- -- (25,104) (25,104) ------ -------- -------------- --------- ---------------- Balance at September 30, 1992....... 401 245,757 (168,929) (135,660) (58,431) Principal payments received on notes receivable from EPIC ESOP......... -- -- 20,715 -- 20,715 Treasury stock purchased............ -- -- -- (462) (462) Net loss............................ -- -- -- (47,123) (47,123) ------ -------- -------------- --------- ---------------- Balance at September 30, 1993....... $401 $245,757 $ (148,214) $(183,245) $(85,301) ------ -------- -------------- --------- ---------------- ------ -------- -------------- --------- ----------------
See notes to consolidated financial statements. F-10 64 EPIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30, ---------------------------------- 1993 1992 1991 -------- -------- -------- OPERATING ACTIVITIES Net loss.................................................. $(47,123) $(25,104) $(21,568) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.......................... 57,917 53,013 49,354 Non-cash provision for professional liability risks.... 2,641 4,131 11,291 ESOP expense........................................... 20,715 20,714 23,076 Deferred SAR Plan compensation......................... 3,249 10,805 7,137 Minority interests in income of consolidated subsidiaries......................................... 3,499 2,966 3,127 (Gain) loss on sale of assets.......................... (3,521) 1,123 543 Non-cash interest...................................... 36,855 27,190 13,975 Extraordinary item..................................... 21,960 1,917 3,911 Deferred income tax benefit............................ -- (11,800) (9,996) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable.................................. 6,054 (35,196) (3,043) Supply inventories and other assets.................. 4,083 (3,162) (5,291) Accounts payable and other liabilities............... 12,172 11,395 6,444 -------- -------- -------- Net cash provided by operating activities......... 118,501 57,992 78,960 INVESTING ACTIVITIES Investments in marketable securities, net................. (36,740) 5,167 (12,091) Cash paid for acquisitions................................ (54,536) (12,269) -- Additions to property and equipment....................... (60,784) (47,850) (25,646) Purchase of investment securities......................... -- (4,180) -- Proceeds from sales of assets............................. 25,148 190 361 Collection on note receivable............................. 9,349 -- -- Other..................................................... (5,925) (2,046) (48) -------- -------- -------- Net cash used in investing activities............. (123,488) (60,988) (37,424) FINANCING ACTIVITIES Payments on debt obligations.............................. (117,765) (1,603) (250,647) Proceeds from long-term borrowings........................ 180,853 140,052 227,868 Purchase of Senior ESOP Notes............................. (5,616) (20,293) -- Purchase of treasury stock................................ (462) (1,281) (469) Purchase of Class A and B Preferred Stock................. -- (130,000) -- Preferred stock transaction costs......................... -- (7,063) -- Proceeds on warrant conversion............................ -- 21 -- Contributions from minority interests..................... 520 1,884 556 Distributions and dividends to minority interests......... (21,110) (4,065) (4,122) Payments of debt issue costs and other, net............... (7,490) (6,056) (11,294) -------- -------- -------- Net cash provided by (used in) financing activities...................................... 28,930 (28,404) (38,108) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 23,943 (31,400) 3,428 Cash and cash equivalents at beginning of year............ 37,419 68,819 65,391 -------- -------- -------- Cash and cash equivalents at end of year.................. $ 61,362 $ 37,419 $ 68,819 -------- -------- -------- -------- -------- -------- SUPPLEMENTARY INFORMATION Cash paid during the year for interest.................... $ 52,370 $ 53,343 $ 52,987 Cash paid for income taxes................................ $ 657 $ 888 $ 666
See notes to consolidated financial statements. F-11 65 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation EPIC Healthcare Group, Inc. ("EPIC" or, either alone or together with its subsidiaries, the "Company") was acquired by EPIC Holdings, Inc. ("Holdings") on March 25, 1992, in a merger transaction (the "Merger") in which each outstanding share of common stock of EPIC was converted into one share of Holdings common stock. The merger was between companies under common control (i.e., a pooling of interests for accounting purposes) and accordingly, the recorded assets and liabilities of EPIC on an historical basis are combined with the assets and liabilities of Holdings. Holdings had no operations prior to the merger. Results of operations for the period prior to March 25, 1992, consist of the operations of EPIC. Principles of Consolidation The consolidated financial statements include the accounts of Holdings and its subsidiaries. Intercompany accounts and transactions have been eliminated. Minority interests represent the minority stockholders' proportionate shares of the equity in the income (loss) of certain consolidated subsidiaries. Cash Equivalents, Cash Restricted for Interest Payments, and Marketable Securities Holdings considers all highly liquid investments with initial maturities of three months or less from date of purchase to be cash equivalents. Cash restricted for interest payments is cash deposited into a trust to pay principal and interest required by the Class B-1, Class B-2 and Class B-3 First Priority Mortgage Notes (the "Mortgage Notes"). Investments in marketable interest-bearing securities are stated at cost which approximates market. Holdings has $42,694,000 in cash and marketable securities restricted for the purpose of redeeming the remaining 15% Senior Subordinated Notes (See Note 5). Cash equivalents, cash restricted for interest payments, and marketable securities are subject to potential concentrations of credit risk. Holdings attempts to lessen that risk by investing only in United States Government securities, commercial paper having at least a rating of A-1 or the equivalent, time deposits and certificates of deposit of banks having a debt rating of at least A, or money market funds comprised of such securities. Holdings invests in securities with maturities no longer than 180 days and limits the amount of credit exposure to any one commercial issuer. Accounts Receivable Concentration of credit risk relating to accounts receivable is limited to some extent by the diversity and number of patients and payors and the geographic dispersion of Holdings' hospitals. Accounts receivable (gross) consists of amounts due from government programs (e.g., Medicare and Medicaid) (53%) commercial insurance companies (16%), private pay patients (18%) and other (including health maintenance organizations and other group insurance programs) (13%). Holdings' hospitals are located throughout the southern United States, with the largest concentration in Texas, Oklahoma, Louisiana and California. Holdings maintains an allowance for losses (i.e., uncompensated care or bad debt expense) based on the expected collectibility of accounts receivable. Supply Inventories Supply inventories are stated at the lower of cost (first-in, first-out method) or market. F-12 66 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Property and Equipment Property and equipment are recorded at cost (or fair value at the date of acquisition as a result of the original purchase from American Medical International, Inc. and its subsidiaries ("AMI")). Depreciation and amortization is computed using the straight-line method over estimated useful lives or term of the lease generally ranging from 25 to 30 years for buildings and improvements, and 3 to 10 years for equipment. Maintenance costs and repairs are expensed as incurred. Joint Ventures EPIC, in the ordinary course of business, enters into joint ventures with physicians and other companies. EPIC is the majority owner and general partner of substantially all of the joint ventures and follows the principles of consolidation for all majority-owned joint ventures. Minority shareholders' investments and earnings in the joint ventures are recorded as minority interests and minority interests in income of consolidated subsidiaries, respectively. Any interest held by the Company in non-majority owned partnerships with at least 20% ownership is accounted for using the equity method. Any interest held by the Company in partnerships with less than 20% ownership is accounted for using the cost method. On February 1, 1990, EPIC entered into a joint venture with Healthtrust, Inc. -- The Hospital Company ("Healthtrust") for the purpose of operating certain hospital assets in McKinney, Texas. EPIC contributed, at net book value, a 168 bed facility to the venture and is the managing co-general partner with a 60% equity interest in the venture. Healthtrust contributed a 99 bed facility to the venture and was the co-general partner with a 40% interest in the venture. The assets contributed by Healthtrust to the joint venture, including property and equipment of $15,328,000, were recorded at fair market value which approximated net book value. Goodwill of $2,470,000 is being amortized over 40 years. On August 31, 1993, EPIC purchased Healthtrust's interest in the joint venture for $15,656,000 which approximated Healthtrust's interest in the net assets of the joint venture and was recorded as a reduction to minority interests. Intangible Assets The excess of the purchase price over the fair value of net asset acquired is being amortized on a straight-line basis over periods ranging from nine to 40 years. Accumulated amortization was $9,244,000 and $6,920,000 at September 30, 1993 and 1992, respectively. Costs incurred in obtaining long term financing are deferred and are included in other assets. Deferred financing costs are amortized using the effective interest method over the term of the related debt, and such amortization is included in interest expense. Accumulated amortization of deferred financing costs was $16,993,000 and $14,401,000 at September 30, 1993 and 1992, respectively. EPIC has purchased licenses to use various software applications. These costs are included in other assets and have been amortized over two or five year periods. Accumulated amortization of the software costs was $5,750,000 and $4,750,000 at September 30, 1993 and 1992, respectively. Income Taxes Holdings files a consolidated federal income tax return which includes all of its eligible subsidiaries. Holdings accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 96, "Accounting for Income Taxes." Under the liability method specified by SFAS No. 96, deferred tax assets and/or liabilities are determined by multiplying the difference between the financial reporting and tax reporting bases of assets and liabilities (collectively, the "temporary differences," see Note 6) by tax rates (determined in accordance with enacted tax laws) that are expected to be effective when such temporary differences reverse. Holdings' deferred tax liabilities originated from the accounting for the F-13 67 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquisition from AMI (the "Acquisitions"), and reflect the estimated tax effect of differences between book and tax bases of assets acquired and liabilities assumed. In February 1992, the Financial Accounting Standards Board issued SFAS No. 109, "Accounting for Income Taxes," which supersedes SFAS No. 96. Implementation of SFAS No. 109 for Holdings was required October 1, 1993. SFAS No. 109 requires that temporary differences be reflected in the same balance sheet category as the assets and liabilities that caused the temporary differences. Deferred tax assets, which would include tax net operating loss carryforwards, would require the determination of a related valuation allowance, based on the assets' expected realization. The Company has completed the analysis necessary to determine the impact of adoption of SFAS No. 109 and it is not expected to have a material impact on Holdings' financial position or results of operations and will not impact cash flows. Net Operating Revenue Net operating revenue is recorded based on established billing rates net of allowances and discounts for patients covered by Medicare, Medicaid and other contractual programs. Payments received under these programs, which are based on either the costs of services or predetermined rates, are generally less than the established billing rates of EPIC's hospitals, and the differences are recorded as contractual allowances and/or contracted discounts. Reserves provided have been deducted from accounts receivable pending final audit and appeal settlement. Contractual adjustments, contracted discounts and other discounts amounted to $627,757,000, $576,572,000, and $482,158,000 for fiscal 1993, 1992 and 1991, respectively. It is generally EPIC's policy to attempt to collect compensation for all services performed. Reclassifications Certain prior period amounts have been reclassified to conform with the fiscal 1993 presentation. 2. ACQUISITION AND DIVESTITURES On August 24, 1993 the Company entered into a 20-year lease agreement with two ten-year renewal options with the County of Galveston, Texas for Mainland Center Hospital, a 310-bed hospital in Texas City, Texas. The lease payments of $27,535,000 were paid in full upon the execution of the lease, which has been accounted for as a capital lease. The Company also purchased certain net current assets and equipment of the hospital, which included $5,639,000 in cash, for $17,965,000 which has been accounted for by the purchase method of accounting. The Company also has a commitment for $20,000,000 in capital improvements over the term of the lease. The Company has a purchase option beginning after the first year of the lease. The option price ranges from $500,000 to $851,000 over the term of the lease. On January 6, 1993, the Company sold Westpark Community Hospital in Hammond, Louisiana for $6,200,000. A loss of $624,000 was recorded as gain (loss) on sale of assets in fiscal 1993. A charge of $800,000 to reflect the anticipated loss on the sale was recorded as gain (loss) on sale of assets in fiscal 1992. The net book value of the assets sold before the fiscal 1992 charge, less liabilities assumed by the buyer, was $7,624,000. On March 15, 1993, the Company sold Valley Medical Center in El Cajon, California for $16,950,000. A gain of $4,632,000 was recorded as gain (loss) on sale of assets in fiscal 1993. The net book value of the assets sold, less liabilities assumed by the buyer, was $12,318,000. On October 1, 1991, the Company purchased Colonial Hospital, a 49-bed hospital in Terrell, Texas for $10,403,000 in cash. The acquisition has been accounted for by the purchase method of accounting. The excess of purchase price over net assets acquired will be amortized over 40 years. F-14 68 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") Employee-owners of EPIC have beneficial ownership of approximately 60% of the Holdings Common Stock through their participation in the EPIC ESOP. At EPIC's inception, the EPIC ESOP purchased 24,500,000 shares of EPIC Common Stock with the proceeds obtained from the issuance of loans aggregating $245 million payable to EPIC. The terms of the original ESOP loan agreement segregated the EPIC ESOP's obligation to EPIC into two components, the terms of the first of which mirrored the terms of the Senior ESOP Bank Debt (the "First ESOP Loan") and the second of which mirrored the terms of the Senior ESOP Notes (see Note 5). Concurrent with the issuance of the Mortgage Notes (see Note 5), the First ESOP Loan was replaced by a loan agreement which provides for mandatory principal payments in amounts that are substantially in conformance with the remaining mandatory principal payments of the Senior ESOP Bank Debt as if the issuance of the Mortgage Notes had not occurred (the "New ESOP Loan"). The interest rate on the New ESOP Loan is determined quarterly based on .85 times the sum of the London InterBank Offered Rates plus 2.5% (5.1% at September 30, 1993). The EPIC ESOP has pledged all of its shares of the Holdings Common Stock as collateral for the ESOP-related borrowings. These shares are released from the pledge as the loans are paid. The EPIC ESOP receives contributions from EPIC to service and extinguish the loans. The EPIC ESOP is an individual account, defined contribution plan. Nonunion employee-owners who work a specified number of hours are eligible to participate in the EPIC ESOP if they have attained age 21 and completed one year of service. No employee-owner contributions are required or permitted to be made to the EPIC ESOP. No rollover contributions are permitted to be made to the EPIC ESOP. Allocations are made to participants' accounts in an amount which reflects each participant's proportionate share of the contributions made by EPIC to the EPIC ESOP, as determined on the basis of each participant's compensation. Contributions made to the EPIC ESOP and the value of shares of common stock allocated to the account of a participant as a result of such contributions are intended to be treated as tax-deferred contributions. Such contributions, and earnings thereon, generally are includable in a participant's compensation for federal income tax purposes when distributed. As of the plan year ended December 31, 1992, cumulative allocations of 10,650,517 shares of Holdings Common Stock at a market value of $8.00 per share based on an independent valuation, or $85,204,136 in total have been made to 10,183 participants. Shares of Holdings Common Stock relating to the plan year ending December 31, 1993 will be allocated during fiscal 1994. Subject to limitations contained in the Internal Revenue Code of 1986, as amended (the "Code"), Holdings is entitled to claim an income tax deduction for contributions to the EPIC ESOP. Holdings has received a favorable determination from the Internal Revenue Service that the EPIC ESOP is qualified as an "employee stock ownership plan" within the meaning of Section 4975(e)(7) of the Code. Contributions to the EPIC ESOP are used by the EPIC ESOP to pay interest and principal on the loans owed to EPIC. These payments are used by EPIC to pay interest and principal on the Class B-1 First Priority Mortgage Notes and the Senior ESOP Notes. EPIC recorded net ESOP expense, using the cash method, and corresponding reductions in the EPIC ESOP notes receivable, of $20,715,000, $20,714,000, and $23,076,000 for fiscal 1993, 1992 and 1991, respectively. Interest income recognized on the EPIC ESOP notes receivable totaled $14,984,000, $16,885,000, and $20,483,000 for fiscal 1993, 1992 and 1991, respectively, which in turn was contributed to the EPIC ESOP to pay interest expense incurred on the ESOP-related debt. Interest expense incurred on ESOP-related debt totaled $20,856,000, $21,734,000, and $21,731,000, which included discount amortization of $559,000, $551,000, and $511,000 for fiscal 1993, 1992 and 1991, respectively. F-15 69 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. OPERATING LEASES Holdings leases office space, office equipment and medical equipment. Generally, real estate leases are for primary terms of from one to 12 years with options to renew for additional periods, and equipment leases are for terms of from one to seven years. Future minimum lease payments for all operating leases having initial or remaining noncancellable lease terms in excess of one year as of September 30, 1993 are as follows (dollars in thousands): 1994............................................................... $ 4,560 1995............................................................... 4,225 1996............................................................... 3,337 1997............................................................... 2,693 1998............................................................... 1,835 1999 and thereafter................................................ 3,485 ------- 20,135 Sublease income.................................................... (1,116) ------- $19,019 ------- -------
Rent expense under operating leases was as follows (dollars in thousands):
FOR THE YEAR ENDED SEPTEMBER 30, ------------------------------- 1993 1992 1991 ------- ------- ------- Minimum rent.................................. $18,496 $16,107 $13,609 Sublease income............................... (795) (609) (317) ------- ------- ------- $17,701 $15,498 $13,292 ------- ------- ------- ------- ------- -------
F-16 70 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Holdings' long-term debt, net of discounts, is summarized below (dollars in thousands):
SEPTEMBER 30, ------------------- 1993 1992 -------- -------- 12% Senior Deferred Coupon Notes, principal of $250,000 due 2002........................................................... $167,197 $148,628 11.375% Class B-1 First Priority Mortgage Notes payable in semi-annual payments of $9,000 commencing in July 1996 with a final payment of $10,000 in July 2001.......................... 99,579 99,500 11.5% Class B-2 First Priority Mortgage Notes payable in semi-annual payments of $500 through July 1994, increasing to $750 in January 1995, to $1,500 in January 1997, to $8,000 in January 1998, to $9,000 in January 1999, with a final payment of $15,500 in July 2001........................................ 83,112 84,046 Class B-3 First Priority Mortgage Notes payable in semi-annual payments of $750 commencing in January 1995, increasing to $3,000 in January 1997 through July 1998, with a fluctuating interest rate (6.5% at September 30, 1993)..................... 15,000 15,000 Other mortgage debt and capital lease obligations with varying maturities and interest rates ranging from 4.75% to 12.9%...... 20,651 20,351 Acquisition loan payable in quarterly installments of $1,250 commencing in October 1993 with a fluctuating interest rate (8.0% at September, 1993)...................................... 19,542 -- Zero Coupon Notes, principal of $89,313 due 2001 with an effective interest rate of 14.8%............................... 28,564 24,770 Additional Zero Coupon Notes, principal of $7,079 due 2001 with an effective interest rate of 14.8%............................ 2,265 1,964 11.875% Senior ESOP Notes payable in three equal annual payments commencing in September 1996 with an effective interest rate of 13.03%................................................. 72,141 76,840 10.875% Senior Subordinated Notes due 2003....................... 160,000 -- 15% Senior Subordinated Notes payable in three equal annual payments commencing in 1999.................................... 40,320 104,852 11% Junior Subordinated Pay-In-Kind Notes payable in three equal annual payments commencing in September 2001................... 19,148 45,742 -------- -------- 727,519 621,693 Current maturities............................................... (47,914) (2,330) -------- -------- $679,605 $619,363 -------- -------- -------- --------
The 12% Senior Deferred Coupon Notes are reflected at their fair value of $140,053,000 at March 25, 1992, plus accretion of discount through September 30, 1993. Interest is payable semi-annually beginning March 16, 1997. The Mortgage Notes are the indebtedness of EPIC Properties, Inc. ("EPIC Properties"), an indirect wholly-owned subsidiary of EPIC. The Mortgage Notes are secured by mortgages on 24 acute care hospital complexes ("the Mortgaged Hospitals") and the land on which such buildings are located, and by a first priority security interest in certain furnishings and equipment located at each of the Mortgaged Hospitals. The Mortgage Notes are fully and unconditionally guaranteed by EPIC (see Note 18). The interest rate on the Class B-1 First Priority Mortgage Notes (the "Class B-1 Notes") will increase to 11.5% after September 30, 1995. If the Internal Revenue Service determines that interest on the Class B-1 Notes does not qualify for a 50% exclusion from federal taxable income, the interest rate on the Class B-1 Notes will increase to 11.5% for all periods through September 30, 1995 during which such interest exclusion is not available. EPIC incurred losses on refinancing concurrent with the issuance of the Mortgage Notes, due primarily to the write-off of loan issue costs. These losses, totalling $3,911,000, are recorded as an extraordinary item (net of income tax benefit of $1,330,000) in the consolidated statement of operations for the fiscal year ended September 30, 1991. F-17 71 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Zero Coupon Notes are reflected at their fair value of $14,008,000, as estimated by EPIC at September 30, 1988, plus accretion of discount through September 30, 1993. No interest or principal is payable until maturity. Additional Zero Coupon Notes were issued under an interest rate cap agreement with AMI (see Note 13) and are reflected at their original fair value plus accretion of discount through September 30, 1993. No interest or principal is payable until maturity. A subsidiary of EPIC purchased $5,400,000 and $19,850,000 face value of the 11.875% Senior ESOP Notes on the open market for $5,616,000 and $20,293,000 plus accrued interest in fiscal 1993 and 1992, respectively (the "Senior ESOP Note Purchases"). Losses of $570,000 and $1,917,000 due to the write-off of debt issue costs and unamortized discounts and the payment of a premium on the Senior ESOP Note Purchase are recorded as extraordinary items (net of income tax benefit of $652,000 in 1992) in the consolidated statements of operations for the fiscal years ended September 30, 1993 and 1992. The 11.875% Senior ESOP Notes, which carry detached stock purchase warrants (see Note 9), have a stated principal amount of $100,000,000 and are reflected at their fair value of $93,988,000, as estimated by EPIC at September 30, 1988, less the Senior ESOP Note Purchases, plus accretion of discount through September 30, 1993. On June 18, 1993, EPIC refinanced $74,680,000 in principal of the 15% Senior Subordinated Notes and $53,697,000 in principal of the 11% Junior Subordinated Pay-In-Kind Notes (the "Refinancing") through the issuance of the 10.875% Senior Subordinated Notes. The 10.875% Senior Subordinated Notes are guaranteed by certain subsidiaries of EPIC (see Note 18). Under the terms of the Second Amended and Restated Credit Agreement dated as of September 30, 1988, and amended and restated as of July 30, 1991, and September 1, 1993 (the "Amended Credit Agreement"), EPIC is required to call the remaining $40,320,000 in principal of the 15% Senior Subordinated Notes by February 28, 1994, with the remaining proceeds of the Refinancing. The remaining principal of the 15% Senior Subordinated Notes at September 30, 1993, has been recorded as current maturities of long term debt in the consolidated balance sheets. EPIC incurred a loss before taxes of $21,390,000 on the Refinancing, which resulted from the write-off of loan issue costs and unamortized discount on the 15% Senior Subordinated Notes and the redeemed portion of the 11% Junior Subordinated Pay-In-Kind Notes, payments to the holders of the 15% Senior Subordinated Notes and the 11.875% Senior ESOP Notes for waivers of certain provisions of the respective indentures and the accrual of the call premium to be paid on redeeming the remaining principal on the 15% Senior Subordinated Notes. These losses are recorded as an extraordinary item in the consolidated statements of operations. The 15% Senior Subordinated Notes are guaranteed by certain wholly-owned subsidiaries of EPIC (see Note 18) and are secured by a fourth pledge of the common stock of such subsidiaries. Interest on the 11% Junior Subordinated Pay-in-Kind Notes is payable semiannually by the issuance of additional 11% Junior Subordinated Pay-in-Kind Notes through September 30, 1995, and thereafter, if Holdings is prohibited from making cash interest payments by the terms of any senior debt existing on September 30, 1988 less the amount retired in the Refinancing. The notes, which have a stated principal amount of $50,000,000, have been recorded at their fair value estimated by EPIC at September 30, 1988, of $22,900,000 plus accretion of discount through September 30, 1993, less the amount retired as a result of the Refinancing. The effective interest rate for these notes is 18.07%. The Amended Credit Agreement provides EPIC with revolving loan commitments and an acquisition loan to be used for working capital and acquisition funds for EPIC. As of September 30, 1993, revolving loan commitments aggregated $30 million. Any revolving loan commitments outstanding are due July 31, 1997. F-18 72 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest is generally payable monthly at the following rates per annum, at EPIC's option: (i) 1.5% in excess of the higher of the prime rate in effect from time to time or the annual yield on ninety-day commercial paper or (ii) 2.5% in excess of the LIBOR rate. There were no revolving loans outstanding as of September 30, 1993, and 1992, respectively. The acquisition term loan principal amount outstanding is payable in quarterly installments commencing on October 31, 1993 through July 31, 1997. Interest is generally payable quarterly at the following rates per annum, at EPIC's option: (i) 2.0% in excess of the higher of the prime rate in effect from time to time or the annual yield on ninety-day commercial paper or (ii) 3.0% in excess of the LIBOR rate. In connection with the issuance of the Mortgage Notes, EPIC Properties obtained a revolving line of credit. The line of credit can only be used for the purpose of paying interest or principal on the Mortgage Notes. The maximum loan amount available is the lesser of $22 million or the annual interest accrual of the Mortgage Notes. The line of credit would bear an interest rate of the Prime Lending Rate of AmSouth Bank plus 2%. There were no loans outstanding under the line of credit as of September 30, 1993 and 1992, respectively. The Amended Credit Agreement and other long-term debt agreements contain a number of restrictive covenants, including restrictions on incurrence of debt, sales of assets, payment of cash dividends, requirements to maintain certain financial ratios and a specified level of net worth, as defined, and other limitations, including limitations on the use of funds from the sale of certain assets. As of September 30, 1993, the maturities of long-term debt were as follows (dollars in thousands): 1994.............................................................. $ 47,914 1995.............................................................. 9,498 1996.............................................................. 43,545 1997.............................................................. 58,546 1998.............................................................. 67,207 1999 and thereafter............................................... 671,160 --------- 897,870 Unamortized discounts and unaccreted interest..................... (170,351) --------- $ 727,519 --------- ---------
6. INCOME TAXES The income tax benefit for fiscal 1992 and 1991 was comprised of deferred federal benefits of $11,800,000 and $9,996,000 respectively, arising from reported financial losses and state income tax expense of $1,984,000 and $888,000 in fiscal 1993 and 1992, respectively. For financial reporting purposes, Holdings has utilized all of its deferred federal tax liability and has not recognized a benefit for the current net operating loss pursuant to the provisions of SFAS No. 96. Taxes paid during 1993 and 1992 primarily relate to state income taxes and estimated federal tax payments. F-19 73 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Holdings' consolidated effective federal tax rate differed from the federal statutory rate as set forth in the following table:
FOR THE YEAR ENDED SEPTEMBER 30, -------------------------------- 1993 1992 1991 -------- ------- ------- Tax benefit computed at federal statutory rate (34%)............................................... $ 16,022 $12,547 $10,732 Amortization of excess purchase price over net assets acquired............................................ (790) (614) (601) Losses not subject to benefit......................... (15,089) -- -- Other, net............................................ (143) (133) (135) -------- ------- ------- Income tax benefit.................................... $ -- $11,800 $ 9,996 -------- ------- ------- -------- ------- -------
The deferred income tax benefit results from the following temporary differences in reporting for financial and income tax purposes:
FOR THE YEAR ENDED SEPTEMBER 30, ------------------------------- 1993 1992 1991 ------- ------- ------- (IN THOUSANDS) Book/tax difference on sale of assets................. $ 3,835 $ -- $ -- Book/tax depreciation differences..................... 475 221 (3,392) Net operating loss recognized currently for financial reporting........................................... 2,976 1,412 6,134 SAR compensation not currently deductible............. 968 3,673 2,426 Professional liability reserves not currently deductible.......................................... 383 1,013 4,345 Other reserves for estimated losses and contingencies not currently deductible............................ 1,348 2,217 508 Paid time off accrued for financial reporting, not currently deductible................................ 339 719 89 Difference arising from ESOP loan fees initially expensed for tax purposes but capitalized and amortized for financial reporting purposes.......... 197 427 (480) Difference in methods used to reserve for bad debts... 802 1,014 55 Difference in ESOP contribution deduction............. (162) 207 (1,317) Difference in methods for reporting interest.......... 1,553 562 694 Losses not subject to benefit......................... (15,089) -- -- Other................................................. 2,375 335 934 ------- ------- ------- Deferred income tax benefit........................... $ -- $11,800 $ 9,996 ------- ------- ------- ------- ------- -------
Net operating loss carryforwards of approximately $72,106,000 (expiring in the years 2004, 2005, 2006, 2007 and 2008) are available to offset future income for federal and state tax purposes. The utilization of these net operating loss carryforwards is dependent upon future taxable income. Net operating loss carryforwards of $47,123,000 are available for financial reporting purposes. 7. DEFERRED COMPENSATION Holdings has adopted a deferred compensation plan (the "SAR Plan") as part of its overall executive compensation program to attract, motivate and retain key employee-owners. As of September 30, 1993, 5,873,582 SAR Plan units, each exchangeable for one share of Holdings Common Stock or redeemable for cash or other property under certain circumstances, were held by certain key employee-owners and former employee-owners. During fiscal 1993, 1992 and 1991, 309,500, 1,481,065 and 1,002,000 SAR Plan units were granted and 427,800, 218,000, and 243,000 SAR Plan units were cancelled, respectively. The outstanding SAR Plan units vest in varying amounts at varying periods not exceeding five years beginning on each respective grant date. A maximum of 6,587,565 SAR Plan units, reduced by all units redeemed may be F-20 74 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) outstanding at any time. During fiscal 1993, 1992, and 1991, Holdings accrued SAR Plan compensation expense of $3,848,000, $11,805,000, and $8,135,000, respectively. During fiscal 1993, 123,417 SAR Plan units were redeemed for $974,994 in cash ($7.90 per unit) and 3,125 units were redeemed for $25,000 in cash ($8.00 per unit); in October 1993, 121,874 SAR Plan units were redeemed for $974,996 in cash ($8.00 per unit). During fiscal 1992, 129,998 SAR Plan units were redeemed for $974,985 in cash ($7.50 per unit) and 3,164 SAR Plan units were redeemed for $24,996 in cash ($7.90 per unit). 8. REDEEMABLE PREFERRED STOCK Pursuant to the Merger, the EPIC Class A and Class B Preferred Stock was converted to Holdings Preferred Stock and the EPIC Class C Preferred Stock was converted to Holdings Common Stock. The EPIC Class A and Class B Preferred Stock, which had a book value of $66,360,000 and $66,776,000, respectively, was repurchased from AMI for $130,000,000. The EPIC Class C Preferred Stock, which had a book value of $63,935,000 was converted into 9,423,075 shares of Holdings Common Stock. At September 30, 1988, redeemable preferred stock of EPIC was recorded at fair value estimated by EPIC, based on an independent valuation. The recorded amounts were less than the mandatory redemption amounts for the EPIC Class A and Class B Preferred Stock and were increased by the recording of dividends at the stated rate and by accretion of the discount, and reduced by the discount recorded on declared and accrued dividends, so that the carrying amounts would equal the mandatory redemption amounts at the mandatory redemption dates. Dividends on the EPIC Class A and Class B Preferred Stock were cumulative and payable quarterly at annual rates of $10.00 and $10.50 per share, respectively, out of funds legally available. EPIC declared and paid such dividends in like stock three quarters in arrears, however, such dividends were accrued quarterly. For the dividend periods after September 30, 1988, to conversion, dividends were paid in additional shares of the same class of stock at the rate of 0.025 and 0.02625, respectively, of a share of stock. During fiscal 1992, EPIC declared dividends of 26,144 shares of EPIC Class A Preferred Stock and 28,182 shares of EPIC Class B Preferred Stock. Holders of shares of EPIC Class C Preferred Stock were entitled to receive cumulative dividends out of funds legally available at the annual rate of $8.00 per share. No dividends were declared on the EPIC Class C Preferred Stock; however, EPIC had recorded accruals of $1,935,000 during fiscal year 1992 and $4,000,000 during fiscal year 1991 for undeclared dividends. 9. COMMON STOCK WARRANTS AND OPTIONS The Senior ESOP Notes and 15% Senior Subordinated Notes carried detachable stock purchase warrants to purchase 1,884,615 and 3,795,000 shares of EPIC Common Stock for $.01 and $.001 per share, subject to anti-dilution adjustments. The aggregate fair values of these warrants estimated by EPIC, based on an independent valuation, at date of issuance were $6,012,000 and $12,103,000, respectively. In addition, EPIC agreed to issue to AMI certain warrants to purchase 925,129 shares of EPIC Common Stock at an exercise price of $.001 per share. Immediately prior to the Merger, 6,306,395 of the warrants outstanding were exercised for 63,064 shares of EPIC Common Stock. In conjunction with the Merger, all of the remaining warrants outstanding became warrants to acquire the same number of shares of Holdings Common Stock. During fiscal 1992, after the Merger, 152,692 of the warrants outstanding were exercised for Holdings Common Stock. During fiscal 1993, 3,300 of the warrants outstanding were exercised. Warrants to purchase 142,357 shares of Holdings Common Stock were outstanding at September 30, 1993. F-21 75 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On December 14, 1988, EPIC adopted the EPIC Healthcare Group, Inc. Stock Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, the Board of Directors is authorized to grant options to EPIC directors, officers and salaried employee-owners to purchase up to 500,000 shares of Holdings Common Stock. Options granted vest in five equal annual installments. No options were granted during fiscal 1993, 1992 or 1991. At September 30, 1993, options for 32,000 shares were exercisable. 10. COMMON STOCK Prior to the Merger, warrants were exercised for 63,064 shares of EPIC Common Stock and 1,452 shares were repurchased by EPIC from participants of the EPIC ESOP. Pursuant to the Merger, 30,739,378 shares of EPIC Common Stock were converted to Holdings Common Stock and the EPIC Class C Preferred Stock was converted to 9,423,075 shares of Holdings Common Stock. Since the Merger, warrants have been exercised for 155,992 shares of Holdings Common Stock. Additionally, 219,004 shares have been distributed to participants of the EPIC ESOP, which were repurchased by Holdings. Holdings has reserved 142,357 shares of Holdings Common Stock for issuance upon the exercise of outstanding warrants to purchase Holdings Common Stock and 5,902,116 shares have been reserved for future issuance under the SAR Plan. 11. LOSS PER COMMON SHARE Loss per common share has been computed by dividing the net loss to common stockholders by the average number of common shares outstanding during the period. The exercise of the outstanding common stock warrants and other common stock equivalents has not been assumed as the effect would be antidilutive. Assuming conversion of the EPIC redeemable preferred stock as of October 1, 1991, the net loss per common share of Holdings would have been $32,645,000 as a result of the elimination of the redeemable preferred stock dividend of $11,048,000 and additional interest expense of $8,806,000 on the Holdings Notes (from the period from October 1, 1991, to March 24, 1992). The weighted average number of common shares outstanding would have been 40,183,036 shares. As a result, the net loss per common share in fiscal 1992 would have been $0.84. 12. PROFESSIONAL AND GENERAL LIABILITY RISKS Holdings is self-insured for its professional and general liability risks. As of September 30, 1993, the unfunded reserve for this self insurance was $45,130,000 of which $11,000,000 was included in current liabilities. EPIC has funded $12,482,000 of the reserves through a wholly-owned captive insurance company at September 30, 1993. The reserves for losses and related expenses are discounted to their present value based on expected loss reporting patterns determined by independent actuaries using a rate of 9%. AMI has retained the liability for all professional liability claims with a date of occurrence prior to October 1, 1988. 13. RELATED PARTY TRANSACTIONS EPIC and AMI entered into an interest rate cap agreement (the "Senior Interest Cap Agreement") whereby AMI agreed to pay to EPIC the amounts by which EPIC's interest costs under certain tranches of indebtedness exceeded, during each of the three fiscal years after September 30, 1988, certain specified rates, net of the effect of any reimbursement to EPIC by Medicare, Medicaid, or Blue Cross for any interest expense incurred by EPIC in excess of such rates in connection with such loans. On August 28, 1991, EPIC and AMI agreed that it was mutually in their best interest to terminate the Senior Interest Cap Agreement prior to its scheduled expiration of October 1, 1991. EPIC and AMI further agreed that each party had fully performed all of its obligations under the Senior Interest Cap Agreement and each party released the other from future obligations thereunder. F-22 76 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pursuant to the terms of the Senior Interest Cap Agreement, EPIC issued Additional Zero Coupon Notes to AMI in the principal amounts of $1,612,000 and $2,844,000 during fiscal 1990 and 1989, respectively, in exchange for cash of a like amount paid to EPIC by AMI during such years. In fiscal 1991, EPIC paid to AMI $2,864,000 and issued Additional Zero Coupon Notes to AMI with a present value of $626,000 in exchange for the cancellation of the zero coupon notes issued in 1989. AMI has sold their interest in the Additional Zero Coupon Notes. Net interest expense of $839,000 was recognized during fiscal 1991 relating to this agreement. EPIC and AMI have entered into certain other agreements, including a registration rights agreement pursuant to which EPIC has agreed to register the securities issued to AMI under the Securities Act of 1933. AMI has also agreed to indemnify EPIC against certain liabilities associated with the breach of representations and warrants made by AMI, certain tax liabilities that may arise, certain reimbursements still pending related to the Acquisitions and certain fees, costs, and expenses. During fiscal 1993, AMI reimbursed $1,621,000 relating to AMI's indemnifications of EPIC for certain intermediary adjustments to reimburse costs relating to cost report years that preceded the formation of EPIC. EPIC entered into a three year group purchasing agreement, effective September 1, 1993, with a subsidiary of AMI, which allows the Company to purchase supplies at lower group rates. The Company expects to purchase more than $30,000,000 per year of supplies under terms of the agreement. The Company will pay $180,000 per year to participate in this program. David R. Belle-Isle, a former officer of EPIC, borrowed $181,000 from EPIC in December 1988 in connection with his relocation to Texas. The loan was interest free until it was restructured in October 1990. Effective as of the 30th day of September 1991, this debt, totalling $160,000, was forgiven. The Company reimbursed Mr. Belle-Isle for the tax liability associated with the forgiveness of the loan. EPIC has a consulting agreement with The Elder Group, of which Thomas H. Elder, who formerly served as EPIC's Management Services Officer, is the Managing Principal. EPIC paid The Elder Group approximately $1,300,000 and $1,000,000 in fiscal 1992 and 1991, respectively. EPIC has an investment in the preferred stock of the Compucare Company ("Compucare"), who is developing and installing one of EPIC's new information systems. The chief executive officer of EPIC is on the board of directors of Compucare. Payments to Compucare for fiscal 1993 totalled $5,651,000. 14. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in any cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excluded certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of Holdings. The following methods and assumptions were used by Holdings in estimating its fair value disclosures for financial instruments. Cash Equivalents, Cash Restricted for Interest Payments, and Marketable Securities The carrying amounts reported in the consolidated balance sheets for cash equivalents, cash restricted for interest payments, and marketable interest bearing securities approximates their fair values. F-23 77 EPIC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-Term Debt (Including Current Maturities) The fair values of Holdings' long-term debt, except the Class B-1 and Class B-2 First Priority Mortgage Notes, are estimated using quoted market prices or the call price. The fair value of the Class B-1 and Class B-2 First Priority Mortgage Notes are estimated using discounted cash flow analysis based on Holdings' incremental borrowing rate for similar types of borrowing arrangements. The carrying amounts and estimated fair values of Holdings' financial instruments at September 30, 1993 are as follows (in thousands):
CARRYING FAIR AMOUNT VALUE -------- -------- Cash equivalents, cash restricted for interest payments, and marketable securities.......................................... $112,529 $112,529 Long-term debt................................................... $727,519 $772,006
15. EXTRAORDINARY ITEMS Extraordinary items of $21,960,000 in 1993, $1,265,000 ($1,917,000, net of income tax benefit of $652,000) in 1992 and $2,581,000 ($3,911,000, net of income tax benefit of $1,330,000) in 1991 were primarily due to the write-offs of loan issue costs and unamortized discounts on retirements of long-term debt (see Note 5). 16. SUPPLEMENTARY INCOME STATEMENT INFORMATION Maintenance and repair expense was $17,101,000, $17,564,000, and $16,159,000 for fiscal 1993, 1992, and 1991, respectively. 17. CONTINGENCIES Final determination of amounts earned under prospective payment and cost-reimbursement programs is subject to review by appropriate governmental authorities or their agents. In the opinion of management, adequate provision has been made for any adjustments that could result from such reviews. Holdings is currently, and from time to time is expected to be, subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such matters will not have a material effect on Holding's results of operations, financial position, or liquidity. Pursuant to the terms of the Acquisitions, claims relating to litigation, medical benefits, and workers' compensation occurring prior to October 1, 1988, remain the obligation of AMI. 18. GUARANTOR SUBSIDIARIES Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the loans under the Bank Credit Agreement, AMI Zero Coupon Notes, Additional AMI Zero Coupon Notes, 11.875% Senior ESOP Notes, 10.875% Senior Subordinated Notes, 15% Senior Subordinated Notes and 11% Junior Subordinated Pay-In-Kind Notes. Certain other subsidiaries, including EPIC Properties, are not Guarantor Subsidiaries (the Nonguarantor Subsidiaries) (see Note 5). All equity interests in the Nonguarantor Subsidiaries, other than those held by minority interests, are held by EPIC. Condensed consolidating financial information of EPIC, the Guarantor Subsidiaries, EPIC Properties and the other Nonguarantor Subsidiaries are included in the footnotes to the consolidated financial statements of EPIC included elsewhere herein. F-24 78 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
DECEMBER 31, SEPTEMBER 30, 1993 1993 ------------ ------------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents......................................... $ 40,940 $ 56,756 Cash restricted for interest payment.............................. 9,573 3,820 Marketable securities............................................. 34,132 47,347 Accounts receivable, net of reserves for uncompensated care of $31,187 and $29,286............................................ 99,392 76,957 Supply inventories................................................ 20,973 20,687 Prepaid expenses and other........................................ 12,398 4,574 Deferred income taxes............................................. 5,384 -- TOTAL CURRENT ASSETS................................................ 222,792 210,141 PROPERTY AND EQUIPMENT.............................................. 810,055 786,798 ACCUMULATED DEPRECIATION AND AMORTIZATION........................... (231,239) (218,746) ------------ ------------- 578,816 568,052 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated amortization.......................................... 52,461 52,965 OTHER ASSETS, net of accumulated amortization....................... 34,551 33,818 ------------ ------------- TOTAL ASSETS........................................................ $ 888,620 $ 864,976 ------------ ------------- ------------ ------------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Current maturities of long-term debt.............................. $ 48,049 $ 47,914 Accounts payable.................................................. 45,551 44,610 Accrued liabilities............................................... 96,636 87,531 ------------ ------------- TOTAL CURRENT LIABILITIES........................................... 190,236 180,055 LONG-TERM DEBT...................................................... 512,999 512,408 DEFERRED INCOME TAXES............................................... 11,378 5,994 RESERVE FOR PROFESSIONAL LIABILITY RISKS............................ 46,557 46,612 OTHER DEFERRED LIABILITIES.......................................... 42,013 42,450 COMMITMENTS AND CONTINGENT LIABILITIES.............................. MINORITY INTERESTS.................................................. 5,909 5,472 STOCKHOLDER'S EQUITY Common stock, $.01 par value...................................... -- -- Paid-in capital................................................... 373,719 373,838 Notes receivable from EPIC ESOP................................... (137,381) (148,214) Retained earnings (deficit)....................................... (156,810) (153,639) ------------ ------------- TOTAL STOCKHOLDER'S EQUITY.......................................... 79,528 71,985 ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.......................... $ 888,620 $ 864,976 ------------ ------------- ------------ -------------
See notes to condensed consolidated financial statements. F-25 79 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED DECEMBER 31, ----------------------- 1993 1992 -------- -------- NET OPERATING REVENUE................................................ $272,451 $244,352 COSTS AND EXPENSES: Salaries and wages................................................. 99,526 84,634 Employee benefits.................................................. 21,094 22,997 ESOP expense....................................................... 5,635 5,182 Supplies........................................................... 32,025 30,041 Uncompensated care................................................. 19,618 19,048 Other.............................................................. 64,613 57,871 Depreciation and amortization...................................... 13,130 13,791 Interest expense................................................... 18,745 17,426 -------- -------- TOTAL COSTS AND EXPENSES............................................. 274,386 250,990 INTEREST INCOME...................................................... 806 636 -------- -------- LOSS BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY ITEM................................................. (1,129) (6,002) INCOME TAX BENEFIT (EXPENSE)......................................... (375) 431 MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES, net of income tax benefit (expense)....................................... (1,667) (556) -------- -------- LOSS BEFORE EXTRAORDINARY ITEM....................................... (3,171) (6,127) EXTRAORDINARY ITEM, net of income tax benefit........................ -- (503) -------- -------- NET LOSS............................................................. $ (3,171) $ (6,630) -------- -------- -------- --------
See notes to condensed consolidated financial statements. F-26 80 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED DECEMBER 31, ----------------------- 1993 1992 -------- -------- OPERATING ACTIVITIES Net loss........................................................... $ (3,171) $ (6,630) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................................... 13,130 13,791 Non-cash provision for professional liability risks............. (1,111) 437 ESOP expense.................................................... 5,635 5,182 Deferred SAR Plan compensation.................................. (274) (1,496) Minority interests in income of consolidated subsidiaries....... 1,667 631 Non-cash interest............................................... 3,906 4,698 Deferred income tax benefit..................................... -- (749) Extraordinary item.............................................. -- 570 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable............................................. (22,435) 342 Supply inventories and other assets............................. (8,390) (10,549) Accounts payable and other liabilities.......................... 9,938 8,747 -------- -------- Net cash provided by (used in) operating activities........ (1,105) 14,974 INVESTING ACTIVITIES Investments in marketable securities, net.......................... 13,215 6,395 Cash paid for acquisitions......................................... (960) (4,100) Additions to property and equipment................................ (23,431) (7,410) Other.............................................................. (661) (811) -------- -------- Net cash used in investing activities...................... (11,837) (5,926) FINANCING ACTIVITIES Payments on debt obligations....................................... (1,415) (76) Line of credit borrowings, net..................................... -- 800 Purchase of Senior ESOP Notes...................................... -- (5,616) Dividends paid to EPIC Holdings.................................... (119) (11) Distributions and dividends to minority interests.................. (1,132) (2,340) Payments of debt issue costs and other, net........................ (208) (59) -------- -------- Net cash used in financing activities...................... (2,874) (7,302) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (15,816) 1,746 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 56,756 32,641 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 40,940 $ 34,387 -------- -------- -------- -------- SUPPLEMENTARY INFORMATION Cash paid for interest............................................. $ 8,513 $ 1,598 Cash paid for income taxes......................................... $ 199 $ 176
See notes to condensed consolidated financial statements. F-27 81 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of EPIC Healthcare Group, Inc. and Subsidiaries (the "Company" or "EPIC"), a wholly-owned subsidiary of EPIC Holdings, Inc. ("Holdings"), have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three month period ended December 31, 1993 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1994. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 30, 1993. Certain prior period amounts have been reclassified to conform with the fiscal 1994 presentation. 2) SUBSEQUENT EVENT On January 9, 1994, Holdings entered into an Agreement and Plan of Merger (the "Merger Agreement") with HealthTrust, Inc. -- The Hospital Company, a Delaware corporation ("HTI"), and Odyssey Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of HTI ("HTI Sub"), providing for the merger (the "Merger") of HTI Sub with and into Holdings following which Holdings would become a wholly-owned subsidiary of HTI. The Merger is expected to result in a termination of the EPIC ESOP. Under the terms of the Merger Agreement, which was unanimously approved by the Boards of Directors of both HTI and Holdings, shareholders of Holdings will receive $7.00 per share of Holdings' common stock. HTI intends to offer to purchase Holdings' 12% Senior Deferred Coupon Notes due 2002, and EPIC's 11.375% Class B-1 First Priority Mortgage Notes due 2001, 11.5% Class B-2 First Priority Mortgage Notes due 2001, Class B-3 First Priority Mortgage Notes, and 10.875% Senior Subordinated Notes due 2003 and to redeem other outstanding EPIC indebtedness in accordance with their terms. HTI also plans to seek the consent of the holders of Holdings' and EPIC's indebtedness to amend certain restrictive provisions. Consummation of the Merger is subject to a number of conditions, including the approval of Holdings' shareholders and the consummation of certain debt consent solicitations. American Medical International, Inc. and the trustee of the EPIC ESOP (who controls the unallocated shares of the EPIC ESOP) have agreed, subject to the fulfillment of certain conditions, to vote their shares of Holdings common stock (approximately 52% combined) in favor of the Merger. The transaction is expected to close by May of 1994. 3) INCOME TAXES Effective October 1, 1993, the Company changed its method of accounting for income taxes to the liability method as required by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which superseded SFAS No. 96. As permitted under the rules of SFAS No. 109, prior years' financial statements have not been restated. Adoption of SFAS No. 109 had no effect on current period operations. Due to the uncertainty of the realization of the net deferred federal tax liability, the Company established a valuation allowance against the deferred federal tax assets so that deferred federal tax assets equalled deferred federal tax liabilities. The net deferred tax liability reported relates primarily to state taxes. F-28 82 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of October 1, 1993 are as follows (in thousands): DEFERRED TAX LIABILITIES ------------------------ Property and equipment basis difference....................... $ 42,908 Loan fees.................................................... 1,547 ESOP contribution............................................ 3,455 State taxes and other........................................ 5,994 -------- Total deferred tax liabilities............................... 53,904 -------- DEFERRED TAX ASSETS ------------------- Bad debt reserve differences.................................. 6,593 Professional liability reserves.............................. 15,670 SAR compensation............................................. 14,034 Health plan and workers' compensation reserve................ 3,652 Paid time off reserve........................................ 1,788 Net operating losses......................................... 24,312 Other........................................................ 700 -------- Total deferred tax assets.................................... 66,749 Valuation allowance.......................................... (18,839) -------- -------- Net deferred tax assets...................................... 47,910 -------- Net deferred tax liability................................... $ 5,994 --------
No tax benefit was recorded for the current net operating loss and no federal taxes are anticipated for fiscal 1994. Current income tax expense of $375,000 relates to state income taxes. 4) CHANGES IN STOCKHOLDER'S EQUITY During the three-month period ended December 31, 1993, the Company paid dividends of $119,000 to Holdings, which were recorded as a reduction in paid-in capital, and received a principal payment on the Notes receivable from the EPIC ESOP of $10,833,000, which was recorded as a reduction of the Notes receivable from EPIC ESOP. 5) GUARANTOR SUBSIDIARIES Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the loans under the Amended Credit Agreement, the Zero Coupon Notes, the Additional Zero Coupon Notes, the 11.875% Senior ESOP Notes, the 10.875% Senior Subordinated Notes, the 15% Senior Subordinated Notes and the 11% Junior Subordinated Pay-In-Kind Notes. Certain other subsidiaries, including EPIC Properties, Inc. ("EPIC Properties") are not Guarantor Subsidiaries (the "Nonguarantor Subsidiaries"). All equity interests in the Nonguarantor Subsidiaries, other than those held by minority interests, are held by EPIC. F-29 83 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) Following is condensed consolidating financial information of EPIC, the Guarantor Subsidiaries, EPIC Properties and the other Nonguarantor Subsidiaries: CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 1993 (DOLLARS IN THOUSANDS) ASSETS
EPIC HEALTHCARE EPIC OTHER GROUP, INC. HEALTHCARE GUARANTOR EPIC NONGUARANTOR AND GROUP, INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ----------- ------------ ----------- ------------ ------------ ------------- CURRENT ASSETS Cash and cash equivalents.............. $ 4,948 $ 29,826 $ 1,918 $ 4,248 $ -- $ 40,940 Cash restricted for interest payment... -- -- 9,573 -- -- 9,573 Marketable securities.................. -- 22,672 -- 11,460 -- 34,132 Accounts receivable, net............... 558 72,307 470 31,320 (5,263) 99,392 Supply inventories..................... -- 16,820 -- 4,153 -- 20,973 Prepaid expenses and other............. 5,931 5,044 237 1,186 -- 12,398 Deferred income taxes.................. 5,384 -- -- -- -- 5,384 Receivables from affiliates............ 160,997 34,140 -- 5,930 (201,067) -- ----------- ------------ ----------- ------------ ------------ ------------- TOTAL CURRENT ASSETS............. 177,818 180,809 12,198 58,297 (206,330) 222,792 PROPERTY AND EQUIPMENT................... -- 283,970 444,673 81,412 -- 810,055 ACCUMULATED DEPRECIATION AND AMORTIZATION........................... -- (55,974) (146,387) (28,878) -- (231,239) ----------- ------------ ----------- ------------ ------------ ------------- -- 227,996 298,286 52,534 -- 578,816 INVESTMENTS IN SUBSIDIARIES.............. 64,684 89,641 -- -- (154,325) -- EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net.......................... -- 38,107 -- 14,354 -- 52,461 OTHER ASSETS, net........................ 11,844 89,786 895 3,427 (71,401) 34,551 RECEIVABLES FROM AFFILIATES.............. 297,673 4,117 -- -- (301,790) -- ----------- ------------ ----------- ------------ ------------ ------------- TOTAL ASSETS..................... $ 552,019 $630,456 $ 311,379 $128,612 $ (733,846) $ 888,620 ----------- ------------ ----------- ------------ ------------ ------------- ----------- ------------ ----------- ------------ ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt... $ 45,332 $ 686 $ 1,020 $ 1,011 $ -- $ 48,049 Accounts payable....................... 235 41,308 (71) 6,301 (2,222) 45,551 Accrued liabilities.................... 9,602 69,137 12,417 8,521 (3,041) 96,636 Payables to affiliates................. -- 166,927 -- 34,140 (201,067) -- ----------- ------------ ----------- ------------ ------------ ------------- TOTAL CURRENT LIABILITIES........ 55,169 278,058 13,366 49,973 (206,330) 190,236 LONG-TERM DEBT........................... 322,906 8,879 241,964 10,651 (71,401) 512,999 DEFERRED INCOME TAXES.................... 11,378 -- -- -- -- 11,378 RESERVE FOR PROFESSIONAL LIABILITY RISKS.................................. -- 32,011 -- 13,054 1,492 46,557 OTHER DEFERRED LIABILITIES............... -- 40,786 -- 1,227 -- 42,013 MINORITY INTERESTS....................... -- 5,226 -- 683 -- 5,909 PAYABLES TO AFFILIATES................... 1,363 297,673 564 1,330 (300,930) -- STOCKHOLDERS' EQUITY Common stock......................... -- -- 1 -- (1) -- Paid-in capital...................... 373,719 61,855 92,865 5,434 (160,154) 373,719 Notes receivable from EPIC ESOP...... (100,000) -- (37,381) -- -- (137,381) Retained earnings (deficit).......... (112,516) (94,032) -- 46,260 3,478 (156,810) ----------- ------------ ----------- ------------ ------------ ------------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT)...................... 161,203 (32,177) 55,485 51,694 (156,677) 79,528 ----------- ------------ ----------- ------------ ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)...................... $ 552,019 $630,456 $ 311,379 $128,612 $ (733,846) $ 888,620 ----------- ------------ ----------- ------------ ------------ ------------- ----------- ------------ ----------- ------------ ------------ -------------
F-30 84 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1993 (DOLLARS IN THOUSANDS) ASSETS
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ CURRENT ASSETS Cash and cash equivalents............. $ 8,944 $ 40,846 $ 2,062 $ 4,904 $ -- $ 56,756 Cash restricted for interest payment............................. -- -- 3,820 -- -- 3,820 Marketable securities................. -- 35,972 -- 11,375 -- 47,347 Accounts receivable, net.............. 474 56,000 1,071 21,321 (1,909) 76,957 Supply inventories.................... -- 16,589 -- 4,098 -- 20,687 Prepaid expenses and other............ 777 2,714 -- 1,083 -- 4,574 Receivables from affiliates........... 156,437 29,013 -- 13,663 (199,113) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL CURRENT ASSETS.................... 166,632 181,134 6,953 56,444 (201,023) 210,141 PROPERTY AND EQUIPMENT.................. -- 264,044 444,673 78,081 -- 786,798 ACCUMULATED DEPRECIATION AND AMORTIZATION.......................... -- (50,548) (140,665) (27,533) -- (218,746) ---------- ------------ ---------- ------------ ------------ ------------ -- 213,496 304,008 50,548 -- 568,052 INVESTMENTS IN SUBSIDIARIES............. 64,684 109,474 -- -- (174,158) -- EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net......................... -- 38,577 -- 14,388 -- 52,965 OTHER ASSETS, net....................... 12,440 89,314 936 2,529 (71,401) 33,818 RECEIVABLES FROM AFFILIATES............. 297,673 -- -- -- (297,673) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL ASSETS............................ $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $864,976 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt................................ $ 45,333 $ 643 $ 1,020 $ 918 $ -- $ 47,914 Accounts payable...................... 236 39,225 (65) 5,450 (236) 44,610 Accrued liabilities................... 9,294 64,070 5,624 10,216 (1,673) 87,531 Payables to affiliates................ -- 164,963 -- 34,150 (199,113) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL CURRENT LIABILITIES............... 54,863 268,901 6,579 50,734 (201,022) 180,055 LONG-TERM DEBT.......................... 321,895 8,948 241,927 11,039 (71,401) 512,408 DEFERRED INCOME TAXES................... 5,994 -- -- -- -- 5,994 RESERVE FOR PROFESSIONAL LIABILITY RISKS................................. -- 34,053 -- 11,206 1,353 46,612 OTHER DEFERRED LIABILITIES.............. -- 41,258 -- 1,192 -- 42,450 MINORITY INTERESTS...................... -- 4,947 -- 525 -- 5,472 PAYABLES TO AFFILIATES.................. -- 297,673 -- -- (297,673) -- STOCKHOLDERS' EQUITY Common stock.......................... -- -- 1 -- (1) -- Paid-in capital....................... 373,838 61,855 111,604 5,434 (178,893) 373,838 Notes receivable from EPIC ESOP....... (100,000) -- (48,214) -- -- (148,214) Retained earnings (deficit)........... (115,161) (85,640) -- 43,779 3,383 (153,639) ---------- ------------ ---------- ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT).... 158,677 (23,785) 63,391 49,213 (175,511) 71,985 ---------- ------------ ---------- ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)............................. $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $864,976 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-31 85 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
EPIC HEALTHCARE EPIC GROUP, HEALTHCARE OTHER INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ---------- NET OPERATING REVENUE............... $ -- $212,740 $ 13,649 $ 62,212 $(16,150) $272,451 COSTS AND EXPENSES: Operating expenses................ 11 203,002 11 55,420 (15,933) 242,511 Depreciation and amortization..... -- 5,935 5,669 1,603 (77) 13,130 Interest expense.................. 12,617 17,454 6,962 840 (19,128) 18,745 ---------- ------------ ---------- ------------ ------------ ---------- TOTAL COSTS AND EXPENSES............ 12,628 226,391 12,642 57,863 (35,138) 274,386 INTEREST INCOME..................... 16,636 2,536 652 110 (19,128) 806 ---------- ------------ ---------- ------------ ------------ ---------- INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY ITEM.............................. 4,008 (11,115) 1,659 4,459 (140) (1,129) INCOME TAX BENEFIT (EXPENSE)........ (1,363) 3,503 (564) (1,657) (294) (375) MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES, net of income tax benefit (expense)...... -- (780) -- (321) (566) (1,667) ---------- ------------ ---------- ------------ ------------ ---------- NET INCOME (LOSS)................... $ 2,645 $ (8,392) $ 1,095 $ 2,481 $ (1,000) $ (3,171) ---------- ------------ ---------- ------------ ------------ ---------- ---------- ------------ ---------- ------------ ------------ ----------
F-32 86 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1992 (DOLLARS IN THOUSANDS)
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARATOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ----------- NET OPERATING REVENUE.......... $ -- $178,988 $ 13,649 $ 69,156 $(17,441) $ 244,352 COST AND EXPENSES: Operating expenses........... 50 172,362 40 64,553 (17,232) 219,773 Depreciation and amortization............... 407 4,463 7,281 1,747 (107) 13,791 Interest expense............. 11,911 12,520 6,961 1,504 (15,470) 17,426 ---------- ------------ ---------- ------------ ------------ ----------- TOTAL COSTS AND EXPENSES....... 12,368 189,345 14,282 67,804 (32,809) 250,990 INTEREST INCOME................ 12,500 2,480 1,025 101 (15,470) 636 ---------- ------------ ---------- ------------ ------------ ----------- INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY ITEM......................... 132 (7,877) 392 1,453 (102) (6,002) INCOME TAX BENEFIT (EXPENSE)... 607 (122) -- (54) -- 431 MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES, net of income tax benefit (expense).................... 75 (552) -- (79) -- (556) ---------- ------------ ---------- ------------ ------------ ----------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM........... 814 (8,551) 392 1,320 (102) (6,127) EXTRAORDINARY ITEM, net of income tax benefit (expense).................. (503) -- -- -- -- (503) ---------- ------------ ---------- ------------ ------------ ----------- NET INCOME (LOSS).............. $ 311 $ (8,551) $ 392 $ 1,320 $ (102) $ (6,630) ---------- ------------ ---------- ------------ ------------ ----------- ---------- ------------ ---------- ------------ ------------ -----------
F-33 87 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
EPIC HEALTHCARE EPIC OTHER GROUP, INC. HEALTHCARE GUARANTOR EPIC NONGUARANTOR AND GROUP, INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ----------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) operating activities............. $(2,627) $(11,483) $ 8,856 $ 4,149 $ -- $ (1,105) INVESTING ACTIVITIES: Investments in marketable securities, net................ -- 13,300 -- (85) -- 13,215 Cash paid for acquisitions....... -- -- -- (960) -- (960) Additions to property and equipment...................... -- (20,100) -- (3,331) -- (23,431) Principal collected on note receivable from EPIC ESOP...... -- -- 10,833 -- (10,833) -- Other............................ -- (601) -- (60) -- (661) ----------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) investing activities............. -- (7,401) 10,833 (4,436) (10,833) (11,837) FINANCING ACTIVITIES Payments on debt obligations..... (1,250) (26) -- (139) -- (1,415) Contributions to EPIC ESOP....... -- (10,833) -- -- 10,833 -- Dividends paid to EPIC Holdings....................... (119) -- -- -- -- (119) Dividends and capital distributions received from EPIC Properties................ -- 19,833 -- -- (19,833) -- Dividends and capital distributions paid by EPIC Properties..................... -- -- (19,833) -- 19,833 -- Distributions and dividends to minority interests............. -- (902) -- (230) -- (1,132) Payments of debt issue costs and other, net..................... -- (208) -- -- -- (208) ----------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) financing activities............. (1,369) 7,864 (19,833) (369) 10,833 (2,874) DECREASE IN CASH AND CASH EQUIVALENTS...................... (3,996) (11,020) (144) (656) -- (15,816) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 8,944 40,846 2,062 4,904 -- 56,756 ----------- ------------ ---------- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 4,948 $ 29,826 $ 1,918 $ 4,248 $ -- $ 40,940 ----------- ------------ ---------- ------------ ------------ ------------ ----------- ------------ ---------- ------------ ------------ ------------
F-34 88 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1992 (DOLLARS IN THOUSANDS)
EPIC HEALTHCARE EPIC OTHER GROUP, INC. HEALTHCARE GUARANTOR EPIC NONGUARANTOR AND GROUP, INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ----------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) operating activities............. $(771) $ 11,646 $ 7,269 $ (3,170) $ -- $ 14,974 INVESTING ACTIVITIES: Investments in marketable securities, net................ -- 256 -- 6,139 -- 6,395 Cash paid for acquisitions....... -- (4,100) -- -- -- (4,100) Additions to property and equipment...................... -- (7,410) -- -- -- (7,410) Principal collected on note receivable from EPIC ESOP...... -- -- 10,357 -- (10,357) -- Other............................ (103) (708) -- -- -- (811) ----------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) investing activities............. (103) (11,962) 10,357 6,139 (10,357) (5,926) FINANCING ACTIVITIES Payments on debt obligations..... -- (20) -- (56) -- (76) Line of credit borrowings, net... 800 -- -- -- -- 800 Purchase of Senior ESOP notes.... -- (5,616) -- -- -- (5,616) Contributions to EPIC ESOP....... -- (10,357) -- -- 10,357 -- Dividends paid to EPIC Holdings....................... (11) -- -- -- -- (11) Dividends and capital distributions received from EPIC Properties................ -- 17,012 -- 888 (17,900) -- Dividends and capital distributions paid by EPIC Properties..................... -- -- (17,900) -- 17,900 -- Distributions and dividends to minority interests............. -- (680) -- (1,660) -- (2,340) Payment of debt issue costs and other, net..................... -- (59) -- -- -- (59) ----------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) financing activities............. 789 280 (17,900) (828) 10,357 (7,302) ----------- ------------ ---------- ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (85) (36) (274) 2,141 -- 1,746 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 86 22,381 4,506 5,668 -- 32,641 ----------- ------------ ---------- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 1 $ 22,345 $ 4,232 $ 7,809 $ -- $ 34,387 ----------- ------------ ---------- ------------ ------------ ------------ ----------- ------------ ---------- ------------ ------------ ------------
F-35 89 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) NOTES TO CONDENSED CONSOLIDATING FINANCIAL STATEMENTS The subsidiaries comprising the Guarantor Subsidiaries change from year to year due to new and/or revised agreements relating to the various subsidiaries of the Company. As a result, the investment in subsidiaries is presented on the cost basis. Receivables from (payables to) affiliates include cash transfers between entities on collection of accounts receivable and payment of accounts payable and are included in cash flows provided by (used in) operating activities. Cash flows from operating, financing and investing activities for each subsidiary are presented in the consolidating statements of cash flows based on that subsidiary's designation as a guarantor or nonguarantor subsidiary at the end of the period. Deferred income taxes and deferred income tax benefit (expense) were recorded in the accounts of EPIC Healthcare Group, Inc. and were not allocated to the subsidiaries in fiscal 1993. SFAS No. 109, "Accounting for Income Taxes" requires that the consolidated amount of current and deferred tax expense for a group that files a consolidated tax return shall be allocated among the members of the group when those members issue separate financial statements on a basis consistent with SFAS No. 109. The Company adopted SFAS No. 109, including allocation of taxes within the consolidating financial statements, effective October 1, 1993. For fiscal 1994, deferred income tax benefit (expense) is allocated to the subsidiaries using the effective tax rate applicable and deferred income taxes for the subsidiaries are included in receivables from (payables to) affiliates. F-36 90 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS The Board of Directors EPIC Holdings, Inc. We have audited the accompanying consolidated balance sheets of EPIC Healthcare Group, Inc. and subsidiaries (a wholly-owned subsidiary of EPIC Holdings, Inc.) as of September 30, 1993 and 1992, and the related consolidated statements of operations, stockholder's equity (deficit), and cash flows for each of the three years in the period ended September 30, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EPIC Healthcare Group, Inc. and subsidiaries at September 30, 1993, and 1992, and the results of its consolidated operations and its consolidated cash flows for each of the three years in the period ended September 30, 1993, in conformity with generally accepted accounting principles. ERNST & YOUNG Dallas, Texas December 3, 1993 F-37 91 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, --------------------- 1993 1992 --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents............................................ $ 56,756 $ 32,641 Cash restricted for interest payment................................. 3,820 5,768 Marketable securities................................................ 47,347 10,607 Accounts receivable, net of reserves for uncompensated care of $29,286 and $25,837............................................... 76,957 73,398 Supply inventories................................................... 20,687 20,000 Prepaid expenses and other........................................... 4,574 5,222 --------- --------- TOTAL CURRENT ASSETS......................................... 210,141 147,636 PROPERTY AND EQUIPMENT Land................................................................. 53,030 57,492 Buildings and improvements........................................... 476,570 451,292 Equipment............................................................ 234,656 192,367 Construction in progress............................................. 22,542 9,333 --------- --------- 786,798 710,484 Accumulated depreciation and amortization............................ (218,746) (173,789) --------- --------- 568,052 536,695 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated amortization......................................................... 52,965 48,140 OTHER ASSETS, net of accumulated amortization.......................... 33,818 38,315 --------- --------- TOTAL ASSETS................................................. $ 864,976 $ 770,786 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Current maturities of long-term debt................................. $ 47,914 $ 2,330 Accounts payable..................................................... 44,610 34,809 Accrued liabilities: Salaries and wages................................................ 36,475 33,031 Taxes other than on income........................................ 7,874 7,476 Interest.......................................................... 11,027 7,658 Group health insurance............................................ 4,902 5,656 Current reserve for professional liability risks.................. 11,000 11,000 Other............................................................. 16,253 9,011 --------- --------- TOTAL CURRENT LIABILITIES.............................................. 180,055 110,971 LONG-TERM DEBT......................................................... 512,408 470,735 DEFERRED INCOME TAXES.................................................. 5,994 8,988 RESERVE FOR PROFESSIONAL LIABILITY RISKS............................... 46,612 39,640 OTHER DEFERRED LIABILITIES............................................. 42,450 39,607 COMMITMENTS AND CONTINGENT LIABILITIES................................. MINORITY INTERESTS..................................................... 5,472 23,494 STOCKHOLDER'S EQUITY Common stock, $.01 par value -- Authorized: 100,000,000 shares; Issued and outstanding: 1,000 shares.............................. -- -- Paid-in capital...................................................... 373,838 374,860 Notes receivable from EPIC ESOP...................................... (148,214) (168,929) Retained earnings (deficit).......................................... (153,639) (128,580) --------- --------- TOTAL STOCKHOLDER'S EQUITY............................................. 71,985 77,351 --------- --------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............................. $ 864,976 $ 770,786 --------- --------- --------- ---------
See notes to consolidated financial statements. F-38 92 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30, --------------------------------------- 1993 1992 1991 ----------- ----------- ----------- NET OPERATING REVENUE................................... $ 1,019,149 $ 941,266 $ 802,689 COSTS AND EXPENSES: Salaries and wages.................................... 354,326 319,868 271,007 Employee benefits..................................... 84,615 81,365 68,434 ESOP expense.......................................... 20,715 20,714 23,076 Supplies.............................................. 121,986 116,145 99,882 Uncompensated care.................................... 80,643 69,308 59,425 Other................................................. 235,770 234,879 192,633 Depreciation and amortization......................... 57,917 53,013 49,354 Interest expense...................................... 70,934 71,000 68,266 ----------- ----------- ----------- TOTAL COSTS AND EXPENSES...................... 1,026,906 966,292 832,077 INTEREST INCOME......................................... 3,627 3,822 5,405 GAIN (LOSS) ON SALE OF ASSETS........................... 3,521 (1,123) (543) ----------- ----------- ----------- LOSS BEFORE INCOME TAX BENEFIT, MINORITY INTERESTS AND EXTRAORDINARY ITEM.................................... (609) (22,327) (24,526) INCOME TAX BENEFIT, net................................. 243 6,258 7,603 MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES (net of income tax benefit of $106, $1,008 and $1,063, respectively)...................... (3,394) (1,958) (2,064) ----------- ----------- ----------- LOSS BEFORE EXTRAORDINARY ITEM.......................... (3,760) (18,027) (18,987) EXTRAORDINARY ITEM (net of income tax benefit of $661, $652 and $1,330, respectively......................... (21,299) (1,265) (2,581) ----------- ----------- ----------- NET LOSS...................................... $ (25,059) $ (19,292) $ (21,568) ----------- ----------- ----------- ----------- ----------- -----------
See notes to consolidated financial statements. F-39 93 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) (DOLLARS IN THOUSANDS)
NOTES RETAINED TOTAL COMMON PAID-IN RECEIVABLE EARNINGS STOCKHOLDERS' STOCK CAPITAL FROM EPIC ESOP (DEFICIT) EQUITY (DEFICIT) ------ -------- -------------- --------- ---------------- Balance at October 1, 1990......... $ 245 $219,808 $ (212,738) $ (87,241) $ (79,926) Dividends accrued and accretion of discount on redeemable preferred stock............................ -- (22,873) -- -- (22,873) Principal payments received on notes receivable from EPIC ESOP............................. -- -- 23,095 -- 23,095 Treasury stock purchased........... (1 ) -- -- (468) (469) Net loss........................... -- -- -- (21,568) (21,568) ------ -------- -------------- --------- ---------------- Balance at September 30, 1991...... 244 196,935 (189,643) (109,277) (101,741) Dividends accrued and accretion of discount on redeemable preferred stock............................ -- (11,048) -- -- (11,048) Principal payments received on notes receivable from EPIC ESOP............................. -- -- 20,714 -- 20,714 Treasury stock purchased........... -- -- -- (11) (11) Warrant conversion................. 63 (42) -- -- 21 Contribution of redeemable preferred stock, net of expenses......................... -- 190,008 -- -- 190,008 Exchange of common stock in connection with merger........... (307 ) 307 -- -- -- Dividends paid to EPIC Holdings.... -- (1,300) -- -- (1,300) Net loss........................... -- -- -- (19,292) (19,292) ------ -------- -------------- --------- ---------------- Balance at September 30, 1992...... -- 374,860 (168,929) (128,580) 77,351 Principal payments received on notes receivable from EPIC ESOP............................. -- -- 20,715 -- 20,715 Dividends paid to EPIC Holdings.... -- (1,022) -- -- (1,022) Net loss........................... -- -- -- (25,059) (25,059) ------ -------- -------------- --------- ---------------- Balance at September 30, 1993...... $ -- $373,838 $ (148,214) $(153,639) $ 71,985 ------ -------- -------------- --------- ---------------- ------ -------- -------------- --------- ----------------
See notes to consolidated financial statements. F-40 94 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30, --------------------------------- 1993 1992 1991 --------- --------- --------- OPERATING ACTIVITIES Net loss.................................................. $ (25,059) $ (19,292) $ (21,568) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.......................... 57,917 53,013 49,354 Non-cash provision for professional liability risks.... 2,641 4,131 11,291 ESOP expense........................................... 20,715 20,714 23,076 Deferred SAR Plan compensation......................... 3,249 10,805 7,137 Minority interests in income of consolidated subsidiaries......................................... 3,499 2,966 3,127 (Gain) loss on sale of assets.......................... (3,521) 1,123 543 Non-cash interest...................................... 18,286 18,417 13,975 Extraordinary item..................................... 21,960 1,917 3,911 Deferred federal income tax benefit.................... (2,994) (8,806) (9,996) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable.................................. 6,054 (35,196) (3,043) Supply inventories and other assets.................. 4,284 (3,162) (5,291) Accounts payable and other liabilities............... 12,202 11,282 6,444 --------- --------- --------- Net cash provided by operating activities......... 119,233 57,912 78,960 INVESTING ACTIVITIES Investments in marketable securities, net................. (36,740) 5,167 (12,091) Cash paid for acquisitions................................ (54,536) (12,269) -- Additions to property and equipment....................... (60,784) (47,850) (25,646) Purchase of investment securities......................... -- (4,180) -- Proceeds from sales of assets............................. 25,148 190 361 Collection on note receivable............................. 9,349 -- -- Other..................................................... (5,925) (2,046) (48) --------- --------- --------- Net cash used in investing activities............. (123,488) (60,988) (37,424) FINANCING ACTIVITIES Payments on debt obligations.............................. (117,765) (1,603) (250,647) Proceeds from long-term borrowings........................ 180,853 -- 227,868 Purchase of Senior ESOP Notes............................. (5,616) (20,293) -- Purchase of treasury stock................................ -- (11) (469) Dividends paid to EPIC Holdings........................... (1,022) (1,300) -- Preferred stock transaction costs......................... -- (7,063) -- Proceeds of warrant conversion............................ -- 21 -- Contributions from minority interests..................... 520 1,884 556 Distributions and dividends to minority interests......... (21,110) (4,065) (4,122) Payments of debt issue costs and other, net............... (7,490) (672) (11,294) --------- --------- --------- Net cash provided by (used in) financing activities...................................... 28,370 (33,102) (38,108) --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 24,115 (36,178) 3,428 Cash and cash equivalents at beginning of year............ 32,641 68,819 65,391 --------- --------- --------- Cash and cash equivalents at end of year.................. $ 56,756 $ 32,641 $ 68,819 SUPPLEMENTARY INFORMATION Cash paid during the year for interest.................... $ 52,370 $ 53,343 $ 52,987 Cash paid for income taxes................................ $ 657 $ 888 $ 666
See notes to consolidated financial statements F-41 95 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation EPIC Healthcare Group, Inc. ("EPIC" or, either alone or together with its subsidiaries, the "Company") was acquired by EPIC Holdings, Inc. ("Holdings") on March 25, 1992, in a merger transaction (the "Merger") in which each outstanding share of common stock of EPIC was converted into one share of Holdings common stock. Because the Merger was between companies under common ownership, and as EPIC is a wholly-owned subsidiary of Holdings, the recorded assets and liabilities of EPIC have retained their historical cost basis. Principles of Consolidation The consolidated financial statements include the accounts of EPIC and its subsidiaries. Intercompany accounts and transactions have been eliminated. Minority interests represent the minority stockholders' proportionate shares of the equity in the income (loss) of certain consolidated subsidiaries. Cash Equivalents, Cash Restricted for Interest Payments, and Marketable Securities The Company considers all highly liquid investments with initial maturities of three months or less from date of purchase to be cash equivalents. Cash restricted for interest payments is cash deposited into a trust to pay principal and interest required by the Class B-1, Class B-2 and Class B-3 First Priority Mortgage Notes (the "Mortgage Notes"). Investments in marketable interest-bearing securities are stated at cost which approximates market. The Company has $42,694,000 in cash and marketable securities restricted for the purpose of redeeming the remaining 15% Senior Subordinated Notes (See Note 5). Cash equivalents, cash restricted for interest payments, and marketable securities are subject to potential concentrations of credit risk. The Company attempts to lessen that risk by investing only in United States Government securities, commercial paper having at least a rating of A-1 or the equivalent, time deposits and certificates of deposit of banks having a debt rating of at least A, or money market funds comprised of such securities. The Company invests in securities with maturities no longer than 180 days and limits the amount of credit exposure to any one commercial issuer. Accounts Receivable Concentration of credit risk relating to accounts receivable is limited to some extent by the diversity and number of patients and payors and the geographic dispersion of the Company's hospitals. Accounts receivable (gross) consists of amounts due from government programs (e.g., Medicare and Medicaid) (53%), commercial insurance companies (16%), private pay patients (18%) and other (including health maintenance organizations and other group insurance programs) (13%). The Company's hospitals are located throughout the southern United States, with the largest concentration in Texas, Oklahoma, Louisiana and California. The Company maintains an allowance for losses (i.e., uncompensated care or bad debt expense) based on the expected collectibility of accounts receivable. Supply Inventories Supply inventories are stated at the lower of cost (first-in, first-out method) or market. Property and Equipment Property and equipment are recorded at cost (or fair value at the date of acquisition as a result of the original purchase from American Medical International, Inc. and its subsidiaries ("AMI")). Depreciation F-42 96 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and amortization is computed using the straight-line method over estimated useful lives or the term of the lease generally ranging from 25 to 30 years for buildings and improvements, and 3 to 10 years for equipment. Maintenance costs and repairs are expensed as incurred. Joint Ventures The Company, in the ordinary course of business, enters into joint ventures with physicians and other companies. The Company is the majority owner and general partner of substantially all of the joint ventures and follows the principles of consolidation for all majority-owned joint ventures. Minority shareholders' investments and earnings in the joint ventures are recorded as minority interests and minority interests in income of consolidated subsidiaries, respectively. Any interest held by the Company in non-majority owned partnerships with at least 20% ownership is accounted for using the equity method. Any interest held by the Company in partnerships with less than 20% ownership is accounted for using the cost method. On February 1, 1990, the Company entered into a joint venture with Healthtrust, Inc. - The Hospital Company ("Healthtrust") for the purpose of operating certain hospital assets in McKinney, Texas. The Company contributed, at net book value, a 168 bed facility to the venture and was the managing co-general partner with a 60% equity interest in the venture. Healthtrust contributed a 99 bed facility to the venture and was the co-general partner with a 40% interest in the venture. The assets contributed by Healthtrust to the joint venture, including property and equipment of $15,328,000, were recorded at fair market value which approximated net book value. Goodwill of $2,470,000, is being amortized over 40 years. On August 31, 1993, the Company purchased Healthtrust's interest in the joint venture for $15,656,000, which approximated Healthtrust's interest in the net assets of the joint venture and was recorded as a reduction to minority interests. Intangible Assets The excess of the purchase price over the fair value of net assets acquired is being amortized on a straight-line basis over periods ranging from nine to 40 years. Accumulated amortization was $9,244,000 and $6,920,000 at September 30, 1993 and 1992, respectively. Costs incurred in obtaining long term financing are deferred and are included in other assets. Deferred financing costs are amortized using the effective interest method over the term of the related debt, and such amortization is included in interest expense. Accumulated amortization of deferred financing costs was $16,427,000 and $14,203,000 at September 30, 1993 and 1992, respectively. The Company has purchased licenses to use various software applications. These costs are recorded as other assets and have been amortized over two or five year periods. Accumulated amortization of the software costs was $5,750,000 and $4,750,000 at September 30, 1993 and 1992, respectively. Income Taxes The Company is included in the consolidated federal income tax return of Holdings. The Company's tax provision is determined as if the Company, along with its subsidiaries, prepared its tax return on a separate return basis. EPIC accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 96, "Accounting for Income Taxes." Under the liability method specified by SFAS No. 96, deferred tax assets and/or liabilities are determined by multiplying the difference between the financial reporting and tax reporting bases of assets and liabilities (collectively, the "temporary differences," see Note 6) by tax rates (determined in accordance with enacted tax laws) that are expected to be effective when such temporary differences reverse. EPIC's deferred tax liabilities originated from the accounting for the F-43 97 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) acquisition from AMI (the "Acquisitions"), and reflect the estimated tax effect of differences between book and tax bases of assets acquired and liabilities assumed. In February 1992, the Financial Accounting Standards Board issued SFAS No. 109, "Accounting for Income Taxes," which supersedes SFAS No. 96. Implementation of SFAS No. 109 for the Company was required October 1, 1993. SFAS No. 109 requires that temporary differences be reflected in the same balance sheet category as the assets and liabilities that caused the temporary differences. Deferred tax assets, which would include tax net operating loss carryforwards, would require the determination of a related valuation allowance, based on the assets' expected realization. The Company has completed the analysis necessary to determine the impact of adoption of SFAS No. 109 and it is not expected to have a material impact on the Company's financial position or results of operations and will not impact cash flows. Net operating revenue Net operating revenue is recorded based on established billing rates net of allowances and discounts for patients covered by Medicare, Medicaid and other contractual programs. Payments received under these programs, which are based on either the costs of services or predetermined rates, are generally less than the established billing rates of the Company's hospitals, and the differences are recorded as contractual allowances and/or contracted discounts. Reserves provided have been deducted from accounts receivable pending final audit and appeal settlement. Contractual adjustments, contracted discounts and other discounts amounted to $627,757,000, $576,572,000, and $482,158,000 for fiscal 1993, 1992 and 1991, respectively. It is generally the Company's policy to attempt to collect compensation for all services performed. Reclassifications Certain prior period amounts have been reclassified to conform with the fiscal 1993 presentation. 2. ACQUISITIONS AND DIVESTITURES On August 24, 1993, the Company entered into a 20-year lease agreement with two ten year renewal options, with the County of Galveston, Texas for Mainland Center Hospital, a 310-bed hospital in Texas City, Texas. The lease payment of $27,535,000 was paid in full upon the execution of the lease, which has been accounted for as a capital lease. The Company also purchased certain net current assets and equipment of the hospital, which included $5,639,000 in cash, for $17,965,000 which has been accounted for by the purchase method of accounting. The Company also has a commitment to carry out $20,000,000 of capital improvements over the term of the lease. The lease agreement contains a purchase option which becomes effective on August 24, 1994. The option price ranges from $500,000 to $851,000 over the term of the lease. On January 6, 1993, the Company sold Westpark Community Hospital in Hammond, Louisiana for $6,200,000. A charge of $624,000 to reflect the loss on the sale was recorded in fiscal 1993. A charge of $800,000 to reflect the anticipated loss on the sale was recorded in fiscal 1992. The net book value of the assets sold before the fiscal 1992 charge, less liabilities assumed by the buyer, was $7,624,000. On March 15, 1993, the Company sold Valley Medical Center in El Cajon, California for $16,950,000. A gain on the sale of $4,632,000 was recorded in fiscal 1993. The net book value of the assets sold, less liabilities assumed by the buyer, was $12,318,000. On October 1, 1991, the Company purchased Colonial Hospital, a 49-bed hospital in Terrell, Texas for $10,403,000 in cash. The acquisition has been accounted for by the purchase method of accounting. The excess of purchase price over net assets acquired is being amortized over 40 years. 3. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") Employee-owners of EPIC have beneficial ownership of approximately 60% of the Holdings Common Stock through their participation in the EPIC ESOP. F-44 98 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At the Company's inception, the EPIC ESOP purchased 24,500,000 shares of the EPIC Common Stock with the proceeds obtained from the issuance of loans aggregating $245 million payable to the Company. The terms of the original ESOP loan agreement segregated the EPIC ESOP's obligation to the Company into two components, the terms of the first of which mirrored the terms of the Senior ESOP Bank Debt (the "First ESOP Loan") and the second of which mirrored the terms of the Senior ESOP Notes (see Note 5). Concurrent with the issuance of the Mortgage Notes (see Note 5), the First ESOP Loan was replaced by a loan agreement which provides for mandatory principal payments in amounts that are substantially in conformance with the remaining mandatory principal payments of the Senior ESOP Bank Debt as if the issuance of the Mortgage Notes had not occurred (the "New ESOP Loan"). The interest rate on the New ESOP Loan is determined quarterly based on .85 times the sum of the London InterBank Offered Rates plus 2.5% (5.1% at September 30, 1993). The EPIC ESOP has pledged all of its shares of the Holdings Common Stock as collateral for the ESOP-related borrowings. These shares are released from the pledge as the loans are paid. The EPIC ESOP receives contributions from the Company to service and extinguish the loans. The EPIC ESOP is an individual account, defined contribution plan. Nonunion employee-owners who work a specified number of hours are eligible to participate in the EPIC ESOP if they have attained age 21 and completed one year of service. No employee-owner contributions are required or permitted to be made to the EPIC ESOP. No rollover contributions are permitted to be made to the EPIC ESOP. Allocations are made to participants' accounts in an amount which reflects each participant's proportionate share of the contributions made by the Company to the EPIC ESOP, as determined on the basis of each participant's compensation. Contributions made to the EPIC ESOP and the value of shares of common stock allocated to the account of a participant as a result of such contributions are intended to be treated as tax-deferred contributions. Such contributions, and earnings thereon, generally are includable in a participant's compensation for federal income tax purposes when distributed. As of the plan year ended December 31, 1992, cumulative allocations of 10,650,517 shares of Holdings Common Stock at a market value of $8.00 per share based on an independent valuation, or $85,204,136 in total have been made to 10,183 participants. Shares of Holdings Common Stock relating to the plan year ending December 31, 1993 will be allocated during fiscal 1994. Subject to limitations contained in the Internal Revenue Code of 1986, as amended (the "Code"), Holdings is entitled to claim an income tax deduction for contributions to the EPIC ESOP. The Company has received a favorable determination from the Internal Revenue Service that the EPIC ESOP is qualified as an "employee stock ownership plan" within the meaning of Section 4975(e)(7) of the Code. Contributions to the EPIC ESOP are used by the EPIC ESOP to pay interest and principal on the loans owed to the Company. The Company uses payments from the EPIC ESOP to pay interest and principal on the Class B-1 First Priority Mortgage Notes and the Senior ESOP Notes. The Company recorded net ESOP expense, using the cash method, and corresponding reductions in the EPIC ESOP notes receivable, of $20,715,000, $20,714,000, and $23,076,000 for fiscal 1993, 1992 and 1991, respectively. Interest income recognized on the EPIC ESOP notes receivable totaled $14,984,000, $16,885,000, and $20,483,000 for fiscal 1993, 1992 and 1991, respectively, which in turn was contributed to the EPIC ESOP to pay interest expense incurred on the ESOP-related debt. Interest expense incurred on ESOP- related debt totaled $20,856,000, $21,734,000, and $21,731,000 which included discount amortization of $559,000, $551,000, and $511,000 for fiscal 1993, 1992 and 1991, respectively. F-45 99 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. OPERATING LEASES The Company leases office space, office equipment and medical equipment. Generally, real estate leases are for primary terms of from one to 12 years with options to renew for additional periods, and equipment leases are for terms of from one to seven years. Future minimum lease payments for all operating leases having initial or remaining noncancellable lease terms in excess of one year as of September 30, 1993 are as follows (dollars in thousands): 1994....................................................................... $ 4,560 1995....................................................................... 4,225 1996....................................................................... 3,337 1997....................................................................... 2,693 1998....................................................................... 1,835 1999 and thereafter........................................................ 3,485 ------- 20,135 Sublease income............................................................ (1,116) ------- $19,019 ------- -------
Rent expense under operating leases was as follows (dollars in thousands):
FOR THE YEAR ENDED SEPTEMBER 30, --------------------------- 1993 1992 1991 ------- ------- ------- Minimum rent.............................................. $18,496 $16,107 $13,609 Sublease income........................................... (795) (609) (317) ------- ------- ------- $17,701 $15,498 $13,292 ------- ------- ------- ------- ------- -------
F-46 100 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT The Company's long-term debt, net of discounts, is summarized below (dollars in thousands):
SEPTEMBER 30, --------------------- 1993 1992 --------- --------- 11.375% Class B-1 First Priority Mortgage Notes payable in semi-annual payments of $9,000 commencing in July 1996 with a final payment of $10,000 in July 2001.................... $ 99,579 $ 99,500 11.5% Class B-2 First Priority Mortgage Notes payable in semi-annual payments of $500 through July 1994, increasing to $750 in January 1995, to $1,500 in January 1997, to $8,000 in January 1998, to $9,000 in January 1999, with a final payment of $15,500 in July 2001...................... 83,112 84,046 Class B-3 First Priority Mortgage Notes payable in semi-annual payments of $750 commencing in January 1995, increasing to $3,000 in January 1997 through July 1998, with a fluctuating interest rate (6.5% at September 30, 1993)...................................................... 15,000 15,000 Other mortgage debt and capital lease obligations with varying maturities and interest rates ranging from 4.75% to 12.9%...................................................... 20,651 20,351 Acquisition Loan, payable in quarterly installments of $1,250 commencing in October, 1993 with a fluctuating interest rate (8.0% at September 30, 1993).......................... 19,542 -- Zero Coupon Notes, principal of $89,313 due 2001 with an effective interest rate of 14.8%........................... 28,564 24,770 Additional Zero Coupon Notes, principal of $7,079 due 2001 with an effective interest rate of 14.8%................... 2,265 1,964 11.875% Senior ESOP Notes payable in three equal annual payments commencing in September 1996 with an effective interest rate of 13.03%.................................... 72,141 76,840 10.875% Senior Subordinated Notes due 2003................... 160,000 -- 15% Senior Subordinated Notes payable in three equal annual payments commencing in 1999................................ 40,320 104,852 11% Junior Subordinated Pay-In-Kind Notes payable in three equal annual payments commencing in September 2001......... 19,148 45,742 --------- --------- 560,322 473,065 Current maturities........................................... (47,914) (2,330) --------- --------- $ 512,408 $ 470,735 --------- --------- --------- ---------
The Mortgage Notes are the indebtedness of EPIC Properties, Inc. ("EPIC Properties"), an indirect wholly-owned subsidiary of EPIC. The Mortgage Notes are secured by mortgages on 24 acute care hospital complexes (the "Mortgaged Hospitals") and the land on which such buildings are located, and by a first priority security interest in certain furnishings and equipment located at each of the Mortgaged Hospitals. The Mortgage Notes are fully and unconditionally guaranteed by EPIC (see Note 17). The interest rate on the Class B-1 First Priority Mortgage Notes (the "Class B-1 Notes") will increase to 11.5% after September 30, 1995. If the Internal Revenue Service determines that interest on the Class B-1 Notes does not qualify for a 50% exclusion from federal taxable income, the interest rate on the Class B-1 Notes will increase to 11.5% for all periods through September 30, 1995 during which such interest exclusion is not available. F-47 101 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company incurred losses on refinancing concurrent with the issuance of the Mortgage Notes due primarily to the write-off of loan issue costs. These losses, totalling $3,911,000, are recorded as an extraordinary item (net of income tax benefit of $1,330,000) in the consolidated statement of operations for the fiscal year ended September 30, 1991. The Zero Coupon Notes are reflected at their fair value of $14,008,000, as estimated by the Company at September 30, 1988, plus accretion of discount through September 30, 1993. No interest or principal is payable until maturity. Additional Zero Coupon Notes were issued under an interest rate cap agreement with AMI (see Note 12) and are reflected at their original fair value plus accretion of discount through September 30, 1993. No interest or principal is payable until maturity. A subsidiary of EPIC purchased $5,400,000 and $19,850,000 face value of the 11.875% Senior ESOP Notes on the open market for $5,616,000 and $20,293,000 plus accrued interest in fiscal 1993 and 1992, respectively (the "Senior ESOP Note Purchases"). Losses of $570,000 and $1,917,000 due to the write-off of debt issue costs and unamortized discounts and the payment of a premium on the Senior ESOP Note Purchases are recorded as extraordinary items (net of income tax benefit of $17,000 and $652,000, respectively) in the consolidated statements of operations for the fiscal years ended September 30, 1993 and 1992, respectively. The 11.875% Senior ESOP Notes, which carry detachable stock purchase warrants (see Note 9), have a stated principal amount of $100,000,000 and are reflected at their fair value of $93,988,000, as estimated by the Company at September 30, 1988, less the Senior ESOP Note Purchases, plus accretion of discount through September 30, 1993. On June 18, 1993, the Company refinanced $74,680,000 in principal of the 15% Senior Subordinated Notes and $53,697,000 in principal of the 11% Junior Subordinated Pay-In-Kind Notes (the "Refinancing") through the issuance of the 10.875% Senior Subordinated Notes. The 10.875% Senior Subordinated Notes are guaranteed by certain subsidiaries of the Company (see Note 17). Under the terms of the Second Amended and Restated Credit Agreement dated as of September 30, 1988, and amended and restated as of July 30, 1991, and September 1, 1993 (the "Amended Credit Agreement"), the Company is required to call the remaining $40,320,000 in principal of the 15% Senior Subordinated Notes by February 28, 1994, with the remaining proceeds of the Refinancing. The remaining principal of the 15% Senior Subordinated Notes at September 30, 1993, has been recorded as current maturities of long term debt in the consolidated balance sheets. The Company incurred a loss before taxes of $21,390,000 on the Refinancing, which resulted from the write-off of loan issue costs and unamortized discount on the 15% Senior Subordinated Notes and the redeemed portion of the 11% Junior Subordinated Pay-In-Kind Notes, payments to the holders of the 15% Senior Subordinated Notes and the 11.875% Senior ESOP Notes for waivers of certain provisions of the respective indentures and the accrual of the call premium to be paid on redeeming the remaining principal on the 15% Senior Subordinated Notes. These losses are recorded as an extraordinary item (net of income tax benefit of $644,000) in the consolidated statements of operations. The 15% Senior Subordinated Notes are guaranteed by certain wholly-owned subsidiaries of the Company (see Note 17) and are secured by a fourth pledge of the common stock of such subsidiaries. Interest on the 11% Junior Subordinated Pay-in-Kind Notes is payable semi-annually by the issuance of additional 11% Junior Subordinated Pay-in-Kind Notes through September 30, 1995, and thereafter, if the Company is prohibited from making cash interest payments by the terms of any senior debt existing on September 30, 1988, less the amount retired in the Refinancing. The notes, which have a stated principal amount of $50,000,000, have been recorded at their fair value estimated by the Company at September 30, F-48 102 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1988, of $22,900,000 plus accretion of discount through September 30, 1993, less the amount retired as a result of the Refinancing. The effective interest rate for these notes is 18.07%. The Amended Credit Agreement provides the Company with revolving loan commitments and an acquisition loan to be used for working capital and acquisition funds for the Company. As of September 30, 1993, revolving loan commitments aggregated $30 million. Any revolving loan commitments outstanding are due July 31, 1997. Interest is generally payable monthly at the following rates per annum, at the Company's option: (i) 1.5% in excess of the higher of the prime rate in effect from time to time or the annual yield on ninety-day commercial paper or (ii) 2.5% in excess of the LIBOR rate. There were no revolving loans outstanding as of September 30, 1993, and 1992, respectively. The acquisition term loan principal amount outstanding is payable in quarterly installments commencing on October 31, 1993 through July 31, 1997. Interest is generally payable quarterly at the following rates per annum, at the Company's option: (i) 2.0% in excess of the higher of the prime rate in effect from time to time or the annual yield on ninety-day commercial paper or (ii) 3.0% in excess of the LIBOR rate. In connection with the issuance of the Mortgage Notes, EPIC Properties obtained a revolving line of credit. The line of credit can only be used for the purpose of paying interest or principal on the Mortgage Notes. The maximum loan amount available is the lesser of $22 million or the annual interest accrual of the Mortgage Notes. The line of credit bears an interest rate of the Prime Lending Rate of AmSouth Bank plus 2%. There were no loans outstanding under the line of credit as of September 30, 1993, and 1992, respectively. The Amended Credit Agreement and other long-term debt agreements contain a number of restrictive covenants, including restrictions on incurrence of debt, sales of assets, payment of cash dividends, requirements to maintain certain financial ratios and a specified level of net worth, as defined, and other limitations, including limitations on the use of funds from the sale of certain assets. As of September 30, 1993, the maturities of long-term debt were as follows (dollars in thousands): 1994..................................................................... $ 47,914 1995..................................................................... 9,498 1996..................................................................... 43,545 1997..................................................................... 58,546 1998..................................................................... 67,207 1999 and thereafter...................................................... 421,160 --------- 647,870 Unamortized discounts and unaccreted interest............................ (87,548) --------- $ 560,322 --------- ---------
6. INCOME TAXES Subsequent to the Merger, the Company files a consolidated federal income tax return with Holdings. The Company's income tax benefit for fiscal 1993, 1992 and 1991 was comprised of deferred federal benefits of $2,994,000, $8,806,000 and $9,996,000, respectively, arising from reported financial losses and state income tax expense of $1,984,000 and $888,000 in fiscal 1993 and 1992, respectively. For financial reporting purposes, Holdings has utilized substantially all of its deferred federal tax liability and has limited the benefit recognized for the current net operating loss pursuant to the provisions of SFAS No. 96. Taxes paid during 1993 and 1992 primarily relate to state income taxes and estimated federal tax payments. F-49 103 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's consolidated effective federal tax rate differed from the federal statutory rate as set forth in the following table:
FOR THE YEAR ENDED SEPTEMBER 30 --------------------------- 1993 1992 1991 -------- ------ ------- (DOLLARS IN THOUSANDS) Tax benefit computed at federal statutory rate (34%)...... $ 9,538 $9,553 $10,732 Amortization of excess purchase price over net assets acquired................................................ (790) (614) (601) Losses not subject to benefit............................. (5,611) -- -- Other, net................................................ (143) (133) (135) -------- ------ ------- Deferred income tax benefit............................... $ 2,994 $8,806 $ 9,996 -------- ------ ------- -------- ------ -------
The deferred income tax benefit results from the following temporary differences in reporting for financial and income tax purposes:
FOR THE YEAR ENDED SEPTEMBER 30, ------------------------------ 1993 1992 1991 -------- ------- ------- (DOLLARS IN THOUSANDS) Book/tax difference on sale of assets.................. $ 3,835 $ -- $ -- Book/tax depreciation differences...................... 475 221 (3,392) Net operating (benefit) loss recognized currently for financial reporting.................................. (3,508) (1,582) 6,134 SAR compensation not currently deductible.............. 968 3,673 2,426 Professional liability reserves not currently deductible........................................... 383 1,013 4,345 Other reserves for estimated losses and contingencies not currently deductible............................. 1,348 2,217 508 Paid time off accrued for financial reporting, not currently deductible................................. 339 719 89 Difference arising from ESOP loan fees initially expensed for tax purposes but capitalized and amortized for financial reporting purposes........... 197 427 (480) Difference in methods used to reserve for bad debts.... 802 1,014 55 Difference in ESOP contribution deduction.............. (162) 207 (1,317) Difference in methods for reporting interest........... 1,553 562 694 Losses not subject to benefit.......................... (5,611) -- -- Other.................................................. 2,375 335 934 -------- ------- ------- Deferred income tax benefit............................ $ 2,994 $ 8,806 $ 9,996 -------- ------- ------- -------- ------- -------
7. DEFERRED COMPENSATION The Company has adopted a deferred compensation plan (the "SAR Plan") as part of its overall executive compensation program to attract, motivate and retain key employee-owners. As of September 30, 1993, 5,873,582 SAR Plan units, each exchangeable for one share of Holdings Common Stock or redeemable for cash or other property under certain circumstances, were held by certain key employee-owners and former employee-owners. During fiscal 1993, 1992 and 1991, 309,500, 1,481,065, and 1,002,000 SAR Plan units were granted and 427,800, 218,000, and 243,000 SAR Plan units were cancelled, respectively. The outstanding SAR Plan units vest in varying amounts at varying periods not exceeding five years beginning on each respective grant date. A maximum of 6,587,565 SAR Plan units, reduced by all units redeemed, may be F-50 104 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) outstanding at any time. During fiscal 1993, 1992 and 1991, the Company accrued SAR Plan compensation expense of $4,249,000, $11,805,000, and $8,135,000, respectively. During fiscal 1993, 123,417 SAR Plan units were redeemed for $974,994 in cash ($7.90 per unit) and 3,125 units were redeemed for $25,000 in cash ($8.00 per unit); in October 1993, 121,874 SAR Plan units were redeemed for $974,996 in cash ($8.00 per unit). During fiscal 1992, 129,998 SAR Plan units were redeemed for $974,985 in cash ($7.50 per unit) and 3,164 SAR Plan units were redeemed for $24,996 in cash ($7.90 per unit). 8. COMMON STOCK OPTIONS On December 14, 1988, the Company adopted the EPIC Healthcare Group, Inc. Stock Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, the Board of Directors is authorized to grant options to EPIC directors, officers and salaried employee-owners to purchase up to 500,000 shares of Holdings Common Stock. Options granted vest in five equal annual installments. No options were granted during fiscal 1993, 1992 or 1991. At September 30, 1993, options for 32,000 shares were exercisable. 9. COMMON STOCK AND COMMON STOCK WARRANTS The Company sold 24,500,000 shares of EPIC Common Stock to the EPIC ESOP on September 30, 1988. Since that time through the Merger, 69,445 shares were distributed to participants in the EPIC ESOP, of which 66,684 shares were repurchased by the Company. In addition, immediately prior to the Merger, 6,306,395 of warrants outstanding were exercised for 63,064 shares of EPIC Common Stock. Pursuant to the Merger, each share of EPIC Common Stock was converted to Holdings Common Stock and the Company issued 1,000 shares of EPIC Common Stock to Holdings. 10. LOSS PER COMMON SHARE Because EPIC is a wholly-owned subsidiary of Holdings, loss per common share is not meaningful and, therefore, is not presented. 11. PROFESSIONAL AND GENERAL LIABILITY RISKS The Company is self-insured for its professional and general liability risks. As of September 30, 1993, the unfunded reserve for this self insurance was $45,130,000 of which $11,000,000 was included in current liabilities. The Company has funded $12,482,000 of the reserves through a wholly-owned captive insurance company at September 30, 1993. The reserves for losses and related expenses are discounted to their present value based on expected loss reporting patterns determined by independent actuaries using a rate of 9%. AMI has retained the liability for all professional liability claims with a date of occurrence prior to October 1, 1988. 12. RELATED PARTY TRANSACTIONS EPIC and AMI entered into an interest rate cap agreement (the "Senior Interest Cap Agreement") whereby AMI agreed to pay to EPIC the amounts by which EPIC's interest costs under certain tranches of indebtedness exceeded, during each of the three fiscal years after September 30, 1988, certain specified rates, net of the effect of any reimbursement to EPIC by Medicare, Medicaid, or Blue Cross for any interest expense incurred by EPIC in excess of such rates in connection with such loans. On August 28, 1991, EPIC and AMI agreed that it was mutually in their best interest to terminate the Senior Interest Cap Agreement prior to its scheduled expiration of October 1, 1991. EPIC and AMI further agreed that each party had fully performed all of its obligations under the Senior Interest Cap Agreement and each party released the other from future obligations thereunder. F-51 105 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pursuant to the terms of the Senior Interest Cap Agreement, EPIC issued Additional Zero Coupon Notes to AMI in the principal amounts of $1,612,000 and $2,844,000 during fiscal 1990 and 1989, respectively, in exchange for cash of a like amount paid to EPIC by AMI during such years. In fiscal 1991, EPIC paid to AMI $2,864,000 and issued Additional Zero Coupon Notes to AMI with a present value of $626,000 in exchange for the cancellation of the Zero Coupon Notes issued in 1989. AMI has sold their interest in the Additional Zero Coupon Notes. Net interest expense of $839,000 was recognized during fiscal 1991 relating to this agreement. The Company and AMI have entered into certain other agreements, including a registration rights agreement pursuant to which EPIC has agreed to register the securities issued to AMI under the Securities Act of 1933. AMI has also agreed to indemnify the Company against certain liabilities associated with the breach of representations and warrants made by AMI, certain tax liabilities that may arise, certain reimbursements still pending related to the Acquisitions, and certain fees, costs, and expenses. During fiscal 1993, AMI reimbursed $1,621,000 relating to AMI's indemnifications of EPIC for certain intermediary adjustments to reimburse costs relating to cost report years that preceded the formation of EPIC. The Company entered into a three year group purchasing agreement, effective September 1, 1993, with a subsidiary of AMI, which allows the Company to purchase supplies at lower group rates. The Company expects to purchase more than $30,000,000 per year of supplies under the terms of the agreement. The Company will pay $180,000 per year to participate in this program. David R. Belle-Isle, a former officer of EPIC, borrowed $181,000 from EPIC in December 1988 in connection with his relocation to Texas. The loan was interest free until it was restructured in October 1990. Effective as of the 30th day of September 1991, this debt, totalling $160,000, was forgiven. The Company reimbursed Mr. Belle-Isle for the tax liability associated with the forgiveness of the loan. The Company has a consulting agreement with The Elder Group, of which Thomas H. Elder, who formerly served as the Company's Management Services Officer, is the Managing Principal. The Company paid The Elder Group approximately $1,300,000 and $1,000,000 in fiscal 1992 and 1991, respectively. The Company has an investment in the preferred stock of the Compucare Company ("Compucare"), who is developing and installing one of the Company's new information systems. The chief executive officer of the Company is on the board of directors of Compucare. Payments to Compucare for fiscal 1993 totalled $5,651,000. 13. FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excluded certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. F-52 106 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents, Cash Restricted for Interest Payments, and Marketable Securities The carrying amounts reported in the consolidated balance sheets for cash equivalents, cash restricted for interest payments, and marketable interest bearing securities approximates their fair values. Long-Term Debt (Including Current Maturities) The fair values of the Company's long-term debt, except the Class B-1 and B-2 First Priority Mortgage Notes, are estimated using quoted market prices or the call price. The fair values of the Class B-1 and B-2 First Priority Mortgage Notes are estimated using discounted cash flow analysis, based on the Company's incremental borrowing rate for similar types of borrowing arrangements. The carrying amounts and estimated fair values of the Company's financial instruments at September 30, 1993 are as follows (in thousands):
CARRYING FAIR AMOUNT VALUE -------- -------- Cash equivalents, cash restricted for interest payments, and marketable securities.......................................... $107,923 $107,923 Long-term debt................................................... 560,322 605,131
14. EXTRAORDINARY ITEMS Extraordinary items of $21,299,000 ($21,960,000, net of income tax benefit of $661,000) in 1993, $1,265,000 ($1,917,000, net of income tax benefit of $652,000) in 1992 and $2,581,000 ($3,911,000, net of income tax benefit of $1,330,000) in 1991 were primarily due to the write-offs of loan issue costs and unamortized discounts on retirements of long-term debt (see Note 5). 15. SUPPLEMENTARY INCOME STATEMENT INFORMATION Maintenance and repair expense was $17,101,000, $17,564,000, and $16,159,000 for fiscal 1993, 1992 and 1991, respectively. 16. CONTINGENCIES Final determination of amounts earned under prospective payment and cost-reimbursement programs is subject to review by appropriate governmental authorities or their agents. In the opinion of management, adequate provision has been made for any adjustments that could result from such reviews. The Company is currently, and from time to time expects to be, subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such matters will not have a material effect on the Company's results of operations, financial position, or liquidity. Pursuant to the terms of the Acquisitions, claims relating to litigation, medical benefits, and workers' compensation occurring prior to October 1, 1988, remain the obligation of AMI. 17. GUARANTOR SUBSIDIARIES Certain subsidiaries of EPIC (the "Guarantor Subsidiaries") guarantee the loans under the Amended Credit Agreement, Zero Coupon Notes, Additional Zero Coupon Notes, 11.875% Senior ESOP Notes, 10.875% Senior Subordinated Notes, 15% Senior Subordinated Notes and 11% Junior Subordinated Pay-In-Kind Notes. Certain other subsidiaries, including EPIC Properties, are not Guarantor Subsidiaries (the "Nonguarantor Subsidiaries") (see Note 5). All equity interests in the Nonguarantor Subsidiaries, other than those held by minority interests, are held by EPIC. F-53 107 Following is condensed consolidating financial information of EPIC, the Guarantor Subsidiaries, EPIC Properties and the other Nonguarantor Subsidiaries: EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS SEPTEMBER 30, 1993 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ASSETS
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ CURRENT ASSETS Cash and cash equivalents............... $ 8,944 $ 40,846 $ 2,062 $ 4,904 $ -- $ 56,756 Cash restricted for interest payment.... -- -- 3,820 -- -- 3,820 Marketable securities................... -- 35,972 -- 11,375 -- 47,347 Accounts receivable, net................ 474 56,000 1,071 21,321 (1,909) 76,957 Supply inventories...................... -- 16,589 -- 4,098 -- 20,687 Prepaid expenses and other.............. 777 2,714 -- 1,083 -- 4,574 Receivables from affiliates............. 156,437 29,013 -- 13,663 (199,113) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL CURRENT ASSETS.............. 166,632 181,134 6,953 56,444 (201,022) 210,141 ---------- ------------ ---------- ------------ ------------ ------------ PROPERTY AND EQUIPMENT.................... -- 264,044 444,673 78,081 -- 786,798 ACCUMULATED DEPRECIATION AND AMORTIZATION............................ -- (50,548) (140,665) (27,533) -- (218,746) ---------- ------------ ---------- ------------ ------------ ------------ -- 213,496 304,008 50,548 -- 568,052 ---------- ------------ ---------- ------------ ------------ ------------ INVESTMENTS IN SUBSIDIARIES............... 64,684 109,474 -- -- (174,158) -- EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net........................... -- 38,577 -- 14,388 -- 52,965 OTHER ASSETS, net......................... 12,440 89,314 936 2,529 (71,401) 33,818 RECEIVABLES FROM AFFILIATES............... 297,673 -- -- -- (297,673) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL ASSETS...................... $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $ 864,976 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Current maturities of long-term debt.... $ 45,333 $ 643 $ 1,020 $ 918 $ -- $ 47,914 Accounts payable........................ 236 39,225 (65) 5,450 (236) 44,610 Accrued liabilities..................... 9,294 64,070 5,624 10,216 (1,673) 87,531 Payables to affiliates.................. -- 164,963 -- 34,150 (199,113) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL CURRENT LIABILITIES......... 54,863 268,901 6,579 50,734 (201,022) 180,055 ---------- ------------ ---------- ------------ ------------ ------------ LONG-TERM DEBT............................ 321,895 8,948 241,927 11,039 (71,401) 512,408 DEFERRED INCOME TAXES..................... 5,994 -- -- -- -- 5,994 RESERVE FOR PROFESSIONAL LIABILITY RISKS................................... -- 34,053 -- 11,206 1,353 46,612 OTHER DEFERRED LIABILITIES................ -- 41,258 -- 1,192 -- 42,450 MINORITY INTERESTS........................ -- 4,947 -- 525 -- 5,472 PAYABLES TO AFFILIATES.................... -- 297,673 -- -- (297,673) -- STOCKHOLDERS' EQUITY (DEFICIT) Common stock............................ -- -- 1 -- (1) -- Paid-in capital......................... 373,838 61,855 111,604 5,434 (178,893) 373,838 Notes receivable from EPIC ESOP......... (100,000) -- (48,214) -- -- (148,214) Retained earnings (deficit)............. (115,161) (85,640) -- 43,779 3,383 (153,639) ---------- ------------ ---------- ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY (DEFICIT)....................... 158,677 (23,785) 63,391 49,213 (175,511) 71,985 ---------- ------------ ---------- ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)....................... $ 541,429 $631,995 $ 311,897 $123,909 $ (744,254) $ 864,976 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-54 108 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS SEPTEMBER 30, 1992 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ASSETS
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ CURRENT ASSETS Cash and cash equivalents.............. $ 86 $ 22,381 $ 4,506 $ 5,668 $ -- $ 32,641 Cash restricted for interest payment... -- -- 5,768 -- -- 5,768 Marketable securities.................. -- 4,468 -- 6,139 -- 10,607 Accounts receivable, net............... 352 35,530 1,455 38,601 (2,540) 73,398 Supply inventories..................... -- 15,345 -- 4,655 -- 20,000 Prepaid expenses and other............. 240 8,447 259 826 (4,550) 5,222 Receivables from affiliates............ 132,015 26,543 -- 12,023 (170,581) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL CURRENT ASSETS............. 132,693 112,714 11,988 67,912 (177,671) 147,636 ---------- ------------ ---------- ------------ ------------ ------------ PROPERTY AND EQUIPMENT................... -- 185,431 450,259 74,794 -- 710,484 ACCUMULATED DEPRECIATION AND AMORTIZATION........................... -- (34,377) (116,355 ) (23,057) -- (173,789) ---------- ------------ ---------- ------------ ------------ ------------ -- 151,054 333,904 51,737 -- 536,695 ---------- ------------ ---------- ------------ ------------ ------------ INVESTMENTS IN SUBSIDIARIES.............. 66,219 146,521 -- 11,502 (224,242) -- EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net.......................... -- 35,576 -- 12,564 -- 48,140 OTHER ASSETS, net........................ 21,387 77,466 1,102 4,362 (66,002) 38,315 RECEIVABLES FROM AFFILIATES.............. 229,544 12,113 -- -- (241,657) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL ASSETS..................... $ 449,843 $535,444 $ 346,994 $148,077 $ (709,572) $ 770,786 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) CURRENT LIABILITIES Current maturities of long-term debt... $ -- $ 597 $ 1,018 $ 715 $ -- $ 2,330 Accounts payable....................... -- 29,440 260 5,350 (241) 34,809 Accrued liabilities.................... 4,323 53,190 10,016 13,152 (6,849) 73,832 Payables to affiliates................. -- 140,007 -- 30,574 (170,581) -- ---------- ------------ ---------- ------------ ------------ ------------ TOTAL CURRENT LIABILITIES........ 4,323 223,234 11,294 49,791 (177,671) 110,971 ---------- ------------ ---------- ------------ ------------ ------------ LONG-TERM DEBT........................... 274,018 9,363 242,803 10,553 (66,002) 470,735 DEFERRED INCOME TAXES.................... 8,988 -- -- -- -- 8,988 RESERVE FOR PROFESSIONAL LIABILITY RISKS.................................. -- 32,095 -- 6,749 796 39,640 OTHER DEFERRED LIABILITIES............... -- 37,492 -- 2,115 -- 39,607 MINORITY INTERESTS....................... -- 3,847 -- 19,647 23,494 -- PAYABLES TO AFFILIATES................... -- 199,942 -- 41,715 (241,657) -- STOCKHOLDER'S EQUITY (DEFICIT) Common stock........................... -- -- 1 -- (1) -- Paid-in capital........................ 374,860 51,853 159,351 13,037 (224,241) 374,860 Notes receivable from EPIC ESOP........ (100,000) -- (68,929 ) -- -- (168,929) Retained earnings (deficit)............ (112,346) (22,382) 2,474 4,470 (796) (128,580) ---------- ------------ ---------- ------------ ------------ ------------ TOTAL STOCKHOLDER'S EQUITY (DEFICIT)...................... 162,514 29,471 92,897 17,507 (225,038) 77,351 ---------- ------------ ---------- ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)...................... $ 449,843 $535,444 $ 346,994 $148,077 $ (709,572) $ 770,786 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-55 109 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1993 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ NET OPERATING REVENUE.................... $ -- $792,442 $ 54,596 $237,072 $ (64,961) $1,019,149 COSTS AND EXPENSES: Operating expenses..................... 269 747,344 482 214,040 (64,080) 898,055 Depreciation and amortization.......... 1,618 21,289 27,602 7,733 (325) 57,917 Interest expense....................... 48,089 68,744 27,778 3,230 (76,907) 70,934 ---------- ------------ ---------- ------------ ------------ ------------ TOTAL COSTS AND EXPENSES......... 49,976 837,377 55,862 225,003 (141,312) 1,026,906 INTEREST INCOME.......................... 66,148 10,165 3,528 693 (76,907) 3,627 GAIN (LOSS) ON SALE OF ASSETS............ -- 3,524 1 (4) -- 3,521 ---------- ------------ ---------- ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY ITEM..................... 16,172 (31,246) 2,263 12,758 (556) (609) INCOME TAX BENEFIT (EXPENSE), net........ 2,207 (1,910) -- (54) -- 243 MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES (net of income tax benefit).................... 105 (2,659) -- (840) -- (3,394) ---------- ------------ ---------- ------------ ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................................... 18,484 (35,815) 2,263 11,864 (556) (3,760) EXTRAORDINARY ITEM (net of income tax benefit)............................... (21,299) -- -- -- -- (21,299) ---------- ------------ ---------- ------------ ------------ ------------ NET INCOME (LOSS)........................ $ (2,815) $(35,815) $ 2,263 $ 11,864 $ (556) $ (25,059) ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-56 110 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1992 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ NET OPERATING REVENUE.................... $ -- $700,752 $ 54,596 $254,183 $ (68,265) $941,266 COSTS AND EXPENSES: Operating expenses..................... 557 675,277 425 233,876 (67,856) 842,279 Depreciation and amortization.......... 1,627 15,021 30,132 6,233 -- 53,013 Interest expense....................... 47,501 62,796 27,864 10,124 (77,285) 71,000 ---------- ------------ ---------- ------------ ------------ ------------ TOTAL COSTS AND EXPENSES......... 49,685 753,094 58,421 250,233 (145,141) 966,292 INTEREST INCOME.......................... 65,453 9,815 5,609 617 (77,672) 3,822 GAIN (LOSS) ON SALE OF ASSETS............ -- (972) (151) -- -- (1,123) ---------- ------------ ---------- ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX BENEFIT (EXPENSE), MINORITY INTERESTS AND EXTRAORDINARY ITEM..................... 15,768 (43,499) 1,633 4,567 (796) (22,327) INCOME TAX BENEFIT (EXPENSE), net........ 7,146 (888) -- -- -- 6,258 MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES (net of income tax benefit).................... 1,008 (473) -- (2,493) -- (1,958) ---------- ------------ ---------- ------------ ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................................... 23,922 (44,860) 1,633 2,074 (796) (18,027) EXTRAORDINARY ITEM (net of income tax benefit)............................... (1,265) -- -- -- -- (1,265) ---------- ------------ ---------- ------------ ------------ ------------ NET INCOME (LOSS)........................ $ 22,657 $(44,860) $ 1,633 $ 2,074 $ (796) $(19,292) ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-57 111 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1991 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ NET OPERATING REVENUE.................... $ -- $633,401 $ 9,394 $173,480 $(13,586) $802,689 COSTS AND EXPENSES: Operating expenses..................... 146 570,706 -- 157,191 (13,586) 714,457 Depreciation and amortization.......... 1,627 36,272 4,953 6,502 -- 49,354 Interest expense....................... 59,387 63,096 4,860 5,942 (65,019) 68,266 ---------- ------------ ---------- ------------ ------------ ------------ TOTAL COSTS AND EXPENSES......... 61,160 670,074 9,813 169,635 (78,605) 832,077 INTEREST INCOME.......................... 64,014 4,931 1,260 219 (65,019) 5,405 GAIN (LOSS) ON SALE OF ASSETS............ -- 105 1 (649) -- (543) ---------- ------------ ---------- ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAX BENEFIT, MINORITY INTERESTS AND EXTRAORDINARY ITEM................................... 2,854 (31,637) 842 3,415 -- (24,526) INCOME TAX BENEFIT....................... 7,603 -- -- -- -- 7,603 MINORITY INTERESTS IN INCOME OF CONSOLIDATED SUBSIDIARIES (net of income tax benefit).................... 1,069 (1,366) -- (1,767) -- (2,064) ---------- ------------ ---------- ------------ ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................................... 11,526 (33,003) 842 1,648 -- (18,987) EXTRAORDINARY ITEM (net of income tax benefit)............................... (2,581) -- -- -- -- (2,581) ---------- ------------ ---------- ------------ ------------ ------------ NET INCOME (LOSS)........................ $ 8,945 $(33,003) $ 842 $ 1,648 $ -- $(21,568) ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-58 112 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1993 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) operating activities............................. $ (46,950 ) $125,482 $ 28,428 $ 12,273 $ -- $119,233 INVESTING ACTIVITIES Investments in marketable securities, net.................................. -- (31,504) -- (5,236) -- (36,740) Cash paid for acquisitions............. -- (50,835) -- (3,701) -- (54,536) Additions to property and equipment.... -- (57,957) (6,432) (2,827) 6,432 (60,784) Proceeds from sale of assets........... -- 31,580 -- -- (6,432) 25,148 Collection on note receivable.......... -- 9,349 -- -- -- 9,349 Principal collected on note receivable from EPIC ESOP....................... -- -- 20,715 -- (20,715) -- Other.................................. -- (5,925) -- -- -- (5,925) ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) investing activities................. -- (105,292) 14,283 (11,764) (20,715) (123,488) FINANCING ACTIVITIES Payments on debt obligations........... (115,180 ) (498) (1,018) (1,069) -- (117,765) Proceeds from long-term borrowings..... 179,500 1,353 -- -- -- 180,853 Purchase of Senior ESOP Notes.......... -- (5,616) -- -- -- (5,616) Dividends paid to EPIC Holdings........ (1,022 ) -- -- -- -- (1,022) Contribution to EPIC ESOP.............. -- (20,715) -- -- 20,715 -- Dividends and capital distributions received from EPIC Properties........ -- 44,137 -- -- (44,137) -- Dividends and capital distributions paid by EPIC Properties.............. -- -- (44,137) -- 44,137 -- Contributions from minority interests............................ -- 520 -- -- -- 520 Distributions and dividends to minority interests............................ -- (20,906) -- (204) -- (21,110) Payment of debt issue costs and other, net.................................. (7,490 ) -- -- -- -- (7,490) ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) financing activities................. 55,808 (1,725) (45,155) (1,273) 20,715 28,370 ---------- ------------ ---------- ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 8,858 18,465 (2,444) (764) -- 24,115 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 86 22,381 4,506 5,668 -- 32,641 ---------- ------------ ---------- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $ 8,944 $ 40,846 $ 2,062 $ 4,904 $ -- $ 56,756 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-59 113 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1992 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) operating activities............................. $ 9,427 $ (3,682) $ 34,846 $ 17,321 $ -- $ 57,912 INVESTING ACTIVITIES Investments in marketable securities, net.................................. -- 11,306 -- (6,139) -- 5,167 Cash paid for acquisitions............. -- (9,903) -- (2,366) -- (12,269) Additions to property and equipment.... -- (31,503) (9,764) (6,583) -- (47,850) Purchase of investment securities...... (4,180) -- -- -- -- (4,180) Principal collected on note receivable from EPIC ESOP....................... -- -- 20,714 -- (20,714) -- Other.................................. 612 (2,704) 236 -- -- (1,856) ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) investing activities................. (3,568) (32,804) 11,186 (15,088) (20,714) (60,988) FINANCING ACTIVITIES Payments on debt obligations........... -- (76) (516) (1,011) -- (1,603) Purchase of Senior ESOP Notes.......... -- (20,293) -- -- -- (20,293) Contribution to EPIC ESOP.............. -- (20,714) -- -- 20,714 -- Dividends paid to EPIC Holdings........ (1,300) -- -- -- -- (1,300) Dividends and capital distributions received from EPIC Properties........ -- 54,519 -- 2,844 (57,363) -- Dividends and capital distributions paid by EPIC Properties.............. -- -- (57,363) -- 57,363 -- Preferred stock transaction costs...... (7,063) -- -- -- -- (7,063) Contributions from minority interests............................ -- -- -- 1,884 -- 1,884 Distributions and dividends to minority interests............................ -- (335) -- (3,730) -- (4,065) Contribution to subsidiary............. (1,500) -- -- -- 1,500 -- Issuance of capital stock by subsidiary........................... -- -- -- 1,500 (1,500) -- Payment of debt issue costs and other, net.................................. (294) (236) (132) -- -- (662) ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) financing activities................. (10,157) 12,865 (58,011) 1,487 20,714 (33,102) ---------- ------------ ---------- ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (4,298) (23,621) (11,979) 3,720 -- (36,178) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 4,384 46,002 16,485 1,948 -- 68,819 ---------- ------------ ---------- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $ 86 $ 22,381 $ 4,506 $ 5,668 $ -- $ 32,641 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-60 114 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1991 (DOLLARS IN THOUSANDS) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPIC EPIC HEALTHCARE HEALTHCARE OTHER GROUP, INC. GROUP, GUARANTOR EPIC NONGUARANTOR AND INC. SUBSIDIARIES PROPERTIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) operating activities............................. $ (3,274) $ 68,299 $ 6,128 $ 7,807 $ -- $ 78,960 INVESTING ACTIVITIES Investments in marketable securities, net.................................. -- (12,091) -- -- -- (12,091) Additions to property and equipment.... -- (23,002) (198,868 ) (2,644) 198,868 (25,646) Proceeds from sales of assets.......... -- 199,190 -- 39 (198,868) 361 Principal collected on note receivable from EPIC ESOP....................... 12,717 -- 10,357 -- (23,074) -- Principal collected on intercompany note receivable...................... 41,041 -- -- -- (41,041) -- Other.................................. (48) -- -- -- -- (48) ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) investing activities................. 53,710 164,097 (188,511 ) (2,605) (64,115) (37,424) FINANCING ACTIVITIES Payments on debt obligations........... (244,761) (4,550) -- (1,336) -- (250,647) Principal payments on intercompany notes payable........................ -- (41,041) -- -- 41,041 -- Proceeds from long-term borrowings..... 29,000 -- 198,868 -- -- 227,868 Contribution to EPIC ESOP.............. -- (23,074) -- -- 23,074 -- Intercompany dividends................. 153,308 (153,308) -- -- -- -- Contributions from minority interests............................ -- -- -- 556 -- 556 Distributions and dividends to minority interests............................ -- -- -- (4,122) -- (4,122) Payment of debt issue costs and other, net.................................. (10,473) -- -- (1,290) -- (11,763) ---------- ------------ ---------- ------------ ------------ ------------ Net cash provided by (used in) financing activities................. (72,926) (221,973) 198,868 (6,192) 64,115 (38,108) ---------- ------------ ---------- ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (22,490) 10,423 16,485 (990) -- 3,428 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 26,874 35,579 -- 2,938 -- 65,391 ---------- ------------ ---------- ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $ 4,384 $ 46,002 $ 16,485 $ 1,948 $ -- $ 68,819 ---------- ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------
F-61 115 EPIC HEALTHCARE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The subsidiaries comprising the Guarantor Subsidiaries change from year to year due to new and/or revised agreements relating to the various subsidiaries of the Company. As a result, the investment in subsidiaries is presented on the cost basis. Intercompany receivables/payables relate to cash transfers between entities on collection of accounts receivable and payment of accounts payable and are included in cash flows provided by (used in) operating activities. Cash flows from operating, financing, and investing activities for each subsidiary are presented in the consolidating statement of cash flows based on that subsidiary's designation as a guarantor or nonguarantor subsidiary at the end of the period. Deferred income taxes and deferred income tax benefit are recorded in the accounts of EPIC Healthcare Group, Inc. and are not allocated to the subsidiaries. SFAS No. 109, "Accounting for Income Taxes," requires that the consolidated amount of current and deferred tax expense for a group that files a consolidated tax return shall be allocated among the members of the group when those members issue separate financial statements on a basis consistent with SFAS No. 109. The Company will adopt SFAS No. 109, including allocation of taxes within the consolidating financial statements, effective October 1, 1993. Certain prior period amounts have been reclassified or restated for intercompany transactions to conform with the fiscal 1993 presentation. In addition, certain amounts have been reclassified for a change made in the fourth quarter of 1992 in the method of allocating interest income from the EPIC ESOP for intercompany purposes. F-62 116 - --------------------------------------------------------- - --------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HEALTHTRUST, INC. - THE HOSPITAL COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HEALTHTRUST, INC. - THE HOSPITAL COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------------- TABLE OF CONTENTS
PAGE ---- The Company.............................. 3 The Offerings............................ 5 Investment Considerations................ 6 The Acquisition and the Financing Plan... 11 Use of Proceeds.......................... 15 Capitalization........................... 16 Selected Historical Financial Information............................ 17 Selected Pro Forma Financial Information............................ 20 Selected Operating Statistics............ 21 Description of EPIC...................... 22 Properties............................... 22 Price Range of Common Stock.............. 27 Dividend Policy.......................... 27 EPIC Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 28 Selling Stockholders..................... 37 Description of Capital Stock............. 39 Certain United States Tax Consequences to Non-United States Holders.............. 40 Underwriting............................. 42 Legal Matters............................ 43 Experts.................................. 43 Available Information.................... 44 Information Incorporated by Reference.... 44 Index to Financial Statements............ 45
- --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- 6,220,404 SHARES HEALTHTRUST INC. The Hospital Company COMMON STOCK ---------------- PROSPECTUS ---------------- MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION , 1994 - --------------------------------------------------------- - --------------------------------------------------------- 117 *************************************************************************** * * * INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * * REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED * * WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT * * BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * * REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT * * CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY * * NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION * * IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO * * REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH * * JURISDICTION. * * * *************************************************************************** [Alternate Page for International Prospectus] SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED APRIL 22, 1994 PROSPECTUS 6,220,404 SHARES HEALTHTRUST INC. The Hospital Company COMMON STOCK ------------------------ Of the 6,220,404 shares of Common Stock (par value $.001 per share) offered hereby, 1,244,081 shares are being offered hereby outside the United States and Canada by the International Underwriters and 4,976,323 shares are being offered in a concurrent offering in the United States and Canada by the U.S. Underwriters. The offering price and the aggregate underwriting discount per share are identical for both offerings. See "Underwriting." Of the 6,220,404 shares of Common Stock offered, 5,200,000 shares are being sold by Healthtrust, Inc. - The Hospital Company and 1,020,404 shares are being sold by certain non-management selling stockholders upon the exercise of warrants which were issued in connection with the formation of the Company. See "Selling Stockholders." The Company will not receive any of the proceeds from the sale of shares by the selling stockholders. The Underwriters have agreed to purchase the shares to be sold by the Company regardless of whether certain conditions to the Underwriters' obligations to purchase the selling stockholders' shares are met. See "Underwriting." Concurrently with the Offerings, the Company is publicly offering $200 million aggregate principal amount of % Subordinated Notes due 2004. The Offerings and the offering of the Subordinated Notes are being made as part of the financing of the Company's acquisition of EPIC Holdings, Inc. and certain related transactions. The Offerings and the offering of the Subordinated Notes are contingent upon the consummation of the acquisition. See "The Acquisition and the Financing Plan." The Common Stock of the Company is traded on the New York Stock Exchange under the symbol "HTI." On April 5, 1994, the last sale price of the Company's Common Stock, as reported on the New York Stock Exchange, was $30.75 per share. FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Proceeds to Price to Underwriting Proceeds to Selling Public Discount(1) Company(2) Stockholders - -------------------------------------------------------------------------------------------------- Per Share......................... $ $ $ $ - -------------------------------------------------------------------------------------------------- Total(3).......................... $ $ $ $ - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses of the offerings payable by the Company estimated at $ . (3) The Company has granted the International Underwriters and the U.S. Underwriters options exercisable within 30 days after the date hereof to purchase up to 156,000 and 624,000 additional shares, respectively, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to various prior conditions, including the right to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about , 1994. ------------------------ MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ------------------------ The date of this Prospectus is , 1994. 118 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] UNDERWRITING Subject to the terms and conditions set forth in an international purchase agreement (the "International Purchase Agreement") among the Company, the Selling Stockholders and each of the underwriters named below (the "International Underwriters"), and concurrently with the sale of 4,976,323 shares of Common Stock to the U.S. Underwriters (as defined below), the Company and the Selling Stockholders severally have agreed to sell to the International Underwriters, and each of the International Underwriters severally has agreed to purchase from the Company and the Selling Stockholders, the aggregate number of shares of Common Stock set forth opposite its name below.
NUMBER OF INTERNATIONAL UNDERWRITERS SHARES ------------------------------------------------------------------ --------- Merrill Lynch International Limited............................... Donaldson, Lufkin & Jenrette Securities Corporation............... --------- Total................................................... 1,244,081 --------- ---------
Merrill Lynch International Limited and DLJ are acting as representatives (the "International Representatives") of the International Underwriters. The Company and the Selling Stockholders also have entered into a purchase agreement (the "U.S. Purchase Agreement") with certain underwriters in the United States (the "U.S. Underwriters" and, together with the International Underwriters, the "Underwriters"), for whom Merrill Lynch and DLJ are acting as representatives (the "U.S. Representatives"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, and concurrently with the sale of 1,244,081 shares of Common Stock to the International Underwriters pursuant to the International Purchase Agreement, the Company and the Selling Stockholders have agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally have agreed to purchase from the Company and the Selling Stockholders, an aggregate of 4,976,323 shares of Common Stock. The initial public offering price per share and the total underwriting discount per share are identical under the International Purchase Agreement and the U.S. Purchase Agreement. In the International Purchase Agreement and the U.S. Purchase Agreement, the several International Underwriters and the several U.S. Underwriters, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such Agreement if any of the shares of Common Stock being sold pursuant to each such Agreement are purchased. The Underwriters have agreed, subject to the terms and conditions set forth in the U.S. Purchase Agreement and the International Agreement, to purchase the shares to be sold by the Company regardless of whether certain conditions to the Underwriters' obligations to purchase the Selling Stockholders' shares are met. Under certain circumstances, the commitments of non-defaulting U.S. Underwriters or International Underwriters (as the case may be) may be increased. Sales of Common Stock to be purchased by the International Underwriters and the U.S. Underwriters are conditioned upon one another. The International Underwriters and the U.S. Underwriters have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. The Underwriters are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-United States persons or to persons they believe intend to resell to persons who are non-United States persons, and the International Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to United States persons or to persons they believe intend to resell to United States persons, except in each case for transactions pursuant to such agreement. Each International Underwriter has agreed that (i) it has not offered or sold, and it will not offer or sell, directly or indirectly, any shares of Common Stock offered hereby in the United Kingdom by means of any document except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act of 1985, (ii) it has complied and will comply with all applicable provisions of the Financial Services Act of 1986 (the "Financial Services Act") with respect to anything done by it in the United Kingdom and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issuance of Common Stock if that person is of a International- 119 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] kind who files with Article 9(3) of the Financial Services Act of 1986 (Investment Advertisements) (Exemptions) Order 1988. Purchasers of the shares offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practice of the country of purchase, in addition to the offering price set forth in the cover page hereby. The International Representatives have advised the Company that the International Underwriters propose initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The International Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted an option to the International Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an aggregate of 156,000 additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less the underwriting discount. The International Underwriters may exercise this option only to cover over-allotments, if any, made on the sale of Common Stock offered hereby. To the extent that the International Underwriters exercise this option, each International Underwriter will be obligated, subject to certain conditions, to purchase the number of additional shares of Common Stock proportionate to such International Underwriter's initial amount reflected in the foregoing table. The Company also has granted an option to the U.S. Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an aggregate of 624,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the International Underwriters. The Company and certain of its executive officers have agreed, subject to certain exceptions, not to offer, sell, contract to sell, grant any option for the sale of or otherwise dispose of, any Common Stock or securities convertible into Common Stock for a period of 90 days from the date of this Prospectus without the prior written consent of the U.S. Representatives. The Common Stock is listed on the NYSE under the symbol "HTI." The Company, the Selling Stockholders and the several Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Affiliates of each of the International Underwriters, from time to time, perform investment banking and other financial services for the Company. Merrill Lynch and DLJ are acting as financial advisors to the Company in connection with the Acquisition. In addition, the Company has retained DLJ and Merrill Lynch as Dealer Managers for the Tender Offers and as underwriters for the Subordinated Debt Offering. LEGAL MATTERS The validity of the Common Stock offered hereby and certain other legal matters relating to the Offerings will be passed upon for the Company by Dewey Ballantine, New York, New York. Certain legal matters will be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. Morton A. Pierce and Robert M. Smith, both members of Dewey Ballantine, are Assistant Secretaries of the Company. In addition, certain members of Dewey Ballantine and certain associates of the firm beneficially own shares of Common Stock. EXPERTS The consolidated financial statements of Healthtrust, Inc. - The Hospital Company, EPIC Holdings, Inc., and EPIC Healthcare Group, Inc. appearing or incorporated by reference in this Prospectus and Registration Statement have been audited by Ernst & Young, independent auditors, to the extent indicated in their reports thereon also appearing elsewhere herein and in the Registration Statement or incorporated by reference. Such consolidated financial statements have been included herein or incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. International- 120 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] - --------------------------------------------------------- - --------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HEALTHTRUST, INC. - THE HOSPITAL COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HEALTHTRUST, INC. - THE HOSPITAL COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------------- TABLE OF CONTENTS
PAGE ---- The Company.............................. 3 The Offerings............................ 5 Investment Considerations................ 6 The Acquisition and the Financing Plan... 11 Use of Proceeds.......................... 15 Capitalization........................... 16 Selected Historical Financial Information............................ 17 Selected Pro Forma Financial Information............................ 20 Selected Operating Statistics............ 21 Description of EPIC...................... 22 Properties............................... 22 Price Range of Common Stock.............. 27 Dividend Policy.......................... 27 EPIC Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 28 Selling Stockholders..................... 37 Description of Capital Stock............. 39 Certain United States Tax Consequences to Non-United States Holders.............. 40 Underwriting............................. 42 Legal Matters............................ 43 Experts.................................. 43 Available Information.................... 44 Information Incorporated by Reference.... 44 Index to Financial Statements............ 45
- --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- 6,220,404 SHARES HEALTHTRUST INC. The Hospital Company COMMON STOCK ---------------- PROSPECTUS ---------------- MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION , 1994 - --------------------------------------------------------- - --------------------------------------------------------- 121 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Securities and Exchange Commission registration fee.................. $ 92,729 National Association of Securities Dealers fee....................... 27,391.22 NYSE listing fee..................................................... 20,930 Printing and engraving............................................... 250,000* Accounting services.................................................. 100,000* Legal services....................................................... 300,000* Expenses of qualification under state blue sky laws.................. 20,000* Miscellaneous........................................................ 288,949.80* -------------- Total...................................................... 1,100,000 -------------- --------------
- --------------- * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "DGCL") provides for the indemnification of officers and directors under certain circumstances against expenses (including attorneys' fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred in connection with the defense or settlement of any threatened, pending or completed legal proceedings in which he is involved by reason of the fact that he is or was a director or officer of the Company if he acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and, in respect to the criminal actions or proceedings, if he had no reasonable cause to believe that his conduct was unlawful. Pursuant to Section 102(b)(7) of the DGCL, the Certificate provides that the directors of the Company, individually or collectively, shall not be held personally liable to the Company or its stockholders for monetary damages for breaches of fiduciary duty as directors, except that any director shall remain liable (i) for any breach of the director's fiduciary duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, (iii) for liability under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The Certificate and By-laws of the Company provide for indemnification of its officers and directors to the full extent authorized by law. The Company maintains officers' and directors' liability insurance which insures against liabilities that the officers and directors of the Company may incur in such capacities. ITEM 16. EXHIBITS. *1.1 -- Form of U.S. Purchase Agreement *1.2 -- Form of International Purchase Agreement. 2.1 -- Agreement and Plan of Merger, dated as of January 9, 1994, among the Registrant, Odyssey Acquisition Corp. and EPIC Holdings, Inc. Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated January 10, 1994. **2.2 -- Amended and Restated ESOP Agreement, dated as of March 17, 1994, among the Registrant, Odyssey Acquisition Corp., EPIC Holdings, Inc., EPIC Healthcare Group, Inc., U.S. Trust Company of California, N.A. and the ESOP Committee. *2.3 -- Form of Purchase Agreement among the Registrant, Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch & Co. with respect to the Subordinated Debt Offering. 4.1 -- Rights Agreement, dated as of July 8, 1993, between the Registrant and First Union National Bank of North Carolina, as Rights Agent. Incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8-A dated July 12, 1993. *5.1 -- Opinion of Dewey Ballantine as to legality of the Common Stock being registered, including consent. **12.1 -- Computation of Ratio of Earnings to Fixed Charges.
II-1 122 *12.2 -- Computation of Pro Forma Ratio of Earnings to Fixed Charges. **12.3 -- EPIC Holdings, Inc. Computation of Amounts by which Earnings were Inadequate to cover Fixed Charges. *23.1 -- Consent of Ernst & Young with respect to the financial statements of the Registrant. *23.2 -- Consent of Ernst & Young with respect to the financial statements of EPIC Holdings, Inc. and EPIC Healthcare Group, Inc. **24.1 -- Powers of Attorney.
- --------------- * Filed herewith. ** Previously filed. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 123 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Nashville, State of Tennessee, on April 22, 1994. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By: /s/ MICHAEL A. KOBAN, JR. ------------------------------------ Michael A. Koban, Jr. Senior Vice President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ ----------------------------------- --------------- * Chairman of the Board, Chief April 22, 1994 - ------------------------------------------ Executive Officer and President; R. Clayton McWhorter Director (Principal Executive Officer) * Senior Vice President and Chief April 22, 1994 - ------------------------------------------ Operating Officer; Director W. Hudson Connery, Jr. /s/ MICHAEL A. KOBAN, JR. Senior Vice President; Director April 22, 1994 - ------------------------------------------ (Principal Financial Officer) Michael A. Koban, Jr. * Director April 22, 1994 - ------------------------------------------ Donald S. MacNaughton * Director April 22, 1994 - ------------------------------------------ Richard W. Hanselman * Director April 22, 1994 - ------------------------------------------ Robert F. Dee * Director April 22, 1994 - ------------------------------------------ Alethea O. Caldwell * Director April 22, 1994 - ------------------------------------------ William T. Hjorth * Director April 22, 1994 - ------------------------------------------ Harry N. Beaty, M.D. * Senior Vice President and April 22, 1994 - ------------------------------------------ Controller (Principal Accounting Kenneth C. Donahey Officer) *By: /s/ MICHAEL A. KOBAN, JR. - ------------------------------------------ Michael A. Koban, Jr. (Attorney-in-Fact)
II-3 EX-1.1 2 FORM OF U.S. PURCHASE AGREEMENT 1 ============================================================ HEALTHTRUST, INC. - THE HOSPITAL COMPANY (A DELAWARE CORPORATION) 5,200,000 SHARES OF COMMON STOCK U.S. PURCHASE AGREEMENT DATED: APRIL __, 1994 ============================================================ 2 HEALTHTRUST, INC. - THE HOSPITAL COMPANY (a Delaware corporation) 5,200,000 Shares of Common Stock U.S. PURCHASE AGREEMENT April __, 1994 MERRILL LYNCH & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION As Representatives of the several U.S. Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1201 Ladies and Gentlemen: Healthtrust, Inc. - The Hospital Company, a Delaware corporation (the "Company"), proposes to issue and sell to the underwriters named in Schedule A hereto (collectively, the "U.S. Underwriters"), for whom you are acting as representatives (the "U.S. Representatives"), an aggregate of [ ] shares of the Company's Common Stock, par value $.001 per share (shares of which class of stock of the Company are hereinafter referred to as "Common Stock") and certain shareholders of the Company (the "Selling Shareholders") named in Schedule I hereto severally propose to sell to the several U.S. Underwriters, an aggregate of [ ] shares of Common Stock. Such shares of Common Stock are to be sold to each U.S. Underwriter, acting severally and not jointly, in such amounts as are set forth in Schedule A opposite the name of such U.S. Underwriter. The Company also grants to the U.S. Underwriters, severally and not jointly, the option described in Section 2 to purchase all or any part of 780,000 additional shares of Common Stock to cover over-allotments. The aforesaid [ ] shares of Common Stock (the "Initial U.S. Shares"), together with all or any part of the [ ] additional shares of Common Stock subject to the option described in Section 2 (the "U.S. Option Shares"), are collectively herein called the "U.S. Shares". The U.S. Shares are more fully described in the 3 U.S. Prospectus referred to below. The Company and the Selling Shareholders are hereinafter sometimes collectively referred to as the Sellers. It is understood that the Sellers are concurrently entering into an agreement, dated the date hereof (the "International Purchase Agreement"), providing for the issuance and sale by the Company of [ ] shares of Common Stock and the sale by the Selling Shareholders of [ ] shares of Common Stock (together, the "International Shares") through arrangements with certain underwriters outside the United States (the "International Underwriters"), for whom Merrill Lynch International Limited and Donaldson, Lufkin & Jenrette Securities Corporation are acting as representatives (the "International Representatives"). The U.S. Shares and the International Shares are hereinafter collectively referred to as the "Offered Shares". The Sellers understand that the U.S. Underwriters will simultaneously enter into an agreement with the International Underwriters dated the date hereof (the "Intersyndicate Agreement") providing for the coordination of certain transactions among the U.S. Underwriters and the International Underwriters, under the direction of Merrill Lynch, Pierce, Fenner & Smith Incorporated. You have advised us that you and the other U.S. Underwriters, acting severally and not jointly, desire to purchase the Initial U.S. Shares and, if the U.S. Underwriters so elect, the U.S. Option Shares, and that you have been authorized by the other U.S. Underwriters to execute this Agreement and the U.S Price Determination Agreement referred to below on their behalf. The initial public offering price per share for the U.S. Shares and the purchase price per share for the U.S. Shares to be paid by the several U.S. Underwriters shall be agreed upon by the Company, the Selling Shareholders and the U.S. Representatives, acting on behalf of the several U.S. Underwriters, and such agreement shall be set forth in a separate written instrument substantially in the form of Exhibit A hereto (the "U.S. Price Determination Agreement"). The U.S. Price Determination Agreement may take the form of an exchange of any standard form of written telecommunication among the Company, the Selling Shareholders and the U.S. Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the U.S. Shares will be governed by this Agreement, as supplemented by the U.S. Price Determination Agreement. From and after the date of 2 4 the execution and delivery of the U.S Price Determination Agreement, this Agreement shall be deemed to incorporate, and all references herein to "this Agreement" or "herein" shall be deemed to include, the U.S Price Determination Agreement. The initial public offering price per share and the purchase price per share for the International Shares to be paid by the International Underwriters pursuant to the International Purchase Agreement shall be set forth in a separate agreement (the "International Price Determination Agreement"), the form of which is attached to the International Purchase Agreement. The purchase price per share for the International Shares to be paid by the several International Underwriters shall be identical to the purchase price per share for the U.S. Shares to be paid by the several U.S. Underwriters hereunder. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (File No. 33-_____) covering the registration of the Offered Shares under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectuses, and either (A) has prepared and proposes to file, prior to the effective date of such registration statement, an amendment to such registration statement, including final prospectuses, or (B) if the Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), will prepare and file prospectuses, in accordance with the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly after execution and delivery of the U.S. Price Determination Agreement.* The information, if any, included in such prospectuses that was omitted from any prospectus included in such registration statement at the time it becomes effective but that is deemed, pursuant to Rule 430A(b), to be part of such registration statement at the time it becomes effective is __________________________________ * Two forms of prospectus are to be used in connection with the offering and sale of the Offered Shares: one relating to the U.S. Shares (the "Form of U.S. Prospectus") and one relating to the International Shares (the "Form of International Prospectus"). The Form of International Prospectus is identical to the Form of U.S. Prospectus, except for the front cover page, inside front cover page, the sections captioned "Underwriting" and "Certain United States Tax Consequences to Non-United States Holders" and the back cover page. 3 5 referred to herein as the "Rule 430A Information". Each Form of U.S Prospectus and Form of International Prospectus used before the time such registration statement becomes effective, and any Form of U.S. Prospectus and Form of International Prospectus that omits the Rule 430A Information that is used after such effectiveness and prior to the execution and delivery of the U.S. Price Determination Agreement or the International Price Determination Agreement, respectively, is herein called a "preliminary prospectus". Such registration statement, including the exhibits thereto, as amended at the time it becomes effective and including, if applicable, the Rule 430A Information, is herein called the "Registration Statement", and the Form of U.S. Prospectus and Form of International Prospectus included in the Registration Statement at the time it becomes effective is herein called the "U.S. Prospectus" and the "International Prospectus", respectively, and, collectively, the "Prospectuses" and, individually, a "Prospectus", except that, if the final U.S. Prospectus or International Prospectus, as the case may be, first furnished to the U.S. Underwriters or the International Underwriters after the execution of the U.S. Price Determination Agreement or the International Price Determination Agreement for use in connection with the offering of the Offered Shares differs from the prospectuses included in the Registration Statement at the time it becomes effective (whether or not such prospectuses are required to be filed pursuant to Rule 424(b)), the terms "U.S. Prospectus", "International Prospectus", "Prospectuses" and "Prospectus" shall refer to the final U.S. Prospectus or International Prospectus, as the case may be, first furnished to the U.S. Underwriters or the International Underwriters, as the case may be, for such use. The Sellers understand that the U.S. Underwriters propose to make a public offering of the U.S. Shares as soon as you deem advisable after the Registration Statement becomes effective and the U.S. Price Determination Agreement has been executed and delivered. Section 1. Representations and Warranties. (a) The Company represents and warrants to and agrees with each of the U.S. Underwriters that: (i) When the Registration Statement shall become effective, if the Company has elected to rely upon Rule 430A, on the date of the U.S. Price Determination Agreement, on the effective or issue date of each amendment or supplement to the Registration Statement or the Prospectuses, at the Closing Time referred to 4 6 below, and, if, any U.S. Option Shares are purchased, on the Date of Delivery referred to below, (A) the Registration Statement and any amendments and supplements thereto will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations; (B) neither the Registration Statement nor any amendment or supplement thereto will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (C) neither of the Prospectuses nor any amendment or supplement to either of them will include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, this representation and warranty does not apply to statements or omissions from the Registration Statement or the Prospectuses made in reliance upon and in conformity with information furnished or confirmed in writing to the Company by or on behalf of any Underwriter through you or the International Representatives expressly for use in the Registration Statement or the Prospectuses. (ii) This Agreement has been duly authorized, executed and delivered by the Company. (iii) The consolidated financial statements included in the Registration Statement present fairly the consolidated financial position of the Company and the Company's Subsidiaries (as hereinafter defined) as of the dates indicated and the consolidated statements of operations, stockholders' equity and cash flows of the Company and the Company's Subsidiaries for the periods specified. Except as otherwise stated in the Registration Statement, such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. The financial statement schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. The pro forma financial statements and other pro forma financial information included in the Prospectuses present fairly the information shown therein, have been prepared in all material respects in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma bases described therein, and, in the opinion of the Company, the assumptions used in the 5 7 preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (iv) The consolidated financial statements included in the Registration Statement present fairly the consolidated financial position of EPIC and EPIC's Subsidiaries (as hereinafter defined) as of the dates indicated and the consolidated statements of operations, stockholders' equity and cash flows of EPIC and EPIC's Subsidiaries for the periods specified. Except as otherwise stated in the Registration Statement, such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, and the financial statement schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. (v) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and the Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (vi) EPIC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and EPIC is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (vii) Each of the Company's subsidiaries (collectively, the "Company's Subsidiaries") is a 6 8 corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and each of the Company's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Except as set forth in the Registration Statement, all of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or through one or more Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of the Company, any unperfected security interest. (viii) Each of EPIC's subsidiaries (collectively, "EPIC's Subsidiaries") is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and each of EPIC's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. Except as set forth in the Registration Statement, all of the outstanding shares of capital stock of each of EPIC's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by EPIC, directly or through one or more Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of the Company, any unperfected security interest. (ix) The Offered Shares to be sold by the Company pursuant to this Agreement and the International 7 9 Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with this Agreement and the International Purchase Agreement, will be validly issued, fully paid and non-assessable; such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any of the Company's Subsidiaries is a party. (x) All of the outstanding shares of capital stock of the Company other than the Offered Shares have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of Common Stock of the Company was issued in violation of the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any of the Company's Subsidiaries is a party. (xi) All of the outstanding shares of capital stock of EPIC have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of Common Stock of EPIC was issued in violation of the preemptive or other similar rights of any stockholder of EPIC arising by operation of law, under the charter and bylaws of the Company or under any agreement to which EPIC or any of EPIC's Subsidiaries is a party. (xii) Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, except as otherwise stated therein or contemplated thereby, there has not been any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business. (xiii) Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, except as otherwise stated therein or contemplated thereby, there has not been (A) any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs 8 10 of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, or (B) any dividend or distribution of any kind declared, paid or made by EPIC on its capital stock. (xiv) Neither the Company nor any of the Company's Subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except as disclosed in the Prospectuses and except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. The execution and delivery of this Agreement by the Company, the issuance and delivery of the Offered Shares, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) and compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of the Company's Subsidiaries, and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any of the Company's Subsidiaries is a party or by which it is bound or to which any of its properties is subject, or (B) any existing applicable law (including any environmental law), rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company or any of the Company's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), 9 11 earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xv) Neither EPIC nor any of EPIC's Subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except as disclosed in the Prospectuses and except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. The consummation by EPIC of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) have been duly authorized by all necessary corporation action on the part of EPIC and do not and will not result in any violation of the charter or by-laws of EPIC or any of EPIC's Subsidiaries, and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of EPIC or any of EPIC's Subsidiaries under (A) any indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which EPIC or any of EPIC's Subsidiaries is a party or by which it is bound or to which any of its properties is subject, or (B) any existing applicable law (including any environmental law), rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xvi) No authorization, approval, consent or license of any government, governmental instrumentality or court (other than under the 1933 Act and the 1933 Act Regulations, the Trust Indenture Act of 1939, as amended and the applicable rules and regulations promulgated thereunder (the "Trust Indenture Act") and 10 12 the securities or blue sky laws of the various states and the securities laws of any jurisdiction outside the United States in which International Shares are offered or sold by the International Underwriters pursuant to the International Purchase Agreement) is required for the valid issuance, sale and delivery of the Offered Shares or for the consummation by the Company of the transactions contemplated in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses). (xvii) Except as disclosed in the Prospectuses, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, now pending or, to the knowledge of the Company, threatened against or affecting the Company or any of the Company's Subsidiaries that is required to be disclosed in the Prospectuses or that could reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the properties or assets of the Company and the Company's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement); the aggregate of all pending legal or governmental proceedings to which the Company or any of the Company's Subsidiaries is a party or which affect any of its properties that are not described or referred to in the Prospectuses would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xviii) Except as disclosed in the Prospectuses, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, now pending or, to the knowledge of the Company, threatened against or affecting EPIC or any of EPIC's Subsidiaries that is required to be disclosed in the Prospectuses or that could reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings or business affairs of EPIC and 11 13 EPIC's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the properties or assets of EPIC and EPIC's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement). The Company has no reason to believe that the aggregate of all pending legal or governmental proceedings to which EPIC or any of EPIC's Subsidiaries is a party or which affect any of its properties that are not described or referred to in the Prospectuses would have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xix) In the Company's judgment, there are no contracts or documents of a character required to be described in the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described and filed as required. (xx) Each of the Company and the Company's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, and neither the Company nor any of the Company's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. 12 14 (xxi) Each of EPIC and EPIC's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and neither EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xxii) Each approval, consent, license, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution, delivery and performance of this Agreement, the compliance by the Company with all of the provisions hereof, the consummation of the transactions herein contemplated and the consummation by the Company of the transactions contemplated in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Offered Shares for public offering by the Underwriters under State securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xxiii) The Company has not taken and will not take, directly or indirectly, any action designed to cause or result in stabilization or manipulation of the price of the Common Stock; and the Company has not distributed and will not distribute any prospectus (as such term is defined in the 1933 Act and the 1933 Act Regulations) in connection with the offering and sale of the Offered Shares other than any preliminary prospectus filed with 13 15 the Commission or the Prospectuses or other material permitted by the 1933 Act or the 1933 Act Regulations. (xxiv) Except as disclosed in the Prospectuses, all United States federal income tax returns of the Company and the Company's Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except tax assessments, if any, as are being contested in good faith and as to which adequate reserves have been provided. Except as disclosed in the Prospectuses, all other franchise and income tax returns of the Company and the Company's Subsidiaries required to be filed pursuant to applicable foreign, state or local law have been filed, except insofar as the failure to file such returns would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, and all taxes shown on such returns or otherwise assessed which are due and payable have been paid, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. To the best of the Company's knowledge, the charges, accruals and reserves on the books of the Company and the Company's Subsidiaries in respect of any income and corporate franchise tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income or corporate franchise tax for any years not finally determined, except as disclosed in the Prospectuses and except to the extent of any inadequacy that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xxv) Except as disclosed in the Prospectuses, all United States federal income tax returns of EPIC and EPIC's Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except tax assessments, if any, as are being contested in good faith and as to which adequate reserves have been provided. Except as disclosed in the Prospectuses, all other franchise and income tax returns of EPIC and EPIC's Subsidiaries required to be filed pursuant to applicable foreign, state or local law have been filed, except insofar as the failure to file such returns would not have a material adverse 14 16 effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and all taxes shown on such returns or otherwise assessed which are due and payable have been paid, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. To the best of EPIC's knowledge, the charges, accruals and reserves on the books of EPIC and EPIC's Subsidiaries in respect of any income and corporate franchise tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income or corporate franchise tax for any years not finally determined, except as disclosed in the Prospectuses and except to the extent of any inadequacy that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xxvi) The Company has obtained the written agreement of all officers of the Company who own 50,000 or more shares of Common Stock of the Company in the form previously furnished to you that, for a period of 120 days from the date hereof, such persons will not, without the prior written consent of the U.S. Representatives (which consent shall not be unreasonably withheld), directly or indirectly, sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock ("convertible securities"); provided, however, that during such 120 day period, such persons may without such prior written consent (i) transfer such shares of Common Stock or convertible securities by will or the laws of descent and distribution, (ii) make gifts of shares of Common Stock or convertible securities or transfer such shares of Common Stock or convertible securities to (A) family members (by trust or otherwise), so long as the donee agrees to be bound by the foregoing restriction in the same manner as it applies to such persons, or (B) charitable organizations and (iii) sell, transfer or otherwise dispose of shares of Common Stock or convertible securities to the Company in connection with any of the transactions contemplated by the Registration Statement. (xxvii) Except as disclosed in the Registration Statement, no holder of any security of the Company has 15 17 any right to require registration of shares of Common Stock or any other security of the Company. (xxviii) EPIC's Employee Stock Ownership Plan (the "EPIC ESOP") and the trust created pursuant to the Trust Agreement for the EPIC ESOP between EPIC and [ ], as trustee under the EPIC ESOP (the "EPIC Trustee"), dated as of [ ] (the "EPIC ESOP Trust"), meet in all material respects all applicable requirements of qualification and exemption from taxation under Sections 401(a) and 501(a), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (xxix) The EPIC ESOP constitutes an "employee stock ownership plan," as defined in Section 4975(e)(7) of the Code and the Treasury Regulations promulgated thereunder, and as defined in Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (xxx) Each of the loans to the EPIC ESOP Trust pursuant to the EPIC ESOP Loan A Agreement and the EPIC ESOP Loan B Agreement, each between EPIC and the EPIC ESOP Trust and dated as of [ ] (collectively, the "ESOP Loan Agreements"), and each of the pledges of shares of EPIC Common Stock, par value $.___ per share (the "EPIC Common Stock"), by the EPIC ESOP Trust pursuant to the Pledge Agreement A and the Pledge Agreement B, each between EPIC and the EPIC ESOP Trust and dated as of [ ] (collectively, the "EPIC ESOP Pledge Agreements"), satisfies in all material respects the requirements of Section 4975(d)(3) of the Code and Section 408(b)(3) of ERISA, and will not subject EPIC to a tax imposed under Section 4975 of the Code or a civil penalty assessed under Section 502(i) of ERISA. (xxxi) The EPIC Common Stock is a "qualifying employer security," within the meaning of Section 4975(e)(8) of the Code and Section 407(d)(5) of ERISA. (xxxii) Each of the sales of shares of EPIC Common Stock to the EPIC ESOP Trust pursuant to the [ ] Stock Purchase Agreement between [ ] and the EPIC ESOP Trust and the Common Stock Purchase Agreement between EPIC and the EPIC ESOP Trust, each dated as of [ ] (collectively, the "EPIC ESOP Stock Purchase Agreements"), satisfies in all material respects the requirements of Section 4975(d)(13) of the Code and Section 408(e) of ERISA, and will not subject 16 18 EPIC to a tax imposed under Section 4975 of the Code or a civil penalty assessed under Section 502(i) of ERISA. (xxxiii) Except as disclosed in the Prospectuses, to the knowledge of the Company, no opinion, correspondence or other communication, whether written or otherwise, has been received by American Medical International, Inc. ("AMI"), EPIC or any of their respective agents, affiliates, associates, officers or directors, or any fiduciary of the EPIC ESOP, from the United States Department of Labor, the Internal Revenue Service or any other Federal or state governmental or regulatory agency, body or authority, to the effect that either of the loans to the EPIC ESOP Trust pursuant to the EPIC ESOP Loan Agreements, either of the pledges of shares of Common Stock by the EPIC ESOP Trust pursuant to the EPIC ESOP Pledge Agreements or either of the sales of shares of Common Stock to the EPIC ESOP Trust pursuant to the EPIC ESOP Stock Purchase Agreements may or will constitute a violation of or result in any liability under ERISA or the Code. (xxxiv) None of (i) the termination by EPIC of future contributions to the EPIC ESOP, (ii) the discharge of that portion of the principal amount of the EPIC loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of EPIC Common Stock transferred by the EPIC Trustee to EPIC or (iii) the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the EPIC ESOP Trust, each as contemplated by the Registration Statement, should constitute a material violation of or result in any material liability under ERISA or the Code (including, without limitation, any tax under Section 4978B of the Code). (b) Any certificate signed by any officer of the Company and delivered to you or to Davis Polk & Wardwell as counsel for the U.S. Underwriters pursuant to this Agreement or at the Closing contemplated hereby shall be deemed a representation and warranty by the Company to each U.S. Underwriter as to the matters covered thereby. (c) Each of the Selling Shareholders represents and warrants to each of the Underwriters that: (i) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder. 17 19 (ii) The execution and delivery by such Selling Shareholder of, and the performance by such Selling Shareholder of its obligations under, this Agreement, the Custody Agreement signed by such Selling Shareholder and [ ], as Custodian, relating to the deposit of Shares to be sold by such Selling Shareholder (the "Custody Agreement") and the Power of Attorney appointing certain individuals as such Selling Shareholder's attorneys-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the "Power of Attorney") will not contravene any provision of applicable law, or the certificate of incorporation or by-laws of such Selling Shareholder (if such Selling Shareholder is a corporation), or any agreement or other instrument binding upon such Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by such Selling Shareholder of its obligations under this Agreement or the Custody Agreement or Power of Attorney of such Selling Shareholder, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (iii) Such Selling Shareholder has, and on the Closing Date will have, valid marketable title to the Shares to be sold by such Selling Shareholder and the legal right and power, and all authorization and approval required by law, to enter into this Agreement, the Custody Agreement and the Power of Attorney and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder. (iv) The Shares to be sold by such Selling Shareholder pursuant to this Agreement have been duly authorized and are validly issued, fully paid and non-assessable. (v) The Custody Agreement and the Power of Attorney have been duly authorized, executed and delivered by such Selling Shareholder and are valid and binding agreements of such Selling Shareholder. (vi) Delivery of the Shares to be sold by such Selling Shareholder pursuant to this Agreement will pass marketable title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. 18 20 (vii) All information furnished by or on behalf of such Selling Shareholder for use in the Registration Statement and Prospectus is, and on the Closing Date will be, true, correct, and complete, and does not, and on the Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading. (viii) Such Selling Shareholder has not taken, and will not take, directly or indirectly, any action designed to, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares pursuant to the distribution contemplated by this Agreement, and other than as permitted by the Act, such Selling Shareholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. (ix) The execution, delivery and performance of this Agreement by such Selling Shareholder, compliance by such Selling Shareholder with all the provisions hereof and the consummation of the transactions contemplated hereby will not require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (except as such may be required under the Act, state securities laws or Blue Sky laws) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws if any, of such Selling Shareholder, or any agreement, indenture or other instrument to which such Selling Shareholder is a party or by which such Selling Shareholder or their respective property is bound (other than those as to which requisite waivers or consents have been obtained), or violate or conflict with any laws, administrative regulation or ruling or court decree applicable to such Selling Shareholder or such Selling Shareholder's property. (x) The part of the Registration Statement, under the caption "Selling Shareholders" which specifically relates to such Selling Shareholder or such Selling Shareholder's affiliates does not, and will not on the Closing Date (and Option Closing Date, if applicable), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in 19 21 light of circumstances under which they were made, not misleading. (xi) At any time during such period as in the opinion of counsel for the Underwriters a prospectus is required by law to be delivered in connection with sales by an Underwriter or a dealer, if there is any change in the information referred to in Section 1(x) above, the Selling Shareholders will immediately notify you of such change. Section 2. Sale and Delivery to the U.S. Underwriters; Closing. (a) On the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Company agrees to sell to each U.S. Underwriter, and each U.S. Underwriter agrees, severally and not jointly, to purchase from the Company, at the purchase price per share for the Initial U.S. Shares to be agreed upon by the U.S. Representatives and the Company in accordance with Section 2(b) or 2(c) and set forth in the U.S. Price Determination Agreement, the number of Initial U.S. Shares set forth opposite the name of such U.S. Underwriter in Schedule A, plus such additional number of Initial U.S. Shares that such U.S. Underwriter may become obligated to purchase pursuant to Section 11 hereof. If the Company elects to rely on Rule 430A, Schedule A may be attached to the U.S. Price Determination Agreement. (b) If the Company has elected not to rely upon Rule 430A, the initial public offering price per share for the Initial U.S. Shares and the purchase price per share for the Initial U.S. Shares to be paid by the several U.S. Underwriters shall be agreed upon and set forth in the U.S. Price Determination Agreement, dated the date hereof, and an amendment to the Registration Statement containing such per share price information will be filed before the Registration Statement becomes effective. (c) If the Company has elected to rely upon Rule 430A, the initial public offering price per share for the Initial U.S. Shares and the purchase price per share for the Initial U.S. Shares to be paid by the several U.S. Underwriters shall be agreed upon and set forth in the U.S. Price Determination Agreement. In the event that the U.S. Price Determination Agreement has not been executed by the close of business on the fourth business day following the date on which the Registration Statement becomes effective, this Agreement shall terminate forthwith, without liability of any party to any other party except that Sections 7 and 8 shall remain in effect. 20 22 (d) In addition, on the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Company hereby grants an option to the U.S. Underwriters, severally and not jointly, to purchase up to an additional [ ] U.S. Option Shares at the same purchase price per share as shall be applicable to the Initial U.S. Shares. The option hereby granted will expire 30 days after the date upon which the Registration Statement becomes effective or, if the Company has elected to rely upon Rule 430A, the date of the U.S. Price Determination Agreement, and may be exercised in whole or from time to time in part only for the purpose of covering over-allotments that may be made in connection with the offering and distribution of the Initial U.S. Shares upon notice by you to the Company setting forth the number of U.S. Option Shares as to which the several U.S. Underwriters are exercising the option, and the time and date of payment and delivery thereof. Such time and date of delivery (the "Date of Delivery") shall be determined by you but shall not be later than five full business days after the exercise of such option, nor in any event prior to the Closing Time. If the option is exercised as to all or any portion of the U.S. Option Shares, the U.S. Option Shares as to which the option is exercised shall be purchased by the U.S. Underwriters, severally and not jointly, in the respective proportions that bear the same relationship to the number of U.S. Option Shares to be purchased at the Date of Delivery as the number of Initial U.S. Shares set forth opposite the name of each U.S. Underwriter in Schedule A hereto bears to the total number of Initial U.S. Shares (such proportions are hereinafter referred to as each U.S. Underwriter's "underwriting obligation proportions"). (e) Payment of the purchase price for, and delivery of certificates for, the Initial U.S. Shares shall be made at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at such other place as shall be agreed upon by the Company and you, at 10:00 A.M. either (i) on the fifth full business day after the effective date of the Registration Statement, or (ii) if the Company has elected to rely upon Rule 430A, the fifth full business day after execution of the U.S. Price Determination Agreement (unless, in either case, postponed pursuant to Section 11 or 12), or at such other time not more than ten full business days thereafter as you and the Company shall determine (such date and time of payment and delivery being herein called the "Closing Time"). In addition, in the event that any or all of the U.S. Option Shares are purchased by the U.S Underwriters, payment of the purchase price for, and delivery of certificates for, such U.S. Option Shares shall be made at the offices of Davis 21 23 Polk & Wardwell set forth above, or at such other place as the Company and you shall determine, on the Date of Delivery as specified in the notice from you to the Company. Payment shall be made to the Company by certified or official bank check or checks in New York Clearing House funds payable to the order of the Company against delivery to you for the respective accounts of the several U.S. Underwriters of certificates for the U.S. Shares to be purchased by them. (f) Certificates for the Initial U.S. Shares and U.S. Option Shares to be purchased by the U.S. Underwriters shall be in such denominations and registered in such names as you may request in writing at least two full business days before the Closing Time or the Date of Delivery, as the case may be. The certificates for the Initial U.S. Shares and U.S. Option shares will be made available in New York City for examination and packaging by you not later than 10:00 A.M. on the business day prior to the Closing Time or the Date of Delivery, as the case may be. (g) It is understood that each U.S. Underwriter has authorized you, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the U.S. Shares that it has agreed to purchase. You, individually and not as U.S. Representatives, may (but shall not be obligated to) make payment of the purchase price for the Initial U.S. Shares, or U.S. Option Shares, to be purchased by any U.S. Underwriter whose check or checks shall not have been received by the Closing Time or the Date of Delivery, as the case may be. Section 3. Certain Covenants of the Company. The Company covenants with each U.S. Underwriter as follows: (a) The Company will use its best efforts to cause the Registration Statement to become effective and, if the Company elects to rely upon Rule 430A and subject to Section 3(b), will comply in all material respects with the requirements of Rule 430A and will notify you promptly, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement, shall have become effective, or any supplement to the Prospectuses or any amended Prospectuses shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission to amend the Registration Statement or amend or supplement any Prospectus or for additional information and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Offered Shares for 22 24 offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes. The Company will make every reasonable effort to prevent the issuance of any such stop order or of any order preventing or suspending such use and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will not at any time file or make any amendment to the Registration Statement, or any amendment or supplement (i) if the Company has not elected to rely upon Rule 430A, to the Prospectuses or (ii) if the Company has elected to rely upon Rule 430A, to either the prospectus included in the Registration Statement at the time it becomes effective or to the Prospectuses, of which you shall not have previously been advised and furnished a copy or to which you or Davis Polk & Wardwell as counsel for the U.S. Underwriters shall have promptly and reasonably objected in writing. (c) The Company has furnished or will furnish to you and Davis Polk & Wardwell as counsel for the U.S. Underwriters, without charge, as many signed copies (as reasonably requested) of the Registration Statement as originally filed and of all amendments thereto, whether filed before or after the Registration Statement becomes effective, copies of all exhibits and documents filed therewith and signed copies of all consents and certificates of experts, as you may reasonably request and has furnished or will furnish to you, for each other U.S. Underwriter, one conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits). (d) The Company will deliver to each U.S. Underwriter, without charge, from time to time until the effective date of the Registration Statement (or, if the Company has elected to rely upon Rule 430A, until the time the U.S. Price Determination Agreement is executed and delivered), as many copies of each preliminary prospectus as such U.S. Underwriter may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will deliver to each Underwriter, without charge, as soon as the Registration Statement shall have become effective (or, if the Company has elected to rely upon Rule 430A, as soon as practicable after the U.S. Price Determination Agreement has been executed and delivered) and thereafter from time to time as requested during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectuses (as supplemented or amended) as such U.S. Underwriter may reasonably request. 23 25 (e) The Company will comply in all material respects to the best of its ability with the 1933 Act and the 1933 Act Regulations, and the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder so as to permit the completion of the distribution of the Offered Shares as contemplated in this Agreement and in the Prospectuses. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Offered Shares any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the U.S. Underwriters or counsel for the Company, to amend the Registration Statement or amend or supplement any Prospectus in order that the Prospectuses will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of either such counsel, at any such time to amend the Registration Statement or amend or supplement any Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such untrue statement or omission or to make the Registration Statement or the Prospectuses comply with such requirements. (f) The Company will use its best efforts, in cooperation with the U.S. Underwriters, to qualify the Offered Shares for offering and sale under the applicable securities laws of such states and other jurisdictions as the Company and you may mutually agree upon and to maintain such qualifications in effect for a period of not less than one year from the effective date of the Registration Statement; provided, however, that neither the Company nor any of the Company's Subsidiaries shall be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will file such statements and reports as may be required by the laws of each such jurisdiction to maintain the qualification of the Offered Shares as above provided. (g) The Company will make generally available to its security holders as soon as practicable, but not later than 60 days after the close of the period covered thereby, an earnings statement of the Company (in form complying with the provisions of Rule 158 of the 1933 Act Regulations), 24 26 covering a period of 12 months beginning after the effective date of the Registration Statement but not later than the first day of the Company's fiscal quarter next following such effective date. (h) The Company will use the net proceeds received by it from the sale of the Offered Shares in the manner specified in the Prospectuses under the caption "Use of Proceeds", and will provide you with any report on Form SR filed under Rule 463 of the 1933 Act Regulations by the Company in connection with the sale of the Offered Shares promptly after filing such report. (i) For a period of 120 days from the date hereof, the Company will not, without your prior written consent, which consent shall not be unreasonably withheld, directly or indirectly, sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock or convertible securities, other than to eligible participants in the Company's stock plans pursuant to the terms thereof and to the U.S. Underwriters pursuant to this Agreement, to the International Underwriters pursuant to the International Purchase Agreement and other than in connection with the transactions described in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses). (j) For a period of 120 days from the date hereof, the Company shall not take any action, directly or indirectly, without your prior written consent, which consent shall not be unreasonably withheld, to cause the ESOP Committee (as such term is defined in the ESOP) to direct the Trustee to directly or indirectly sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of any shares of Common Stock or convertible securities; provided, however, that during such 120 day period, the ESOP Committee may direct the Trustee to (i) allocate shares of Common Stock to ESOP participants' accounts in accordance with the terms of the ESOP, as amended from time to time, (ii) transfer to the Company shares of Common Stock unallocated under the ESOP as contemplated by the Registration Statement and (iii) make distributions of shares of Common Stock allocated under the ESOP to ESOP participants in accordance with the terms of the ESOP, as amended from time to time. (k) If the Company has elected to rely upon Rule 430A, it will take such steps as it deems necessary to ascertain promptly whether the form of prospectus 25 27 transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. (l) The Company, with respect to the offering of the Offered Shares, has complied and will comply with all of the provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida Statutes, and all regulations promulgated thereunder relating to issuers doing business with Cuba. Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (a) the printing and filing of the Registration Statement (including financial statements and exhibits), as originally filed and as amended, the preliminary prospectuses and the Prospectuses and any amendments or supplements thereto, and the cost of furnishing copies thereof to the U.S. Underwriters, (b) the printing and distribution of this Agreement (including the U.S. Price Determination Agreement), the Agreement among U.S. Underwriters, the Intersyndicate Agreement among the U.S. Underwriters and the International Underwriters, the Agreement among International Underwriters, the certificates for the U.S. Shares and the Blue Sky Survey, (c) the delivery of the certificates for the U.S. Shares to the U.S. Underwriters, including any stock transfer taxes payable upon the sale of the U.S. Shares to the U.S. Underwriters and the transfer of the U.S. Shares between the U.S. Underwriters and the International Underwriters, (d) the fees and disbursements of the Company's counsel and accountants, (e) all costs and expenses which are generated by the Selling Shareholders in connection with the performance of this Agreement, (f) the qualification of the Offered Shares under the applicable securities laws in accordance with Section 3(f) and any filing for review of the offering with the National Association of Securities Dealers, Inc., including filing fees and reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the U.S. Underwriters, in connection with such qualification of the Offered Shares and the Blue Sky Survey and (g) the listing fees and expenses incurred in connection with listing the Shares on the New York Stock Exchange. If this Agreement is terminated by you in accordance with the provisions of Section 5, 10(a)(i) or 12, the Company shall reimburse the U.S. Underwriters for all their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the U.S. Underwriters. 26 28 Section 5. Conditions of U.S. Underwriters' Obligations. In addition to the execution and delivery of the U.S Price Determination Agreement, the obligations of the several U.S. Underwriters to purchase and pay for the U.S. Shares that they have respectively agreed to purchase hereunder are subject to the accuracy of the representations and warranties of the Company contained herein (including those contained in the U.S. Price Determination Agreement) or in certificates of the Company's officers delivered pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date of this Agreement or, with your consent, at a later time and date not later, however, than 5:30 P.M. on the first business day following the date hereof, or at such later time or on such later date as you may agree to in writing with the approval of a majority in interest of the several U.S. Underwriters; and at the Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or shall be pending or, to your knowledge or the knowledge of the Company, shall have been threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Davis Polk & Wardwell as counsel for the U.S. Underwriters. If the Company has elected to rely upon Rule 430A, Prospectuses containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A). (b) At the Closing Time, you shall have received a signed opinion of Dewey Ballantine, counsel for the Company, dated as of the Closing Time, in form and substance reasonably satisfactory to Davis Polk & Wardwell as counsel for the U.S. Underwriters, to the effect that: (i) This Agreement has been duly authorized, executed and delivered by the Company. (ii) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses. 27 29 (iii) The Offered Shares sold by the Company pursuant to this Agreement and the International Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with this Agreement and the International Purchase Agreement, will be validly issued, fully paid and non-assessable. Such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or under any agreement known to such counsel to which the Company is a party. (iv) The Offered Shares conform in all material respects as to legal matters to the description thereof contained in the Prospectuses. (v) To the knowledge of such counsel, no authorization, approval, consent or license of any government, governmental instrumentality or court (other than under the 1933 Act and the 1933 Act Regulations, the Trust Indenture Act and the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the International Underwriters pursuant to the International Purchase Agreement), is required for the valid issuance, sale and delivery of the Offered Shares or for the consummation by the Company of the transactions contemplated in this Agreement and the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses). (vi) The execution and delivery of this Agreement, the issuance and delivery of the Offered Shares, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) and compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of the Company's Subsidiaries, and, to the knowledge of such counsel, do not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result 28 30 in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage or loan agreement, or any other agreement or instrument, to which the Company is a party or by which it may be bound or to which any of its properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the International Underwriters pursuant to the International Purchase Agreement, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court, having jurisdiction over the Company or any of its properties, in each case, except as disclosed in the Prospectuses, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Such counsel need express no opinion, however, as to whether the execution, delivery and performance by the Company of this Agreement will constitute a violation of, or default under, any financial covenant or financial ratios contained in any of the agreements referred to in the preceding sentence. (vii) Such counsel has been informed by the Commission that the Registration Statement is effective under the 1933 Act; any required filing of the Prospectuses or any supplement thereto pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or have been threatened by the Commission under the 1933 Act. (viii) The Registration Statement (including the Rule 430A Information, if applicable), the Prospectuses and each amendment or supplement to the Registration Statement and Prospectuses, as of their respective effective or issue dates (in each case, except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), comply as to form in all material 29 31 respects to the requirements of the 1933 Act and the 1933 Act Regulations. (ix) The Company is not an investment company under the Investment Company Act of 1940. (x) The transactions contemplated in the Prospectuses under the heading "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization", to the extent described therein, have been duly authorized by the Company; all of the necessary consents to consummate such transactions, including, to the knowledge of such counsel, all the necessary consents from holders of the Company's debt securities, have been obtained, except where the failure to obtain such consents would not have a material adverse effect on the consummation of the Acquisition and the Financing Plan; to the knowledge of such counsel, there has not been any violation on the part of the Company of any of the terms of such consents which violation would materially and adversely affect the consummation of the Acquisition or the Financing Plan; and there is no pending or, to the knowledge of such counsel, threatened legal or governmental proceedings with respect to any of the consents or the transactions contemplated in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses) that, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the consummation of the Acquisition or the Financing Plan. In addition, such opinion shall state that such counsel has participated in the preparation of the Registration Statement and Prospectuses and in conferences with officers and other representatives of the Company, and your representatives and your counsel at which the contents of the Registration Statement, the Prospectuses and related matters were discussed and, although such counsel need not undertake to determine independently nor pass upon or assume any responsibility, explicitly or implicitly, for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectuses on the basis of and subject to the foregoing, no facts have come to the attention of such counsel to lead such counsel to believe (A) that the Registration Statement (including the Rule 430A Information, if applicable) or any amendment thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need 30 32 express no opinion), as of the date the Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) that the Prospectuses or any amendment or supplement thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectuses were issued, at the time any such amended or supplemented prospectuses were issued or at the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (c) At the Closing Time, you shall have received a signed opinion of Philip D. Wheeler, General Counsel for the Company, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other U.S. Underwriters, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the U.S. Underwriters, to the effect that: (i) The Company is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (ii) Each of the Company's Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses, or except to the extent that the failure to be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. 31 33 (iii) Each of the Company's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (iv) The Offered Shares sold by the Company pursuant to this Agreement and the International Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with this Agreement and the International Purchase Agreement, will be validly issued, fully paid and non-assessable. Such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or under any agreement known to such counsel to which the Company or any of the Company's Subsidiaries is a party. (v) All of the outstanding shares of capital stock of the Company other than the Offered Shares have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or under any agreements known to such counsel to which the Company or any of the Company's Subsidiaries is a party. (vi) The authorized, issued and outstanding capital stock of the Company as of November 30, 1993 was as set forth in the Prospectuses in the column entitled "Healthtrust Actual" under the heading "Capitalization" and the Offered Shares conform in all material respects to the description thereof contained in the Prospectuses. (vii) Based solely on an examination of relevant minute books and stock records, except as disclosed in the Prospectuses, all of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; and, except as disclosed in the Registration Statement, all of such shares are owned by the Company, directly or through one or more 32 34 of the Company's Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of such counsel, any unperfected security interest. (viii) To the best of such counsel's knowledge, after due inquiry, all leases to which the Company or any of the Company's subsidiaries is a party are valid and binding and no default has occurred or is continuing thereunder, which might result in any material adverse change in the business, prospects, financial condition or results of operation of the Company and the Company's subsidiaries taken as a whole, and the Company and the Company's subsidiaries enjoy peaceful and undisturbed possession under all such leases to which any of them is a party as lessee with such exceptions as do not materially interfere with the use made by the Company or such subsidiary. (ix) The Company and each of the Company's subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits"), including, without limitation, under any Environmental Laws, as are necessary to own, lease and operate its respective properties and to conduct its business in the manner described in the Prospectus; to the best of such counsel's knowledge, after due inquiry, the Company and each of the Company's subsidiaries has fulfilled and performed all of its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company or any of the Company's subsidiaries. (x) Such counsel does not know of any statutes or regulations, or any pending or threatened legal or governmental proceedings, required to be described in the Prospectuses that are not described as required, nor of any contracts or documents of a character required to be described or referred to in the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. 33 35 (xi) The statements made in the Prospectuses under "Health Care Reform", "Reimbursement and Regulation", "Legal Proceedings", "Acquisition-Related Considerations" and "ERISA Matters", to the extent that they constitute matters of law or legal conclusions, have been reviewed by such counsel and fairly present the information disclosed therein in all material respects. (xii) To the knowledge of such counsel, no default exists in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectuses or filed as an exhibit to the Registration Statement, except as disclosed in the Registration Statement or the Prospectuses and except for such defaults that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (xiii) The execution and delivery of this Agreement, the issuance and delivery of the Offered Shares, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) and compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of the Company's Subsidiaries, and, to the knowledge of such counsel, do not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage or loan agreement or any other agreement or instrument to which the Company or any of the Company's Subsidiaries is a party or by which it may be bound or to which any of their respective properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the International Underwriters pursuant to the International Purchase 34 36 Agreement, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company or any of the Company's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Such counsel need express no opinion, however, as to whether the execution, delivery and performance by the Company of this Agreement will constitute a violation of, or default under, any financial covenant or financial ratios contained in any of the agreements referred to in the preceding sentence. (xiv) All of the hospitals operated by the Company and the Company's Subsidiaries are licensed under appropriate state laws for the conduct of the business described in the Registration Statement and are certified under the Medicare program and are "providers of services" as defined in the Social Security Act and the regulations promulgated thereunder, and are eligible to participate, in the Medicare program. (xv) To the knowledge of such counsel, there has not been any violation on the part of any of the Company's Subsidiaries of any of the terms of the necessary consents to consummate the transactions contemplated in the Prospectuses under the headings "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization", including all the necessary consents from holders of the Company's and EPIC's debt securities, which violation would materially and adversely affect the consummation of any of those transactions. (xvi) Each of the Company and the Company's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one 35 37 enterprise, and neither the Company nor any of the Company's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. In addition, such opinion shall state that such counsel has participated in the preparation of the Registration Statement and Prospectuses and in conferences with officers and other representatives of the Company, and your representatives and your counsel at which the contents of the Registration Statement, the Prospectuses and related matters were discussed and, although such counsel need not undertake to determine independently nor pass upon or assume any responsibility, explicitly or implicitly, for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectuses, on the basis of and subject to the foregoing, no facts have come to the attention of such counsel to lead such counsel to believe (A) that the Registration Statement (including the Rule 430A Information, if applicable) or any amendment thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), as of the date the Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) that the Prospectus or any amendment or supplement thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectuses were issued, at the time any such amended or supplemented prospectuses were issued or at the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. 36 38 (d) At the Closing Time, you shall have received a signed opinion of Johnson & Gibbs, Counsel for EPIC, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other U.S. Underwriters, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the U.S. Underwriters, to the effect that: (i) EPIC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus. (ii) EPIC is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (iii) Each of EPIC's subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses, or except to the extent that the failure to be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (iv) Each of EPIC's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (v) All of the outstanding shares of capital stock of EPIC have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of EPIC was issued in violation of the preemptive or other similar rights of any stockholder of EPIC arising by operation of law, under the charter or bylaws of EPIC or under any 37 39 agreements known to such counsel to which EPIC or any of EPIC's Subsidiaries is a party. (vi) The authorized, issued and outstanding capital stock of EPIC as of November 30, 1993 was as set forth in the Prospectuses in the column entitled "EPIC Actual" under the heading "Capitalization". (vii) All of the outstanding shares of capital stock of each of EPIC's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; and, except as disclosed in the Registration Statement, all of such shares are owned by EPIC, directly or through one or more of EPIC's Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of such counsel, any unperfected security interest. (viii) Such counsel does not know of any statutes or regulations, or any pending or threatened legal or governmental proceedings, required to be described in the Prospectuses that are not described as required, nor of any contracts or documents of a character required to be described or referred to in the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. (ix) To the knowledge of such counsel, no default exists in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectuses or filed as an exhibit to the Registration Statement, except as disclosed in the Registration Statement or the Prospectuses and except for such defaults that would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (x) The consummation by EPIC of the transactions contemplated in its Offer to Purchase and Consent Solicitation dated March __, 1994 have been duly authorized by all necessary corporate action on the part of EPIC and does not and will not result in any violation of the charter or by-laws of EPIC or any of EPIC's Subsidiaries, and, to the knowledge of such counsel, does not and will not conflict with, or constitute a breach of any of the terms or provisions 38 40 of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of EPIC or any of EPIC's Subsidiaries under (A) any indenture, mortgage or loan agreement or any other agreement or instrument to which EPIC or any of EPIC's Subsidiaries is a party or by which it may be bound or to which any of their respective properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the International Underwriters pursuant to the International Purchase Agreement, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (xi) All of the hospitals operated by EPIC and EPIC's Subsidiaries are licensed under appropriate state laws for the conduct of the business described in the Registration Statement and are certified under the Medicare program and are "providers of services" as defined in the Social Security Act and the regulations promulgated thereunder, and are eligible to participate in the Medicare program. (xii) To the knowledge of such counsel, there has not been any violation on the part of any of EPIC's Subsidiaries of any of the terms of the necessary consents to consummate the transactions contemplated in the Prospectuses under the heading "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" including all the necessary consents from holders of the Company's and EPIC's debt securities, which violation would materially and adversely affect the consummation of the Acquisition or the Financing Plan. (xiii) EPIC is not an investment company under the Investment Company Act of 1940. (xiv) None of (i) the termination by EPIC of future contributions to the EPIC ESOP, (ii) the discharge of 39 41 that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of the EPIC Common Stock transferred by the EPIC Trustee to EPIC, or (iii) relying on the [ ] opinion to be delivered pursuant to Section [5(d)] of this Agreement (and incorporating the caveats and assumptions contained therein), the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the ESOP Trust, each as contemplated by the Registration Statement, should constitute a violation of or result in any liability under ERISA or the Code (including, without limitation, any tax under Section 4978B of the Code). (xv) EPIC and EPIC's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and neither EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (e) At the Closing Time, you shall have received a signed opinion of [ ], counsel for the Selling Shareholders, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other U.S. Underwriters, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the U.S. Underwriters, to the effect that: (i) This Agreement has been duly authorized, executed and delivered by or on behalf of each Selling Shareholder. (ii) The execution and delivery by the Selling Shareholders of, and the performance by the Selling 40 42 Shareholders of their obligations under, this Agreement, the Custody Agreement signed by the Selling Shareholders and [ ], as Custodian, relating to the deposit of the Shares to be sold by the Selling Shareholders (the "Custody Agreement") and the Power of Attorney appointing certain individuals as the Selling Shareholders' attorneys-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the "Power of Attorney") will not contravene any provision of applicable law, or the certificate of incorporation or by-laws of any Selling Shareholder (if such Selling Shareholder is a corporation), or any agreement or other instrument binding upon any Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by any Selling Shareholder of its obligations under this Agreement or the Custody Agreement or Power of Attorney of such Selling Shareholder, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (iii) Such Selling Shareholder has, and on the Closing Date will have, valid marketable title to the Shares to be sold by such Selling Shareholder and the legal right and power, and all authorization and approval required by law, to enter into this Agreement, the Custody Agreement and the Power of Attorney and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder. (iv) The Shares to be sold by each Selling Shareholder pursuant to this Agreement have been duly authorized and are validly issued, fully paid and non-assessable. (v) The Custody Agreement and the Power of Attorney have been duly authorized, executed and delivered by each Selling Shareholder and are valid and binding agreements of each such Selling Shareholder. (vi) Delivery of the Shares to be sold by each Selling Shareholder pursuant to this Agreement will pass marketable title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. 41 43 (vii) The execution, delivery and performance of this Agreement by the Selling Shareholders, compliance by the Selling Shareholders with all the provisions hereof and the consummation of the transactions contemplated hereby will not require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (except as such may be required under the Act, state securities laws or Blue Sky laws) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Selling Shareholders, or any agreement, indenture or other instrument to which the Selling Shareholders are a party or by which the Selling Shareholders or their respective property are bound (other than those as to which requisite waivers or consents have been obtained), or violate or conflict with any laws, administrative regulation or ruling or court decree applicable to the Selling Shareholders or their respective property. (viii) None of the Selling Shareholders is an investment company under the Investment Company Act of 1940. Such counsel may also state that, insofar as such opinion involved factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Subsidiaries and certificates of public officials. (f) At the Closing Time, you shall have received a signed opinion of Dewey Ballantine, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other U.S. Underwriters, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the U.S. Underwriters, to the effect that the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the EPIC ESOP Trust, as contemplated by the Registration Statement, will meet the requirements of Section 404, 406 and 408(e)(1) of ERISA. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of EPIC and its Subsidiaries and certificates of public officials. (g) At the Closing Time, you shall have received the favorable opinion of Davis Polk & Wardwell as counsel 42 44 for the U.S. Underwriters, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other U.S. Underwriters, to the effect that the opinions delivered pursuant to Sections 5(b), (c) and (d) appear on their face to be appropriately responsive to the requirements of this Agreement except, specifying the same, to the extent waived by you, and with respect to the incorporation and legal existence of the Company, the Offered Shares, this Agreement, the Registration Statement, the transactions contemplated under the captions "The Acquisition and Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement, the Prospectuses and such other related matters as you may require. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the corporate law of the State of Delaware, upon the opinions of counsel satisfactory to you. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (h) At the Closing Time, (i) the Registration Statement and the Prospectuses, as they may then be amended or supplemented, shall conform in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations, the Company shall have complied in all material respects with Rule 430A (if it shall have elected to rely thereon), the Registration Statement, as it may then be amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements in the Registration Statement not misleading, and the Prospectuses, as they may then be amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements in the Prospectuses, in light of the circumstances under which they were made, not misleading, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectuses, any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, (iii) no action, suit or proceeding at law or in equity shall be pending or, to the 43 45 knowledge of the Company, threatened against the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's Subsidiaries that would be required to be set forth in the Prospectuses other than as set forth therein and no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's Subsidiaries before or by any federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding could reasonably be expected to materially adversely affect the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, other than as set forth in the Prospectuses, (iv) the Company shall have complied in all material respects with all agreements and satisfied in all material respects all conditions on its part to be performed or satisfied at or prior to the Closing Time, (v) the Selling Shareholders shall have complied in all material respects with all agreements and satisfied in all material respects all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (vi) the other representations and warranties of the Company set forth in Section 1(a) shall be accurate as though expressly made at and as of the Closing Time. At the Closing Time, you shall have received certificates of the President or a Vice President and the Treasurer or the Controller of the Company and of EPIC, dated as of the Closing Time, to such effect. (i) On the date of this Agreement and at the Closing Time, Ernst & Young, independent public accountants with respect to the Company, shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (j) On the date of this Agreement and at the Closing Time, Ernst & Young, independent public accountants with respect to EPIC, shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements of EPIC and certain financial information contained or incorporated by reference in the Registration Statement and the Prospectuses. 44 46 (k) At the Closing Time, counsel for the U.S. Underwriters shall have been furnished with all such documents, certificates and opinions as they may reasonably request for the purpose of enabling them to pass upon the issuance and sale of the Offered Shares as contemplated in this Agreement and the matters referred to in Section 5(e) and in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company, the performance of any of the covenants of the Company, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company at or prior to the Closing Time in connection with the authorization, issuance and sale of the Offered Shares as contemplated in this Agreement shall be reasonably satisfactory in form and substance to you and to Davis Polk & Wardwell as counsel for the U.S. Underwriters. (l) EPIC shall have terminated future contributions to the EPIC ESOP, discharged that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of EPIC Common Stock transferred by the EPIC Trustee to EPIC, and reacquired all of the shares of EPIC Common Stock held by the EPIC ESOP at the time of termination of EPIC's contributions to the EPIC ESOP and not allocated to the accounts of participants in the EPIC ESOP, and EPIC shall have terminated the Grantor Trust (as such term is defined in the Registration Statement) and consummated the transactions contemplated by such termination substantially in the manner described in the Prospectuses. (m) The Company shall have consummated the Acquisition (as defined in the Registration Statement). The Company shall have provided to you and Davis Polk & Wardwell as counsel for the U.S. Underwriters copies of all documents with respect to the consummation of the Acquisition as you or Davis Polk & Wardwell may reasonably request. (n) The transactions contemplated in the Prospectuses under the headings "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" shall have been duly authorized by the Company; all of the necessary consents to consummate such transactions shall have been obtained, except where the failure to obtain such consents would not have a material adverse effect on such transactions; there shall not be any violation on the part of the Company or the Company's Subsidiaries of any of the terms of such consents that could reasonably be expected to materially and adversely affect the consummation of such transactions; and there shall not be any pending or threatened legal or governmental proceedings with respect to 45 47 any consents or the transactions contemplated in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses) that could reasonably be expected to materially and adversely affect such transactions. (o) You shall have received on the Closing Date, a certificate of each Selling Shareholder who is not a U.S. Person to the effect that such Selling Shareholder is not a U.S. Person (as defined under applicable U.S. federal tax legislation), which certificate may be in the form of a properly completed and executed United States Treasury Department Form W-8 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). If any of the conditions specified in this Section 5 shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement may be terminated by you upon notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 herein. Notwithstanding any such termination, the provisions of Sections 7 and 8 herein shall remain in effect. Section 6. Conditions to Purchase of U.S. Option Shares. In the event that the U.S. Underwriters exercise their option granted in Section 2 to purchase all or any of the U.S. Option Shares and the Date of Delivery determined by you pursuant to Section 2 is later than the Closing Time, the obligations of the several U.S. Underwriters to purchase and pay for the U.S. Option Shares that they shall have respectively agreed to purchase pursuant to this Agreement are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder and to the following further conditions: (a) The Registration Statement shall remain effective at the Date of Delivery, and at the Date of Delivery no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or shall be pending or, to your knowledge or to the knowledge of the Company, shall have been threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Davis Polk & Wardwell as counsel for the U.S. Underwriters. 46 48 (b) At the Date of Delivery, the provisions of Section 5(f) shall have been complied with at and as of the Date of Delivery and, at the Date of Delivery, you shall have received a certificate of the President or a Vice President and the Treasurer or the Controller of the Company with respect to the provisions of Section 5(f), dated as of the Date of Delivery, to such effect. (c) At the Date of Delivery, you shall have received the favorable opinions of Dewey Ballantine, counsel for the Company, Philip D. Wheeler, General Counsel for the Company, Johnson & Gibbs, Counsel for EPIC [ ], or such other counsel reasonably satisfactory to Davis Polk & Wardwell as counsel for the U.S. Underwriters together with reproduced copies of such opinions for each of the other U.S. Underwriters in form and substance satisfactory to Davis Polk & Wardwell as counsel for the U.S. Underwriters, dated as of the Date of Delivery, relating to the U.S. Option Shares and otherwise to the same effect as the opinions required by Sections 5(b), (c) and (d). (d) At the Date of Delivery, you shall have received the favorable opinion of Davis Polk & Wardwell, counsel for the U.S. Underwriters, dated as of the Date of Delivery, relating to the U.S. Option Shares and otherwise to the same effect as the opinion required by Section 5(e). (e) At the Date of Delivery, you shall have received a letter from Ernst & Young, in form and substance satisfactory to you and dated as of the Date of Delivery, to the effect that they reaffirm the statements made in the letter furnished pursuant to Section 5(g), except that the specified date referred to shall be a date not more than five days prior to the Date of Delivery. (f) At the Date of Delivery, Davis Polk & Wardwell as counsel for the U.S. Underwriters shall have been furnished with all such documents, certificates and opinions as they may reasonably request for the purpose of enabling them to pass upon the issuance and sale of the U.S. Option Shares as contemplated in this Agreement and the matters referred to in Section 6(d) and in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company, the performance of any of the covenants of the Company, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company at or prior to the Date of Delivery in connection with the authorization, issuance and sale of the U.S. Option Shares as contemplated in this Agreement shall be reasonably satisfactory in form and substance to you and 47 49 to Davis Polk & Wardwell as counsel for the U.S. Underwriters. Section 7. Indemnification. (a) The Company and the Selling Shareholders agree to indemnify and hold harmless each U.S. Underwriter and each person, if any, who controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of an untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectuses (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to the last sentence of Section 7(c), fees and disbursements of counsel chosen by you to represent the U.S. Underwriters), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that with respect to the indemnity provided by the Selling Shareholders, the indemnity shall 48 50 only apply to information relating to the Selling Shareholders furnished or confirmed in writing by or on behalf of the Selling Shareholders for use in the Registration Statement (or any amendments thereto); and provided, further, that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished or confirmed in writing to the Company by or on behalf of any Underwriter through you or the International Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or any preliminary prospectus or the Prospectuses (or any amendment or supplement thereto); and provided further that the foregoing indemnification with respect to any untrue statement contained in or any omission from a preliminary prospectus shall not inure to the benefit of any U.S. Underwriter (or any person controlling such U.S. Underwriter) from whom the person asserting any such losses, claims, damages, liabilities, or expenses purchased any of the Offered Shares if a copy of the Prospectus (or the Prospectus as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such U.S. Underwriter to such person, if such is required by law, at or prior to the written confirmation of the sale of such Offered Shares to such person and the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. (b) Each U.S. Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, the Selling Shareholders and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 7(a), as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or any preliminary prospectus or the Prospectuses (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished or confirmed in writing to the Company by or on behalf of such U.S. Underwriter through you expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or such preliminary prospectus or the Prospectuses (or any amendment or supplement thereto). 49 51 (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Section 8. Contribution. In order to provide for just and equitable contribution in circumstances under which the indemnity provided for in Section 7 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company, the Selling Shareholders and the U.S. Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity incurred by the Company, one or more of the Selling Shareholders and one or more of the U.S. Underwriters, as incurred, in such proportions that (a) the U.S. Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectuses bears to the initial public offering price appearing thereon and (b) the Company and the Selling Shareholders are responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls a U.S. Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such U.S. Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 9. Representations, Warranties and Agreements to Survive Delivery. The representations, warranties, indemnities, agreements and other statements of the Company, the Selling Shareholders and the U.S. Underwriters or their respective officers set forth in or made pursuant to this Agreement will remain operative and in full force and effect regardless of any investigation made 50 52 by or on behalf of the Company, any of the Selling Shareholders or any U.S. Underwriter or controlling person and will survive delivery of and payment for the Offered Shares. Section 10. Termination of Agreement. (a) You may terminate this Agreement, by notice to the Sellers, at any time at or prior to the Closing Time (i) if there has been, since the respective dates as of which information is given in the Registration Statement, any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation of existing hostilities or other calamity or crisis the effect of which is such as to make it, in your reasonable judgment, impracticable to market the U.S. Shares or enforce contracts for the sale of the U.S. Shares, or (iii) if trading in any securities of the Company has been suspended by the Commission, or if trading generally on the New York Stock Exchange or in the over-the-counter market has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by such exchange or by order of the Commission or any other governmental authority, or (iv) if a banking moratorium has been declared by either federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party, except to the extent provided in Section 4. Notwithstanding any such termination, the provisions of Sections 7 and 8 shall remain in effect. (c) This Agreement may also terminate pursuant to the provisions of Section 2(c), with the effect stated in such Section. Section 11. Default by One or More of the U.S. Underwriters. If one or more of the U.S. Underwriters shall fail at the Closing Time to purchase the Initial U.S. Shares that it or they are obligated to purchase pursuant to this Agreement (the "Defaulted U.S. Shares"), you shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting U.S. Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted U.S. Shares in such amounts as may be 51 53 agreed upon and upon the terms set forth in this Agreement; if, however, you have not completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted U.S. Shares does not exceed 10% of the total number of Initial U.S. Shares, the non-defaulting U.S. Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective Initial U.S. Share underwriting obligation proportions bear to the underwriting obligation proportions of all non-defaulting U.S. Underwriters, or (b) if the number of Defaulted U.S. Shares exceeds 10% of the total number of Initial U.S. Shares, this Agreement shall terminate without liability on the part of any non-defaulting U.S. Underwriter. No action taken pursuant to this Section shall relieve any defaulting U.S. Underwriter from liability in respect of its default. In the event of any such default that does not result in a termination of this Agreement, either you or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectuses or in any other documents or arrangements. As used herein, the term "U.S. Underwriter" includes any person substituted for a U.S. Underwriter under this Section 11. Section 12. Agreements of the Selling Shareholders. The Selling Shareholders severally agree with you and the Company: (a) To pay or to cause to be paid all transfer taxes with respect to the Shares to be sold by the Selling Shareholders; and (b) To take all reasonable actions in cooperation with the Company and the Underwriters to cause the Registration Statement to become effective at the earliest possible time, to do and perform all things to be done and performed under this Agreement prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Shares pursuant to this Agreement. Section 13. Default by the Company. If the Company shall fail at the Closing Time to sell and deliver the number of Offered Shares that it is obligated to sell, then this Agreement shall terminate without any liability on 52 54 the part of any non-defaulting party except to the extent provided in Section 4 and except that the provisions of Sections 7 and 8 shall remain in effect. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. Section 14. Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if delivered, mailed or transmitted by any standard form of telecommunication (notices transmitted by telecopier to be promptly confirmed in writing). Notices to you or the U.S. Underwriters shall be directed to you c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated at Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281, attention of Raymond L.M. Wong; and notices to the Company shall be directed to it at 4525 Harding Road, Nashville, Tennessee 37205 (telecopier no.: (615) 298-6377), attention of Philip D. Wheeler, Esq. Section 15. Parties. This Agreement is made solely for the benefit of the several U.S. Underwriters and the Company and, to the extent expressed, any person controlling the Company or any of the U.S. Underwriters, and the directors of the Company, its officers who have signed the Registration Statement, and their respective executors, administrators, successors and assigns and, subject to the provisions of Section 11, no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser, as such purchaser, from any of the several U.S. Underwriters of the U.S. Shares. All of the obligations of the U.S. Underwriters hereunder are several and not joint. Section 16. Representation of U.S. Underwriters. You will act for the several U.S. Underwriters in connection with this offering, and any action under or in respect of this Agreement taken by you as U.S. Representatives will be binding upon all the U.S. Underwriters. Section 17. Governing Law and Time. This Agreement shall be governed by the laws of the State of New York. Specified times of the day refer to New York City time. Section 18. Counterparts. This Agreement may be executed in one or more counterparts and, when a counterpart has been executed by each party, all such counterparts taken together shall constitute one and the same agreement. 53 55 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement among the Company and the several U.S. Underwriters in accordance with its terms. Very truly yours, HEALTHTRUST, INC. - THE HOSPITAL COMPANY By____________________________ Name: Title: EACH OF THE SELLING SHAREHOLDERS NAMED IN SCHEDULE I HERETO By______________________________ Name: Title: Attorney-in-Fact Confirmed and accepted as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By_________________________ Name: Title: For themselves and as U.S. Representatives of the other U.S. Underwriters named in Schedule A. 54 56 Exhibit A HEALTHTRUST, INC. - THE HOSPITAL COMPANY (a Delaware corporation) __________ Shares of Common Stock U.S. PRICE DETERMINATION AGREEMENT April __, 1994 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION As Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1201 Dear Sirs: Reference is made to the U.S. Purchase Agreement dated April __, 1994 (the "U.S. Purchase Agreement") among Healthtrust, Inc. - The Hospital Company, a Delaware corporation (the "Company"), and the several U.S. Underwriters named in Schedule A thereto or hereto (the "U.S. Underwriters"), for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting as representatives (the "U.S. Representatives"). The U.S. Purchase Agreement provides for the purchase by the U.S. Underwriters from the Company, subject to the terms and conditions set forth therein, of an aggregate of __________ shares (the "Initial U.S. Shares") of the Company's common stock, par value $.001 per share. This Agreement is the U.S. Price Determination Agreement referred to in the U.S. Purchase Agreement. Pursuant to Section 2 of the U.S. Purchase Agreement, the undersigned agree with the U.S. Representatives as follows: 57 1. The initial public offering price per share for the Initial U.S. Shares shall be $_____. 2. The purchase price per share for the Initial U.S. Shares to be paid by the several U.S. Underwriters shall be $_____, representing an amount equal to the initial public offering price set forth above, less $_____ per share. The Company represents and warrants to each of the U.S. Underwriters that the representations and warranties of the Company set forth in Section 1(a) of the U.S. Purchase Agreement are accurate as though expressly made at and as of the date hereof. As contemplated by Section 2 of the U.S. Purchase Agreement, attached as Schedule A is a completed list of the several U.S. Underwriters, which shall be a part of this Agreement and the U.S. Purchase Agreement. This Agreement shall be governed by the laws of the State of New York. If the foregoing is in accordance with the understanding of the U.S. Representatives of the agreement between the U.S. Underwriters and the Company, please sign and return to the Company a counterpart hereof, whereupon this instrument along with all counterparts and together with the U.S. Purchase Agreement shall be a binding 2 58 agreement among the U.S. Underwriters and the Company in accordance with its terms and the terms of the U.S. Purchase Agreement. Very truly yours, HEALTHTRUST, INC. - THE HOSPITAL COMPANY By______________________________ Name: Title: Confirmed and accepted as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By_________________________ Name: Title: For themselves and as U.S. Representatives of the other U.S. Underwriters named in Schedule A attached to the U.S. Purchase Agreement. 3 59 SCHEDULE A
Number of Initial U.S. Shares Underwriter to be Purchased ----------- ------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . . . . . Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . . . . . --------- Total . . . . . . . . . . . . . . . . . . . . . . . . =========
EX-1.2 3 FORM OF INTERNATIONAL PURCHASE AGREEMENT 1 ------------------------------------------------------------ ------------------------------------------------------------ HEALTHTRUST, INC. - THE HOSPITAL COMPANY (A DELAWARE CORPORATION) [ ] SHARES OF COMMON STOCK INTERNATIONAL PURCHASE AGREEMENT DATED: APRIL __,1994 ------------------------------------------------------------ ------------------------------------------------------------ 2 HEALTHTRUST, INC. - THE HOSPITAL COMPANY (A DELAWARE CORPORATION) [ ] SHARES OF COMMON STOCK INTERNATIONAL PURCHASE AGREEMENT April __, 1994 MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION As Representatives of the several Managers c/o Merrill Lynch International Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY England Ladies and Gentlemen: Healthtrust, Inc. - The Hospital Company, a Delaware corporation (the "Company"), proposes to issue and sell to the managers named in Schedule A (collectively, the "Managers"), for whom you are acting as Co-Lead Managers (the "Co-Lead Managers"), an aggregate of [ ] shares of the Company's Common Stock, par value $.001 per share (shares of which class of stock of the Company are hereinafter referred to as "Common Stock") and certain shareholders of the Company (the "Selling Shareholders") named in Schedule I hereto severally propose to sell to the several Managers, an aggregate of [ ] shares of Common Stock. Such shares of Common Stock are to be sold to each Manager, acting severally and not jointly, in such amounts as are set forth in Schedule A opposite the name of such Manager. The Company also grants to the Managers, severally and not jointly, the option described in Section 2 to purchase all or any part of [ ] additional shares of Common Stock to cover over-allotments. The aforesaid [ ] shares of Common Stock (the "Initial International Shares"), together with all or any part of the [ ] additional shares of Common Stock subject to the option described in Section 2 (the "International Option Shares"), are collectively herein called the "International Shares". The International Shares are more fully described in the International Prospectus referred to below. The Company and the Selling Shareholders are hereinafter sometimes collectively referred to as the Sellers. 2 3 It is understood that the Sellers are concurrently entering into an agreement, dated the date hereof (the "U.S. Purchase Agreement"), providing for issuance and sale by the Company of [ ] shares of Common Stock and the sale by the Selling Shareholders of [ ] shares of Common Stock (together, the "Initial U.S. Shares") through arrangements with certain underwriters in the United States (the "U.S. Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are acting as representatives (the "U.S. Representatives"), and the grant by the Company to the U.S. Representatives of an option to purchase all or any part of [ ] additional shares of Common Stock (the "U.S. Option Shares") to cover over-allotments. The Initial U.S. Shares and the U.S. Option Shares are hereinafter collectively referred to as the "U.S. Shares". The U.S. Shares and the International Shares are hereinafter collectively referred to as the "Offered Shares". The Sellers understand that the Managers will simultaneously enter into an agreement with the U.S. Underwriters dated the date hereof (the "Intersyndicate Agreement") providing for the coordination of certain transactions among the Managers and the U.S. Underwriters, under the direction of Merrill Lynch, Pierce, Fenner & Smith Incorporated. You have advised us that you and the other Managers, acting severally and not jointly, desire to purchase the International Shares and, if the Managers so elect, the International Option Shares, and that you have been authorized by the other Managers to execute this Agreement and the International Price Determination Agreement referred to below on their behalf. The initial public offering price per share for the International Shares and the purchase price per share for the International Shares to be paid by the several Managers shall be agreed upon by the Company and the Co-Lead Managers, acting on behalf of the several Managers, and such agreement shall be set forth in a separate written instrument substantially in the form of Exhibit A hereto (the "International Price Determination Agreement"). The International Price Determination Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the Co-Lead Managers and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the International Shares will be governed by this Agreement, as supplemented by the International Price Determination Agreement. From and after the date of the execution and delivery of the International Price 3 4 Determination Agreement, this Agreement shall be deemed to incorporate, and all references herein to "this Agreement" or "herein" shall be deemed to include, the International Price Determination Agreement. The initial public offering price per share and the purchase price per share for the U.S. Shares to be paid by the U.S. Underwriters pursuant to the U.S. Purchase Agreement shall be set forth in a separate agreement (the "U.S. Price Determination Agreement"), the form of which is attached to the U.S. Purchase Agreement. The purchase price per share for the U.S. Shares to be paid by the several U.S. Underwriters shall be identical to the purchase price per share for the International Shares to be paid by the several Managers hereunder. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (File No. 33- ) covering the registration of the Offered Shares under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectuses, and either (A) has prepared and proposes to file, prior to the effective date of such registration statement, an amendment to such registration statement, including final prospectuses, or (B) if the Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), will prepare and file prospectuses, in accordance with the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly after execution and delivery of the International Price Determination Agreement.(1) The information, if any, included in such prospectuses that was omitted from any prospectus included in such registration statement at the time it becomes effective but that is deemed, pursuant to Rule 430A(b), to be part of such registration statement at the time it becomes effective is referred to herein as the "Rule 430A Information". Each Form of International Prospectus and Form of U.S. Prospectus used before the time such registration - -------------------- (1)Two forms of prospectus are to be used in connection with the offering and sale of the Offered Shares: one relating to the International Shares (the "Form of International Prospectus") and one relating to the U.S. Shares (the "Form of U.S. Prospectus"). The Form of International Prospectus is identical to the Form of U.S. Prospectus, except for the front cover page, inside front cover page, the sections captioned "Underwriting" and "Certain United States Tax Consequences to Non-United States Holders" and the back cover page. 4 5 statement becomes effective, and any Form of International Prospectus and Form of U.S. Prospectus that omits the Rule 430A Information that is used after such effectiveness and prior to the execution and delivery of the International Price Determination Agreement or the U.S. Price Determination Agreement, respectively, is herein called a "preliminary prospectus". Such registration statement, including the exhibits thereto, as amended at the time it becomes effective and including, if applicable, the Rule 430A Information, is herein called the "Registration Statement", and the Form of International Prospectus and Form of U.S. Prospectus included in the Registration Statement at the time it becomes effective is herein called the "International Prospectus" and the "U.S. Prospectus", respectively, and, collectively, the "Prospectuses" and, individually, a "Prospectus", except that, if the final International Prospectus or U.S. Prospectus, as the case may be, first furnished to the Managers or the U.S. Underwriters after the execution of the International Price Determination Agreement or the U.S. Price Determination Agreement for use in connection with the offering of the Offered Shares differs from the prospectuses included in the Registration Statement at the time it becomes effective (whether or not such prospectuses are required to be filed pursuant to Rule 424(b)), the terms "International Prospectus", "U.S. Prospectus", "Prospectuses" and "Prospectus" shall refer to the final International Prospectus or U.S. Prospectus, as the case may be, first furnished to the Managers or the U.S. Underwriters, as the case may be, for such use. The Sellers understand that the Managers propose to make a public offering of the International Shares as soon as you deem advisable after the Registration Statement becomes effective and the International Price Determination Agreement has been executed and delivered. Section 1. Representations and Warranties. (a) The Company represents and warrants to and agrees with each of the Managers that: (i) When the Registration Statement shall become effective, if the Company has elected to rely upon Rule 430A, on the date of the International Price Determination Agreement, on the effective or issue date of each amendment or supplement to the Registration Statement or the Prospectuses, at the Closing Time referred to below, and, if any International Option Shares are purchased, on the Date of Delivery referred to below, (A) the Registration Statement and any amendments and supplements thereto will comply in all material respects with the requirements of the 1933 Act and the 5 6 1933 Act Regulations; (B) neither the Registration Statement nor any amendment or supplement thereto will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (C) neither of the Prospectuses nor any amendment or supplement to either of them will include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, this representation and warranty does not apply to statements or omissions from the Registration Statement or the Prospectuses made in reliance upon and in conformity with information furnished or confirmed in writing to the Company by or on behalf of any Manager through you or the U.S. Representatives expressly for use in the Registration Statement or the Prospectuses. (ii) This Agreement has been duly authorized, executed and delivered by the Company. (iii) The consolidated financial statements included in the Registration Statement present fairly the consolidated financial position of the Company and the Company's Subsidiaries (as hereinafter defined) as of the dates indicated and the consolidated statements of operations, stockholders' equity and cash flows of the Company and the Company's Subsidiaries for the periods specified. Except as otherwise stated in the Registration Statement, such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. The financial statement schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. The pro forma financial statements and other pro forma financial information included in the Prospectuses present fairly the information shown therein, have been prepared in all material respects in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma bases described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (iv) The consolidated financial statements included in the Registration Statement present fairly the 6 7 consolidated financial position of EPIC and EPIC's Subsidiaries (as hereinafter defined) as of the dates indicated and the consolidated statements of operations, stockholders' equity and cash flows of EPIC and EPIC's Subsidiaries for the periods specified. Except as otherwise stated in the Registration Statement, such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, and the financial statement schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. (v) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and the Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (vi) EPIC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and EPIC is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (vii) Each of the Company's subsidiaries (collectively, the "Company's Subsidiaries") is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and each of the Company's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing 7 8 in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Except as set forth in the Registration Statement, all of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or through one or more Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of the Company, any unperfected security interest. (viii) Each of EPIC's subsidiaries (collectively, "EPIC's Subsidiaries") is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses; and each of EPIC's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. Except as set forth in the Registration Statement, all of the outstanding shares of capital stock of each of EPIC's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by EPIC, directly or through one or more Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of the Company, any unperfected security interest. (ix) The Offered Shares to be sold by the Company pursuant to this Agreement and the U.S. Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with this Agreement and the U.S. Purchase Agreement, will be validly issued, fully paid and non-assessable; such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any 8 9 agreement to which the Company or any of the Company's Subsidiaries is a party. (x) All of the outstanding shares of capital stock of the Company other than the Offered Shares have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of Common Stock of the Company was issued in violation of the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any of the Company's Subsidiaries is a party. (xi) All of the outstanding shares of capital stock of EPIC have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of Common Stock of EPIC was issued in violation of the preemptive or other similar rights of any stockholder of EPIC arising by operation of law, under the charter and bylaws of the Company or under any agreement to which EPIC or any of EPIC's Subsidiaries is a party. (xii) Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, except as otherwise stated therein or contemplated thereby, there has not been any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business. (xiii) Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, except as otherwise stated therein or contemplated thereby, there has not been (A) any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, or (B) any dividend or distribution of any kind declared, paid or made by EPIC on its capital stock. (xiv) Neither the Company nor any of the Company's Subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, 9 10 loan agreement, note, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except as disclosed in the Prospectuses and except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. The execution and delivery of this Agreement by the Company, the issuance and delivery of the Offered Shares, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) and compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of the Company's Subsidiaries, and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any of the Company's Subsidiaries is a party or by which it is bound or to which any of its properties is subject, or (B) any existing applicable law (including any environmental law), rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company or any of the Company's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xv) Neither EPIC nor any of EPIC's Subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except as disclosed in the Prospectuses and except for such defaults that would not have a material adverse effect on 10 11 the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. The consummation by EPIC of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) have been duly authorized by all necessary corporation action on the part of EPIC and do not and will not result in any violation of the charter or by-laws of EPIC or any of EPIC's Subsidiaries, and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of EPIC or any of EPIC's Subsidiaries under (A) any indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which EPIC or any of EPIC's Subsidiaries is a party or by which it is bound or to which any of its properties is subject, or (B) any existing applicable law (including any environmental law), rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xvi) No authorization, approval, consent or license of any government, governmental instrumentality or court (other than under the 1933 Act and the 1933 Act Regulations, the Trust Indenture Act of 1939, as amended and the applicable rules and regulations promulgated thereunder (the "Trust Indenture Act") and the securities or blue sky laws of the various states and the securities laws of any jurisdiction outside the United States in which International Shares are offered or sold by the Managers pursuant to this Agreement) is required for the valid issuance, sale and delivery of the Offered Shares or for the consummation by the Company of the transactions contemplated in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses). (xvii) Except as disclosed in the Prospectuses, there is no action, suit or proceeding 11 12 before or by any government, governmental instrumentality or court, now pending or, to the knowledge of the Company, threatened against or affecting the Company or any of the Company's Subsidiaries that is required to be disclosed in the Prospectuses or that could reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the properties or assets of the Company and the Company's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement); the aggregate of all pending legal or governmental proceedings to which the Company or any of the Company's Subsidiaries is a party or which affect any of its properties that are not described or referred to in the Prospectuses would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xviii) Except as disclosed in the Prospectuses, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, now pending or, to the knowledge of the Company, threatened against or affecting EPIC or any of EPIC's Subsidiaries that is required to be disclosed in the Prospectuses or that could reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the properties or assets of EPIC and EPIC's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan","Use of Proceeds" and "Capitalization" in the Registration Statement). The Company has no reason to believe that the aggregate of all pending legal or governmental proceedings to which EPIC or any of EPIC's Subsidiaries is a party or which affect any of its properties that are not described or referred to in the 12 13 Prospectuses would have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xix) In the Company's judgment, there are no contracts or documents of a character required to be described in the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described and filed as required. (xx) Each of the Company and the Company's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, and neither the Company nor any of the Company's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xxi) Each of EPIC and EPIC's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and neither EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the 13 14 subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xxii) Each approval, consent, license, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution, delivery and performance of this Agreement, the compliance by the Company with all of the provisions hereof, the consummation of the transactions herein contemplated and the consummation by the Company of the transactions contemplated in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Offered Shares for public offering by the Underwriters under State securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xxiii) The Company has not taken and will not take, directly or indirectly, any action designed to cause or result in stabilization or manipulation of the price of the Common Stock; and the Company has not distributed and will not distribute any prospectus (as such term is defined in the 1933 Act and the 1933 Act Regulations) in connection with the offering and sale of the Offered Shares other than any preliminary prospectus filed with the Commission or the Prospectuses or other material permitted by the 1933 Act or the 1933 Act Regulations. (xxiv) Except as disclosed in the Prospectuses, all United States federal income tax returns of the Company and the Company's Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except tax assessments, if any, as are being contested in good faith and as to which adequate reserves have been provided. Except as disclosed in the Prospectuses, all other franchise and income tax returns of the Company and the Company's Subsidiaries required to be filed pursuant to applicable foreign, state or local law have been filed, except insofar as the failure to file such returns would not have a material adverse effect on the condition 14 15 (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, and all taxes shown on such returns or otherwise assessed which are due and payable have been paid, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. To the best of the Company's knowledge, the charges, accruals and reserves on the books of the Company and the Company's Subsidiaries in respect of any income and corporate franchise tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income or corporate franchise tax for any years not finally determined, except as disclosed in the Prospectuses and except to the extent of any inadequacy that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xxv) Except as disclosed in the Prospectuses, all United States federal income tax returns of EPIC and EPIC's Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except tax assessments, if any, as are being contested in good faith and as to which adequate reserves have been provided. Except as disclosed in the Prospectuses, all other franchise and income tax returns of EPIC and EPIC's Subsidiaries required to be filed pursuant to applicable foreign, state or local law have been filed, except insofar as the failure to file such returns would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and all taxes shown on such returns or otherwise assessed which are due and payable have been paid, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. To the best of EPIC's knowledge, the charges, accruals and reserves on the books of EPIC and EPIC's Subsidiaries in respect of any income and corporate franchise tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income or corporate franchise tax for any years not finally determined, except as disclosed in the Prospectuses and except to the extent of any inadequacy that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. 15 16 (xxvi) The Company has obtained the written agreement of all officers of the Company who own 50,000 or more shares of Common Stock of the Company in the form previously furnished to you that, for a period of 120 days from the date hereof, such persons will not, without the prior written consent of the U.S. Representatives (which consent shall not be unreasonably withheld), directly or indirectly, sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock ("convertible securities"); provided, however, that during such 120 day period, such persons may without such prior written consent (i) transfer such shares of Common Stock or convertible securities by will or the laws of descent and distribution, (ii) make gifts of shares of Common Stock or convertible securities or transfer such shares of Common Stock or convertible securities to (A) family members (by trust or otherwise), so long as the donee agrees to be bound by the foregoing restriction in the same manner as it applies to such persons, or (B) charitable organizations and (iii) sell, transfer or otherwise dispose of shares of Common Stock or convertible securities to the Company in connection with any of the transactions contemplated by the Registration Statement. (xxvii) Except as disclosed in the Registration Statement, no holder of any security of the Company has any right to require registration of shares of Common Stock or any other security of the Company. (xxviii) EPIC's Employee Stock Ownership Plan (the "EPIC ESOP") and the trust created pursuant to the Trust Agreement for the EPIC ESOP between EPIC and [ ] , as trustee under the EPIC ESOP (the "EPIC Trustee"), dated as of [ ] (the "EPIC ESOP Trust"), meet in all material respects all applicable requirements of qualification and exemption from taxation under Sections 401(a) and 501(a), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (xxix) The EPIC ESOP constitutes an "employee stock ownership plan," as defined in Section 4975(e)(7) of the Code and the Treasury Regulations promulgated thereunder, and as defined in Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 16 17 (xxx) Each of the loans to the EPIC ESOP Trust pursuant to the EPIC ESOP Loan A Agreement and the EPIC ESOP Loan B Agreement, each between EPIC and the EPIC ESOP Trust and dated as of [ ] (collectively, the "ESOP Loan Agreements"), and each of the pledges of shares of EPIC Common Stock, par value $.___ per share (the "EPIC Common Stock"), by the EPIC ESOP Trust pursuant to the Pledge Agreement A and the Pledge Agreement B, each between EPIC and the EPIC ESOP Trust and dated as of [ ] (collectively, the "EPIC ESOP Pledge Agreements"), satisfies in all material respects the requirements of Section 4975(d)(3) of the Code and Section 408(b)(3) of ERISA, and will not subject EPIC to a tax imposed under Section 4975 of the Code or a civil penalty assessed under Section 502(i) of ERISA. (xxxi) The EPIC Common Stock is a "qualifying employer security," within the meaning of Section 4975(e)(8) of the Code and Section 407(d)(5) of ERISA. (xxxii) Each of the sales of shares of EPIC Common Stock to the EPIC ESOP Trust pursuant to the [ ] ESOP Stock Purchase Agreement between [ ] and the EPIC ESOP Trust and the Common Stock Purchase Agreement between EPIC and the EPIC ESOP Trust, each dated as of [ ] (collectively, the "EPIC ESOP Stock Purchase Agreements"), satisfies in all material respects the requirements of Section 4975(d)(13) of the Code and Section 408(e) of ERISA, and will not subject EPIC to a tax imposed under Section 4975 of the Code or a civil penalty assessed under Section 502(i) of ERISA. (xxxiii) Except as disclosed in the Prospectuses, to the knowledge of the Company, no opinion, correspondence or other communication, whether written or otherwise, has been received by American Medical International, Inc. ("AMI"), EPIC or any of their respective agents, affiliates, associates, officers or directors, or any fiduciary of the EPIC ESOP, from the United States Department of Labor, the Internal Revenue Service or any other Federal or state governmental or regulatory agency, body or authority, to the effect that either of the loans to the EPIC ESOP Trust pursuant to the EPIC ESOP Loan Agreements, either of the pledges of shares of Common Stock by the EPIC ESOP Trust pursuant to the EPIC ESOP Pledge Agreements or either of the sales of shares of Common Stock to the EPIC ESOP Trust pursuant to the EPIC ESOP Stock Purchase Agreements may or will 17 18 constitute a violation of or result in any liability under ERISA or the Code. (xxxiv) None of (i) the termination by EPIC of future contributions to the EPIC ESOP, (ii) the discharge of that portion of the principal amount of the EPIC loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of EPIC Common Stock transferred by the EPIC Trustee to EPIC or (iii) the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the EPIC ESOP Trust, each as contemplated by the Registration Statement, should constitute a material violation of or result in any material liability under ERISA or the Code (including, without limitation, any tax under Section 4978B of the Code). (b) Any certificate signed by any officer of the Company and delivered to you or to Davis Polk & Wardwell as counsel for the Managers pursuant to this Agreement or at the Closing contemplated hereby shall be deemed a representation and warranty by the Company to each Manager as to the matters covered thereby. (c) Each of the Selling Shareholders represents and warrants to each of the Underwriters that: (i) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder. (ii) The execution and delivery by such Selling Shareholder of, and the performance by such Selling Shareholder of its obligations under, this Agreement, the Custody Agreement signed by such Selling Shareholder and [ ], as Custodian, relating to the deposit of Shares to be sold by such Selling Shareholder (the "Custody Agreement") and the Power of Attorney appointing certain individuals as such Selling Shareholder's attorneys-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the "Power of Attorney") will not contravene any provision of applicable law, or the certificate of incorporation or by-laws of such Selling Shareholder (if such Selling Shareholder is a corporation), or any agreement or other instrument binding upon such Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of or qualification with any 18 19 governmental body or agency is required for the performance by such Selling Shareholder of its obligations under this Agreement or the Custody Agreement or Power of Attorney of such Selling Shareholder, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (iii) Such Selling Shareholder has, and on the Closing Date will have, valid marketable title to the Shares to be sold by such Selling Shareholder and the legal right and power, and all authorization and approval required by law, to enter into this Agreement, the Custody Agreement and the Power of Attorney and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder. (iv) The Shares to be sold by such Selling Shareholder pursuant to this Agreement have been duly authorized and are validly issued, fully paid and non-assessable. (v) The Custody Agreement and the Power of Attorney have been duly authorized, executed and delivered by such Selling Shareholder and are valid and binding agreements of such Selling Shareholder. (vi) Delivery of the Shares to be sold by such Selling Shareholder pursuant to this Agreement will pass marketable title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. (vii) All information furnished by or on behalf of such Selling Shareholder for use in the Registration Statement and Prospectus is, and on the Closing Date will be, true, correct, and complete, and does not, and on the Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading. (viii) Such Selling Shareholder has not taken, and will not take, directly or indirectly, any action designed to, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares pursuant to the distribution contemplated by this Agreement, and other than as permitted by the Act, such Selling Shareholder has not distributed and will not distribute any prospectus or 19 20 other offering material in connection with the offering and sale of the Shares. (ix) The execution, delivery and performance of this Agreement by such Selling Shareholder, compliance by such Selling Shareholder with all the provisions hereof and the consummation of the transactions contemplated hereby will not require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (except as such may be required under the Act, state securities laws or Blue Sky laws) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws if any, of such Selling Shareholder, or any agreement, indenture or other instrument to which such Selling Shareholder is a party or by which such Selling Shareholder or their respective property is bound (other than those as to which requisite waivers or consents have been obtained), or violate or conflict with any laws, administrative regulation or ruling or court decree applicable to such Selling Shareholder or such Selling Shareholder's property. (x) The part of the Registration Statement, under the caption "Selling Shareholders" which specifically relates to such Selling Shareholder or such Selling Shareholder's affiliates does not, and will not on the Closing Date (and Option Closing Date, if applicable), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of circumstances under which they were made, not misleading. (xi) At any time during such period as in the opinion of counsel for the Managers a prospectus is required by law to be delivered in connection with sales by a Manager or a dealer, if there is any change in the information referred to in Section 1(x) above, the Selling Shareholders will immediately notify you of such change. Section 2. Sale and Delivery to the Managers; Closing. (a) On the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Sellers agree to sell to each Manager, and each Manager agrees, severally and not jointly, to purchase from the Sellers, at the purchase price per share for the Initial International Shares to be agreed upon by the Co-Lead Managers and the Company in accordance with Section 2(b) or 2(c) and set forth in the International Price Determination Agreement, the number of Initial International 20 21 Shares set forth opposite the name of such Manager in Schedule A, plus such additional number of Initial International Shares such Manager may become obligated to purchase pursuant to Section 11 hereof. If the Company elects to rely on Rule 430A, Schedule A may be attached to the International Price Determination Agreement. (b) If the Company has elected not to rely upon Rule 430A, the initial public offering price per share for the Initial International Shares and the purchase price per share for the Initial International Shares to be paid by the several Managers shall be agreed upon and set forth in the International Price Determination Agreement, dated the date hereof, and an amendment to the Registration Statement containing such per share price information will be filed before the Registration Statement becomes effective. (c) If the Company has elected to rely upon Rule 430A, the initial public offering price per share for the Initial International Shares and the purchase price per share for the Initial International Shares to be paid by the several Managers shall be agreed upon and set forth in the International Price Determination Agreement. In the event that the International Price Determination Agreement has not been executed by the close of business on the fourth business day following the date on which the Registration Statement becomes effective, this Agreement shall terminate forthwith, without liability of any party to any other party except that Sections 7 and 8 shall remain in effect. (d) In addition, on the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Managers, severally and not jointly, to purchase up to an additional [ ] International Option Shares at the same purchase price per share as shall be applicable to the Initial International Shares. The option hereby granted will expire 30 days after the date upon which the Registration Statement becomes effective or, if the Company has elected to rely upon Rule 430A, the date of the International Price Determination Agreement, and may be exercised in whole or from time to time in part only for the purpose of covering over-allotments that may be made in connection with the offering and distribution of the Initial International Shares upon notice by you to the Company setting forth the number of International Option Shares as to which the several Managers are exercising the option, and the time and date of payment and delivery thereof. Such time and date of delivery (the "Date of Delivery") shall be determined by you but shall not be later than five full business days after the exercise of such option, nor in any event prior to the 21 22 Closing Time. If the option is exercised as to all or any portion of the International Option Shares, the International Option Shares as to which the option is exercised shall be purchased by the Managers, severally and not jointly, in the respective proportions that bear the same relationship to the number of International Option Shares to be purchased at the Date of Delivery as the number of Initial International Shares set forth opposite the name of each Manager in Schedule A hereto bears to the total number of Initial International Shares (such proportions are hereinafter referred to as each Manager's "underwriting obligation proportions"). (e) Payment of the purchase price for, and delivery of certificates for, the Initial International Shares shall be made at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at such other place as shall be agreed upon by the Company and you, at 10:00 A.M. either (i) on the fifth full business day after the effective date of the Registration Statement, or (ii) if the Company has elected to rely upon Rule 430A, the fifth full business day after execution of the International Price Determination Agreement (unless, in either case, postponed pursuant to Section 11 or 12), or at such other time not more than ten full business days thereafter as you and the Company shall determine (such date and time of payment and delivery being herein called the "Closing Time"). In addition, in the event that any or all of the International Option Shares are purchased by the Managers, payment of the purchase price for, and delivery of certificates for, such International Option Shares shall be made at the offices of Davis Polk & Wardwell set forth above, or at such other place as the Company and you shall determine, on the Date of Delivery as specified in the notice from you to the Company. Payment shall be made to the Company by certified or official bank check or checks in New York Clearing House funds payable to the order of the Company against delivery to you for the respective accounts of the several Managers of certificates for the International Shares to be purchased by them. (f) Certificates for the Initial International Shares and the International Option Shares to be purchased by the Managers shall be in such denominations and registered in such names as you may request in writing at least two full business days before the Closing Time or the Date of Delivery, as the case may be. The certificates for the Initial International Shares and International Option Shares will be made available in New York City for examination and packaging by you not later than 10:00 A.M. on the business day prior to the Closing Time or the Date of Delivery, as the case may be. 22 23 (g) It is understood that each Manager has authorized you, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the International Shares that it has agreed to purchase. You, individually and not as a Co-Lead Manager, may (but shall not be obligated to) make payment of the purchase price for the Initial International Shares, of International Option Shares, to be purchased by and Manager whose check or checks shall not have been received by the Closing Time or the Date of Delivery, as the case may be. (h) The obligation of the Company to sell to each Manager the Initial International Shares and the International Option Shares and the several and not joint obligations of the Managers to purchase and pay for the International Shares, upon the terms and subject to the conditions of this Agreement, are subject to the concurrent closing of the sale of the U.S. Shares to the U.S. Underwriters pursuant to the terms of the U.S. Purchase Agreement. Section 3. Certain Covenants of the Company. The Company covenants with each Manager as follows: (a) The Company will use its best efforts to cause the Registration Statement to become effective and, if the Company elects to rely upon Rule 430A and subject to Section 3(b), will comply in all material respects with the requirements of Rule 430A and will notify you promptly, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement, shall have become effective, or any supplement to the Prospectuses or any amended Prospectuses shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission to amend the Registration Statement or amend or supplement any Prospectus or for additional information and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Offered Shares for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes. The Company will make every reasonable effort to prevent the issuance of any such stop order or of any order preventing or suspending such use and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will not at any time file or make any amendment to the Registration Statement, or any 23 24 amendment or supplement (i) if the Company has not elected to rely upon Rule 430A, to the Prospectuses or (ii) if the Company has elected to rely upon Rule 430A, to either the prospectus included in the Registration Statement at the time it becomes effective or to the Prospectuses, of which you shall not have previously been advised and furnished a copy or to which you or Davis Polk & Wardwell as counsel for the Managers shall have promptly and reasonably objected in writing. (c) The Company has furnished or will furnish to you and Davis Polk & Wardwell as counsel for the Managers, without charge, as many signed copies (as reasonably requested) of the Registration Statement as originally filed and of all amendments thereto, whether filed before or after the Registration Statement becomes effective, copies of all exhibits and documents filed therewith and signed copies of all consents and certificates of experts, as you may reasonably request and has furnished or will furnish to you, for each other Manager, one conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits). (d) The Company will deliver to each Manager, without charge, from time to time until the effective date of the Registration Statement (or, if the Company has elected to rely upon Rule 430A, until the time the International Price Determination Agreement is executed and delivered), as many copies of each preliminary prospectus as such Manager may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will deliver to each Manager, without charge, as soon as the Registration Statement shall have become effective (or, if the Company has elected to rely upon Rule 430A, as soon as practicable after the International Price Determination Agreement has been executed and delivered) and thereafter from time to time as requested during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectuses (as supplemented or amended) as such Manager may reasonably request. (e) The Company will comply in all material respects to the best of its ability with the 1933 Act and the 1933 Act Regulations, and the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder so as to permit the completion of the distribution of the Offered Shares as contemplated in this Agreement and in the Prospectuses. If at any time 24 25 when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Offered Shares any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Managers or counsel for the Company, to amend the Registration Statement or amend or supplement any Prospectus in order that the Prospectuses will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of either such counsel, at any such time to amend the Registration Statement or amend or supplement any Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such untrue statement or omission or to make the Registration Statement or the Prospectuses comply with such requirements. (f) The Company will use its best efforts, in cooperation with the Managers, to qualify the Offered Shares for offering and sale under the applicable securities laws of such states and other jurisdictions as the Company and you may mutually agree upon and to maintain such qualifications in effect for a period of not less than one year from the effective date of the Registration Statement; provided, however, that neither the Company nor any of the Company's Subsidiaries shall be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will file such statements and reports as may be required by the laws of each such jurisdiction to maintain the qualification of the Offered Shares as above provided. (g) The Company will make generally available to its security holders as soon as practicable, but not later than 60 days after the close of the period covered thereby, an earnings statement of the Company (in form complying with the provisions of Rule 158 of the 1933 Act Regulations), covering a period of 12 months beginning after the effective date of the Registration Statement but not later than the first day of the Company's fiscal quarter next following such effective date. 25 26 (h) The Company will use the net proceeds received by it from the sale of the Offered Shares in the manner specified in the Prospectuses under the caption "Use of Proceeds", and will provide you with any report on Form SR filed under Rule 463 of the 1933 Act Regulations by the Company in connection with the sale of the Offered Shares promptly after filing such report. (i) For a period of 120 days from the date hereof, the Company will not, without the prior written consent of the U.S. Representatives, which consent shall not be unreasonably withheld, directly or indirectly, sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock or convertible securities, other than to eligible participants in the Company's stock plans pursuant to the terms thereof and to the Managers pursuant to this Agreement, to the U.S. Underwriters pursuant to the U.S. Purchase Agreement and other than in connection with the transactions described in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses). (j) For a period of 120 days from the date hereof, the Company shall not take any action, directly or indirectly, without the prior written consent of the U.S. Representatives, which consent shall not be unreasonably withheld, to cause the ESOP Committee (as such term is defined in the ESOP) to direct the Trustee to directly or indirectly sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of any shares of Common Stock or convertible securities; provided, however, that during such 120 day period, the ESOP Committee may direct the Trustee to (i) allocate shares of Common Stock to ESOP participants' accounts in accordance with the terms of the ESOP, as amended from time to time, (ii) transfer to the Company shares of Common Stock unallocated under the ESOP as contemplated by the Registration Statement and (iii) make distributions of shares of Common Stock allocated under the ESOP to ESOP participants in accordance with the terms of the ESOP, as amended from time to time. (k) If the Company has elected to rely upon Rule 430A, it will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424 (b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. 26 27 Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (a) the printing and filing of the Registration Statement (including financial statements and exhibits), as originally filed and as amended, the preliminary prospectuses and the Prospectuses and any amendments or supplements thereto, and the cost of furnishing copies thereof to the Managers, (b) the printing and distribution of this Agreement (including the International Price Determination Agreement), the Agreement among Managers, the Intersyndicate Agreement, the Agreement among U.S. Underwriters, the certificates for the International Shares and the Blue Sky Survey, (c) the delivery of the certificates for the International Shares to the Managers, including any stock transfer taxes payable upon the sale of the International Shares to the Managers and the transfer of the International Shares between the Managers and the U.S. Underwriters, (d) the fees and disbursements of the Company's counsel and accountants, (e) all costs and expenses which are generated by the Selling Shareholders in connection with the performance of this Agreement, (f) the qualification of the Offered Shares under the applicable securities laws in accordance with Section 3(f) and any filing for review of the offering with the National Association of Securities Dealers, Inc., including filing fees and reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the Managers, in connection with such qualification of the Offered Shares and the Blue Sky Survey and (g) the listing fees and expenses incurred in connection with listing the Offered Shares on the New York Stock Exchange. If this Agreement is terminated by you in accordance with the provisions of Section 5, 10(a)(i) or 12, the Company shall reimburse the Managers for all their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the Managers. Section 5. Conditions of Managers' Obligations. In addition to the execution and delivery of the International Price Determination Agreement, the obligations of the several Managers to purchase and pay for the International Shares that they have respectively agreed to purchase hereunder (including any International Option Shares as to which the option granted in Section 2 has been exercised and the Date of Delivery determined by you is the same as the Closing Time) are subject to the accuracy of the representations and warranties of the Company contained herein (including those contained in the International Price Determination Agreement) or in certificates of the Company's officers delivered pursuant to the provisions hereof, to the performance by the Company of 27 28 its obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date of this Agreement or, with your consent, at a later time and date not later, however, than 5:30 P.M. on the first business day following the date hereof, or at such later time or on such later date as you may agree to in writing with the approval of a majority in interest of the several Managers; and at the Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or shall be pending or, to your knowledge or the knowledge of the Company, shall have been threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Davis Polk & Wardwell as counsel for the Managers. If the Company has elected to rely upon Rule 430A, Prospectuses containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A. (b) At the Closing Time, you shall have received a signed opinion of Dewey Ballantine, counsel for the Company, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other Managers, in form and substance reasonably satisfactory to Davis Polk & Wardwell as counsel for the Managers, to the effect that: (i) This Agreement has been duly authorized, executed and delivered by the Company. (ii) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses. (iii) The Offered Shares sold by the Company pursuant to this Agreement and the U.S. Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with this Agreement and the U.S. Purchase Agreement, will be validly issued, 28 29 fully paid and non-assessable. Such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or under any agreement known to such counsel to which the Company is a party. (iv) The Offered Shares conform in all material respects as to legal matters to the description thereof contained in the Prospectuses. (v) To the knowledge of such counsel, no authorization, approval, consent or license of any government, governmental instrumentality or court (other than under the 1933 Act and the 1933 Act Regulations, the Trust Indenture Act and the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the Managers pursuant to this Agreement), is required for the valid issuance, sale and delivery of the Offered Shares or for the consummation by the Company of the transactions contemplated in this Agreement and the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses). (vi) The execution and delivery of this Agreement, the issuance and delivery of the Offered Shares, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) and compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or bylaws of the Company or any of the Company's Subsidiaries, and, to the knowledge of such counsel, do not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage or loan agreement, or any other agreement or instrument, to which the Company is a party or by which it may be bound or to 29 30 which any of its properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the Agreement pursuant to this Agreement, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court, having jurisdiction over the Company or any of its properties, in each case, except as disclosed in the Prospectuses, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Such counsel need express no opinion, however, as to whether the execution, delivery and performance by the Company of this Agreement will constitute a violation of, or default under, any financial covenant or financial ratios contained in any of the agreements referred to in the preceding sentence. (vii) Such counsel has been informed by the Commission that the Registration Statement is effective under the 1933 Act; any required filing of the Prospectuses or any supplement thereto pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or have been threatened by the Commission under the 1933 Act. (viii) The Registration Statement (including the Rule 430A Information, if applicable), the Prospectuses and each amendment or supplement to the Registration Statement and Prospectuses, as of their respective effective or issue dates (in each case, except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), comply as to form in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations. (ix) The Company is not an investment company under the Investment Company Act of 1940. 30 31 (x) The transactions contemplated in the Prospectuses under the heading "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization", to the extent described therein, have been duly authorized by the Company; all of the necessary consents to consummate such transactions, including, to the knowledge of such counsel, all the necessary consents from holders of the Company's debt securities, have been obtained, except where the failure to obtain such consents would not have a material adverse effect on the consummation of the Acquisition and the Refinancing Plan; to the knowledge of such counsel, there has not been any violation on the part of the Company of any of the terms of such consents which violation would materially and adversely affect the consummation of the Acquisition and the Refinancing Plan; and there is no pending or, to the knowledge of such counsel, threatened legal or governmental proceedings with respect to any of the consents or the transactions contemplated in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses) that, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the consummation of the Acquisition and the Refinancing Plan. In addition, such opinion shall state that such counsel has participated in the preparation of the Registration Statement and Prospectuses and in conferences with officers and other representatives of the Company, and your representatives and your counsel at which the contents of the Registration Statement, the Prospectuses and related matters were discussed and, although such counsel need not undertake to determine independently nor pass upon or assume any responsibility, explicitly or implicitly, for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectuses on the basis of and subject to the foregoing, no facts have come to the attention of such counsel to lead such counsel to believe (A) that the Registration Statement (including the Rule 430A Information, if applicable) or any amendment thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), as of the date the Registration Statement or any such amendment became effective, contained an untrue statement of a material 31 32 fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) that the Prospectuses or any amendment or supplement thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectuses were issued, at the time any such amended or supplemented prospectuses were issued or at the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (c) At the Closing Time, you shall have received a signed opinion of Philip D. Wheeler, General Counsel for the Company, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other Managers, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the Managers, to the effect that: (i) The Company is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (ii) Each of the Company's Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses, or except to the extent that the failure to be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. 32 33 (iii) Each of the Company's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (iv) The Offered Shares sold by the Company pursuant to this Agreement and the U.S. Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with this Agreement and the U.S. Purchase Agreement, will be validly issued, fully paid and non-assessable. Such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or under any agreement known to such counsel to which the Company or any of the Company's Subsidiaries is a party. (v) All of the outstanding shares of capital stock of the Company other than the Offered Shares have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or under any agreements known to such counsel to which the Company or any of the Company's Subsidiaries is a party. (vi) The authorized, issued and outstanding capital stock of the Company as of November 30, 1993 was as set forth in the Prospectuses in the column entitled "Healthtrust Actual" under the heading "Capitalization" and the Offered Shares conform in all material respects to the description thereof contained in the Prospectuses. (vii) Based solely on an examination of relevant minute books and stock records, except as disclosed in the Prospectuses, all of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; and, 33 34 except as disclosed in the Registration Statement, all of such shares are owned by the Company, directly or through one or more of the Company's Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of such counsel, any unperfected security interest. (viii) To the best of such counsel's knowledge, after due inquiry, all leases to which the Company or any of the Company's Subsidiaries is a party are valid and binding and no default has occurred or is continuing thereunder, which might result in any material adverse change in the business, prospects, financial condition or results of operation of the Company and the Company's Subsidiaries taken as a whole, and the Company and the Company's Subsidiaries enjoy peaceful and undisturbed possession under all such leases to which any of them is a party as lessee with such exceptions as do not materially interfere with the use made by the Company or such subsidiary. (ix) The Company and each of the Company's Subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits"), including, without limitation, under any Environmental Laws, as are necessary to own, lease and operate its respective properties and to conduct its business in the manner described in the Prospectus; to the best of such counsel's knowledge, after due inquiry, the Company and each of the Company's Subsidiaries has fulfilled and performed all of its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company or any of the Company's Subsidiaries. (x) Such counsel does not know of any statutes or regulations, or any pending or threatened legal or governmental proceedings, required to be described in the Prospectuses that are not described as required, nor of any contracts or documents of a character required to be described or referred to in 34 35 the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. (xi) The statements made in the Prospectuses under "Health Care Reform", "Reimbursement and Regulation", "Legal Proceedings", "Acquisition-Related Considerations" and "ERISA Matters", to the extent that they constitute matters of law or legal conclusions, have been reviewed by such counsel and fairly present the information disclosed therein in all material respects. (xii) To the knowledge of such counsel, no default exists in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectuses or filed as an exhibit to the Registration Statement, except as disclosed in the Registration Statement or the Prospectuses and except for such defaults that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (xiii) The execution and delivery of this Agreement, the issuance and delivery of the Offered Shares, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) and compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or bylaws of the Company or any of the Company's Subsidiaries, and, to the knowledge of such counsel, do not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage or loan agreement or any other agreement or instrument to which the Company or any of the Company's Subsidiaries is a party or 35 36 by which it may be bound or to which any of their respective properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the Managers pursuant to this Agreement, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company or any of the Company's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Such counsel need express no opinion, however, as to whether the execution, delivery and performance by the Company of this Agreement will constitute a violation of, or default under, any financial covenant or financial ratios contained in any of the agreements referred to in the preceding sentence. (xiv) All of the hospitals operated by the Company and the Company's Subsidiaries are licensed under appropriate state laws for the conduct of the business described in the Registration Statement and are certified under the Medicare program and are "providers of services" as defined in the Social Security Act and the regulations promulgated thereunder, and are eligible to participate, in the Medicare program. (xv) To the knowledge of such counsel, there has not been any violation on the part of any of the Company's Subsidiaries of any of the terms of the necessary consents to consummate the transactions contemplated in the Prospectuses under the headings "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization", including all the necessary consents from holders of the Company's and EPIC's debt securities, which violation would materially and adversely affect the consummation of any of those transactions. (xvi) Each of the Company and the Company's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), 36 37 consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, and neither the Company nor any of the Company's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. In addition, such opinion shall state that such counsel has participated in the preparation of the Registration Statement and Prospectuses and in conferences with officers and other representatives of the Company, and your representatives and your counsel at which the contents of the Registration Statement, the Prospectuses and related matters were discussed and, although such counsel need not undertake to determine independently nor pass upon or assume any responsibility, explicitly or implicitly, for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectuses, on the basis of and subject to the foregoing, no facts have come to the attention of such counsel to lead such counsel to believe (A) that the Registration Statement (including the Rule 430A Information, if applicable) or any amendment thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), as of the date the Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) that the Prospectus or any amendment or supplement thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectuses were issued, at the time any such 37 38 amended or supplemented prospectuses were issued or at the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (d) At the Closing Time, you shall have received a signed opinion of Johnson & Gibbs, Counsel for EPIC, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other Managers, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the Managers, to the effect that: (i) EPIC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus. (ii) EPIC is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (iii) Each of EPIC's subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectuses, or except to the extent that the failure to be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (iv) Each of EPIC's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which 38 39 it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (v) All of the outstanding shares of capital stock of EPIC have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of EPIC was issued in violation of the preemptive or other similar rights of any stockholder of EPIC arising by operation of law, under the charter or bylaws of EPIC or under any agreements known to such counsel to which EPIC or any of EPIC's Subsidiaries is a party. (vi) The authorized, issued and outstanding capital stock of EPIC as of November 30, 1993 was as set forth in the Prospectuses in the column entitled "EPIC Actual" under the heading "Capitalization". (vii) All of the outstanding shares of capital stock of each of EPIC's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; and, except as disclosed in the Registration Statement, all of such shares are owned by EPIC, directly or through one or more of EPIC's Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of such counsel, any unperfected security interest. (viii) Such counsel does not know of any statutes or regulations, or any pending or threatened legal or governmental proceedings, required to be described in the Prospectuses that are not described as required, nor of any contracts or documents of a character required to be described or referred to in the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. (ix) To the knowledge of such counsel, no default exists in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note, lease or other agreement or instrument that is described or referred to in the 39 40 Registration Statement or the Prospectuses or filed as an exhibit to the Registration Statement, except as disclosed in the Registration Statement or the Prospectuses and except for such defaults that would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (x) The consummation by EPIC of the transactions contemplated in its Offer to Purchase and Consent Solicitation dated March __, 1994 have been duly authorized by all necessary corporate action on the part of EPIC and does not and will not result in any violation of the charter or by-laws of EPIC or any of EPIC's Subsidiaries, and, to the knowledge of such counsel, does not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of EPIC or any of EPIC's Subsidiaries under (A) any indenture, mortgage or loan agreement or any other agreement or instrument to which EPIC or any of EPIC's Subsidiaries is a party or by which it may be bound or to which any of their respective properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states and the securities laws of any jurisdiction in which the International Shares are offered or sold by the International Underwriters pursuant to the International Purchase Agreement, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectuses, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (xi) All of the hospitals operated by EPIC and EPIC's Subsidiaries are licensed under appropriate state laws for the conduct of the business described in the Registration Statement and are certified under the Medicare program and are "providers of services" as defined in the Social Security Act and the regulations promulgated thereunder, and are eligible to participate in the Medicare program. 40 41 (xii) To the knowledge of such counsel, there has not been any violation on the part of any of EPIC's Subsidiaries of any of the terms of the necessary consents to consummate the transactions contemplated in the Prospectuses under the heading "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" including all the necessary consents from holders of the Company's and EPIC's debt securities, which violation would materially and adversely affect the consummation of the Acquisition or the Financing Plan. (xiii) EPIC is not an investment company under the Investment Company Act of 1940. (xiv) None of (i) the termination by EPIC of future contributions to the EPIC ESOP, (ii) the discharge of that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of the EPIC Common Stock transferred by the EPIC Trustee to EPIC, or (iii) relying on the [ ] opinion to be delivered pursuant to Section [5(d)] of this Agreement (and incorporating the caveats and assumptions contained therein), the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the ESOP Trust, each as contemplated by the Registration Statement, should constitute a violation of or result in any liability under ERISA or the Code (including, without limitation, any tax under Section 4978B of the Code). (xv) EPIC and EPIC's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and neither EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could 41 42 reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (e) At the Closing Time, you shall have received a signed opinion of [ ], counsel for the Selling Shareholders, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other Managers, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the Managers, to the effect that: (i) This Agreement has been duly authorized, executed and delivered by or on behalf of each Selling Shareholder. (ii) The execution and delivery by the Selling Shareholders of, and the performance by the Selling Shareholders of their obligations under, this Agreement, the Custody Agreement signed by the Selling Shareholders and [ ], as Custodian, relating to the deposit of the Shares to be sold by the Selling Shareholders (the "Custody Agreement") and the Power of Attorney appointing certain individuals as the Selling Shareholders' attorneys-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the "Power of Attorney") will not contravene any provision of applicable law, or the certificate of incorporation or by-laws of any Selling Shareholder (if such Selling Shareholder is a corporation), or any agreement or other instrument binding upon any Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by any Selling Shareholder of its obligations under this Agreement or the Custody Agreement or Power of Attorney of such Selling Shareholder, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (iii) Such Selling Shareholder has, and on the Closing Date will have, valid marketable title to the Shares to be sold by such Selling Shareholder and the legal right and power, and all authorization and approval required by law, to enter into this 42 43 Agreement, the Custody Agreement and the Power of Attorney and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder. (iv) The Shares to be sold by each Selling Shareholder pursuant to this Agreement have been duly authorized and are validly issued, fully paid and non-assessable. (v) The Custody Agreement and the Power of Attorney have been duly authorized, executed and delivered by each Selling Shareholder and are valid and binding agreements of each such Selling Shareholder. (vi) Delivery of the Shares to be sold by each Selling Shareholder pursuant to this Agreement will pass marketable title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. (vii) The execution, delivery and performance of this Agreement by the Selling Shareholders, compliance by the Selling Shareholders with all the provisions hereof and the consummation of the transactions contemplated hereby will not require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (except as such may be required under the Act, state securities laws or Blue Sky laws) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Selling Shareholders, or any agreement, indenture or other instrument to which the Selling Shareholders are a party or by which the Selling Shareholders or their respective property are bound (other than those as to which requisite waivers or consents have been obtained), or violate or conflict with any laws, administrative regulation or ruling or court decree applicable to the Selling Shareholders or their respective property. (viii) None of the Selling Shareholders is an investment company under the Investment Company Act of 1940. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Subsidiaries and certificates of public officials. 43 44 (f) At the Closing Time, you shall have received a signed opinion of Dewey Ballantine, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other Managers, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the Managers, to the effect that the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the EPIC ESOP Trust, as contemplated by the Registration Statement, will meet the requirements of Sections 404, 406 and 408(e)(1) of ERISA. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of EPIC and its Subsidiaries and certificates of public officials. (g) At the Closing Time, you shall have received the favorable opinion of Davis Polk & Wardwell as counsel for the Managers, dated as of the Closing Time, together with reproduced copies of such opinion for each of the other Managers, to the effect that the opinions delivered pursuant to Sections 5(b), (c) and (d) appear on their face to be appropriately responsive to the requirements of this Agreement except, specifying the same, to the extent waived by you, and with respect to the incorporation and legal existence of the Company, the Offered Shares, this Agreement, the Registration Statement, the transactions contemplated under the captions "The Acquisition and Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement, the Prospectuses and such other related matters as you may require. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the corporate law of the State of Delaware, upon the opinions of counsel satisfactory to you. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (h) At the Closing Time, (i) the Registration Statement and the Prospectuses, as they may then be amended or supplemented, shall conform in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations, the Company shall have complied in all material respects with Rule 430A (if it shall have 44 45 elected to rely thereon), the Registration Statement, as it may then be amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements in the Registration Statement not misleading, and the Prospectuses, as they may then be amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements in the Prospectuses, in light of the circumstances under which they were made, not misleading, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectuses, any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, (iii) no action, suit or proceeding at law or in equity shall be pending or, to the knowledge of the Company, threatened against the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's Subsidiaries that would be required to be set forth in the Prospectuses other than as set forth therein and no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's Subsidiaries before or by any federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding could reasonably be expected to materially adversely affect the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, other than as set forth in the Prospectuses, (iv) the Company shall have complied in all material respects with all agreements and satisfied in all material respects all conditions on its part to be performed or satisfied at or prior to the Closing Time, (v) the Selling Shareholders shall have complied in all material respects with all agreements and satisfied in all material respects all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (vi) the other representations and warranties of the Company set forth in Section 1(a) shall be accurate as though expressly made at and as of the Closing Time. At the Closing Time, you shall have received certificates of the President or a Vice President and the Treasurer or the Controller of the 45 46 Company and of EPIC, dated as of the Closing Time, to such effect. (i) On the date of this Agreement and at the Closing Time, Ernst & Young, independent public accountants with respect to the Company, shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectuses. (j) On the date of this Agreement and at the Closing Time, Ernst & Young, independent public accountants with respect to EPIC, shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements of EPIC and certain financial information contained or incorporated by reference in the Registration Statement and the Prospectuses. (k) At the Closing Time, counsel for the Managers shall have been furnished with all such documents, certificates and opinions as they may reasonably request for the purpose of enabling them to pass upon the issuance and sale of the Offered Shares as contemplated in this Agreement and the matters referred to in Section 5(e) and in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company, the performance of any of the covenants of the Company, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company at or prior to the Closing Time in connection with the authorization, issuance and sale of the Offered Shares as contemplated in this Agreement shall be reasonably satisfactory in form and substance to you and to Davis Polk & Wardwell as counsel for the Managers. (l) EPIC shall have terminated future contributions to the EPIC ESOP, discharged that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of EPIC Common Stock transferred by the EPIC Trustee to EPIC, and reacquired all of the shares of EPIC Common Stock held by the EPIC ESOP at the time of termination of EPIC's 46 47 contributions to the EPIC ESOP and not allocated to the accounts of participants in the EPIC ESOP, and EPIC shall have terminated the Grantor Trust (as such term is defined in the Registration Statement) and consummated the transactions contemplated by such termination substantially in the manner described in the Prospectuses. (m) The Company shall have consummated the Acquisition (as defined in the Registration Statement). The Company shall have provided to you and Davis Polk & Wardwell as counsel for the Managers copies of all documents with respect to the consummation of the Acquisition as you or Davis Polk & Wardwell may reasonably request. (n) The transactions contemplated in the Prospectuses under the headings "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" shall have been duly authorized by the Company; all of the necessary consents to consummate such transactions shall have been obtained, except where the failure to obtain such consents would not have a material adverse effect on such transactions; there shall not be any violation on the part of the Company or the Company's Subsidiaries of any of the terms of such consents that could reasonably be expected to materially and adversely affect the consummation of such transactions; and there shall not be any pending or threatened legal or governmental proceedings with respect to any consents or the transactions contemplated in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses) that could reasonably be expected to materially and adversely affect such transactions. (o) You shall have received on the Closing Date, a certificate of each Selling Shareholder who is not a U.S. Person to the effect that such Selling Shareholder is not a U.S. Person (as defined under applicable U.S. federal tax legislation), which certificate may be in the form of a properly completed and executed United States Treasury Department Form W-8 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). If any of the conditions specified in this Section 5 shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement may be terminated by you upon notice to the Company at any time at or prior to the 47 48 Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 herein. Notwithstanding any such termination, the provisions of Sections 7 and 8 herein shall remain in effect. Section 6. Conditions to Purchase of International Option Shares. In the event that the Managers exercise their option granted in Section 2 to purchase all or any of the International Option Shares and the Date of Delivery determined by you pursuant to Section 2 is later than the Closing Time, the obligations of the several Managers to purchase and pay for the International Option Shares that they shall have respectively agreed to purchase pursuant to this Agreement are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder and to the following further conditions: (a) The Registration Statement shall remain effective at the Date of Delivery, and at the Date of Delivery no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or shall be pending or, to your knowledge or to the knowledge of the Company, shall have been threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Davis Polk & Wardwell as counsel for the Managers. (b) At the Date of Delivery, the provisions of Section 5(f) shall have been complied with at and as of the Date of Delivery and, at the Date of Delivery, you shall have received a certificate of the President or a Vice President and the Treasurer or the Controller of the Company with respect to the provisions of Section 5(f), dated as of the Date of Delivery, to such effect. (c) At the Date of Delivery, you shall have received the favorable opinions of Dewey Ballantine, counsel for the Company, Philip D. Wheeler, General Counsel for the Company, Johnson & Gibbs, Counsel for EPIC, [ ], or such other counsel reasonably satisfactory to Davis Polk & Wardwell as counsel for the Managers together with reproduced copies of such opinions for each of the other Managers in form and substance satisfactory to Davis Polk & Wardwell as counsel for the Managers, dated as of the Date of Delivery, relating to the International Option Shares and otherwise to the same effect as the opinions required by Sections 5(b), (c) and (d). 48 49 (d) At the Date of Delivery, you shall have received the favorable opinion of Davis Polk & Wardwell, counsel for the Managers, dated as of the Date of Delivery, relating to the International Option Shares and otherwise to the same effect as the opinion required by Section 5(e). (e) At the Date of Delivery, you shall have received a letter from Ernst & Young, in form and substance satisfactory to you and dated as of the Date of Delivery, to the effect that they reaffirm the statements made in the letter furnished pursuant to Section 5(g), except that the specified date referred to shall be a date not more than five days prior to the Date of Delivery. (f) At the Date of Delivery, Davis Polk & Wardwell as counsel for the Managers shall have been furnished with all such documents, certificates and opinions as they may reasonably request for the purpose of enabling them to pass upon the issuance and sale of the International Option Shares as contemplated in this Agreement and the matters referred to in Section 6(d) and in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company, the performance of any of the covenants of the Company, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company at or prior to the Date of Delivery in connection with the authorization, issuance and sale of the International Option Shares as contemplated in this Agreement shall be reasonably satisfactory in form and substance to you and to Davis Polk & Wardwell as counsel for the Managers. Section 7. Indemnification. (a) The Company and the Selling Shareholders agree to indemnify and hold harmless each Manager and each person, if any, who controls any Manager within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of an untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the 49 50 Prospectuses (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to the last sentence of Section 7(c), fees and disbursements of counsel chosen by you to represent the Managers), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that with respect to the indemnity provided by the Selling Shareholders, the indemnity shall only apply to information relating to the Selling Shareholders furnished or confirmed in writing by or on behalf of the Selling Shareholders for use in the Registration Statement (or any amendments thereto); and provided, further, that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished or confirmed in writing to the Company by or on behalf of any Manager through you or the U.S. Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or any preliminary prospectus or the Prospectuses (or any amendment or supplement thereto); and provided further that the foregoing indemnification with respect to any untrue statement contained in or any omission from a preliminary prospectus shall not inure to the benefit of any Manager (or any person controlling such Manager) from whom the person asserting any such losses, claims, damages, liabilities, or expenses purchased any of the Offered Shares if a copy of the Prospectus (or the Prospectus as amended or supplemented if 50 51 the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Manager to such person, if such is required by law, at or prior to the written confirmation of the sale of such Offered Shares to such person and the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. (b) Each Manager severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, the Selling Shareholders and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 7(a), as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or any preliminary prospectus or the Prospectuses (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished or confirmed in writing to the Company by or on behalf of such Manager through you expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or such preliminary prospectus or the Prospectuses (or any amendment or supplement thereto). (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Section 8. Contribution. In order to provide for just and equitable contribution in circumstances under which the indemnity provided for in Section 7 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company, the Selling Shareholders and the Managers shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity incurred by the Company, one or more of the Selling Shareholders and one or 51 52 more of the Managers, as incurred, in such proportions that (a) the Managers are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectuses bears to the initial public offering price appearing thereon and (b) the Company and the Selling Shareholders are responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls a Manager within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Manager, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 9. Representations, Warranties and Agreements to Survive Delivery. The representations, warranties, indemnities, agreements and other statements of the Company, the Selling Shareholders and the Managers or their respective officers set forth in or made pursuant to this Agreement will remain operative and in full force and effect regardless of any investigation made by or on behalf of the Company, any of the Selling Shareholders or any Manager or controlling person and will survive delivery of and payment for the Offered Shares. Section 10. Termination of Agreement. (a) You may terminate this Agreement, by notice to the Sellers, at any time at or prior to the Closing Time (i) if there has been, since the respective dates as of which information is given in the Registration Statement, any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation of existing hostilities or other calamity or crisis the effect of which is such as to make it, in your reasonable judgment, impracticable to market the International Shares or enforce contracts for the sale of the International Shares, or (iii) if trading in any securities of the Company has been suspended by the Commission, or if trading generally on the New York Stock Exchange or in the over-the-counter market has been suspended, or minimum or 52 53 maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by such exchange or by order of the Commission or any other governmental authority, or (iv) if a banking moratorium has been declared by either federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party, except to the extent provided in Section 4. Notwithstanding any such termination, the provisions of Sections 7 and 8 shall remain in effect. (c) This Agreement may also terminate pursuant to the provisions of Section 2(c), with the effect stated in such Section. (d) If the U.S. Purchase Agreement shall terminate for any reason, this Agreement shall terminate. Section 11. Default by One or More of the Managers. If one or more of the Managers shall fail at the Closing Time to purchase the Initial International Shares that it or they are obligated to purchase pursuant to this Agreement (the "Defaulted International Shares"), you shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Managers, or any other underwriters, to purchase all, but not less than all, of the Defaulted International Shares in such amounts as may be agreed upon and upon the terms set forth in this Agreement; if, however, you have not completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted International Shares does not exceed 10% of the total number of Initial International Shares, the non-defaulting Managers shall be obligated to purchase the full amount thereof in the proportions that their respective Initial International Share underwriting obligation proportions bear to the underwriting obligation proportions of all non-defaulting Managers, or (b) if the number of Defaulted International Shares exceeds 10% of the total number of Initial International Shares, this Agreement shall terminate without liability on the part of any non-defaulting Manager. No action taken pursuant to this Section shall relieve any defaulting Manager from liability in respect of its default. 53 54 In the event of any such default that does not result in a termination of this Agreement, either you or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectuses or in any other documents or arrangements. As used herein, the term "Manager" includes any person substituted for a Manager under this Section 11. Section 12. Agreements of the Selling Shareholders. The Selling Shareholders severally agree with you and the Company: (a) To pay or to cause to be paid all transfer taxes with respect to the Shares to be sold by the Selling Shareholders; and (b) To take all reasonable actions in cooperation with the Company and Managers to cause the Registration Statement to become effective at the earliest possible time, to do and perform all things to be done and performed under this Agreement prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Shares pursuant to this Agreement. Section 13. Default by the Company. If the Company shall fail at the Closing Time to sell and deliver the number of Offered Shares that it is obligated to sell, then this Agreement shall terminate without any liability on the part of any non-defaulting party except to the extent provided in Section 4 and except that the provisions of Sections 7 and 8 shall remain in effect. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. Section 14. Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if delivered, mailed or transmitted by any standard form of telecommunication (notices transmitted by telecopier to be promptly confirmed in writing). Notices to you or the Managers shall be directed to you c/o Merrill Lynch International Limited, Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, England, attention of Ms. Georgia May; and notices to the Company shall be directed to it at 4525 Harding Road, Nashville, Tennessee 37205 (telecopier no.: (615) 298-6377), attention of Philip D. Wheeler, Esq. 54 55 Section 15. Parties. This Agreement is made solely for the benefit of the several Managers and the Company and, to the extent expressed, any person controlling the Company or any of the Managers, and the directors of the Company, its officers who have signed the Registration Statement, and their respective executors, administrators, successors and assigns and, subject to the provisions of Section 11, no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchasers, as such purchaser, from any of the several Managers of the International Shares. All of the obligations of the Managers hereunder are several and not joint. Section 16. Representation of Co-Lead Managers. You will act for the several Managers in connection with this offering, and any action under or in respect of this Agreement taken by you as Co-Lead Managers will be binding upon all the Managers. Section 17. Governing Law and Time. This Agreement shall be governed by the laws of the State of New York. Specified times of the day refer to New York City time. Section 18. Counterparts. This Agreement may be executed in one or more counterparts and, when a counterpart has been executed by each party, all such counterparts taken together shall constitute one and the same agreement. 55 56 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement among the Company and the several Managers in accordance with its terms. Very truly yours, HEALTHTRUST, INC. - THE HOSPITAL COMPANY By: ------------------------------ Name: Title: EACH OF THE SELLING SHAREHOLDERS NAMED IN SCHEDULE I HERETO By: ------------------------------ Name: Title: Attorney-in-Fact Confirmed and accepted as of the date first above written: MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: MERRILL LYNCH INTERNATIONAL LIMITED By: ------------------------ Attorney-in-Fact For themselves and as Co-Lead Managers of the other Managers named in Schedule A. 56 57 SCHEDULE A
NUMBER OF INITIAL INTERNATIONAL SHARES MANAGER TO BE PURCHASED ------- -------------------- Merrill Lynch International Limited . . . . . . . . . . . . . . . . . . . . . . . . . . [ ] Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [ ] -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [ ] ========
58 EXHIBIT A HEALTHTRUST, INC. - THE HOSPITAL COMPANY (A DELAWARE CORPORATION) [ ] SHARES OF COMMON STOCK INTERNATIONAL PRICE DETERMINATION AGREEMENT April __, 1994 MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION As Representatives of the several Managers c/o Merrill Lynch International Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY England Ladies and Gentlemen: Reference is made to the International Purchase Agreement dated April __, 1994 (the "International Purchase Agreement") among Healthtrust, Inc. - - The Hospital Company, a Delaware corporation (the "Company"), the Selling Shareholders named in Schedule I to the International Purchase Agreement (the "Selling Shareholders") and the several Managers named in Schedule A thereto or hereto (the "Managers"), for whom Merrill Lynch International Limited and Donaldson, Lufkin & Jenrette Securities Corporation are acting as Co-Lead Managers (the "Co-Lead Managers"). The International Purchase Agreement provides for the purchase by the Managers from the Company and the Selling Shareholders, subject to the terms and conditions set forth therein, of any aggregate of [ ] shares (the "Initial International Shares") of the Company's common stock, par value $.001 per share. This Agreement is the International Price Determination Agreement referred to in the International Purchase Agreement. 59 Pursuant to Section 2 of the International Purchase Agreement, the undersigned agree with the Co-Lead Managers as follows: 1. The initial public offering price per share for the Initial International Shares shall be $_____. 2. The purchase price per share for the Initial International Shares to be paid by the several Managers shall be $_____, representing an amount equal to the initial public offering price set forth above, less $___ per share. The Company represents and warrants to each of the Managers that the representations and warranties of the Company set forth in Section 1(a) of the International Purchase Agreement are accurate as though expressly made at and as of the date hereof. The Selling Shareholders represent and warrant to each of the Managers that the representations and warranties of the Company set forth in Section 1(c) of the International Purchase Agreement are accurate as though expressly made at and as of the date hereof. As contemplated by Section 2 of the International Purchase Agreement, attached as Schedule A is a completed list of the several Managers, which shall be a part of this Agreement and the International Purchase Agreement. 2 60 This Agreement shall be governed by the laws of the State of New York. If the foregoing is in accordance with the understanding of the Co-Lead Managers of the agreement between the Managers and the Company, please sign and return to the Company a counterpart hereof, whereupon this instrument along with all counterparts and together with the International Purchase Agreement shall be a binding agreement among the Managers and the Company in accordance with its terms and the terms of the International Purchase Agreement. Very truly yours, HEALTHTRUST, INC. - THE HOSPITAL COMPANY By: ------------------------------ Name: Title: EACH OF THE SELLING SHAREHOLDERS NAMED IN SCHEDULE I TO THE INTERNATIONAL PURCHASE AGREEMENT By: ------------------------------- Name: Title: Attorney-in-Fact Confirmed and accepted as of the date first above written: MERRILL LYNCH INTERNATIONAL LIMITED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: MERRILL LYNCH INTERNATIONAL LIMITED By: ------------------------ Attorney-in-Fact For themselves and as Co-Lead Managers of the other Managers named in Schedule A attached to the International Purchase Agreement. 3 EX-2.3 4 FORM OF PURCHASE AGREEMENT 1 ============================================================ HEALTHTRUST, INC. - THE HOSPITAL COMPANY (a Delaware corporation) $200,000,000 ______% Subordinated Notes due 2004 PURCHASE AGREEMENT Dated: April __, 1994 ============================================================ 2 HEALTHTRUST, INC. - THE HOSPITAL COMPANY (a Delaware corporation) $200,000,000 ______% Subordinated Notes due 2004 PURCHASE AGREEMENT April __, 1994 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated As Representatives of the several Underwriters c/o Donaldson, Lufkin & Jenrette Securities Corporation 140 Broadway New York, New York 10005 Ladies and Gentlemen: Healthtrust, Inc. - The Hospital Company, a Delaware corporation (the "Company"), proposes to issue and sell to the underwriters named in Schedule A (collectively, the "Underwriters"), for whom you are acting representatives (the "Representatives"), $___________ aggregate principal amount of its ___% Subordinated Notes due 2004 (the "Securities"). Such Securities are to be sold to each Underwriter, acting severally and not jointly, in such amounts as are set forth in Schedule A opposite the name of such Underwriter. The Securities are to be issued pursuant to an indenture to be dated as of ________, 1994 (the "Indenture") between the Company and [The First National Bank of Boston], as trustee (the "Trustee"). The Securities and the Indenture are more fully described in the Prospectus referred to below. The principal amount and certain terms of the Securities, and the purchase price of the Securities to be paid by the Underwriters, shall be agreed upon by the Company and the Underwriters, and such agreement shall be set forth in a separate written instrument substantially in the form of Exhibit A hereto (the "Price Determination Agreement"). The Price Determination Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the Underwriters and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the 3 Securities will be governed by this Agreement, as supplemented by the Price Determination Agreement. From and after the date of the execution and delivery of the Price Determination Agreement, this Agreement shall be deemed to incorporate, and all references herein to "this Agreement" or "herein" shall be deemed to include, the Price Determination Agreement. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (File No. 33-_____) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses, and either (A) has prepared and proposes to file, prior to the effective date of such registration statement, an amendment to such registration statement, including a final prospectus, or (B) if the Company has elected to rely upon Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), will prepare and file a prospectus, in accordance with the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly after execution and delivery of the Price Determination Agreement. The information, if any, included in such prospectus that was omitted from the prospectus included in such registration statement at the time it becomes effective but that is deemed, pursuant to Rule 430A(b), to be part of such registration statement at the time it becomes effective is referred to herein as the "Rule 430A Information". Each prospectus used before the time such registration statement becomes effective and any prospectus that omits the Rule 430A Information that is used after such effectiveness and prior to the execution and delivery of the Price Determination Agreement, is herein called a "preliminary prospectus". Such registration statement, including the exhibits thereto, as amended at the time it becomes effective and including, if applicable, the Rule 430A Information, is herein called the "Registration Statement", and the prospectus included in the Registration Statement at the time it becomes effective is herein called the "Prospectus", except that, if the final prospectus first furnished to the Underwriters after the execution of the Price Determination Agreement for use in connection with the offering of the Securities differs from the prospectus included in the Registration Statement at the time it becomes effective (whether or not such prospectus is required to be filed pursuant to Rule 424(b)), the term "Prospectus" shall refer to the final prospectus first furnished to the Underwriters for such use. 2 4 The Company understands that the Underwriters propose to make a public offering of the Securities as soon as you deem advisable after the Registration Statement becomes effective, the Price Determination Agreement has been executed and delivered and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). Section 1. Representations and Warranties. (a) The Company represents and warrants to and agrees with each of the Underwriters that: (i) When the Registration Statement shall become effective, if the Company has elected to rely upon Rule 430A, on the date of the Price Determination Agreement, on the effective or issue date of each amendment or supplement to the Registration Statement or the Prospectus, and at the Closing Time referred to below, (A) the Registration Statement and any amendments and supplements thereto will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations; (B) neither the Registration Statement nor any amendment or supplement thereto will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (C) neither the Prospectus nor any amendment or supplement thereto will include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, this representation and warranty does not apply to statements or omissions from the Registration Statement or the Prospectus made in reliance upon and in conformity with information furnished or confirmed in writing to the Company by or on behalf of any Underwriter expressly for use in the Registration Statement or the Prospectus or to the Statement of Eligibility of the Trustee on form T-1 filed with the Commission as part of the Registration Statement. (ii) This Agreement has been duly authorized, executed and delivered by the Company. (iii) The consolidated financial statements included in the Registration Statement present fairly the consolidated financial position of the Company and the Company's Subsidiaries (as hereinafter defined) as of the dates indicated and the consolidated statements of operations, stockholders' equity and cash flows of 3 5 the Company and the Company's Subsidiaries for the periods specified. Except as otherwise stated in the Registration Statement, such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. The financial statement schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. The pro forma financial statements and other pro forma financial information included in the Prospectus present fairly the information shown therein, have been prepared in all material respects in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma bases described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (iv) The consolidated financial statements included in the Registration Statement present fairly the consolidated financial position of EPIC and EPIC's Subsidiaries (as hereinafter defined) as of the dates indicated and the consolidated statements of operations, stockholders' equity and cash flows of EPIC and EPIC's Subsidiaries for the periods specified. Except as otherwise stated in the Registration Statement, such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, and the financial statement schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. (v) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. 4 6 (vi) EPIC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus; and EPIC is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (vii) Each of the Company's subsidiaries (collectively, the "Company's Subsidiaries") is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus; and each of the Company's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Except as set forth in the Registration Statement, all of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or through one or more Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of the Company, any unperfected security interest. (viii) Each of EPIC's subsidiaries (collectively, "EPIC's Subsidiaries") is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus; and each of EPIC's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property 5 7 of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. Except as set forth in the Registration Statement, all of the outstanding shares of capital stock of each of EPIC's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by EPIC, directly or through one or more Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of the Company, any unperfected security interest. [(ix) The Company had at the date indicated a duly authorized and outstanding capitalization as set forth in the Prospectus in the column entitled "Healthtrust Actual" under the caption "Capitalization."] (x) The Indenture has been duly authorized by the Company, will be substantially in the form heretofore delivered to you and, when duly executed and delivered by the Company and, assuming due authentication by the Trustee, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); and the Indenture conforms in all material respects to the description thereof contained in the Prospectus. (xi) The Securities have been duly authorized by the Company. When executed, authenticated, issued and delivered in the manner provided for in the Indenture and sold and paid for as provided in this Agreement, the Securities will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or law); and the 6 8 Securities conform in all material respect to the description thereof contained in the Prospectus. (xii) All of the outstanding shares of capital stock of the Company [other than the Offered Shares (as defined in the U.S. Purchase Agreement dated April __, 1994)] have been duly authorized and validly issued and are fully paid and non- assessable; [and none of the outstanding shares of Common Stock of the Company was issued in violation of the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any of the Company's Subsidiaries is a party.] (xiii) The Offered Shares to be sold by the Company pursuant to the U.S. Purchase Agreement and the International Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with the U.S. Purchase Agreement and the International Purchase Agreement, will be validly issued, fully paid and non-assessable, such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any of the Company's Subsidiaries is a party. (xiv) All of the outstanding shares of capital stock of EPIC have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of Common Stock of EPIC issued in violation of the preemptive or other similar rights of any stockholder of EPIC arising by operation of law, under the charter and bylaws of EPIC or under any agreement to which EPIC or any of EPIC's Subsidiaries is a party. (xv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein or contemplated thereby, there has not been (A) any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, [(B) any transaction entered into by the Company or any of the Company's 7 9 Subsidiaries, other than in the ordinary course of business, that is material to the Company and the Company's Subsidiaries, considered as one enterprise, or (C) any dividend or distribution of any kind declared paid or made by the Company on its capital stock.] (xvi) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein or contemplated thereby, there has not been (A) any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, [(B) any transaction entered into by the EPIC or any of EPIC's Subsidiaries, other than in the ordinary course of business, that is material to the EPIC and EPIC's Subsidiaries, considered as one enterprise, or (C) any dividend or distribution of any kind declared, paid or made by EPIC on its capital stock.] (xvii) [Neither the Company nor any of the Company's Subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except as disclosed in the Prospectus and except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise.] The execution and delivery of this Agreement and the Indenture by the Company, the issuance and delivery of the Securities, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) and compliance by the Company with the terms of this Agreement and the Indenture have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of the Company's Subsidiaries, and 8 10 do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any of the Company's Subsidiaries is a party or by which it is bound or to which any of its properties is subject, or (B) any existing applicable law (including any environmental law), rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company or any of the Company's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectus and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. (xviii) [Neither EPIC nor any of EPIC's Subsidiaries is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, except as disclosed in the Prospectus and except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise.] The consummation by EPIC of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) have been duly authorized by all necessary corporate action on the part of EPIC and do not and will not result in any violation of the charter or by-laws of EPIC or any of EPIC's Subsidiaries, and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of EPIC or any of EPIC's Subsidiaries under (A) any indenture, mortgage, loan agreement, note, lease or other agreement or instrument 9 11 to which EPIC or any of EPIC's Subsidiaries is a party or by which it is bound or to which any of its properties is subject, or (B) any existing applicable law (including any environmental law), rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectus and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (xix) No authorization, approval, consent or license of any government, governmental instrumentality or court (other than under the 1933 Act and the 1933 Act Regulations, the 1939 Act and the rules and regulations of the Commission under the 1939 Act (the "1939 Act Regulations") and the securities or blue sky laws of the various states) is required for the valid issuance, sale and delivery of the Securities, for the execution, delivery or performance of the Indenture by the Company [or for the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement).] (xx) Except as disclosed in the Prospectus, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, now pending or, to the knowledge of the Company, threatened against or affecting the Company or any of the Company's Subsidiaries that is required to be disclosed in the Prospectus or that could reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the properties or assets of the Company and the Company's Subsidiaries, considered as one enterprise, [or that could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" 10 12 in the Registration Statement); the aggregate of all pending legal or governmental proceedings to which the Company or any of the Company's Subsidiaries is a party or which affect any of its properties that are not described or referred to in the Prospectus would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise.] (xxi) Except as disclosed in the Prospectus, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, now pending or, to the knowledge of the Company, threatened against or affecting EPIC or any of EPIC's Subsidiaries that is required to be disclosed in the Prospectus or that could reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, or that could reasonably be expected to materially and adversely affect the properties or assets of EPIC and EPIC's Subsidiaries, considered as one enterprise, [or that could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement). The Company has no reason to believe that the aggregate of all pending legal or governmental proceedings to which EPIC or any of EPIC's Subsidiaries is a party or which affect any of its properties that are not described or referred to in the Prospectus would have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise.] (xxii) In the Company's judgment, there are no contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described and filed as required. (xxiii) Each of the Company and the Company's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, 11 13 "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, [and neither the Company nor any of the Company's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise.] (xxiv) Each of EPIC and EPIC's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, [and neither EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise.] [(xxv) Each approval, consent, license, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution, delivery and performance of this Agreement, the compliance by the Company with all of the provisions hereof, the consummation of the transactions herein contemplated and the consummation by the Company of the transactions contemplated in the Registration 12 14 Statement (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Registration Statement) (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the Securities for public offering by the Underwriters under State securities or Blue Sky laws) has been obtained or made and is in full force and effect.] [(xxvi) The Company has not taken and will not take, directly or indirectly, any action designed to cause or result in stabilization or manipulation of the price of the Securities; and the Company has not distributed and will not distribute any prospectus (as such term is defined in the 1933 Act and the 1933 Act Regulations) in connection with the offering and sale of the Securities other than any preliminary prospectus filed with the Commission or the Prospectus or other material permitted by the 1933 Act or the 1933 Act Regulations.] [(xxvii) Except as disclosed in the Prospectus, all United States federal income tax returns of the Company and the Company's Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except tax assessments, if any, as are being contested in good faith and as to which adequate reserves have been provided. Except as disclosed in the Prospectus, all other franchise and income tax returns of the Company and the Company's Subsidiaries required to be filed pursuant to applicable foreign, state or local law have been filed, except insofar as the failure to file such returns would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, and all taxes shown on such returns or otherwise assessed which are due and payable have been paid, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. To the best of the Company's knowledge, the charges, accruals and reserves on the books of the Company and the Company's Subsidiaries in respect of any income and corporate franchise tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income or corporate franchise tax for any years not finally determined, 13 15 except as disclosed in the Prospectus and except to the extent of any inadequacy that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise.] [(xxviii) Except as disclosed in the Prospectus, all United States federal income tax returns of EPIC and EPIC's Subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except tax assessments, if any, as are being contested in good faith and as to which adequate reserves have been provided. Except as disclosed in the Prospectus, all other franchise and income tax returns of EPIC and EPIC's Subsidiaries required to be filed pursuant to applicable foreign, state or local law have been filed, except insofar as the failure to file such returns would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and all taxes shown on such returns or otherwise assessed which are due and payable have been paid, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. To the best of the Company's knowledge, the charges, accruals and reserves on the books of EPIC and EPIC's Subsidiaries in respect of any income and corporate franchise tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income or corporate franchise tax for any years not finally determined, except as disclosed in the Prospectus and except to the extent of any inadequacy that would not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise.] (xxix) [intentionally left blank] 14 16 (xxx) Except as disclosed in the Registration Statement, no holder of any security of the Company has any right to require registration of shares of Common Stock or any other security of the Company. [(xxxi) EPIC's Employee Stock Ownership Plan (the "EPIC ESOP") and the trust created pursuant to the Trust Agreement for the EPIC ESOP between EPIC and [ ], as trustee under the EPIC ESOP (the "EPIC Trustee"), dated as of [ ] (the "EPIC ESOP Trust"), meet in all material respects all applicable requirements of qualification and exemption from taxation under Sections 401(a) and 501(a), respectively, of the Internal Revenue Code of 1986, as amended (the "Code").] [(xxxii) The EPIC ESOP constitutes an "employee stock ownership plan," as defined in Section 4975(e)(7) of the Code and the Treasury Regulations promulgated thereunder, and as defined in Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").] [(xxxiii) Each of the loans to the EPIC ESOP Trust pursuant to the EPIC ESOP Loan A Agreement and the EPIC ESOP Loan B Agreement, each between EPIC and the EPIC ESOP Trust and dated as of [ ] (collectively, the "ESOP Loan Agreements"), and each of the pledges of shares of EPIC's Common Stock, par value $.___ per share (the "EPIC Common Stock"), by the EPIC ESOP Trust pursuant to the Pledge Agreement A and the Pledge Agreement B, each between EPIC and the EPIC ESOP Trust and dated as of [ ] (collectively, 15 17 the "EPIC ESOP Pledge Agreements"), satisfies in all material respects the requirements of Section 4975(d)(3) of the Code and Section 408(b)(3) of ERISA, and will not subject EPIC to a tax imposed under Section 4975 of the Code or a civil penalty assessed under Section 502(i) of ERISA.] [(xxxiv) The EPIC Common Stock is a "qualifying employer security," within the meaning of Section 4975(e)(8) of the Code and Section 407(d)(5) of ERISA.] [(xxxv) Each of the sales of shares of EPIC Common Stock to the EPIC ESOP Trust pursuant to the [ ] Stock Purchase Agreement between [ ] and the EPIC ESOP Trust and the Common Stock Purchase Agreement between EPIC and the EPIC ESOP Trust, each dated as of [ ] (collectively, the "EPIC ESOP Stock Purchase Agreements"), satisfies in all material respects the requirements of Section 4975(d)(13) of the Code and Section 408(e) of ERISA, and will not subject EPIC to a tax imposed under Section 4975 of the Code or a civil penalty assessed under Section 502(i) of ERISA.] [(xxxvi) Except as disclosed in the Prospectuses, to the knowledge of the Company, no opinion, correspondence or other communication, whether written or otherwise, has been received by American Medical International, Inc. ("AMI"), EPIC or any of their respective agents, affiliates, associates, officers or directors, or any fiduciary of the EPIC ESOP, from the United States Department of Labor, the Internal Revenue Service or any other Federal or state governmental or regulatory agency, body or authority, to the effect that either of the loans to the EPIC ESOP Trust pursuant to the EPIC ESOP Loan Agreements, either of the pledges of shares of EPIC Common Stock by the EPIC ESOP Trust pursuant to the EPIC ESOP Pledge Agreements or either of the sales of shares of EPIC Common Stock to the EPIC ESOP Trust pursuant to the EPIC ESOP Stock Purchase Agreements may or will constitute a violation of or result in any liability under ERISA or the Code.] [(xxxvii) None of (i) the termination by EPIC of future contributions to the EPIC ESOP, (ii) the discharge of that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of EPIC Common Stock transferred by the EPIC Trustee to EPIC or (iii) the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in 16 18 satisfaction of EPIC's loans to the EPIC ESOP Trust, each as contemplated by the Registration Statement, should constitute a material violation of or result in any material liability under ERISA or the Code (including, without limitation, any tax under Section 4978B of the Code).] (b) Any certificate signed by any officer of the Company and delivered to you or to Davis Polk & Wardwell as counsel for the Underwriters pursuant to this Agreement or at the Closing contemplated hereby shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. Section 2. Sale and Delivery to the Underwriters; Closing. (a) On the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at the purchase price to be agreed upon by the Underwriters and the Company in accordance with Section 2(b) or 2(c) and set forth in the Price Determination Agreement, the principal amount of Securities set forth opposite the name of such Underwriter in Schedule A. If the Company elects to rely on Rule 430A, Schedule A may be attached to the Price Determination Agreement. (b) If the Company has elected not to rely upon Rule 430A, the initial public offering price of the Securities, the purchase price of the Securities to be paid by the several Underwriters and certain other principal terms of the Securities shall be agreed upon and set forth in the Price Determination Agreement, dated the date hereof, and an amendment to the Registration Statement containing such per share price information will be filed before the Registration Statement becomes effective. (c) If the Company has elected to rely upon Rule 430A, the initial public offering price of the Securities, the purchase price of the Securities to be paid by the several Underwriters and certain other principal terms of the Securities shall be agreed upon and set forth in the Price Determination Agreement. In the event that the Price Determination Agreement has not been executed by the close of business on the fourth business day following the date on which the Registration Statement becomes effective, this Agreement shall terminate forthwith, without liability of any party to any other party except that Sections 6 and 7 shall remain in effect. 17 19 (d) Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at such other place as shall be agreed upon by the Company and you, at 10:00 A.M. either (i) on the fifth full business day after the effective date of the Registration Statement, or (ii) if the Company has elected to rely upon Rule 430A, the fifth full business day after execution of the Price Determination Agreement (unless, in either case, postponed pursuant to Section 10), or at such other time not more than ten full business days thereafter as you and the Company shall determine (such date and time of payment and delivery being herein called the "Closing Time"). Payment shall be made to the Company by certified or official bank check or checks in New York Clearing House funds payable to the order of the Company against delivery to the respective accounts of the several Underwriters of certificates for the Securities. (e) Certificates for the Securities shall be in such denominations ($1,000 or an integral multiple thereof) and registered in such names as you may request in writing at least two full business days before the Closing Time. The certificates for the Securities, which may be in temporary form, will be made available in New York City for examination and packaging by you not later than 10:00 A.M. on the business day prior to the Closing Time. Section 3. Certain Covenants of the Company. The Company covenants with each Underwriter as follows: (a) The Company will use its best efforts to cause the Registration Statement to become effective and, if the Company elects to rely upon Rule 430A and subject to Section 3(b), will comply in all material respects with the requirements of Rule 430A and will notify you promptly, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement, shall have become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission to amend the Registration Statement or amend or supplement the Prospectus or for additional information and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the institution or threatening 18 20 of any proceeding for any of such purposes. The Company will make every reasonable effort to prevent the issuance of any such stop order or of any order preventing or suspending such use and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will not at any time file or make any amendment to the Registration Statement, or any amendment or supplement (i) if the Company has not elected to rely upon Rule 430A, to the Prospectus or (ii) if the Company has elected to rely upon Rule 430A, to either the prospectus included in the Registration Statement at the time it becomes effective or to the Prospectus, of which you shall not have previously been advised and furnished a copy or to which you or Davis Polk & Wardwell as counsel for the Underwriters shall have promptly and reasonably objected in writing. (c) The Company has furnished or will furnish to you and Davis Polk & Wardwell as counsel for the Underwriters, without charge, as many signed copies (as reasonably requested) of the Registration Statement as originally filed and of all amendments thereto, whether filed before or after the Registration Statement becomes effective, copies of all exhibits and documents filed therewith and signed copies of all consents and certificates of experts, as you may reasonably request and has furnished or will furnish to you, for each other Underwriter, one conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits). (d) The Company will deliver to each Underwriter, without charge, from time to time until the effective date of the Registration Statement (or, if the Company has elected to rely upon Rule 430A, until the time the Price Determination Agreement is executed and delivered) as many copies of each preliminary prospectus as such Underwriter may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will deliver to each Underwriter, without charge, as soon as the Registration Statement shall have become effective (or, if the Company has elected to rely upon Rule 430A, as soon as practicable after the Price Determination Agreement has been executed and delivered) and thereafter from time to time as requested during the period when the Prospectus is required to be delivered under the 1933 Act, such 19 21 number of copies of the Prospectus (as supplemented or amended) as such Underwriter may reasonably request. (e) The Company will comply in all material respects to the best of its ability with the 1933 Act and the 1933 Act Regulations, the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder and the 1939 Act and the 1939 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or counsel for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of either such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such untrue statement or omission or to make the Registration Statement or the Prospectus comply with such requirements. (f) The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions as the Company and you may mutually agree upon and to maintain such qualifications in effect for a period of not less than one year from the effective date of the Registration Statement; provided, however, that neither the Company nor any of the Company's Subsidiaries shall be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will file such statements and reports as may be required by the laws of each such jurisdiction to maintain the qualification of the Securities as above provided. 20 22 (g) The Company will make generally available to its security holders as soon as practicable, but not later than 60 days after the close of the period covered thereby, an earnings statement of the Company (in form complying with the provisions of Rule 158 of the 1933 Act Regulations), covering a period of 12 months beginning after the effective date of the Registration Statement but not later than the first day of the Company's fiscal quarter next following such effective date. (h) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under the caption "Use of Proceeds", and will provide you with any report on Form SR filed under Rule 463 of the 1933 Act Regulations by the Company in connection with the sale of the Offered Shares promptly after filing such report. (i) If the Company has elected to rely upon Rule 430A, it will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. (j) The Company, with respect to the offering of the Securities, has complied and will comply with all of the provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida Statutes, and all regulations promulgated thereunder relating to issuers doing business with Cuba. Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (a) the printing and filing of the Registration Statement (including financial statements and exhibits), as originally filed and as amended, the preliminary prospectus or prospectuses and the Prospectus and any amendments or supplements thereto, and the cost of furnishing copies thereof to the Underwriters, (b) the printing and distribution of this Agreement (including the Price Determination Agreement), the Indenture, the certificates for the Securities and the Blue Sky Survey, (c) the delivery of the certificates for the Securities to the Underwriters, (d) the fees and disbursements of the Company's counsel and accountants, (e) the qualification of the Securities under the applicable securities laws in accordance with Section 3(f) and any filing for review of the offering with the National 21 23 Association of Securities Dealers, Inc., including filing fees and reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the Underwriters, in connection with such qualification of the Securities and the Blue Sky Survey, (f) any fees charged by the rating agencies for rating the Securities, and (g) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee, in connection with the Indenture and the Securities. If this Agreement is terminated by you in accordance with the provisions of Section 5, 9(a)(i) or 11, the Company shall reimburse the Underwriters for all their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of Davis Polk & Wardwell as counsel for the Underwriters. Section 5. Conditions of Underwriters' Obligations. In addition to the execution and delivery of the Price Determination Agreement, the obligations of the several Underwriters to purchase and pay for the Securities that they have respectively agreed to purchase hereunder are subject to the accuracy of the representations and warranties of the Company contained herein (including those contained in the Price Determination Agreement) or in certificates of the Company's officers delivered pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date of this Agreement or, with your consent, at a later time and date not later, however, than 5:30 P.M. on the first business day following the date hereof, or at such later time or on such later date as you may agree to in writing; and at the Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act and no proceedings for that purpose shall have been instituted or shall be pending or, to your knowledge or the knowledge of the Company, shall have been threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Davis Polk & Wardwell as counsel for the Underwriters. If the Company has elected to rely upon Rule 430A, a prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been 22 24 filed and declared effective in accordance with the requirements of Rule 430A). (b) At the Closing Time, you shall have received a signed opinion of Dewey Ballantine, counsel for the Company, dated as of the Closing Time, in form and substance reasonably satisfactory to Davis Polk & Wardwell as counsel for the Underwriters, to the effect that: (i) This Agreement has been duly authorized, executed and delivered by the Company. (ii) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (iii) The Indenture has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Trustee, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (iv) The Securities sold by the Company pursuant to this Agreement have been duly authorized by the Company and, assuming that the Securities have been duly authenticated by the Trustee in the manner described in its certificate delivered to you today (which fact such counsel need not determine by an inspection of the 23 25 Securities), the Securities have been duly executed, issued and delivered by the Company and constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (v) The Indenture has been duly qualified under the 1939 Act. (vi) The Securities and the Indenture conform in all material respects as to legal matters to the descriptions thereof contained in the Prospectus. (vii) The Offered Shares to be sold by the Company pursuant to the U.S. Purchase Agreement and the International Purchase Agreement have been duly authorized and, when issued and delivered by the Company upon receipt of the payment therefor in accordance with the U.S. Purchase Agreement and the International Purchase Agreement, will be validly issued, fully paid and non-assessable; such Offered Shares are not subject to the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any of the Company's Subsidiaries is a party. (viii) All of the outstanding shares of capital stock of the Company other than the Offered Shares have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of Common Stock of the Company was issued in violation of the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any of the Company's Subsidiaries is a party. 24 26 (ix) To the knowledge of such counsel, no authorization, approval, consent or license of any government, governmental instrumentality or court (other than under the 1933 Act and the 1933 Act Regulations, the 1939 Act and 1939 Act Regulations, the Trust Indenture Act and the securities or blue sky laws of the various states), is required for the valid issuance, sale and delivery of the Securities for the execution, delivery or performance of the Indenture by the Company or for the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement under the caption "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization". (x) The execution and delivery by the Company of this Agreement and the Indenture, the issuance and delivery of the Securities, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement and compliance by the Company with the terms of this Agreement and the Indenture have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of the Company's Subsidiaries, and, to the knowledge of such counsel, do not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage or loan agreement, or any other agreement or instrument, to which the Company is a party or by which it may be bound or to which any of its properties may be subject, (B) any existing applicable law, rule or regulation (other than securities or blue sky laws of the various states, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court, having jurisdiction over the Company or any of its properties, in each case, except as disclosed in the Prospectus, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Such counsel need express no 25 27 opinion, however, as to whether the execution, delivery and performance by the Company of this Agreement will constitute a violation of, or default under, any financial covenant or financial ratios contained in any of the agreements referred to in the preceding sentence. (xi) Such counsel has been informed by the Commission that the Registration Statement is effective under the 1933 Act; any required filing of the Prospectus or any supplement thereto pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or have been threatened by the Commission under the 1933 Act. (xii) The Registration Statement (including the Rule 430A Information, if applicable), the Prospectus and each amendment or supplement to the Registration Statement and the Prospectus, as of their respective effective or issue dates (in each case, except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom and the Statement of Eligibility of the Trustee on Form T-1 as to which such counsel need express no opinion), comply as to form in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations. (xiii) The Company is not an investment company under the Investment Company Act of 1940. (xiv) The transactions contemplated in the Pros- pectuses under the heading "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization", to the extent described therein, have been duly authorized by the Company; all of the necessary consents to consummate such transactions, including, to the knowledge of such counsel, all the necessary consents from holders of the Company's debt securities, have been obtained, except where the failure to obtain such consents would not have a material adverse effect on the consummation of the Acquisition or the Financing Plan; to the knowledge of such counsel, 26 28 there has not been any violation on the part of the Company of any of the terms of such consents which violation would materially and adversely affect the consummation of the Acquisition or the Financing Plan; and there is no pending or, to the knowledge of such counsel, threatened legal or governmental proceedings with respect to any of the consents or the transactions contemplated in the Prospectuses (including the transactions described under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses) that, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the consummation of the Acquisition or the Financing Plan. In addition, such opinion shall state that such counsel has participated in the preparation of the Registration Statement and Prospectus and in conferences with officers and other representatives of the Company, and your representatives and your counsel at which the contents of the Registration Statement, the Prospectus and related matters were discussed and, although such counsel need not undertake to determine independently nor pass upon or assume any responsibility, explicitly or implicitly, for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus on the basis of and subject to the foregoing, no facts have come to the attention of such counsel to lead such counsel to believe (A) that the Registration Statement (including the Rule 430A Information, if applicable) or any amendment thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom and the Statement of Eligibility of the Trustee on Form T-1, as to which such counsel need express no opinion), as of the date the Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) that the Prospectus or any amendment or supplement thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, contained 27 29 or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (c) At the Closing Time, you shall have received a signed opinion of Philip D. Wheeler, General Counsel for the Company, dated as of the Closing Time, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the Underwriters, to the effect that: (i) The Company is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (ii) Each of the Company's Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus, or except to the extent that the failure to be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (iii) Each of the Company's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. 28 30 (iv) The Securities sold by the Company pursuant to this Agreement have been duly authorized by the Company assuming that the Securities have been authenticated by the Trustee in the manner described in its certificate delivered to you today (which fact such counsel need not determine by an inspection of the Securities), the Securities have been duly executed, issued and delivered by the Company and constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (v) All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or under any agreements known to such counsel to which the Company or any of the Company's Subsidiaries is a party. (vi) The authorized, issued and outstanding capital stock of the Company as of November 30, 1993 was as set forth in the Prospectus in the column entitled "Healthtrust Actual" under the heading "Capitalization". (vii) Based solely on an examination of relevant minute books and stock records, except as disclosed in the Prospectus, all of the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; and, except as disclosed in the Registration Statement, all of such shares are owned by the Company, directly or through one or more of the Company's Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the 29 31 knowledge of such counsel, any unperfected security interest. (viii) To the best of such counsel's knowledge, after due inquiry, all leases to which the Company or any of the Company's subsidiaries is a party are valid and binding and no default has occurred or is continuing thereunder, which might result in any material adverse change in the business, prospects, financial condition or results of operation of the Company and the Company's subsidiaries taken as a whole, and the Company and the Company's subsidiaries enjoy peaceful and undisturbed possession under all such leases to which any of them is a party as lessee with such exceptions as do not materially interfere with the use made by the Company or such subsidiary. (ix) The Company and each of the Company's subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits"), including, without limitation, under any Environmental Laws, as are necessary to own, lease and operate its respective properties and to conduct its business in the manner described in the Prospectus; to the best of such counsel's knowledge, after due inquiry, the Company and each of the Company's subsidiaries has fulfilled and performed all of its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company or any of the Company's subsidiaries. (x) Such counsel does not know of any statutes or regulations, or any pending or threatened legal or governmental proceedings, required to be described in the Prospectus that are not described as required, nor of any contracts or documents of a character required to be described or referred to in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. 30 32 (xi) The statements made in the Prospectus under "Health Care Reform", "Reimbursement and Regulation", "Legal Proceedings", "Acquisition-Related Considerations" and "ERISA Matters", to the extent that they constitute matters of law or legal conclusions, have been reviewed by such counsel and fairly present the information disclosed therein in all material respects. (xii) To the knowledge of such counsel, no default exists in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed as an exhibit to the Registration Statement, except as disclosed in the Registration Statement or the Prospectus and except for such defaults that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (xiii) The execution and delivery by the Company of this Agreement and the Indenture, the issuance and delivery of the Securities, the consummation by the Company of the transactions contemplated in this Agreement and in the Registration Statement under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" and compliance by the Company with the terms of this Agreement and the Indenture have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any of the Company's Subsidiaries, and, to the knowledge of such counsel, do not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of the Company or any of the Company's Subsidiaries under (A) any indenture, mortgage or loan agreement or any other agreement or instrument to which the Company or any of the Company's Subsidiaries is a party or by which it may be bound or to which any of their respective properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states, 31 33 as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company or any of the Company's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectus, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. Such counsel need express no opinion, however, as to whether the execution, delivery and performance by the Company of this Agreement will constitute a violation of, or default under, any financial covenant or financial ratios contained in any of the agreements referred to in the preceding sentence. (xiv) All of the hospitals operated by the Company and the Company's Subsidiaries are licensed under appropriate state laws for the conduct of the business described in the Registration Statement and are certified under the Medicare program and are "providers of services" as defined in the Social Security Act and the regulations promulgated thereunder, and are eligible to participate, in the Medicare program. (xv) To the knowledge of such counsel, there has not been any violation on the part of any of the Company's Subsidiaries of any of the terms of the necessary consents to consummate the transactions contemplated in the Prospectuses under the headings "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization", including all the necessary consents from holders of the Company's and EPIC's debt securities, which violation would materially and adversely affect the consummation of any of those transactions. (xvi) Each of the Company and the Company's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental 32 34 Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, and neither the Company nor any of the Company's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise. In addition, such opinion shall state that such counsel has participated in the preparation of the Registration Statement and Prospectus and in conferences with officers and other representatives of the Company, and your representatives and your counsel at which the contents of the Registration Statement, the Prospectus and related matters were discussed and, although such counsel need not undertake to determine independently nor pass upon or assume any responsibility, explicitly or implicitly, for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, on the basis of and subject to the foregoing, no facts have come to the attention of such counsel to lead such counsel to believe (A) that the Registration Statement (including the Rule 430A Information, if applicable) or any amendment thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom and the Statement of Eligibility of the Trustee on Form T-1, as to which such counsel need express no opinion), as of the date the Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) that the Prospectus or any amendment or supplement thereto (except for the financial statements, supporting schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, contained or contains an untrue statement of a material fact or 33 35 omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (d) At the Closing Time, you shall have received a signed opinion of Johnson & Gibbs, Counsel for EPIC, dated as of the Closing Time, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the Underwriters, to the effect that: (i) EPIC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus, or except to the extent that the failure to be in good standing would not have a material adverse effect on the Company and the Company's Subsidiaries, considered as one enterprise. (ii) EPIC is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (iii) Each of EPIC's Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus, or except to the extent that the failure to be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. 34 36 (iv) Each of EPIC's Subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (v) All of the outstanding shares of capital stock of EPIC have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of EPIC was issued in violation of the preemptive or other similar rights of any stockholder of EPIC arising by operation of law, under the charter or bylaws of EPIC or under any agreements known to such counsel to which EPIC or any of EPIC's Subsidiaries is a party. (vi) All of the outstanding shares of capital stock of each of EPIC's Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; and, except as disclosed in the Registration Statement, all of such shares are owned by EPIC, directly or through one or more of EPIC's Subsidiaries, free and clear of any pledge, lien, perfected security interest, claim or encumbrance of any kind or, to the knowledge of such counsel, any unperfected security interest. (vii) Such counsel does not know of any statutes or regulations, or any pending or threatened legal or governmental proceedings, required to be described in the Prospectus that are not described as required, nor of any contracts or documents of a character required to be described or referred to in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. (viii) The statements made in the Prospectus under "Health Care Reform", "Reimbursement and Regulation", "Legal Proceedings" and "ERISA Matters", to the extent that they constitute matters of law or legal conclusions, have been reviewed by such counsel and fairly present the 35 37 information disclosed therein in all material respects. (ix) To the knowledge of such counsel, no default exists in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed as an exhibit to the Registration Statement, except as disclosed in the Registration Statement or the Prospectus and except for such defaults that would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. (x) The consummation by EPIC of the transactions contemplated in this Agreement and in the Registration Statement under the caption "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" has been duly authorized by all necessary corporate action on the part of EPIC and does not and will not result in any violation of the charter or by-laws of EPIC or any of EPIC's Subsidiaries, and, to the knowledge of such counsel, does not and will not conflict with, or constitute a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any property or assets of EPIC or any of EPIC's Subsidiaries under (A) any indenture, mortgage or loan agreement or any other agreement or instrument to which EPIC or any of EPIC's Subsidiaries is a party or by which it may be bound or to which any of their respective properties may be subject, (B) any existing applicable law, rule or regulation (other than the securities or blue sky laws of the various states, as to which such counsel need express no opinion), or (C) any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over EPIC or any of EPIC's Subsidiaries or any of their respective properties, in each case, except as disclosed in the Prospectus, and except for such conflicts, breaches or defaults or liens or encumbrances that would not have a material adverse effect on EPIC and EPIC's Subsidiaries, considered as one enterprise. Such counsel need express no opinion, 36 38 however, as to whether the execution, delivery and performance by EPIC of this Agreement will constitute a violation of, or default under, any financial covenant or financial ratios contained in any of the agreements referred to in the preceding sentence. (xi) All of the hospitals operated by EPIC and EPIC's Subsidiaries are licensed under appropriate state laws for the conduct of the business described in the Registration Statement and are certified under the Medicare program and are "providers of services" as defined in the Social Security Act and the regulations promulgated thereunder, and are eligible to participate, in the Medicare program. (xii) To the knowledge of such counsel, there has not been any violation on the part of any of EPIC's Subsidiaries of any of the terms of the necessary consents to consummate the transactions contemplated in the Prospectuses under the heading "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" including all the necessary consents from holders of the Company's and EPIC's debt securities, which violation would materially and adversely affect the consummation of the Acquisition or the Financing Plan. (xiii) EPIC is not an investment company under the Investment Company Act of 1940. (xiv) None of (i) the termination by EPIC of future contributions to the EPIC ESOP, (ii) the discharge of that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of the EPIC Common Stock transferred by the EPIC Trustee to EPIC, or (iii) relying on the [ ] opinion to be delivered pursuant to Section [5(d)] of this Agreement (and incor- porating the caveats and assumptions contained therein), the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the ESOP Trust, each as contemplated by the Registration Statement, should constitute a violation of or result in any liability under ERISA or the Code (including, without limitation, any tax under Section 4978B of the Code). 37 39 (xv) EPIC and EPIC's Subsidiaries own or possess all governmental licenses, permits, certificates (including, without limitation, certificate of need approvals), consents, orders, approvals and other authorizations (collectively, "Governmental Licenses") necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, except where the failure to possess such Governmental Licenses could reasonably be expected to not have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise, and neither EPIC nor any of EPIC's Subsidiaries has received any notice of proceedings relating to revocation or modification of any such Governmental Licenses that, in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings or business affairs of EPIC and EPIC's Subsidiaries, considered as one enterprise. (e) At the Closing Time, you shall have received a signed opinion of Dewey Ballantine, dated as of the Closing Time, in form or substance reasonably satisfactory to Davis Polk & Wardwell as counsel to the U.S. Underwriters, to the effect that the transfer by the EPIC Trustee to EPIC of shares of EPIC Common Stock unallocated under the EPIC ESOP in satisfaction of EPIC's loans to the EPIC ESOP Trust, as contemplated by the Registration Statement, will meet the requirements of Section 404, 406 and 408(e)(1) of ERISA. Such counsel may also state that, insofar as such opinion involved factual matters, they have relied, to the extent they deem proper, upon certificates of officers of EPIC and its Subsidiaries and certificates of public officials. (f) At the Closing Time, you shall have received the favorable opinion of Davis Polk & Wardwell as counsel for the Underwriters, dated as of the Closing Time, to the effect that the opinions delivered pursuant to Sections 5(b) and (c) appear on their face to be appropriately responsive to the requirements of this Agreement except, specifying the same, to the extent waived by you, and with respect to the incorporation and legal existence of the Company, the 38 40 Securities, this Agreement, the Indenture, the Registration Statement, the Prospectus and such other related matters as you may require. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the corporate law of the State of Delaware, upon the opinions of counsel satisfactory to you. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and the Company's Subsidiaries and certificates of public officials. (g) At the Closing Time, (i) the Registration Statement and the Prospectus, as they may then be amended or supplemented, shall conform in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act and the 1939 Act Regulations, the Company shall have complied in all material respects with Rule 430A (if it shall have elected to rely thereon), the Registration Statement, as it may then be amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements in the Registration Statement not misleading, and the Prospectus, as it may then be amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements in the Prospectus, in light of the circumstances under which they were made, not misleading, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, (iii) no action, suit or proceeding at law or in equity shall be pending or, to the knowledge of the Company, threatened against the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's Subsidiaries that would be required to be set forth in the Prospectus other than as set forth therein and no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company, any of the Company's Subsidiaries, EPIC or any of EPIC's Subsidiaries before 39 41 or by any federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding could reasonably be expected to materially adversely affect the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, other than as set forth in the Prospectus, (iv) the Company shall have complied in all material respects with all agreements and satisfied in all material respects all conditions on its part to be performed or satisfied at or prior to the Closing Time and (v) the other representations and warranties of the Company set forth in Section 1(a) shall be accurate as though expressly made at and as of the Closing Time. At the Closing Time, you shall have received certificates of the President or a Vice President and the Treasurer or the Controller of the Company and of EPIC, dated as of the Closing Time, to such effect. (h) On the date of this Agreement and at the Closing Time, Ernst & Young, independent public accountants with respect to the Company, shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; (i) On the date of this Agreement and at the Closing Time, Ernst & Young, independent public accountants with respect to EPIC, shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements of EPIC and certain financial information contained or incorporated by reference in the Registration Statement and the Prospectus; and (j) At the Closing Time, counsel for the Underwriters shall have been furnished with all such documents, certificates and opinions as they may reasonably request for the purpose of enabling them to pass upon the issuance and sale of the Securities as contemplated in this Agreement and the matters referred to in Section 5(d) and in order to evidence the 40 42 accuracy and completeness of any of the representations, warranties or statements of the Company, the performance of any of the covenants of the Company, or the fulfillment of any of the conditions herein contained; and all proceedings taken by the Company at or prior to the Closing Time in connection with the authorization, issuance and sale of the Securities as contemplated in this Agreement shall be reasonably satisfactory in form and substance to you and to Davis Polk & Wardwell as counsel for the Underwriters. (k) EPIC shall have terminated future contributions to the EPIC ESOP, discharged that portion of the principal amount of EPIC's loans to the EPIC ESOP Trust that exceeds the fair market value of the shares of EPIC Common Stock transferred by the EPIC Trustee to EPIC, and reacquired all of the shares of EPIC Common Stock held by the EPIC ESOP at the time of termination of EPIC's contributions to the EPIC ESOP and not allocated to the accounts of participants in the EPIC ESOP, and EPIC shall have terminated the Grantor Trust (as such term is defined in the Registration Statement) and consummated the transactions contemplated by such termination substantially in the manner described in the Prospectuses. (l) The Company shall have consummated the Acquisition and the equity offering of 6,000,000 Shares of Common Stock of the Company on April 21, 1994 (the "Equity Offering"). The Company shall have provided to you and Davis Polk & Wardwell as counsel for the U.S. Underwriters copies of all documents with respect to the consummation of such transactions as you or Davis Polk & Wardwell may reasonably request. (m) The transactions contemplated in the Prospectuses under the heading "The Acquisition Plan and the Financing Plan" shall have been duly authorized by the Company; all of the necessary consents to consummate such transactions shall have been obtained, except where the failure to obtain such consents would not have a material adverse effect on such transactions; there shall not be any violation on the part of the Company or the Company's Subsidiaries of any of the terms of such consents that could reasonably be expected to materially and adversely affect the consummation of such transactions; and there shall not be any pending or threatened legal or governmental proceedings with respect to any consents or the 41 43 transactions contemplated in the Prospectuses (including the transactions under the captions "The Acquisition and the Financing Plan", "Use of Proceeds" and "Capitalization" in the Prospectuses) that could reasonably be expected to materially and adversely affect such transactions. (n) All conditions precedent to the closing of the Equity Offering shall have been satisfied or waived. The Company shall have provided to you and Davis Polk & Wardwell as counsel for the U.S. Underwriters copies of all documents delivered in connection with the closing of the Equity Offering as you or Davis Polk & Wardwell may reasonably request. If any of the conditions specified in this Section shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement may be terminated by you upon notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 herein. Notwithstanding any such termination, the provisions of Sections 6 and 7 herein shall remain in effect. Section 6. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of an untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, investigation or proceeding by any 42 44 governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to the last sentence of Section 6(c), fees and disbursements of counsel chosen by you to represent the Underwriters), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information furnished or confirmed in writing to the Company by any Underwriter expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided further that the foregoing indemnification with respect to any untrue statement contained in or any omission from a preliminary prospectus shall not inure to the benefit of any Underwriter (or any person controlling such Underwriter) from whom the person asserting any such losses, claims, damages, liabilities, or expenses purchased any of the Securities if a copy of the Prospectus (or the Prospectus as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if such is required by law, at or prior to the written confirmation of the sale of such Securities to such person and the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the 43 45 indemnity contained in Section 6(a), as incurred, but only with respect to untrue statements or omissions; or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with information furnished or confirmed in writing to the Company by such Underwriter expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information, if applicable, or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Section 7. Contribution. In order to provide for just and equitable contribution in circumstances under which the indemnity provided for in Section 6 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity incurred by the Company and one or more of the Underwriters, as incurred, in such proportions that (a) the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial public offering price appearing thereon and (b) the Company is responsible for the balance; provided however, that no person guilty of the fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, 44 46 who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 8. Representations, Warranties and Agreements to Survive Delivery. The representations, warranties, indemnities, agreements and other statements of the Company, the Underwriters or their respective officers set forth in or made pursuant to this Agreement will remain operative and in full force and effect regardless of any investigation made by or on behalf of the Company or any Underwriter or controlling person and will survive delivery of and payment for the Securities. Section 9. Termination of Agreement. (a) You may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the respective dates as of which information is given in the Registration Statement, any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), earnings or business affairs of the Company and the Company's Subsidiaries, considered as one enterprise, or of EPIC and EPIC's Subsidiaries, considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation of existing hostilities or other calamity or crisis the effect of which is such as to make it, in your reasonable judgment, impracticable to market the Securities or enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended by the Commission, or if trading generally on the New York Stock Exchange or in the over-the-counter market has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by such exchange or by order of the Commission or any other governmental authority, or (iv) if a banking moratorium has been declared by either federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party, except to the extent provided in Section 4. Notwithstanding any such termination, the provisions of Section 6 and 7 shall remain in effect. (c) This Agreement may also terminate pursuant to the provisions of Section 2(c), with the effect stated in such Section. 45 47 Section 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at the Closing Time to purchase the Securities that it or they are obligated to purchase pursuant to this Agreement (the "Defaulted Securities"), you shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms set forth in this Agreement; if, however, you have not completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the aggregate principal amount of Securities to be purchased pursuant to this Agreement, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective Securities underwriting obligation proportions bear to the underwriting obligation proportions of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the aggregate principal amount of Securities to be purchased pursuant to this Agreement, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default that does not result in a termination of this Agreement, either you or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. Section 11. Default by the Company. If the Company shall fail at the Closing Time to sell and deliver the aggregate principal amount of Securities that it is obligated to sell, then this Agreement shall terminate without any liability on the part of any non-defaulting party except to the extent provided in Section 4 and except that the provisions of Section 6 and 7 shall remain in effect. 46 48 No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect to such default. Section 12. Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if delivered, mailed or transmitted by any standard form of telecommunication (notices transmitted by telecopier to be promptly confirmed in writing). Notices to the Underwriters shall be directed to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York, New York 10005, attention of _____________; and notices to the Company shall be directed to it at 4525 Harding Road, Nashville, Tennessee 37205 (telecopier no.: (615) 298-6377), attention of Philip D. Wheeler, Esq. Section 13. Parties. This Agreement is made solely for the benefit of the several Underwriters and the Company and, to the extent expressed, any person controlling the Company or any of the Underwriters, and the directors of the Company, its officers who have signed the Registration Statement, and their respective executors, administrators, successors and assigns and, subject to the provisions of Section 10, no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser, as such purchaser, from any of the several Underwriters of the Securities. All of the obligations of the Underwriters hereunder are several and not joint. Section 14. Governing Law and Time. This Agreement shall be governed by the laws of the State of New York. Specified times of the day refer to New York City time. Section 15. Counterparts. This Agreement may be executed in one or more counterparts and, when a counterpart has been executed by each party, all such counterparts taken together shall constitute one and the same agreement. 47 49 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement among the Company and the several Underwriters in accordance with its terms. Very truly yours, HEALTHTRUST, INC. - THE HOSPITAL COMPANY By -------------------------------- Name: Title: Confirmed and accepted as of the date first above written: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By ------------------------------------- Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ------------------------------------- Name: Title: 48 50 Exhibit A HEALTHTRUST, INC. - THE HOSPITAL COMPANY (A Delaware corporation) $___________ ___% Subordinated Notes due 2004 PRICE DETERMINATION AGREEMENT April __, 1994 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated c/o Donaldson, Lufkin & Jenrette Securities Corporation 140 Broadway New York, New York 10005 Ladies and Gentlemen: Reference is made to the Purchase Agreement dated April __, 1994 (the "Purchase Agreement") among Healthtrust, Inc. - The Hospital Company, a Delaware corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated as the several Underwriters named in Schedule A thereto or hereto (the "Underwriters"). The Purchase Agreement provides for the purchase by the Underwriters from the Company, subject to the terms and conditions set forth therein, of $___________ aggregate principal amount of the Company's ___% Subordinated Notes due ____ (the "Securities"). This Agreement is the Price Determination Agreement referred to in the Purchase Agreement. Pursuant to Section 2 of the Purchase Agreement, the undersigned agree with the Underwriters as follows: 1. The initial public offering price of the Securities shall be 100% of the principal amount thereof, plus accrued interest from [date of the signing of the Indenture] to the Closing Time. 49 51 2. The purchase price of the Securities to be paid by the several Underwriters shall be ___% of the principal amount thereof, plus accrued interest [date of the signing of the Indenture] to the Closing Time. 3. The interest rate to be borne by the Securities shall be ___% per annum. The Company represents and warrants to each of the Underwriters that the representations and warranties of the Company set forth in Section 1(a) of the Purchase Agreement are accurate as though expressly made at and as of the date hereof. As contemplated by Section 2 of the Purchase Agreement, attached as Schedule A is a completed list of the several Underwriters, which shall be a part of this Agreement and the Purchase Agreement. This Agreement shall be governed by the laws of the State of New York. If the foregoing is in accordance with the understanding of the Underwriters of the agreement between the Underwriters and the Company, please sign and return to the Company a counterpart hereof, whereupon this instrument along with all counterparts and together with the Purchase Agreement shall be a binding agreement among the Underwriters and the Company in accordance with its terms and the terms of the Purchase Agreement. Very truly yours, HEALTHTRUST, INC. - THE HOSPITAL COMPANY By ---------------------------- Name: Title: 50 52 Confirmed and accepted as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By --------------------------------- Name: Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By ---------------------------------- Name: Title: 51 53 SCHEDULE A
Principal Amount of Securities Underwriter to be Purchased ----------- ---------------- Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . . . $_______________ Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . _______________ Total . . . . . . . . . . $ ===============
EX-5.1 5 OPINION OF DEWEY BALLANTINE 1 EXHIBIT 5.1 April 22, 1994 Healthtrust, Inc. - The Hospital Company 4525 Harding Road Nashville, Tennessee 37205 Re: Healthtrust, Inc. - The Hospital Company Registration of 6,220,404 shares of Common Stock, par value $.001 per share, on Form S-3 --------------------------------------------- Ladies and Gentlemen: We have acted as special counsel to Healthtrust Inc. - The Hospital Company, a Delaware corporation (the "Company") in connection with the Company's Registration Statement on Form S-3 (File No. 33-52401) (the "Registration Statement") relating to 6,220,404 shares of Common Stock, $.001 par value per share (the "Shares"), filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Restated Certificate of Incorporation and by-laws of the Company, as amended to date, (ii) the Registration Statement, (iii) the applicable resolutions of the Board of Directors of the Company, (iv) the proposed form of U.S. Purchase Agreement among the Company, the selling stockholders named therein and the underwriters named therein, and the proposed form of International Purchase Agreement among the Company, the selling stockholders named therein and the underwriters named therein (together the "Purchase Agreements") and (v) such other documents, records or instruments as we have deemed necessary or appropriate as a basis for the opinions hereinafter set forth. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals and the conformity to authentic originals of all documents submitted as certified or photostatic copies. As to any facts material to this opinion that we did not independently 2 establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and others. We also have assumed that the Purchase Agreements, when executed and delivered, will be substantially in the forms submitted to us for examination. We are admitted to the Bar of the State of New York and express no opinion as to the laws of any other jurisdiction other than the General Corporation Law of the State of Delaware. Based upon and subject to the foregoing, we are of the opinion that the Shares have been duly authorized by the Company and, when sold as contemplated in the Purchase Agreements, will be legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit in the Registration Statement and the reference to this firm under the caption "Legal Matters" in the Registration Statement. Very truly yours, /s/ Dewey Ballantine 2 EX-12.2 6 COMPUTATION OF PRO FORMA RATIO 1 EXHIBIT 12.2 TO FORM S-3 REGISTRATION STATEMENT HEALTHTRUST, INC. - THE HOSPITAL COMPANY COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1993 ------------ ---------- Pro forma net income................................................. $ 80.6 $127.7 Pro forma income tax charge.......................................... 57.6 91.9 ------------ ---------- Pro forma pre-tax income............................................. $138.2 $219.6 ------------ ---------- Pro Forma Fixed Charges: Interest (expensed or capitalized)................................. $ 75.1 $165.0 Amortization of debt expense, discount or premium.................. 1.6 3.5 Estimated interest factor on operating lease payments.............. 10.5 19.8 ------------ ---------- Total pro forma fixed charges.............................. $ 87.2 $188.3 ------------ ---------- Pro Forma Earnings: Pre-tax income..................................................... $138.2 $219.6 Fixed charges...................................................... 87.2 188.3 Interest capitalized............................................... (5.6) (10.4) Amortization of interest capitalized............................... 1.2 2.2 ------------ ---------- Total pro forma earnings................................... $221.0 $399.7 ------------ ---------- Pro forma ratio of earnings to fixed charges......................... 2.5X 2.1X ------------ ---------- ------------ ----------
EX-23.1 7 CONSENT OF ERNST & YOUNG OF REGISTRANT 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Historical Financial Information" and "Experts" in Amendment No. 3 to the Registration Statement (Form S-3 No. 33-52401) and related Prospectus of Healthtrust, Inc. - The Hospital Company for the registration of 6,220,404 shares of its common stock and to the incorporation by reference therein of our report dated October 15, 1993, with respect to the consolidated financial statements and schedules of Healthtrust, Inc. - The Hospital Company included in its Annual Report (Form 10-K) for the year ended August 31, 1993, filed with the Securities and Exchange Commission. Ernst & Young Nashville, Tennessee April 22, 1994 EX-23.2 8 CONSENT OF ERNST & YOUNG OF EPIC 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Historical Financial Information" and "Experts" and to the use of our reports dated December 3, 1993, with respect to the consolidated financial statements of EPIC Holdings, Inc. and subsidiaries and EPIC Healthcare Group, Inc. and subsidiaries included in Amendment No. 3 to the Registration Statement (Form S-3 No. 33-52401) and related Prospectus of Healthtrust, Inc. -- The Hospital Company for the registration of 6,220,404 shares of its common stock. Ernst & Young Dallas, Texas April 22, 1994 -----END PRIVACY-ENHANCED MESSAGE-----