-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gja073q7XCy5N+3Rhu22r1duPEh90L3Zq9ZG5NLWS6tMptDoXnzG46csuKXFgS+F duBIzPcguL4dLSPMv1gkEQ== 0000950144-99-006087.txt : 19990517 0000950144-99-006087.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-006087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA HCA HEALTHCARE CORP/ CENTRAL INDEX KEY: 0000860730 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 752497104 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11239 FILM NUMBER: 99624247 BUSINESS ADDRESS: STREET 1: ONE PARK PLZ CITY: NASHVILLE STATE: TN ZIP: 37203 BUSINESS PHONE: 6153449551 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HEALTHCARE CORP DATE OF NAME CHANGE: 19930830 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HOSPITAL CORP DATE OF NAME CHANGE: 19930328 10-Q 1 COLUMBIA / HCA 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q --------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-11239 --------------------- COLUMBIA/HCA HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 75-2497104 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) ONE PARK PLAZA 37203 NASHVILLE, TENNESSEE (Zip Code) (Address of principal executive offices)
(615) 344-9551 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock of the latest practical date.
CLASS OF COMMON STOCK OUTSTANDING AT APRIL 30, 1999 --------------------- ----------------------------- Voting common stock, $.01 par value 547,075,056 shares Nonvoting common stock, $.01 par value 21,000,000 shares
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 COLUMBIA/HCA HEALTHCARE CORPORATION FORM 10-Q MARCH 31, 1999
PAGE OF FORM 10-Q --------- PART I: FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Statements of Income -- for the quarters ended March 31, 1999 and 1998................. 1 Condensed Consolidated Balance Sheets -- March 31, 1999 and December 31, 1998.................................. 2 Condensed Consolidated Statements of Cash Flows -- for the quarters ended March 31, 1999 and 1998................. 3 Notes to Condensed Consolidated Financial Statements...... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 11 PART II: OTHER INFORMATION Items 1 and 6............................................... 24
3 COLUMBIA/HCA HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 UNAUDITED (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1999 1998 -------- -------- Revenues.................................................... $ 4,655 $ 4,901 Salaries and benefits....................................... 1,860 2,013 Supplies.................................................... 722 746 Other operating expenses.................................... 892 940 Provision for doubtful accounts............................. 338 343 Depreciation and amortization............................... 296 309 Interest expense............................................ 111 153 Equity in earnings of affiliates............................ (35) (42) Gains on sales of facilities................................ (249) -- Impairment of long-lived assets............................. 106 -- Restructuring of operations and investigation related costs..................................................... 30 38 -------- -------- 4,071 4,500 -------- -------- Income from continuing operations before minority interests and income taxes.......................................... 584 401 Minority interests in earnings of consolidated entities..... 14 20 -------- -------- Income from continuing operations before income taxes....... 570 381 Provision for income taxes.................................. 248 162 -------- -------- Income from continuing operations........................... 322 219 Loss from operations of discontinued businesses, net of tax benefit of ($16).......................................... -- (22) -------- -------- Net income........................................ $ 322 $ 197 ======== ======== Basic earnings per share: Income from continuing operations......................... $ .50 $ .34 Loss from operations of discontinued businesses........... -- (.03) -------- -------- Net income........................................ $ .50 $ .31 ======== ======== Diluted earnings per share: Income from continuing operations......................... $ .50 $ .34 Loss from operations of discontinued businesses........... -- (.03) -------- -------- Net income........................................ $ .50 $ .31 ======== ======== Shares used in earnings per share calculations (in thousands): Basic..................................................... 639,403 642,050 Diluted................................................... 645,011 644,933 Cash dividends per share.................................... $ .02 $ .02
See accompanying notes. 1 4 COLUMBIA/HCA HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS UNAUDITED (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31, 1999 1998 --------- ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 586 $ 297 Accounts receivable, less allowances for doubtful accounts of $1,639 in 1999 and $1,645 in 1998................... 2,250 2,096 Inventories............................................... 419 434 Income taxes receivable................................... -- 149 Other..................................................... 979 887 ------- ------- 4,234 3,863 Property and equipment, at cost............................. 15,410 15,644 Accumulated depreciation.................................... (6,261) (6,195) ------- ------- 9,149 9,449 Investments of insurance subsidiary......................... 1,533 1,614 Investments in and advances to affiliates................... 865 1,275 Intangible assets, net...................................... 2,815 2,910 Other....................................................... 201 318 ------- ------- $18,797 $19,429 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 748 $ 784 Accrued salaries.......................................... 429 425 Other accrued expenses.................................... 1,252 1,282 Long-term debt due within one year........................ 763 1,068 ------- ------- 3,192 3,559 Long-term debt.............................................. 5,566 5,685 Professional liability risks, deferred taxes and other liabilities............................................... 1,788 1,839 Minority interests in equity of consolidated entities....... 772 765 Stockholders' equity: Common stock $.01 par; authorized 1,600,000,000 voting shares and 50,000,000 nonvoting shares; outstanding 602,577,100 voting shares and 21,000,000 nonvoting shares -- March 31, 1999 and 621,578,300 voting shares and 21,000,000 nonvoting shares -- December 31, 1998... 6 6 Capital in excess of par value............................ 3,103 3,498 Other..................................................... 11 11 Accumulated other comprehensive income.................... 64 80 Retained earnings......................................... 4,295 3,986 ------- ------- 7,479 7,581 ------- ------- $18,797 $19,429 ======= =======
See accompanying notes. 2 5 COLUMBIA/HCA HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 UNAUDITED (DOLLARS IN MILLIONS)
1999 1998 ------- ----- Cash flows from continuing operating activities: Net income................................................ $ 322 $ 197 Adjustments to reconcile net income to net cash provided by continuing operating activities: Provision for doubtful accounts...................... 338 343 Depreciation and amortization........................ 296 309 Income taxes......................................... 331 501 Gains on sales of facilities......................... (249) -- Impairment of long-lived assets...................... 106 -- Loss from discontinued operations.................... -- 22 Changes in operating assets and liabilities.......... (844) (678) Other................................................ 12 (6) ------- ----- Net cash provided by continuing operating activities....................................... 312 688 ------- ----- Cash flows from investing activities: Purchase of property and equipment........................ (301) (316) Acquisition of hospitals and health care entities......... -- (66) Disposition of property and equipment..................... 506 43 Change in investments..................................... 541 (39) Change in net assets of discontinued operations, net...... -- 30 Other..................................................... 64 71 ------- ----- Net cash provided by (used in) investing activities....................................... 810 (277) ------- ----- Cash flows from financing activities: Issuance of long-term debt................................ 1,004 -- Net change in bank borrowings............................. (1,241) (345) Repayment of long-term debt............................... (187) (72) Payment of cash dividends................................. (13) (13) Issuances (repurchases) of common stock, net.............. (408) 35 Other..................................................... 12 2 ------- ----- Net cash used in financing activities............. (833) (393) ------- ----- Change in cash and cash equivalents......................... 289 18 Cash and cash equivalents at beginning of period............ 297 110 ------- ----- Cash and cash equivalents at end of period.................. $ 586 $ 128 ======= ===== Interest payments........................................... $ 83 $ 117 Income tax refunds, net..................................... $ (82) $(334)
See accompanying notes. 3 6 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1 -- BASIS OF PRESENTATION Columbia/HCA Healthcare Corporation is a holding company whose affiliates own and operate hospitals and related health care entities. The term "affiliates" includes direct and indirect subsidiaries of Columbia/HCA Healthcare Corporation and partnerships and joint ventures in which such subsidiaries are partners. At March 31, 1999, these affiliates owned and operated 273 hospitals, 95 freestanding surgery centers and provided extensive outpatient and ancillary services. Affiliates of Columbia/HCA Healthcare Corporation are also partners in several 50/50 joint ventures that own and operate 24 hospitals and 5 freestanding surgery centers which are accounted for using the equity method. The affiliates' facilities are located in 31 states, England and Switzerland. The terms "Columbia/HCA" or the "Company" as used in this Quarterly Report on Form 10-Q refer to Columbia/HCA Healthcare Corporation and its affiliates unless otherwise stated or indicated by context. The accompanying unaudited condensed consolidated financial statements 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. Operating results for the quarter ended March 31, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2 -- INVESTIGATIONS The Company is currently the subject of several Federal investigations into its business practices, as well as governmental investigations by various states. The Company is cooperating in these investigations and understands, through written notice and other means, that it is a target in these investigations. Given the breadth of the ongoing investigations, the Company expects additional investigative and prosecutorial activity to occur in these and other jurisdictions in the future. Columbia/HCA is a defendant in several qui tam actions brought by private parties on behalf of the United States of America, which have been unsealed and served on Columbia/HCA. The actions allege, in general, that Columbia/HCA and certain subsidiaries and/or affiliated partnerships violated the False Claims Act by submitting improper claims to the government for reimbursement. The lawsuits generally seek damages of three times the amount of all Medicare or Medicaid claims (involving false claims) presented by the defendants to the Federal government, civil penalties of not less than $5,000 nor more than $10,000 for each such Medicare or Medicaid claim, attorney's fees and costs. The government has intervened in three qui tam actions. Columbia/HCA is aware of additional qui tam actions that remain under seal and believes that there are other sealed qui tam cases of which it is unaware. The Company is the subject of a formal order of investigation by the Securities and Exchange Commission. The Company understands that the investigation includes the anti-fraud, insider trading, periodic reporting and internal accounting control provisions of the Federal securities laws. Management believes it is too early to predict the outcome or effect of the ongoing investigations or qui tam and other actions. If Columbia/HCA is found to have violated Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Similarly, the amounts claimed in the qui tam and other actions are substantial, and Columbia/HCA could be subject to substantial costs resulting from an adverse outcome of one or more such actions. Any such sanctions or losses could have 4 7 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNAUDITED NOTE 2 -- INVESTIGATIONS (CONTINUED) a material adverse effect on the Company's financial position and results of operations. (See Note 10 -- Contingencies and Part II, Item 1: Legal Proceedings.) NOTE 3 -- RESTRUCTURING OF OPERATIONS The Company is currently in the process of restructuring its operations in an effort to create a smaller and more focused company. The restructuring includes the divestitures of certain hospitals, surgery centers and related facilities, the spin-offs of two companies that represented the Pacific and America operating groups and the divestitures of the Company's home health and certain other businesses, as described in Note 5 -- Discontinued Operations. Divestiture of Certain Hospitals and Surgery Centers During the first quarter of 1999, the Company recognized a pretax gain of $249 million ($151 million after-tax) on the sale of two hospitals and certain related health care facilities. Proceeds from the sales were used to repay bank borrowings. During the first quarter of 1999, management identified and initiated, or revised, plans to sell or close during 1999, 13 consolidated hospitals and 4 non-consolidated hospitals. The carrying value for the hospitals and other assets expected to be sold was reduced to fair value of approximately $210 million, based upon estimates of sales values, for a total non-cash, pretax charge of approximately $106 million. For the quarters ended March 31, 1999 and 1998, respectively, the hospitals and other assets for which the impairment charge was recorded had net revenues of approximately $136 million and $138 million and incurred losses from continuing operations before the pretax charge and income tax benefits of approximately $10 million and $11 million. Proceeds from the expected divestitures will be used to repay bank borrowings. Spin-Offs During the first quarter, the Company continued with its previously announced plan to create two tax-free spin-off companies that represented the Pacific (Triad) and America (Lifepoint) operating groups. In March 1999, the Company received a ruling from the Internal Revenue Service (the "IRS") that the proposed spin-offs would generally be tax-free to the Company and its shareholders. On May 11, 1999, the spin-offs were completed through a distribution of one share of LifePoint Hospitals, Inc. common stock and one share of Triad Hospitals, Inc. common stock for every 19 shares of the Company's common stock outstanding on April 30, 1999. At March 31, 1999, the Pacific group (Triad) was comprised of 35 consolidating hospitals with $368 million and $414 million in revenues for the quarters ended March 31, 1999 and 1998, respectively. EBITDA (income from continuing operations before depreciation and amortization, interest expense, gains on sales of facilities, impairment of long-lived assets, management fees, minority interests and income taxes) for Triad was $41 million and $48 million for the quarters ended March 31, 1999 and 1998, respectively. The America group (Lifepoint) was comprised of 23 consolidating hospitals with $134 million and $130 million in revenues for the quarters ended March 31, 1999 and 1998, respectively. EBITDA for Lifepoint was $22 million and $20 million for the quarters ended March 31, 1999 and 1998, respectively. 5 8 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNAUDITED NOTE 4 -- RESTRUCTURING OF OPERATIONS AND INVESTIGATION RELATED COSTS During 1999 and 1998, the Company recorded the following pretax charges related to the investigation and restructuring of operations as discussed in Note 2 -- Investigations and Note 3 -- Restructuring of Operations (in millions):
QUARTER ----------- 1999 1998 ---- ---- Professional fees related to investigation.................. $19 $28 Severance costs............................................. 2 4 Other....................................................... 9 6 --- --- $30 $38 === ===
NOTE 5 -- DISCONTINUED OPERATIONS Discontinued operations included three of the four business units acquired in the August 1997 merger with Value Health, Inc. ("Value Health") and the Company's home health care businesses. The Company implemented plans to dispose of these businesses during 1997. During the second and third quarters of 1998, the Company completed the sales of the three Value Health units for proceeds totaling $662 million. The proceeds from the sales were used to repay bank borrowings. The Company recorded a $73 million loss upon completion of these sales during the second quarter of 1998, representing an adjustment to the tax benefit related to the estimated $443 million after-tax loss on disposal of discontinued operations recorded in the fourth quarter of 1997. During the third and fourth quarters of 1998, the Company completed five separate sales transactions that included substantially all of the Company's home health care operations and received approximately $90 million in proceeds. The proceeds from the sales were used to repay bank borrowings. Revenues of the discontinued businesses totaled $641 million for the quarter ended March 31, 1998. NOTE 6 -- INCOME TAXES The Company is currently contesting before the United States Tax Court (the "Tax Court") and the United States Court of Federal Claims certain claimed deficiencies and adjustments proposed by the IRS in conjunction with its examination of the Company's 1994 Federal income tax return, Columbia Healthcare Corporation's ("CHC") 1993 and 1994 Federal income tax returns, HCA-Hospital Corporation of America, Inc.'s ("HCA") 1981 through 1988 and 1991 through 1993 Federal income tax returns and Healthtrust, Inc. -- The Hospital Company's ("Healthtrust") 1990 through 1994 Federal income tax returns. The disputed items include: the disallowance of certain acquisition-related costs, executive compensation, system conversion costs and insurance premiums which were deducted in calculating taxable income and the methods of accounting used by certain subsidiaries for calculating taxable income related to vendor rebates and governmental receivables. The IRS is claiming an additional $360 million in income taxes and interest through March 31, 1999. Tax Court decisions received in 1996 and 1997 related to HCA's 1981 through 1988 federal income tax returns may be appealed by the IRS or the Company to the United States Court of Appeals, Sixth Circuit. The Company expects any decisions regarding the appeal of these rulings will be made during 1999. Management believes that adequate provisions have been recorded to satisfy final resolution of the disputed issues. Management believes that the Company, CHC, HCA and Healthtrust properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS 6 9 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNAUDITED NOTE 6 -- INCOME TAXES (CONTINUED) during previous examinations and that final resolution of these disputes will not have a material adverse effect on the results of operations or financial position of the Company. NOTE 7 -- EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the three months ended March 31, 1999 and 1998 (dollars in millions, except per share amounts):
QUARTER ------------------- 1999 1998 -------- -------- Numerator (a): Income from continuing operations......................... $ 322 $ 219 Denominator: Share reconciliation (in thousands): Shares used for basic earnings per share............... 639,403 642,050 Effect of dilutive securities: Stock options........................................ 1,326 2,178 Warrants and other................................... 4,282 705 -------- -------- Shares used for dilutive earnings per share............... 645,011 644,933 ======== ======== Earnings per share: Basic earnings per share from continuing operations....... $ .50 $ .34 Diluted earnings per share from continuing operations..... $ .50 $ .34
(a) Amount is used for both basic and diluted earnings per share computations since there is no earnings effect related to the dilutive securities. NOTE 8 -- LONG-TERM DEBT During March 1999, the Company entered into a $1.0 billion Senior Interim Term Loan agreement. Borrowings under this agreement will be used to fund the $1.0 billion share repurchase program approved in February 1999 (see Note 9 -- Stock Repurchase Program). The Company's revolving credit facility and $1.0 billion term loan were amended during March 1999 to permit the spin-offs of the Company's America and Pacific operating groups. NOTE 9 -- STOCK REPURCHASE PROGRAM In February 1999, the Company announced that its Board of Directors had authorized the repurchase of up to an additional $1 billion of its common stock through open market purchases, privately negotiated transactions or through a series of accelerated or forward purchase contracts. During the first quarter of 1999, through open market purchases, the Company repurchased 3.6 million shares of its common stock for approximately $68 million. During April 1999, through open market purchases, the Company repurchased 5.0 million shares of its common stock for approximately $110 million. Also during April 1999, the Company, through accelerated purchase agreements, repurchased 27.0 million shares of its common stock for approximately $700 million. In July 1998, the Company announced a stock repurchase program under which up to $1 billion of the Company's common stock would be repurchased by entering into a series of forward purchase contracts. Approximately 44 million shares were purchased at an average cost of approximately $22.65 per share. The 7 10 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNAUDITED NOTE 9 -- STOCK REPURCHASE PROGRAM (CONTINUED) majority of these shares were purchased by certain financial organizations through a series of forward purchase contracts. In accordance with the terms of the forward purchase contracts, which permit settlement on a net shares basis, the shares purchased remain issued and outstanding until the forward purchase contracts are settled. During the first quarter of 1999, the Company settled forward purchase contracts representing 15.0 million shares at a cost of approximately $323 million. The company settled another 24.4 million shares at a cost of approximately $566 million in April 1999. During the first quarter of 1999, in connection with the Company's share repurchase programs, the Company entered into a Letter of Credit Agreement (the "LOC Agreement") with the United States Department of Justice (the "DOJ"). As part of the LOC Agreement, the Company has provided the DOJ with Letters of Credit totaling $1 billion. The LOC Agreement also provides that the Company's repurchase program announced in February 1999 may be made, at the Company's discretion, through open market purchases, privately negotiated transactions or through a series of accelerated or forward purchase contracts. The Company and the DOJ acknowledge that the amount in the LOC Agreement is not based upon the amount or expected amount of any potential settlement. The LOC Agreement does not constitute an admission of liability by the Company. NOTE 10 -- CONTINGENCIES Significant Legal Proceedings Various lawsuits, claims and legal proceedings (see Note 2 -- Investigations, for a description of the ongoing government investigations) have been and are expected to be instituted or asserted against the Company, including those relating to shareholder derivative and class action complaints; purported class action lawsuits filed by patients and payers alleging, in general, improper and fraudulent billing, coding and physician referrals, as well as other violations of law; certain qui tam or "whistleblower" actions alleging, in general, unlawful claims for reimbursement or unlawful payments to physicians for the referral of patients and other violations of law. While the amounts claimed may be substantial, the ultimate liability cannot be determined or reasonably estimated at this time due to the considerable uncertainties that exist. Therefore, it is possible that results of operations, financial position and liquidity in a particular period could be materially, adversely affected upon the resolution of certain of these contingencies. General Liability Claims The Company is subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians' staff privileges. In certain of these actions the claimants may seek punitive damages against the Company, which are usually not covered by insurance. It is management's opinion that the ultimate resolution of these pending claims and legal proceedings will not have a material adverse effect on the Company's results of operations or financial position. 8 11 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNAUDITED NOTE 11 -- COMPREHENSIVE INCOME The components of comprehensive income, net of related taxes, for the quarters ended March 31, 1999 and 1998 are as follows (in millions):
QUARTER ------------ 1999 1998 ---- ---- Net income.................................................. $322 $197 Unrealized (losses) gains on securities..................... (9) 24 Foreign currency translation adjustments.................... (7) (2) ---- ---- Comprehensive income........................................ $306 $219 ==== ====
The components of accumulated other comprehensive income, net of related taxes, at March 31, 1999 and 1998 are as follows (in millions):
QUARTER ------------ 1999 1998 ---- ---- Net unrealized gains on securities.......................... $68 $114 Foreign currency translation adjustments.................... (4) -- --- ---- Accumulated other comprehensive income...................... $64 $114 === ====
NOTE 12 -- SEGMENT AND GEOGRAPHIC INFORMATION Columbia/HCA operates in one line of business which is operating hospitals and related health care entities. During the quarters ended March 31, 1999 and 1998, approximately 31% and 33%, respectively, of the Company's revenues related to patients participating in the Medicare program. In November 1997, Columbia/HCA restructured its operations into five divisions which are organized geographically. Included in these five divisions are the Eastern Group made up of 107 consolidated hospitals located in the Eastern United States and the Western Group made up of 98 consolidated hospitals located in the Western United States. These two divisions make up the Company's core operations and are typically located in urban areas that are characterized by highly integrated facility networks. The America Group (LifePoint) includes 23 consolidated hospitals which are located in non-urban areas where, in almost every case the hospital is the only hospital in the community. The Pacific Group (Triad) includes 35 consolidated hospitals, approximately three-quarters of which are located in small cities, generally in the Southern, Western and Southwestern United States where the hospital is usually the only hospital or one of two hospitals in the community, and the remainder of Pacific's facilities are located in larger urban areas typically characterized by a high rate of population growth. On May 11, 1999, Columbia/HCA completed the spin-offs of LifePoint Hospitals, Inc. and Triad Hospitals, Inc. as two independent, publicly-traded companies. See Note 3 -- Restructuring of Operations. The Atlantic Group includes 8 hospitals which are located outside of the Company's core markets and are currently held for sale. 9 12 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) UNAUDITED NOTE 12 -- SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) The geographic distributions of the Company's revenues and EBITDA for the quarters ended March 31, 1999 and 1998 are summarized in the following table (EBITDA is defined as income from continuing operations before depreciation and amortization, interest expense, gains on sales of facilities, impairment of long-lived assets, management fees, restructuring of operations and investigation related costs, minority interests and income taxes) (dollars in millions):
QUARTER ---------------- 1999 1998 ------ ------ Revenues: Eastern Group............................................. $2,098 $2,019 Western Group............................................. 1,865 1,723 Pacific Group............................................. 368 414 America Group............................................. 134 130 Atlantic Group............................................ 109 497 Corporate and other....................................... 81 118 ------ ------ $4,655 $4,901 ====== ====== EBITDA Eastern Group............................................. $ 512 $ 476 Western Group............................................. 322 312 Pacific Group............................................. 41 48 America Group............................................. 22 20 Atlantic Group............................................ (5) 40 Corporate and other....................................... (14) 5 ------ ------ $ 878 $ 901 ====== ======
NOTE 13 -- DERIVATIVES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 1999. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant effect on earnings or the financial position of the Company. 10 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains disclosures which are "forward-looking statements." Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue". These forward-looking statements are based on the current plans and expectations of the Company and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and the Company's future financial condition and results. These factors include, but are not limited to, (i) the outcome of the known and unknown governmental investigations and litigation involving the Company's business practices, (ii) the highly competitive nature of the health care business, (iii) the efforts of insurers, health care providers and others to contain health care costs, (iv) possible changes in the Medicare program that may further limit reimbursements to health care providers and insurers, (v) changes in Federal, state or local regulation affecting the health care industry, (vi) the possible enactment of Federal or state health care reform, (vii) the ability to attract and retain qualified management and personnel, including physicians, (viii) liabilities and other claims asserted against the Company, (ix) fluctuations in the market value of the Company's common stock, (x) ability to complete the share repurchase program, (xi) changes in accounting practices, (xii) changes in general economic conditions, (xiii) future divestitures which may result in additional charges, (xiv) the complexity of integrated computer systems and the success and expense of the remediation efforts of the Company and relevant third parties in achieving Year 2000 readiness, (xv) the ability to enter into managed care provider arrangements on acceptable terms, (xvi) the availability and terms of capital to fund the expansion of the Company's business, (xvii) changes in business strategy or development plans, (xviii) slowness of reimbursement, and (xix) other risk factors. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward- looking statements made by or on behalf of the Company. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." INVESTIGATIONS The Company is currently the subject of several federal investigations into certain of its business practices, as well as governmental investigations by various states. The Company is cooperating in these investigations and understands, through written notice and other means, that it is a target in these investigations. Given the breadth of the ongoing investigations, the Company expects additional investigative and prosecutorial activity to occur in these and other jurisdictions in the future. The Company is the subject of a formal order of investigation by the Securities and Exchange Commission ("SEC"). The Company understands that the SEC investigation includes the anti-fraud, insider trading, periodic reporting and internal accounting control provisions of the Federal securities laws. The Company cannot predict the outcome or quantify effects that the ongoing investigations, the initiation of additional investigations, if any, and the related media coverage will have on the Company's financial condition or results of operations in future periods. Were the Company to be found in violation of Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Any such sanctions could have a material adverse effect on the Company's financial position and results of operations. See Note 10-Contingencies of the Notes to Condensed Consolidated Financial Statements. BUSINESS STRATEGY Columbia/HCA's primary objective is to provide the communities it serves with a comprehensive array of quality health care services in the most cost effective manner possible. The Company's general, acute care 11 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) BUSINESS STRATEGY (CONTINUED) hospitals usually provide a full range of services commonly available in hospitals, such as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services. Outpatient and ancillary health care services are provided by the Company, including outpatient surgery centers, diagnostic centers, rehabilitation facilities and other facilities. In addition, Columbia/HCA operates psychiatric hospitals which generally provide a full range of mental health care services in inpatient, partial hospitalization and outpatient settings. The Company also operates preferred provider organizations in 46 states. In November 1997, Columbia/HCA reorganized its operations into five divisions. In May 1999, Columbia/HCA established two of those divisions, America Group ("LifePoint") and Pacific Group ("Triad"), as independent, publicly-traded companies through tax-free spin-offs of these companies to Columbia/HCA stockholders. LifePoint's hospitals are located in non-urban areas where, in almost every case, LifePoint's hospital is the only hospital in the community. Approximately three-quarters of Triad's hospitals are located in small cities, generally in the Southern, Western and Southwestern United States, where Triad's hospital is usually either the only hospital or one of two hospitals in the community, and the remainder of Triad's hospitals are located in larger urban areas. Management believes that separating LifePoint and Triad into two smaller, strategically focused public companies will have positive effects on the performance and profitability of the facilities in these groups by enabling more focused management attention, more effective operating strategies based on local market conditions, and compensation incentives for employees that are more closely tied to group performance. During the third quarter of 1997, management implemented plans to divest the Company's home health businesses and three of the four Value Health business units (Value Health was a provider of specialty managed care benefit programs). The divestitures of the three Value Health business units and the home health operations were completed during 1998. The results of operations of these divested businesses are reflected in the 1998 Condensed Consolidated Statement of Income as discontinued operations. The divestiture of the home health operations and the Value Health business units and the spin-offs of LifePoint and Triad, will allow Columbia/HCA management to focus their efforts on the Company's core markets, which are typically located in urban areas that are characterized by highly integrated health care facility networks. The Company's strategy is to be a comprehensive provider of quality health care services in select communities. The Company maintains and replaces equipment, renovates and constructs replacement facilities and adds new services to increase the attractiveness of its hospitals and other facilities to patients and physicians. By developing a comprehensive health care network with a broad range of health care services located throughout a market area, the Company believes it achieves greater visibility and is better able to attract and serve patients and physicians. The Company believes it is also able to reduce operating costs by sharing certain services among several facilities in the same area and is better positioned to work with health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs") and employers. The Company generally seeks to operate each of its facilities as part of a network with other health care facilities that it owns or operates within the same region. In instances where acquisitions of additional facilities in the area are not possible or practical, the Company may seek joint ventures or partnership arrangements with other local facilities or alternatively, may seek to divest those assets. 12 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS Revenue/Volume Trends During the first quarter of 1999, the Company continued to face challenges affecting revenues and volume growth rates. Three primary factors have contributed these challenges: the impact of reductions in Medicare payments mandated by the Balanced Budget Act of 1997 ("BBA-97"), the continuing trend toward the conversion of more services to an outpatient basis and the impact of the restructuring of operations and government investigations. The Company's revenues continue to be affected by an increasing proportion of revenue being derived from fixed payment, higher discount sources, including Medicare, Medicaid and managed care plans. In addition, insurance companies, government programs (other than Medicare) and employers purchasing health care services for their employees are negotiating discounted amounts that they will pay health care providers rather than paying standard prices. The Company expects patient volumes from Medicare and Medicaid to continue to increase due to the general aging of the population and expansion of state Medicaid programs. However, under BBA-97, the Company's reimbursement from the Medicare and Medicaid programs was reduced and will be further reduced as certain reductions will be phased in over the next two years. During the first quarter of 1999, Congress did not adopt the Administration's proposed Medicare cuts for fiscal year 2000 and their proposal to extend BBA-97 two additional years beyond 2002. BBA-97 has accelerated a shift, by certain Medicare beneficiaries, from traditional Medicare coverage to medical coverage that is provided under managed care plans. The Company generally receives lower payments per patient under managed care plans than under traditional indemnity insurance plans. With an increasing proportion of services being reimbursed based upon fixed payment amounts (where the payment is based upon the diagnosis, regardless of the cost incurred or level of service provided), revenues, earnings and cash flows are being significantly reduced. Admissions related to Medicare, Medicaid and managed care plan patients were 90% of total admissions for the quarters ended March 31, 1999 and 1998. Revenues from capitation arrangements (prepaid health service agreements) are less than 1% of consolidated revenues. The Company's revenues also continue to be affected by the trend toward certain services being performed more frequently on an outpatient basis. The growth in outpatient services is expected to continue in the health care industry as procedures performed on an inpatient basis are converted to outpatient procedures through continuing advances in pharmaceutical and medical technologies. The redirection of certain procedures to an outpatient basis is also influenced by pressures from payers to direct certain procedures from inpatient care to outpatient care. Generally, the payments received for an outpatient procedure are less than those received for a similar procedure performed in an inpatient setting. Outpatient revenues grew to 38% of net patient revenues in 1999 from 36% in 1998. Management believes that the impact of the ongoing governmental investigations of certain of the Company's business practices and the related media coverage, combined with the restructuring of operations (including the spin-offs, the divestiture of the home health operations and the announced divestitures of several facilities) have created uncertainties with physicians, patients and payers in certain markets. Reductions in the rate of increase in Medicare and Medicaid reimbursement, increasing percentages of patient volume being related to patients participating in managed care plans and continuing trends toward more services being performed on an outpatient basis are expected to present ongoing challenges to the Company. The challenges presented by these trends are enhanced in that the Company does not have the ability to control these trends and the associated risks. To maintain and improve its operating margins in future periods, the Company must increase patient volumes while controlling the cost of providing services. If the Company is not able to achieve reductions in the cost of providing services through operational efficiencies, and the trend of declining reimbursements and payments continues, results of operations and cash flows will deteriorate. Management believes that the proper response to these challenges includes the delivery of a broad range of quality health care services to physicians and patients with operating decisions being made by the local management teams and local physicians. 13 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Operating Results Summary The following is a summary of results from continuing operations for the quarters ended March 31, 1999 and 1998 (dollars in millions, except per share amounts):
1999 1998 -------------- -------------- AMOUNT RATIO AMOUNT RATIO ------ ----- ------ ----- Revenues.................................................... $4,655 100.0 $4,901 100.0 Salaries and benefits....................................... 1,860 40.0 2,013 41.1 Supplies.................................................... 722 15.5 746 15.2 Other operating expenses.................................... 892 19.0 940 19.2 Provision for doubtful accounts............................. 338 7.3 343 7.0 Depreciation and amortization............................... 296 6.4 309 6.3 Interest expense............................................ 111 2.4 153 3.1 Equity in earnings of affiliates............................ (35) (0.7) (42) (0.9) Gains on sales of facilities................................ (249) (5.3) -- -- Impairment of long-lived assets............................. 106 2.3 -- -- Restructuring of operations and investigation related costs..................................................... 30 0.6 38 0.8 ------ ----- ------ ----- 4,071 87.5 4,500 91.8 ------ ----- ------ ----- Income from continuing operations before minority interests and income taxes.......................................... 584 12.5 401 8.2 Minority interests in earnings of consolidated entities..... 14 0.3 20 0.4 ------ ----- ------ ----- Income from continuing operations before income taxes....... 570 12.2 381 7.8 Provision for income taxes.................................. 248 5.3 162 3.4 ------ ----- ------ ----- Income from continuing operations........................... $ 322 6.9 $ 219 4.4 ====== ===== ====== ===== Basic earnings per share from continuing operations......... $ .50 $ .34 Diluted earnings per share from continuing operations....... $ .50 $ .34 % changes from prior year: Revenues.................................................. (5.0)% (1.7)% Income from continuing operations before income taxes..... 49.5 (49.8) Income from continuing operations......................... 46.7 (51.8) Basic earnings per share from continuing operations....... 47.1 (49.3) Diluted earnings per share from continuing operations..... 47.1 (48.5) Admissions (a)............................................ (6.0) 2.1 Equivalent admissions (b)................................. (7.1) 3.3 Revenues per equivalent admission......................... 2.2 (4.8) Same facility % changes from prior year(c): Revenues.................................................. 2.7 (2.6) Admissions (a)............................................ 3.5 0.7 Equivalent admissions (b)................................. 3.6 2.0 Revenues per equivalent admission......................... (0.8) (4.6)
- --------------- (a) Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to the Company's hospitals and is used by management and certain investors as a general measure of inpatient volume. (b) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation "equates" outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. (c) Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period. 14 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Quarters Ended March 31, 1999 and 1998 Income from continuing operations before income taxes increased 49.5% to $570 million in 1999 from $381 million in 1998 and pretax margins increased to 12.2% in 1999 from 7.8% in 1998. The increase in pretax income was primarily attributable to $249 million in gains on sales of facilities (an excess of $143 million in net gains over the $106 million in impairment charges recorded in the first quarter of 1999) and an increase in the operating margin. Revenues decreased 5.0% to $4.7 billion in 1999 compared to $4.9 billion in 1998. Inpatient admissions decreased 6.0% from a year ago and equivalent admissions (adjusted to reflect combined inpatient and outpatient volume) decreased 7.1%. Revenues, admissions and equivalent admissions declined primarily as a result of the sales of facilities. At March 31, 1999 there were 37 fewer hospitals and 47 fewer surgery centers than there were at March 31, 1998. On a same facility basis, revenues increased 2.7%, admissions increased 3.5% and equivalent admissions increased 3.6% from a year ago. Revenue per equivalent admissions increased 2.2% from 1998 to 1999 and on a same facility basis remained relatively unchanged from the same period last year. As previously discussed, the increase in outpatient volume activity is primarily a result of the continuing trend of certain services, previously provided in an inpatient setting, being converted to an outpatient setting. The decline in revenues was due to several factors including decreases in Medicare rates of reimbursement mandated by the BBA-97 which became effective October 1, 1997 (lowered 1999 revenues by approximately $30 million), continued increases in discounts from the growing number of managed care payers (managed care as a percent of total admissions increased to 39% in 1999 compared to 36% during 1998) and a net decrease in the number of consolidated hospitals and surgery centers due to the sales of several facilities during 1998. Salaries and benefits, as a percentage of revenues, decreased to 40.0% in 1999 from 41.1% in 1998. The increase in revenues per equivalent admission was a primary factor for the decrease. In addition, the Company was more successful in adjusting staffing levels to correspond with the equivalent admission growth rates (man hours per equivalent admission decreased slightly compared to last year). Supply costs increased as a percentage of revenues to 15.5% in 1999 from 15.2% in 1998 due to an increase in the cost of supplies per equivalent admission. Other operating expenses (primarily consisting of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance and non-income taxes) remained relatively unchanged as a percentage of revenues. Provision for doubtful accounts, as a percentage of revenues, increased to 7.3% in 1999 from 7.0% in 1998 due to internal factors such as continued computer information system conversions (including patient accounting systems) at certain facilities and external factors such as payer mix shifts to managed care plans (resulting in increased amounts of patient co-payments and deductibles) and increases in claim audits and remittance denials from certain payers. Management is unable to quantify the effects of each of these factors, but the shift in payer mix is expected to continue and the provision for doubtful accounts is likely to remain at higher levels than in past years. Equity in earnings of affiliates decreased as a percentage of revenues to 0.7% in 1999 from 0.9% in 1998. Depreciation and amortization increased as a percentage of revenues to 6.4% in 1999 from 6.3% in 1998, primarily due to the increased capital expenditures related to ancillary services (such as outpatient services) and information systems. Capital expenditures in these areas generally result in shorter depreciation and amortization lives for the assets acquired than typical hospital acquisitions. 15 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Quarters Ended March 31, 1999 and 1998 (continued) Interest expense decreased to $111 million in 1999 compared to $153 million in 1998 primarily as a result of a decrease in average outstanding debt during 1999 compared to last year. This was due to the restructuring of operations discussed earlier which has resulted in the receipt of a significant amount of cash proceeds in 1998 which were used to pay down borrowings. During 1999 and 1998, respectively, the Company incurred $30 million and $38 million of costs in connection with the restructuring of operations and investigation related costs. These costs included $19 and $28 million in professional fees related to the investigations, $2 million and $4 million of severance costs and $9 million and $6 million in various other costs in 1999 and 1998, respectively. Minority interests decreased slightly as a percentage of revenues to 0.3% in 1999 from 0.4% in 1998. As previously discussed, the Company is currently in the process of restructuring its operations. See Note 3-Restructuring of Operations in the Notes to Condensed Consolidated Financial Statements. Assuming the completion of the restructuring, the Company's remaining core assets had combined net income from continuing operations which increased 6.9% to $231 million in 1999 from $216 million in 1998. Excluding gains on sales of facilities, impairment of long-lived assets and restructuring of operations and investigation related costs, combined net income for the Company's remaining core assets increased 18.3% to $281 million in 1999 from $238 million in 1998. Liquidity Cash provided by continuing operating activities totaled $312 million during the first quarter of 1999 compared to $688 million in 1998. The decrease was primarily due to $334 million of net income tax refunds received during 1998, related to excess estimated payment amounts made during 1997, compared to $82 million of net income tax refunds received in the first quarter of 1999. Cash provided by investing activities increased to $810 million in 1999, compared to cash used in investing activities of $277 million during the first quarter of 1998. The increase was due to proceeds from the disposition of hospitals and other health care facilities of $506 million in the first quarter of 1999 compared with $43 million in 1998. During 1999 cash flows from the changes in investments were $541 million (including repayment by a nonconsolidated joint venture of Company advances approximating $330 million) compared with cash used of $39 million in 1998. Cash flows used in financing activities totaled $833 million in the first quarter of 1999 compared to $393 million in 1998. The excess of cash flows from operations over cash used in investing activities was primarily used to pay down debt (approximately $424 million and $417 million in 1999 and 1998, respectively) and repurchase the Company's common stock (approximately $408 million during the first quarter of 1999). Working capital totaled $1.0 billion as of March 31, 1999 compared to $304 million at December 31, 1998. At December 31, 1998, included in current liabilities was $741 million outstanding under the Company's former 364-day revolving credit facility which was repaid during the first quarter of 1999. Management believes that cash flows from operations, amounts available under the Company's bank revolving credit facilities and proceeds from expected asset sales will be sufficient to meet expected liquidity needs during the remainder of 1999. Investments of the Company's professional liability insurance subsidiary to maintain statutory equity and pay claims totaled $1.7 billion at March 31, 1999 and $1.8 billion at December 31, 1998. The Company has various agreements with joint venture partners whereby the partners have an option to sell or "put" their interests in the joint venture back to the Company within specific periods at fixed prices or 16 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Liquidity (continued) prices based on certain formulas. The combined put price under all such agreements was approximately $900 million at March 31, 1999. The Company cannot predict if, or when, their joint venture partners will exercise such options (no put options have been exercised between December 31, 1998 and March 31, 1999). During the first quarter of 1998, the Internal Revenue Service (the "IRS") issued guidance regarding certain tax consequences of joint ventures between for-profits and not-for-profit hospitals. The Company has not determined the impact of the tax ruling on its existing joint ventures and is continuing to consult with its joint venture partners and tax advisers to develop appropriate courses of action. The tax ruling could require the restructuring of certain joint ventures with not-for-profits or influence the exercise of the put agreements by certain joint venture partners. In February 1999, the Company announced that its Board of Directors authorized the repurchase of up to an additional $1 billion of its common stock through open market purchases, privately negotiated transactions or through a series of accelerated or forward purchase contracts. During the first quarter of 1999, through open market purchases, the Company repurchased 3.6 million shares of its common stock for approximately $68 million. During April 1999, through open market purchases, the Company repurchased 5.0 million shares of its common stock for approximately $110 million. Also during April 1999, the Company, through accelerated purchase agreements, repurchased 27.0 million shares of its common stock for approximately $700 million. In July 1998, the Company announced a stock repurchase program under which up to $1 billion of the Company's common stock would be repurchased by entering into a series of forward purchase contracts. Approximately 44 million shares were purchased at an average cost of approximately $22.65 per share. The majority of these shares were purchased by certain financial organizations through a series of forward purchase contracts. In accordance with the terms of the forward purchase contracts, the shares purchased remain issued and outstanding until the forward purchase contracts are settled. During the first quarter of 1999, the Company settled forward purchase contracts representing 15.0 million shares at a cost of approximately $323 million. The Company settled another 24.4 million shares at a cost of approximately $565 million in April 1999. During the first quarter of 1999, in connection with the Company's share repurchase programs, the Company entered into a Letter of Credit Agreement (the "LOC Agreement") with the United States Department of Justice (the "DOJ"). As part of the LOC Agreement, the Company has provided the DOJ with Letters of Credit totaling $1 billion. The LOC Agreement also provides that the Company's repurchase program announced in February 1999 may be made, at the Company's discretion, through open market purchases, privately negotiated transactions or through a series of accelerated or forward purchase contracts. The Company and the DOJ acknowledge that the amount in the LOC Agreement is not based upon the amount or expected amount of any potential settlement. The LOC Agreement does not constitute an admission of liability by the Company. On May 11, 1999, the Company completed the spin-offs of LifePoint and Triad through a distribution of one share of LifePoint Hospitals, Inc. and one share of Triad Hospitals, Inc. common stock for every 19 shares of the Company's common stock outstanding on April 30, 1999. The Company received approximately $900 million in cash upon the completion of the spin-offs and used the proceeds to pay down debt. The resolution of the government investigations and the various lawsuits and legal proceedings that have been asserted could result in substantial liabilities to the Company. The ultimate liabilities cannot be reasonably estimated, as to the timing or amounts, at this time; however, it is possible that results of operations, financial position and liquidity could be materially, adversely affected upon the resolution of certain of these contingencies. 17 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Capital Resources Excluding acquisitions, capital expenditures were $301 million during the first quarter of 1999 compared to $316 million for the same period in 1998. Planned capital expenditures in 1999 are expected to approximate $1.2 billion. Management believes that its capital expenditure program is adequate to expand, improve and equip its existing health care facilities. Acquisition of hospitals and health care entities and investments in and advances to affiliates (generally 50% interests in joint ventures that are accounted for using the equity method) totaled $66 million during the first quarter of 1998 compared with none during the first quarter of 1999. The Company expects to finance all capital expenditures with internally generated and borrowed funds. Available sources of capital include public or private debt, amounts available under the Company's revolving credit facility (approximately $710 million as of April 30, 1999) and equity. At March 31, 1999, there were projects under construction which had an estimated additional cost to complete and equip over the next two years of approximately $1.0 billion. The Company's revolving credit facility, the $1.0 billion term loan and the $1.0 billion senior interim term loan contain customary covenants which include (i) limitations on additional debt, (ii) limitations on sales of assets, mergers and changes of ownership, and (iii) maintenance of certain interest coverage ratios. The Company is currently in compliance with all such covenants. In February 1999, Standard & Poor's downgraded the Company's senior debt rating to BB+ and its commercial paper rating to B. The Company entered into a $1.0 billion senior interim term loan agreement during March 1999. Borrowings under this agreement will be used to fund the $1.0 billion share repurchase program approved in February 1999. The Company's revolving credit facility and $1.0 billion term loan agreement were amended during March 1999 to permit the spin-offs of the Company's America and Pacific operating groups (Lifepoint and Triad) and place a $1.25 billion letter of credit sublimit in the revolving credit facility. The Company's restructuring of operations has resulted in the receipt of a significant amount of cash proceeds from sales of facilities during both 1998 and 1999. The Company continues to manage its capital structure during this process through the application of such proceeds, as it considers appropriate, to the repayment of debt and the repurchase of its common stock. IMPACT OF YEAR 2000 COMPUTER ISSUES The Company has dedicated substantial resources to address the impact of the Year 2000 problem. The Company has engaged all relevant aspects of the organization in a coordinated effort to address the Year 2000 problem and to minimize the chance of an interruption to the Company's operations or impact to patient safety and health. The Year 2000 problem is the result of two potential malfunctions that could have an impact on the Company's systems and equipment. The first problem arises due to computers being programmed to use two rather than four digits to define the applicable year. The second problem arises in embedded chips, where microchips and microcontrollers have been designed using two rather than four digits to define the applicable year. Certain of the Company's computer programs, building infrastructure components (e.g., alarm systems and HVAC systems) and medical devices that are date sensitive, may recognize a date using "00" as the year 1900 rather than the year 2000. If uncorrected, the problem could result in computer system and program failures that could result in a disruption of business operations or equipment and medical device malfunctions that could affect patient diagnosis and treatment. 18 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) IMPACT OF YEAR 2000 COMPUTER ISSUES (CONTINUED) With respect to the information technology ("IT") systems portion of the Company's Year 2000 project, which address the inventory, assessment, remediation, testing and implementation of internally developed software, the Company has identified various software applications that are being addressed on separate time lines. The Company has begun remediating these software applications and is testing the software applications where remediation has been completed. The Company has also completed the assessment of mission critical third party software (i.e., that software which is essential for day-to-day operations) and has developed testing and implementation plans with separate time lines. The Company has completed and placed into production 95% of software applications and anticipates completing, in all material respects, remediation, testing and implementation for internally developed and mission critical third party software by June 30, 1999. Remediation, testing and implementation of various software applications for certain of the Company's related subsidiaries will be completed in the fourth quarter of 1999. These exceptions to the June 1999 IT systems goals should not have a material effect on the Company's readiness. The IT systems portion of the Company's Year 2000 project is currently on schedule in all material respects. With respect to the IT infrastructure portion of the Company's Year 2000 project, the Company has undertaken a program to inventory, assess and correct, replace or otherwise address impacted, vendor-supplied products (hardware, systems software, business software, and telecommunication equipment). The Company has implemented a program to contact vendors, analyze information provided, and to remediate, replace or otherwise address IT products that pose a material Year 2000 impact. The Company anticipates completion, in all material respects, of the IT infrastructure portion of its program by September 30, 1999 (revised from an expected completion date of June 30, 1999). With respect to such revised date, the IT infrastructure portion of the Company's Year 2000 project is currently on schedule in all material respects. The Company presently believes that with modifications to existing software or the installation of upgraded software under the IT infrastructure portion, the Year 2000 will not pose material operational problems for the Company's computer systems. However, if such modifications or upgrades are not accomplished in a timely manner, Year 2000 related failures may present a material adverse impact on the operations of the Company. With respect to the non-IT infrastructure portion of the Company's Year 2000 project, the Company has undertaken a program to inventory, assess and correct, replace or otherwise address impacted vendor products, medical equipment and other related equipment with embedded chips. The Company has implemented a program to contact vendors, analyze information provided, and to remediate, replace or otherwise address devices or equipment that pose a material Year 2000 impact. The Company anticipates completion, in all material respects, of the non-IT infrastructure portion of its program by September 30, 1999. The non-IT infrastructure portion of the Company's Year 2000 project is currently on schedule in all material respects. The Company is prioritizing its non-IT infrastructure efforts by focusing on equipment and medical devices that will have a direct impact on patient care. The Company is directing substantial efforts to repair, replace, upgrade or otherwise address this equipment and these medical devices in order to minimize risk to patient safety and health. The Company is relying on information that is being provided to it by equipment and medical device manufacturers regarding the Year 2000 status of their products. While the Company is attempting to evaluate information provided by its previous and current vendors, there can be no assurance that in all instances accurate information is being provided. The Company also cannot in all instances guarantee that the repair, replacement or upgrade of all non-IT infrastructure systems will occur on a timely basis or that such repairs, replacements or upgrades will avoid all Year 2000 problems. The Company has initiated communications with its major third party payers and intermediaries, including government payers and intermediaries. The Company relies on these entities for accurate and timely reimbursement of claims, often through the use of electronic data interfaces. The Company has not received 19 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) IMPACT OF YEAR 2000 COMPUTER ISSUES (CONTINUED) assurances that these interfaces will be timely converted. Testing with payers and intermediaries will not be completed by June 30, 1999 because the payers and intermediaries are not ready to test with the Company's systems. Failure of these third party systems could have a material adverse affect on the Company's cash flow and results of operations. The Company also has initiated communications with its mission critical suppliers and vendors (i.e., those suppliers and vendors whose products and services are essential for day-to-day operations) to verify their ability to continue to deliver goods and services through the Year 2000. The Company has not received assurances from all mission critical suppliers and vendors that they will be able to continue to deliver goods and services through the Year 2000, but the Company is continuing its efforts to obtain such assurances. Failure of these third parties could have a material impact on operations and/or the ability to provide health care services. With the assistance of external resources, the Company has undertaken the development of contingency plans in the event that its Year 2000 efforts, or the efforts of third parties upon which the Company relies, are not accurately or timely completed. The Company has developed a contingency planning methodology and will implement contingency plans throughout 1999. While the Company is developing contingency plans to address possible failure scenarios, the Company recognizes that there are "worst case" scenarios which may develop and are largely outside the Company's control. The Company recognizes the risks associated with extended infrastructure (power, water, telecommunications) failure, the interruption of insurance payments to the Company and the failure of equipment or software that could impact patient safety or health despite the assurances of third parties. The Company is addressing these and other failure scenarios in its contingency planning effort and is engaging third parties in discussions regarding how to manage common failure scenarios, but the Company cannot currently estimate the likelihood or the potential cost of such failures. Currently, the Company does not believe that any reasonably likely worst case scenario will have a material impact on the Company's revenues or operations. Those reasonably likely worst case scenarios include continued expenditures for remediation, continued expenditures for replacement or upgrade of equipment, continued efforts regarding contingency planning, increased staffing for the periods immediately preceding and after January 1, and possible payment delays from the Company's payers. The Year 2000 project is currently estimated to have a minimum total cost of $86 million, of which the Company has incurred $7 million in the first quarter of 1999. Cumulatively, the Company has incurred $57 million of costs related to the Year 2000 project. The estimated minimum total cost has been increased related to estimates for repair or replacement of non-IT systems and costs related to an affiliated subsidiary. The estimate does not include payroll costs for certain internal employees because these costs are not separately tracked by the Company or asset replacement costs which cannot currently be estimated. The Company recognizes that the total cost is likely to increase as it completes its assessment of non-IT systems and as it continues its remediation and testing of IT systems and such increase could be material. The Company is not currently able to reasonably estimate the ultimate cost to be incurred for the assessment, remediation, upgrade, replacement and testing of its impacted non-IT systems. The majority of the costs related to the Year 2000 project (except the cost of new equipment) will be expensed as incurred and are expected to be funded through operating cash flows. The costs of the project and estimated completion dates for the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantees that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the 20 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) IMPACT OF YEAR 2000 COMPUTER ISSUES (CONTINUED) availability and cost of personnel trained in this area and the ability to locate and correct all relevant computer codes and all medical equipment. HEALTH CARE REFORM In recent years, an increasing number of legislative proposals have been introduced or proposed to Congress and in some state legislatures that would significantly affect health care systems in the Company's markets. The cost of certain proposals would be funded in significant part by reduction in payments by government programs, including Medicare and Medicaid, to health care providers (similar to the reductions incurred as part of BBA-97 as previously discussed). While the Company is unable to predict which, if any, proposals for health care reform will be adopted, there can be no assurance that proposals adverse to the business of the Company will not be adopted. PENDING IRS DISPUTES The Company is contesting income taxes and related interest proposed by the IRS for prior years aggregating approximately $360 million as of March 31, 1999. Management believes that final resolution of these disputes will not have a material adverse effect on the results of operations or liquidity of the Company. (See Note 6 -- Income Taxes of the Notes to Condensed Consolidated Financial Statements for a description of the pending IRS disputes). 21 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) OPERATING DATA
1999 1998 ------- --------- CONSOLIDATED Number of hospitals in operation at: March 31.................................................. 273 310 June 30................................................... 309 September 30.............................................. 294 December 31............................................... 281 Number of freestanding outpatient surgical centers in operation at: March 31.................................................. 95 142 June 30................................................... 139 September 30.............................................. 103 December 31............................................... 102 Licensed hospital beds at (a): March 31.................................................. 51,797 60,739 June 30................................................... 60,418 September 30.............................................. 57,521 December 31............................................... 53,693 Weighted average licensed beds (b): Quarter: First.................................................. 52,451 60,765 Second................................................. 60,712 Third.................................................. 59,396 Fourth................................................. 55,594 Year...................................................... 59,104 Average daily census (c): Quarter: First.................................................. 26,546 28,816 Second................................................. 25,780 Third.................................................. 24,414 Fourth................................................. 23,932 Year...................................................... 25,719 Admissions (d): Quarter: First.................................................. 477,400 508,200 Second................................................. 475,400 Third.................................................. 459,700 Fourth................................................. 448,500 Year...................................................... 1,891,800 Equivalent Admissions (e): Quarter: First.................................................. 703,300 756,600 Second................................................. 733,500 Third.................................................. 705,100 Fourth................................................. 680,400 Year...................................................... 2,875,600 Average length of stay (days) (f): Quarter: First.................................................. 5.0 5.1 Second................................................. 4.9 Third.................................................. 4.9 Fourth................................................. 4.9 Year...................................................... 5.0
22 25 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) OPERATING DATA (CONTINUED)
1999 1998 ------- --------- NON-CONSOLIDATED (G) Number of hospitals in operation at: March 31.................................................. 24 26 June 30................................................... 26 September 30.............................................. 24 December 31............................................... 24 Number of freestanding outpatient surgical centers in operation at: March 31.................................................. 5 5 June 30................................................... 5 September 30.............................................. 5 December 31............................................... 5 Licensed hospital beds at: March 31.................................................. 6,015 6,357 June 30................................................... 6,317 September 30.............................................. 6,029 December 31............................................... 6,015
- --------------- (a) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. (b) Weighted average licensed beds represents the average number of licensed beds, weighted based on periods owned. (c) Represents the average number of patients in the Company's hospital beds each day. (d) Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to the Company's hospitals and is used by management and certain investors as a general measure of inpatient volume. (e) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation "equates" outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. (f) Represents the average number of days admitted patients stay in the Company's hospitals. (g) The non-consolidated facilities include facilities operated through 50/50 joint ventures which are not controlled by the Company. They are accounted for using the equity method of accounting and are, therefore, not included on a fully consolidated basis in the condensed consolidated financial statements. 23 26 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is facing significant legal challenges. The Company is the subject of various Federal and state investigations, qui tam actions, shareholder derivative and class action suits filed in Federal court, shareholder derivative actions filed in state courts, patient/payer actions and general liability claims. FEDERAL AND STATE INVESTIGATIONS In March 1997, various facilities of the Company's El Paso, Texas operations were searched by Federal authorities pursuant to search warrants, and the government removed various records and documents. In February 1998, an additional warrant was executed and a single computer was seized. In July 1997, various Company affiliated facilities and offices were searched pursuant to search warrants issued by the United States District Court in several states. During July, September and November 1997, the Company was also served with subpoenas requesting records and documents related to laboratory billing and DRG coding in various states and home health operations in various jurisdictions, including, but not limited to, Florida. In January 1998, the Company received a subpoena which requested records and documents relating to physician relationships. Also, in July 1997, the United States District Court for the Middle District of Florida, in Fort Myers, issued an indictment against three employees of a subsidiary of the Company. The indictment relates to the alleged false characterization of interest payments on certain debt resulting in Medicare and CHAMPUS overpayments since 1986 to Fawcett Memorial Hospital, a Port Charlotte, Florida hospital that was acquired by the Company in 1992. The Company has been served with subpoenas for various records and documents. A fourth employee of a subsidiary of the Company was indicted in July 1998 by a superseding indictment. The trial on this matter commenced on May 3, 1999. In addition, several hospital facilities affiliated with the Company in various states have received individual Federal and/or state government inquiries, both informal and formal, requesting information related to reimbursement from government programs. In general, the Company believes that the United States Department of Justice and other Federal and state governmental authorities are investigating certain acts, practices or omissions alleged to have been engaged in by the Company with respect to Medicare, Medicaid and CHAMPUS patients regarding (a) allegedly improper DRG coding (commonly referred to as "upcoding") relating to bills submitted for medical services, (b) allegedly improper outpatient laboratory billing (e.g., unbundling of services and medically unnecessary tests), (c) inclusion of allegedly improper items in cost reports submitted as a basis for reimbursement under Medicare, Medicaid and similar government programs, (d) arrangements with physicians and other parties that allegedly violate certain Federal and state laws governing fraud and abuse, anti-kickback and "Stark" laws and (e) allegedly improper acquisitions of home health care agencies and allegedly excessive billing for home health care services. The Company is cooperating in these investigations and understands, through written notice and other means, that it is a target in these investigations. Given the scope of the ongoing investigations, the Company expects additional subpoenas and other investigative and prosecutorial activity to occur in these and other jurisdictions in the future. The Company is also the subject of a formal order of investigation by the Securities and Exchange Commission. The Company understands that the investigation relates to the anti-fraud, insider trading, periodic reporting and internal accounting control provisions of the federal securities laws. While it is too early to predict the outcome of any of the ongoing investigations or the initiation of any additional investigations, were the Company to be found in violation of Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Any such 24 27 sanctions could have a material adverse effect on the Company's financial position and results of operations. (See Note 2 -- Investigations and Note 10 -- Contingencies of the Notes to Condensed Consolidated Financial Statements.) LAWSUITS Qui Tam Actions Several qui tam actions have been brought by private parties ("relators") on behalf of the United States of America and have been unsealed and served on the Company. With the exception of three cases discussed below, the government has declined to intervene in the qui tam actions unsealed to date. To the best of the Company's knowledge, the actions allege, in general, that the Company and certain subsidiaries and/or affiliated partnerships violated the False Claims Act, 31 U.S.C. sec.3729 et seq., for improper claims submitted to the government for reimbursement. The lawsuits generally seek damages of three times the amount of all Medicare or Medicaid claims (involving false claims) presented by the defendants to the Federal government, civil penalties of not less than $5,000 nor more than $10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. The Company is aware of additional qui tam actions that remain under seal and believes that there are other sealed qui tam cases of which it is unaware. On February 12, 1999, the United States filed a Motion before the Judicial Panel on Multidistrict Litigation ("MDL Panel") seeking to transfer and consolidate all qui tam actions against the Company, including those that are sealed and unsealed, for purposes of discovery and pretrial matters, to the District Court for the District of Columbia. The MDL Panel denied the Motion on procedural grounds relating to notice but granted leave to refile. On October 5, 1998, the matter of United States of America ex rel. James F. Alderson v. Columbia/HCA Healthcare Corp., Healthtrust-The Hospital Company and Quorum Health Group, et al., Case No. 97-2035-CIV-T-23E, in the Middle District of Florida, Tampa Division, was unsealed. The government intervened in this action on October 1, 1998. The Complaint was originally filed in Montana in 1993 but was later transferred to Florida. The Complaint alleges that defendants made false statements in annual Medicare cost reports over a period of ten years. The Complaint further alleges that defendants engaged in a scheme of filing improper reimbursement claims while keeping a "secret" set of books which were known as "reserve cost reports" and concealing these books from Medicare auditors. The Government filed an Amended Complaint. The Government has not yet served an Amended Complaint on the Columbia/HCA defendants. The matter of United States of America ex rel. Sara Ortega v. Columbia/HCA Healthcare Corp., et al., No. EP95-CA-259H, was filed on July 31, 1998 in the Western District of Texas, El Paso Division. The Complaint alleges that defendants submitted false statements to the Joint Commission on Accreditation of Healthcare Organizations in order to be eligible for Medicare payments, thereby rendering false defendants' claims for Medicare reimbursement. The Complaint also alleges that defendants engaged in fraudulent accounting practices. Defendants have moved to dismiss the Complaint, and that motion is pending. The matter of United States of America, ex rel. Scott Pogue v. Diabetes Treatment Centers of America, Inc., et al., Civil Action No. 3-94-0515, was filed under seal on June 23, 1994 in the United States District Court for the Middle District of Tennessee. On February 6, 1995, the United States filed its Notice of Non-Intervention and on that same date, the District Court ordered the complaint unsealed. In general, the relator contends that sums paid to physicians by the Diabetes Treatment Centers of America, who served as Medical Directors at a hospital affiliated with the Company, were unlawful payments for the referrals of their patients. Relator filed a motion for partial summary judgment. The court ordered relator's motion for partial summary judgment stricken and ordered the relator to file an amended motion for partial summary judgment, which relator has not yet done. In December 1998, the matter of United States of America ex rel. John W. Schilling v. Columbia/HCA Healthcare Corporation, et al., Civil Action No. 96-1264-CIV-T-23B, in the Middle District of Florida, was unsealed. The Government has intervened in this action. The Complaint alleges that defendants made false 25 28 statements in annual Medicare cost reports. The Complaint further alleges, as in Alderson, that Columbia kept "reserve cost reports." The Government has not yet served the Complaint on Defendants. In June of 1998, the case United States of America ex rel, Joseph "Mickey" Parslow v. Columbia/HCA Healthcare Corporation and Curative Health Services, Incorporated, No. 98-1260-CIV-T-23F, in the Middle District of Florida, Tampa Division, was filed. This complaint was unsealed by the Court on April 9, 1999. The Government has intervened in this lawsuit but has not yet served the complaint on the Company. This qui tam case alleges that the Company submitted false claims relating to contracts with Curative for the management of certain wound care centers. The complaint further alleges that management fees paid to Curative were excessive and not reasonable and that the claims for reimbursement for these management fees violated the anti-kickback statutes. A lawsuit captioned United States of America ex rel. James Thompson v. Columbia/HCA Healthcare Corporation, et al. was filed on March 10, 1995 in the United States District Court for the Southern District of Texas, Corpus Christi Division (Civil Action No. C-95-110). In general, the relator claims that the defendants (the Company and certain subsidiaries and affiliated partnerships) engaged in a widespread strategy to pay physicians money for referrals and engaged in other conduct to induce referrals, such as: (i) offering physicians equity interests in hospitals; (ii) offering loans to physicians; (iii) paying money under the guise of "consultation fees" to physicians to guarantee their capital investment; (iv) paying consultation fees, rent or other monies to physicians; (v) providing office space for free or reduced rent; (vi) providing free or reduced rate vacations and trips; (vii) providing free or reduced rate opportunities for additional medical training; (viii) providing income guarantees; and (ix) granting physicians exclusive rights to perform procedures in particular fields of practice. The defendants filed a Motion to Dismiss the Second Amended Complaint in November 1995 which was granted by the Court in July 1996. In August 1996, the relator appealed to the United States Court of Appeals for the Fifth Circuit, and in October 1997, the Fifth Circuit affirmed in part and vacated and remanded in part the Trial Court's rulings. Defendants filed a Second Amended Motion to Dismiss which was denied on August 18, 1998. On August 21, 1998, relator filed a Third Amended Complaint. Discovery has begun and defendants are in the process of producing documents at this time. The matter of United States of America ex rel. Sandra Russell; and Sandra Russell, in her own right v. EPIC Healthcare Management Group, et al., No. H-95-99151, was filed on January 18, 1995 in the United States District Court for the Southern District of Texas, Houston Division. The complaint alleges that the defendants submitted claims, records and/or statements for Medicare reimbursement in connection with home health services which were false. The defendants moved to dismiss in May 1997. The Court granted defendants' motion but allowed the relator the right to replead. Relator filed an amended complaint. Defendants filed a second motion to dismiss which was granted on June 25, 1998. Relator filed an Appeal which is pending before the Fifth Circuit. The matter of Mary Ann Wisz, Individually, and ex rel. United States of America v. C/HCA Development, Inc. d/b/a Columbia-Olympia Fields Osteopathic Hospital and Medical Center, Inc., et al., Case No. 97-C-2646, was filed on April 16, 1997, in the United States District Court for the Northern District of Illinois, Eastern Division. An amended complaint was filed on February 17, 1998, and on May 15, 1998, relator was permitted leave to file its Second Amended Complaint. In addition to adding Midwestern University as a party defendant, the Second Amended Complaint contained allegations that Olympia Fields Osteopathic Hospital and Medical Center and/or the Chicago Osteopathic Hospital changed dates on out-patient surgical procedures. That portion of the Second Amended Complaint has been answered and discovery is ongoing. The Second Amended Complaint also alleges that one or both hospitals directed surgical nurses to misdesignate the severity of surgeries. That portion of the Second Amended Complaint was subject to a partial motion to dismiss, which motion was granted. The Company intends to pursue the defense of the qui tam actions vigorously. 26 29 Shareholder Derivative and Class Action Complaints Filed in the U.S. District Courts Since April 1997, numerous securities class action and derivative lawsuits have been filed in the United States District Court for the Middle District of Tennessee against the Company and a number of its current and former directors, officers and/or employees. On October 10, 1997, the Court entered an order consolidating all of the above-mentioned securities class action claims into a single-captioned case, Morse, Sidney, et al. v. R. Clayton McWhorter, et al., Case No. 3-97-0370. All of the other individual securities class action lawsuits were administratively closed by the Court. The consolidated Morse lawsuit is a purported class action seeking the certification of a class of persons or entities who acquired the Company's common stock from April 9, 1994 to September 9, 1997. The consolidated lawsuit was brought against the Company, Richard Scott, David Vandewater, Thomas Frist, Jr., R. Clayton McWhorter, Carl E. Reichardt, Magdalena Averhoff, M.D., T. Michael Long and Donald S. MacNaughton. The lawsuit alleges, among other things, that the defendants committed violations of the Federal securities laws by materially inflating the Company's revenues and earnings through a number of practices, including upcoding, maintaining reserve cost reports, disseminating false and misleading statements, cost shifting, illegal reimbursements, improper billing, unbundling and violating various Medicare laws. The lawsuit seeks damages, costs and expenses. Plaintiffs filed their Motion for Class Certification in February 1998, and defendants filed responsive briefs. No ruling has been made on class certification. On October 10, 1997, the Court entered an order consolidating the above-mentioned derivative law claims into a single-captioned case, McCall, H. Carl, as Comptroller of the State of New York and as Trustee of the New York State Common Retirement Fund, derivatively on behalf of Columbia/HCA Healthcare Corporation v. Richard L. Scott, et al., No. 3-97-0838. All of the other derivative lawsuits were administratively closed by the Court. The consolidated McCall lawsuit was brought against the Company, Thomas Frist, Jr., Richard L. Scott, David T. Vandewater, R. Clayton McWhorter, Magdalena Averhoff, M.D., Frank S. Royal, M.D., T. Michael Long, William T. Young and Donald S. MacNaughton. The lawsuit alleges, among other things, derivative claims against the individual defendants that they intentionally or negligently breached their fiduciary duties to the Company by authorizing, permitting or failing to prevent the Company from engaging in various schemes to improperly increase revenue, upcoding, improper cost reporting, improper referrals, improper acquisition practices and overbilling. In addition, the lawsuit asserts a derivative claim against some of the individual defendants for breaching their fiduciary duties by allegedly engaging in improper insider trading. The lawsuit seeks restitution, damages, recoupment of fines or penalties paid by the Company, restitution and pre-judgment interest against the alleged insider trading defendants, and costs and expenses. In addition, the lawsuit seeks orders: (i) prohibiting the Company from paying individual defendants' employment benefits; (ii) terminating all improper business relationships with individual defendants; and (iii) requiring the Company to implement effective corporate governance and internal control mechanisms designed to monitor compliance with Federal and state laws and ensure reports to the Board of material violations. The defendants filed motions to dismiss in both the Morse and McCall lawsuits. These motions were referred to the Magistrate Judge for consideration. In June 1998, the Magistrate Judge recommended that the Court grant the motions to dismiss in both cases. Plaintiffs in both cases have filed objections to the Magistrate's recommendations with the District Court, and defendants have filed responsive pleadings. Shareholder Derivative Actions Filed in State Courts Several derivative actions have been filed in state court by certain purported stockholders of the Company against certain of the Company's current and former officers and directors alleging breach of fiduciary duty, and failure to take reasonable steps to ensure that the Company did not engage in illegal practices thereby exposing the Company to significant damages. Two purported derivative actions entitled Barron, Evelyn, et al. v. Magdelena Averhoff, et al., (Civil Action No. 15822NC), filed on July 22, 1997, and Kovalchick, John E. v. Magdelena Averhoff, et al., Civil Action No. 15829NC, filed on July 29, 1997, have been filed in the Court of Chancery of the State of Delaware in and for New Castle County. The actions were brought on behalf of the Company by certain 27 30 purported shareholders of the Company against certain of the Company's current and former officers and directors. The suits seek damages, attorneys' fees and costs. In the Barron lawsuit, plaintiffs also seek an Order (i) requiring individual defendants to return to the Company all salaries or remunerations paid them by the Company, together with proceeds of the sale of Columbia/HCA stock made in breach of their fiduciary duties; (ii) prohibiting the Company from paying any individual defendant any benefits pursuant to the terms of employment, consulting or partnership agreements; and (iii) terminating all improper business relationships between the Company and any individual defendant. In the Kovalchick lawsuit, plaintiffs also seek an Order (i) requiring individual defendants to return to the Company all salaries or remunerations paid to them by the Company and all proceeds from the sale of Columbia/HCA stock made in breach of their fiduciary duties; (ii) requiring that an impartial Compliance Committee be appointed to meet regularly; and (iii) requiring that the Company be prohibited from paying any director/defendant any benefits pursuant to terms of employment, consulting or partnership agreements. Plaintiffs in both Barron and Kovalchick have granted the defendants an indefinite extension of time to respond to the Complaint. On August 14, 1997, a similar purported derivative action entitled State Board of Administration of Florida, the public pension fund of the State of Florida in behalf of itself and in behalf of all other stockholders of Columbia/HCA Healthcare Corporation derivatively in behalf of Columbia/HCA Healthcare Corporation vs. Magdalena Averhoff, et al., (No. 97-2729), was filed in the Circuit Court in Davidson County, Tennessee on behalf of the Company by certain purported shareholders of the Company against certain of the Company's current and former directors and officers. These lawsuits seek damages and costs as well as orders (i) enjoining the Company from paying benefits to individual defendants; (ii) requiring termination of all improper business relationships with individual defendants; (iii) requiring the Company to provide for "independent public directors;" and (iv) requiring the Company to put in place proper mechanisms of corporate governance. The Court has entered an Order temporarily staying the lawsuit. That order recently expired and the defendants have filed a motion to extend the duration of the stay. The Court has granted the Company's motion to temporarily stay the lawsuit. The matter of Louisiana State Employees Retirement System, a public pension fund of the State of Louisiana, in behalf of itself and in behalf of all other stockholders of Columbia/HCA Healthcare Corporation derivatively in behalf of Columbia/HCA Healthcare Corporation v. Magdalena Averhoff, et al., another derivative action, was filed on March 19, 1998 in the Circuit Court of the Eleventh Judicial Circuit, Dade County, Florida, General Jurisdiction Division (Case No. 98-6050 CA04) and the defendants removed it to the United States District Court, Southern District of Florida (Case No. 98-814-CIV). The Louisiana State Employees Retirement System is the public pension fund of the State of Louisiana. The suit alleges, among other things, breach of fiduciary duties resulting in damage to the Company. The lawsuit seeks damages from the individual defendants to be paid to the Company and attorneys' fees, costs and expenses. In addition, the lawsuit seeks orders (i) requiring the individual defendants to pay to the Company all benefits received by them from the Company; (ii) enjoining the Company from paying any benefits to individual defendants; (iii) requiring that defendants terminate all improper business relationships with the Company and any individual defendants; (iv) requiring that the Company provide for appointment of a majority of "independent public directors;" and (v) requiring that the Company put in place proper mechanisms of corporate governance. On August 10, 1998, the Court transferred this case to the Middle District of Tennessee. By agreement of the parties, the case has been administratively closed pending the outcome of the Court's ruling on the defendants' motions to dismiss the McCall action referred to above. The Company intends to pursue the defense of these Federal and state Shareholder Derivative and Class Action Complaints vigorously. Patient/Payer Actions and Other Class Actions The Company is a party to several purported class action lawsuits which have been filed by patients and/or payers against the Company and/or certain of its current and/or former officers and/or directors alleging, in general, improper and fraudulent billing, overcharging, coding and physician referrals, as well as other violations of law. Certain of the lawsuits have been conditionally certified as class actions. 28 31 The matter of Boyson, Cordula, on behalf of herself and all others similarly situated v. Columbia/HCA Healthcare Corporation was filed on September 8, 1997 in the United States District Court for the Middle District of Tennessee, Nashville Division (Civil Action No. 3-97-0936). The original complaint, which sought certification of a national class comprised of all persons or entities who have paid for medical services provided by the Company, alleges, among other things, that the Company has engaged in a pattern and practice of (i) inflating diagnosis and medical treatments of its patients to receive larger payments from the purported class members; (ii) providing unnecessary medical care; and (iii) billing for services never rendered. This lawsuit seeks injunctive relief requiring the Company to perform an accounting to identify and disgorge medical bill overcharges. It also seeks damages, attorneys' fees, interest and costs. In an Order entered on June 11, 1998 by the MDL Panel, other lawsuits against the Company were consolidated with the Boyson case in the Middle District of Tennessee. The amended complaint in Boyson was withdrawn and superseded by the Coordinated Class Action Complaint filed in the MDL proceeding on September 21, 1998. (See In re: Columbia/HCA Healthcare Corporation Billing Practices Litigation, below.) The matter of Brown, Nancy, individually and on behalf of all others similarly situated v. Columbia/HCA Healthcare Corporation was filed on November 16, 1995, in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida, Case No. 95-9102 AD. The suit alleges that Palms West Hospital charged excessive amounts for goods and services associated with patient care and treatment, including items such as pharmaceuticals, medical supplies, laboratory tests, medical equipment and related medical services such as x-rays. The suit seeks the certification of a nationwide class, and damages for patients who have paid bills for the allegedly unreasonable portion of the charges as well as interest, attorneys' fees and costs. In response to defendant's amended motion to dismiss filed in January 1996, plaintiff amended the Complaint and defendant subsequently filed an answer and defenses in June 1996. On October 15, 1997, Harald Jackson moved to intervene in the lawsuit (see case below). The court denied Jackson's motion on December 19, 1997. To date, discovery is proceeding and no class has been certified. Jane Doe and her husband, John Doe, on their own behalf, and on behalf of all other persons similarly situated vs. HCA Health Services of Tennessee, Inc., d/b/a HCA Donelson Hospital n/k/a Summit Medical Center is a class action suit filed on August 17, 1992 in the First Circuit Court for Davidson County, Tennessee, Case No. 92C-2041. The suit principally alleges that Summit Medical Center's charges for hospital services and supplies for medical services (a hysterectomy in the plaintiff's case) exceeded the reasonable costs of its goods and services, that the overcharges constitute a breach of contract and an unfair or deceptive trade practice as well as a breach of the duty of good faith and fair dealing. This suit seeks damages, costs and attorneys' fees. In addition, the suit seeks a declaratory judgment recognizing plaintiffs' rights to be free from predatory billing and collection practices and an Order (i) requiring defendants to notify plaintiff class members of entry of declaratory judgment and (ii) enjoining defendants from further efforts to collect charges from the plaintiffs. In 1997, this case was certified as a class action consisting of all past, present and future patients at Summit Medical Center. In July 1997, Summit filed a Motion for Summary Judgment. In March 1998, the Court denied the Motion for Summary Judgment and ordered the parties into mediation. In June 1998, the Court of Appeals denied defendant's application for permission to appeal the trial court's denial of the summary judgment motion. Summit has filed an application for permission to appeal to the Supreme Court of Tennessee, which the Supreme Court granted on November 9, 1998, and remanded the case to the Court of Appeals for review on the merits. The case is set for oral argument before the Court of Appeals on June 8, 1999. The trial court withdrew the order for mediation pending defendant's appeal of the summary judgment denial. Ferguson, Charles, on behalf of himself and all other similarly situated v. Columbia/HCA Healthcare Corporation, et al. was filed on September 16, 1997 in the Circuit Court for Washington County, Tennessee, Civil Action No. 18679. This lawsuit seeks certification of a national class comprised of all individuals and entities who paid or were responsible for payment of any portion of a bill for medical care or treatment provided by the Company and alleges, among other things, that the Company engaged in billing fraud by excessively billing patients for services rendered, billing patients for services not rendered or not medically necessary, uniformly using improper codes to report patient diagnosis, and improperly and illegally recruiting doctors to refer patients to the Company's hospitals. The proposed class is broad enough to encompass all 29 32 private payers, including individuals, insurers and health and welfare plans. The suit seeks damages, interest, attorneys' fees, costs and expenses. In addition, the suit seeks an Order (i) requiring defendants to provide an accounting of plaintiffs and class members who overpaid or were obligated to overpay; and (ii) requiring defendants to disgorge all monies illegally collected from plaintiffs and the class. Plaintiff filed a Motion for Class Certification in September 1997 which has not been ruled on. In December 1997, the Company filed a Motion for Summary Judgment which was denied. In January 1998, plaintiff filed a Motion for Leave to File a Second Amended Class Action Complaint to Add an Additional Class Representative which was granted but the Court dismissed the claims asserted by the additional plaintiff. In June 1998, plaintiff filed a Motion for Leave of Court to File a Third Amended Class Action Complaint, and in October 1998, plaintiff filed a Motion for Leave of Court to File a Fourth Amended Class Action Complaint. Both proposed Amended Complaints seek to add new named plaintiffs to represent the proposed class. Both seek to add additional allegations of billing fraud, including improper billing for laboratory tests, inducing doctors to perform unnecessary medical procedures, improperly admitting patients from emergency rooms and maximizing patients' lengths of stay as inpatients in order to increase charges, and improperly inducing doctors to refer patients to the Company's home healthcare units or psychiatric hospitals. Both seek an additional order that the Company's contracts with plaintiffs and all class members are rescinded and that the Company must repay all monies received from plaintiffs and the class members. The Court has not ruled on either Motion for Leave to Amend. Discovery is underway in the case. The Company in September 1998 filed another Motion for Summary Judgment contesting the standing of the named plaintiffs to bring the alleged claims. That motion has not been ruled on by the Court. The matter of The United Paper Workers International Union, et al. v. Columbia/HCA Healthcare Corporation, et al., was filed on September 3, 1998 in the Circuit Court for Washington County, Tennessee, Civil Action No. 19350. The lawsuit contains billing fraud allegations similar to those in the Ferguson case and seeks certification of a national class comprised of all self-insured employers who paid or were obligated to pay any portion of a bill for, among other things, pharmaceuticals, medical supplies or medical services. The suit seeks declaratory relief, damages, interest, attorneys' fees and other litigation costs. In addition, the suit seeks an Order (i) requiring defendants to provide an accounting to plaintiffs and class members who overpaid or were obligated to overpay, (ii) requiring defendants to disgorge all monies illegally collected from plaintiffs and the class, and (iii) rescinding all contracts of defendants with plaintiffs and all class members. The complaint has not been served formally on the Company. The matter of Douglas, Cheryl, individually, and on behalf of all others similarly situated v. Columbia/HCA Healthcare Corporation, et al. is a purported class action filed on March 5, 1998 in the Circuit Court of Cook County, Illinois, County Department, Chancery Division, Case No. 98 CH 2942. The suit generally alleges that defendants were involved in fraudulent and deceptive acts including wrongful billing, unnecessary treatment and wrongful diagnosis of patients with illnesses that necessitate higher medical fees for financial gain. The suit seeks damages, costs and expenses. On September 18, 1998, the Company's motion to dismiss was granted and plaintiff's complaint was dismissed without prejudice. On November 6, 1998, the plaintiff filed an amended complaint alleging violations of the Illinois Consumer Fraud and Deceptive Trade Practices Act, fraudulent misrepresentation, breach of contract and civil conspiracy. On April 16, 1999, the court granted the Company's motion to dismiss the amended complaint. Such dismissal was with prejudice as to the civil conspiracy count and without prejudice as to the remaining counts, and plaintiff was allowed until May 14, 1999 to replead those counts that had been dismissed without prejudice. The matter of Hoop, Kemp, et al. v. Columbia/HCA Health Corporation, et al. was filed on August 18, 1997 in the District Court of Johnson County, Texas, Civil Action No. 249-171-97. This suit seeks certification of a Texas class comprised of persons who paid for any portion of an improper or fraudulent bill for medical services rendered by any Texas facility owned or operated by the Company. The suit seeks damages, attorneys' fees, costs and expenses, as well as restitution to plaintiffs and the class in the amount by which defendants have been unjustly enriched and equitable and injunctive relief. The lawsuit principally alleges that the Company perpetrated a fraudulent scheme that consisted of systematic and routine overbilling through false and inaccurate bills, including padding, billing for services never provided, and exaggerating the seriousness of patients' illnesses. The lawsuit also alleges that the Company systematically entered into illegal 30 33 kickback schemes with doctors for patient referrals. The Company filed its answer in November 1997 denying the claims. Plaintiffs have recently sought to commence discovery. The matter of Jackson, Harald F., individually and on behalf of all others similarly situated v. Columbia/HCA Healthcare Corporation was initially filed as a motion to intervene in the Brown matter in October 1997 in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida. The Court denied Jackson's motion on December 19, 1997, and Jackson subsequently filed a Complaint in the same state court on December 23, 1997, Case No. 97-011419-AI. This suit seeks certification of a national class of persons or entities who were allegedly overcharged for medical services by the Company through an alleged practice of systematically and unlawfully inflating prices, concealing its practice of inflating prices, and engaging in, and concealing, a uniform practice of overbilling. The proposed class is broad enough to encompass all private payers, including individuals, insurers and health and welfare plans. This suit seeks damages on behalf of the plaintiff and individual members of the class as well as interest, attorneys' fees and costs. In January 1998, the case was removed to the United States District Court, Southern District of Florida, Case No. 98-CIV-8050. In February 1998, Jackson filed an amended complaint, and the case was remanded to state court. The Company has filed motions in response to the amended complaint which are pending. Jackson moved to transfer the case to the judge handling the Brown case which is also pending, but the motion to transfer was denied on April 8, 1999. Discovery has commenced. The matter of Johnson, Bruce A., et al. v. Plantation General Hospital, Limited Partnership was filed on March 9, 1992 in the Circuit Court for the Seventeenth Judicial Circuit, State of Florida, Broward County, Case No. 92-06823 Division 2. In general, the suit alleges that the hospital charged excessive amounts for pharmaceuticals, medical supplies and laboratory tests. The suit sought certification of a class. Count I sought a price reduction on all outstanding bills in the amount of the allegedly excessive portion of the charges. Counts II and III sought damages for patients who have paid bills containing allegedly excessive amounts for the alleged unreasonable portion of the charges. Plaintiffs' Complaint claimed fees from any recovery or benefit in the action. In September 1995, the trial court certified a class and the Fourth District Court of Appeals affirmed. In October 1996, the hospital filed a Motion for Summary Judgment on Counts II and III on the basis of the voluntary payment defense. The Court granted the motion in November 1997. In April 1998, following the hospital's statement that it would deem the six to eleven year old outstanding debt of class members to be fully satisfied, summary judgment was granted to the class on Count I on the ground of mootness. No monetary judgment was recovered. In September 1998, the Court entered an order denying plaintiffs' motion for attorneys' fees and granting their motion for costs. Both parties have appealed the September 1998 orders. Those appeals are pending. There have been no appeals of the final judgments. The matter of Operating Engineers Local No. 312 Health & Welfare Fund, on behalf of itself and as representative of a class of those similarly situated v. Columbia/HCA Healthcare Corporation was filed on August 6, 1997 in the United States District Court for the Eastern District of Texas, Civil Action No. 597CV203. The original complaint alleged violations of the Racketeering Influenced and Corrupt Organization Act ("RICO") based on allegations that the defendant has employed one or more schemes or artifices to defraud the plaintiff and purported class members through fraudulent billing for services not performed, fraudulent overcharging in excess of correct rates and fraudulent concealment and misrepresentation. In October 1997, the Company filed a motion to transfer venue and to dismiss the lawsuit on jurisdiction and venue grounds because the RICO claims are deficient. The motion to transfer was denied on January 23, 1998. The motion to dismiss was also denied. In February 1998, defendant filed a petition with the MDL Panel to consolidate this case with Boyson for pretrial proceedings in the Middle District of Tennessee. During the pendency of the motion to consolidate, plaintiff amended its Complaint to add allegations under the Employee Retirement Income Security Act of 1974 ("ERISA") as well as state law claims. The amended complaint seeks damages, attorneys' fees and costs, as well as disgorgement and injunctive relief. The MDL Panel granted defendant's motion to consolidate in June 1998, and this action was transferred to the Middle District of Tennessee. The amended complaint in Operating Engineers was withdrawn and superseded by the Coordinated Class Action Complaint filed in the MDL proceeding on September 21, 1998. On April 24, 1998, two matters, Board of Trustees of the Carpenters & Millwrights of Houston & Vicinity Welfare Trust Fund v. Columbia/HCA Healthcare Corporation, Case No. 598CV157, and Board of Trustees 31 34 of the Texas Ironworkers' Health Benefit Plan v. Columbia/HCA Healthcare Corporation, Case No. 598CV158, were filed in the United States District Court for the Eastern District of Texas. The original Complaint in these suits alleged violations of RICO only. Plaintiffs in both cases principally alleged that in order to inflate its revenues and profits, defendant engaged in fraudulent billing for services not performed, fraudulent overcharging in excess of correct rates and fraudulent concealment and misrepresentation. These suits seek damages, attorneys' fees and costs, as well as disgorgement and injunctive relief. Plaintiffs subsequently amended their complaint to add allegations under ERISA as well as state law claims. These suits have been consolidated by the MDL Panel with Boyson and transferred to the Middle District of Tennessee for pretrial proceedings. The amended complaints in these suits were withdrawn and superseded by the Coordinated Class Action Complaint filed in the MDL proceeding on September 21, 1998. The matter of Tennessee Laborers Health and Welfare Fund, on behalf of itself and all others similarly situated vs. Columbia/HCA Healthcare Corporation, Case No. 3-98-0437, was filed in the United States District Court of the Middle District of Tennessee, Nashville Division, on May 14, 1998. The lawsuit seeks certification of a national class comprised of all employee welfare benefit plans that have paid for medical services provided by the Company. This case involves allegations under ERISA, as well as state law claims which are similar to those alleged in Boyson. Plaintiff, an Employee Welfare Benefit Plan, alleges that defendant violated the terms of the Plan documents by overbilling the Plans, including but not limited to, exaggerating the severity of illnesses, providing unnecessary treatment, billing for services not rendered and other methods of overbilling and further violated the terms of the Plan documents by taking Plan assets in payment of such improper bills. Plaintiff further alleges that defendant intentionally concealed or suppressed the true nature of its patients' illnesses, and the actual treatment provided to those patients, and its improper billing. The suit seeks injunctive relief in the form of an accounting, damages, attorneys' fees, interest and costs. This suit has been consolidated by the Court with Boyson and the other cases transferred by the MDL Panel to the Middle District of Tennessee. The complaint in Tennessee Laborers was withdrawn and superseded with the filing of the Coordinated Class Action Complaint in the MDL proceeding on September 21, 1998. The matter of In re: Columbia/HCA Healthcare Corporation Billing Practices Litigation, Master File No. MDL 1227, was commenced by Order of the MDL Panel entered on June 11, 1998 granting the Company's petition to consolidate the Boyson and Operating Engineers cases for pretrial purposes in the Middle District of Tennessee pursuant to 28 U.S.C. sec. 1407. Three other cases that have been consolidated with Boyson and Operating Engineers in the MDL proceeding are (i) Board of Trustees of the Carpenters & Millwrights of Houston & Vicinity Welfare Trust Fund, (ii) Board of Trustees of the Texas Ironworkers' Health Benefit Plan, and (iii) Tennessee Laborers Health and Welfare Fund. On September 21, 1998, the plaintiffs in five consolidated cases filed a Coordinated Class Action Complaint, which the Company answered on October 13, 1998. The plaintiffs seek certification of two proposed classes including all private individuals and all employee welfare benefit plans that have paid for health-related goods or services provided by the Company. The plaintiffs allege, among other things, that the Company has engaged in a pattern and practice of inflating charges, concealing the true nature of patients' illnesses, providing unnecessary medical care, and billing for services never rendered. The plaintiffs seek damages, attorneys' fees and costs, as well as disgorgement and injunctive relief. A scheduling order has been entered that provides for class certification motions to be filed by February 22, 1999 and for discovery to be completed by June 30, 1999. The parties are currently engaged in discovery. In February 1999, plaintiffs filed a motion to extend the time periods in the scheduling order, which has not been ruled on by the Court. The Company intends to pursue the defense of these class actions vigorously. While it is premature to predict the outcome of the qui tam, shareholder derivative and class action lawsuits, the amounts claimed are substantial. It is possible that an adverse resolution, individually or in the aggregate, could have a material adverse impact on the Company's liquidity, financial position and results of operations. See Note 2 -- Investigations and 10 -- Contingencies of the Notes to Condensed Consolidated Financial Statements. 32 35 The Company believes the ongoing investigations, qui tam, shareholder cases, class action cases and related media coverage have had a negative effect on the Company's financial position and results of operations. However, the Company is unable to measure the effect or predict the magnitude that these matters and the related media coverage could have on the Company's future results of operations and financial position. General Liability and Other Claims The matter of Landgraff, Anne M. and Gina Magarian, on behalf of the Columbia/HCA Stock Bonus Plan v. Columbia/HCA Healthcare Corporation of America, et al. was originally filed on November 7, 1997 in the United States District Court for the Northern District of Georgia, Atlanta Division, Civil Action No. 97-CV-3381 and transferred by agreement of the parties to the United States District Court for the Middle District of Tennessee, Civil Action No. 3-98-0090. The plaintiffs filed a second amended complaint on April 24, 1998 against the Company and certain members of the Company's Retirement Committee during 1997 alleging breach of fiduciary duty owing to the participants in the Stock Bonus Plan by failing to sell the Plan's holdings of Company stock based upon knowledge of material public and non-public adverse information and by failing to act solely in the interests and for the benefit of the participants. The suit generally alleges that the defendants fraudulently concealed information from the public and fraudulently inflated the Company's stock price through billing fraud, overcharges, inaccurate Medicare cost reports and illegal kickbacks for physician referrals. The suit seeks an order allowing the plaintiffs to proceed on behalf of the Plan as in a derivative action, a judgment for compensatory and restitutionary damages for the losses allegedly experienced by the Plan because of breaches of fiduciary duty, an order transferring management of the Plan to a competent, neutral third-party, and an award of pre-judgment interest, reasonable attorneys fees and costs. Discovery in this case is almost completed. A trial date of June 1999 has been set. A class action styled Mary Forsyth, et al. v. Humana, Inc., et al., Case No. CV-S-89-249-DWH, was filed on March 29, 1989, in the United States District Court for the District of Nevada. Plaintiffs are two classes of individuals who paid for, or received coverage under, group insurance policies sold in the State of Nevada by Humana Insurance. They allege violations of antitrust laws, ERISA and RICO which arise from the sale of the policies and from incentives provided under the policies for insureds to use Humana Sunrise Hospital in Las Vegas, a facility now owned by the Company. The suit seeks attorneys' fees and costs, as well as injunctive relief and insurance benefits for plaintiffs. In 1993, the United States District Court granted summary judgment dismissing most of plaintiffs' claims but granted plaintiffs judgment on one claim. Plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit which, in May 1997, affirmed the judgment on the ERISA claims; reversed as to the antitrust claims; and reversed in part as to the RICO claims, but affirmed the District Court's grant of summary judgment limiting RICO damages to three times the ERISA damages. In their current complaint, plaintiffs claim approximately $133 million in antitrust damages that is subject to statutory trebling. However, in their most recent expert report, plaintiffs' expert claims antitrust damages of approximately $13-$21 million. Humana Inc. ("Humana") has petitioned the United States Supreme Court for a Writ of Certiorari on the RICO claims which was granted. On January 20, 1999, the Supreme Court affirmed the Ninth Circuit's decision that the plaintiffs could proceed with their RICO claims. The Supreme Court did not address the amount of damages that plaintiffs could seek on their claim. The entire case is now back in the Nevada district court, where Humana has filed several motions seeking dismissal of the antitrust claims. A trial is expected to be scheduled before the end of the year. On December 4, 1997, a lawsuit captioned Florida Software Systems, Inc., a Florida corporation v. Columbia/HCA Healthcare Corporation, a Delaware corporation was filed in the United States District Court for the Middle District of Florida (Civil Action No. 97-2866-C.V.-T-17b). The lawsuit alleges that the defendant breached an agreement under which Florida Software Systems, Inc. was allegedly granted the exclusive right to provide medical claims management for certain claims made by the Company for payment to any third party payers in connection with the rendering of medical care or services. The lawsuit alleges claims for fraud, breach of implied contract and breach of contract. The lawsuit seeks damages, attorneys' fees and costs, as well as injunctive relief. On October 15, 1998, the Company filed a counterclaim and third party complaint against Florida Software Systems, Inc., Receivable Dynamics Inc., Nevada Communications 33 36 Corporation, Norman R. Dobiesz, Maureen Donovan Dobiesz, Stuart M. Lopata, and Samuel A. Greco (a former senior officer at the Company). The counterclaim alleges racketeering, conspiracy, breach of fiduciary duty, and breach of contract. Defendants have filed a motion to dismiss the counterclaim, which motion to dismiss has been partially granted. The Company intends to pursue the defense of these actions and prosecution of its counterclaims and third party claims vigorously. The Company is also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or for wrongful restriction of, or interference with, physicians' staff privileges. In certain of these actions the claimants have asked for punitive damages against the Company, which are usually not covered by insurance. In the opinion of management, the ultimate resolution of these pending claims and legal proceedings will not have a material adverse effect on the Company's results of operations or financial position. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) List of Exhibits: Exhibit 10(a) -- $1,000,000 Credit Agreement dated as of March 30, 1999 among the Company, The Several Banks and Other Financial Institutions, Chase Securities Inc., as Lead Arranger and Sole Book Manager, NationsBank, N.A., as Documentation Agent, The Bank of New York, The Bank of Nova Scotia, and Toronto-Dominion (Texas), Inc., as Co-Syndication Agents, Deutsche Bank AG New York Branch and/or Cayman Islands Branch and Fleet National Bank, as Co-Agents, SunTrust Bank, Nashville, N.A. and Wachovia Bank, N.A., as Lead Managers and The Chase Manhattan Bank, as Administrative Agent.* Exhibit 10(b) -- First Amendment to the July 1998 $1 Billion Agreement dated as of March 30, 1999.* Exhibit 10(c) -- Fifth Amendment to the Five-Year Agreement dated as of March 30, 1999.* Exhibit 12 -- Statement re Computation of Ratio of Earnings to Fixed Charges. Exhibit 27 -- Financial Data Schedule.* *Included only in filings under the Electronic Data, Gathering, Analysis and Retrieval system. (b) Reports on Form 8-K filed during the quarter ended March 31, 1999: On February 24, 1999, the Company filed a report on Form 8-K which included its operating results for the year and fourth quarter ended December 31, 1998 and announced a new $1.0 billion share repurchase program. The Company also announced that it entered into a Letter of Credit Agreement with the United States in connection with the Company's share repurchase agreement. 34 37 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLUMBIA/HCA HEALTHCARE CORPORATION /s/ R. MILTON JOHNSON -------------------------------------- R. Milton Johnson Vice President and Controller Date: May 14, 1999 35 EX-10.A 2 CREDIT AGREEMENT DATED 3/30/99 1 EXHIBIT 10(a) EXECUTION COPY ================================================================== $1,000,000,000 CREDIT AGREEMENT among COLUMBIA/HCA HEALTHCARE CORPORATION, THE SEVERAL BANKS AND OTHER FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTIES HERETO, CHASE SECURITIES INC., as Lead Arranger and Sole Book Manager, NATIONSBANK, N.A., as Documentation Agent, THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA, and TORONTO-DOMINION (TEXAS), INC., as Co-Syndication Agents, DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH and FLEET NATIONAL BANK, as Co-Agents, SUNTRUST BANK, NASHVILLE, N.A. and WACHOVIA BANK, N.A., as Lead Managers, and THE CHASE MANHATTAN BANK, as Administrative Agent Dated as of March 30, 1999 ================================================================== 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS .....................................................1 1.1 Defined Terms ...................................................1 1.2 Other Definitional Provisions ..................................12 SECTION 2. AMOUNT AND TERMS OF LOANS ......................................12 2.1 Loans and Notes ................................................12 2.2 Fees ...........................................................14 2.3 Termination or Reduction of Commitments ........................14 2.4 Optional Prepayments............................................14 2.5 Mandatory Prepayments and Commitment Reductions ................14 2.6 Conversion Options; Minimum Amount of Loans ....................15 2.7 Interest Rate and Payment Dates for Loans ......................15 2.8 Computation of Interest and Fees ...............................16 2.9 Inability to Determine Interest Rate ...........................17 2.10 Pro Rata Borrowings and Payments ...............................17 2.11 Illegality .....................................................18 2.12 Requirements of Law ............................................18 2.13 Capital Adequacy ...............................................19 2.14 Taxes ..........................................................19 2.15 Indemnity ......................................................20 2.16 Application of Proceeds of Loans ...............................21 2.17 Notice of Certain Circumstances; Assignment of Commitments Under Certain Circumstances ....................................21 SECTION 3. REPRESENTATIONS AND WARRANTIES .................................22 3.1 Corporate Organization and Existence ...........................22 3.2 Subsidiaries ...................................................22 3.3 Financial Information ..........................................22 3.4 Changes in Condition ...........................................23 3.5 Assets .........................................................23 3.6 Litigation .....................................................23 3.7 Tax Returns ....................................................24 3.8 Contracts, etc. ................................................24 3.9 No Legal Obstacle to Agreement ................................ 24 3.10 Defaults .......................................................24 3.11 Burdensome Obligations .........................................24 3.12 Pension Plans ..................................................25 3.13 Disclosure .....................................................25 3.14 Environmental and Public and Employee Health and Safety Matters .................................................25 3.15 Federal Regulations ............................................25 3.16 Investment Company Act; Other Regulations ......................26
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Page ---- 3.17 Year 2000 Matters ..............................................26 SECTION 4. CONDITIONS .....................................................26 4.1 Loan Documents .................................................26 4.2 Legal Opinions .................................................26 4.3 Company Officers' Certificate ..................................27 4.4 Legality, etc. .................................................27 4.5 General ........................................................27 4.6 Fees ...........................................................27 4.7 Amendments to Existing Agreements ..............................27 SECTION 5. GENERAL COVENANTS ..............................................28 5.1 Taxes, Indebtedness, etc. ......................................28 5.2 Maintenance of Properties; Compliance with Law .................28 5.3 Transactions with Affiliates ...................................29 5.4 Insurance ......................................................29 5.5 Financial Statements ...........................................29 5.6 Ratio of Consolidated Total Debt to Consolidated Total Capitalization .................................................32 5.7 Interest Coverage Ratio ........................................32 5.8 Distributions ..................................................32 5.9 Merger or Consolidation ........................................32 5.10 Sales of Assets ................................................32 5.11 Compliance with ERISA ..........................................33 5.12 Negative Pledge ................................................33 5.13 Sale-and-Lease-back Transactions ...............................34 SECTION 6. DEFAULTS .......................................................34 6.1 Events of Default ..............................................34 6.2 Annulment of Defaults ..........................................37 6.3 Waivers ........................................................37 6.4 Course of Dealing ..............................................37 7.1 Appointment ....................................................37 7.2 Delegation of Duties ...........................................37 7.3 Exculpatory Provisions .........................................38 7.4 Reliance by Agent ..............................................38 7.5 Notice of Default ..............................................38 7.6 Non-Reliance on Agent and Other Banks ..........................39 7.7 Indemnification ................................................39 7.8 Agent in Its Individual Capacity ...............................39 7.9 Successor Agent ................................................39 SECTION 8. MISCELLANEOUS .................................................40 8.1 Amendments and Waivers .........................................40
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Page ---- 8.2 Notices .........................................................40 8.3 No Waiver; Cumulative Remedies ..................................41 8.4 Survival of Representations and Warranties ......................41 8.5 Payment of Expenses and Taxes; Indemnity ........................41 8.6 Successors and Assigns; Participations; Purchasing Banks ........42 8.7 Adjustments; Set-off ............................................44 8.8 Counterparts ....................................................45 8.9 GOVERNING LAW ..................................................45 8.10 WAIVERS OF JURY TRIAL ...........................................45 8.11 Submission To Jurisdiction; Waivers .............................45
SCHEDULES SCHEDULE I Commitment Amounts and Percentages; Lending Offices; Addresses for Notice SCHEDULE II Subsidiaries of the Company SCHEDULE III Indebtedness SCHEDULE IV Applicable Margins SCHEDULE V Significant Litigation EXHIBITS EXHIBIT A Form of Tranche 1 Note EXHIBIT B Form of Tranche 2 Note EXHIBIT C Form of Commitment Transfer Supplement iii 5 CREDIT AGREEMENT, dated as of March 30, 1999 (this "Agreement"), among COLUMBIA/HCA HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), the several banks and other financial institutions from time to time parties hereto (the "Banks"), CHASE SECURITIES INC., as Lead Arranger and Sole Book Manager, NATIONSBANK, N.A., as Documentation Agent, THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA, and TORONTO-DOMINION (TEXAS), INC., as Co-Syndication Agents, DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH and FLEET NATIONAL BANK, as Co-Agents, SUNTRUST BANK, NASHVILLE, N.A. and WACHOVIA BANK, N.A., as Lead Managers, and THE CHASE MANHATTAN BANK, a New York banking corporation, as agent for the Banks hereunder (in such capacity, the "Agent"). In consideration of the promises and mutual agreements herein contained and for other good and valuable consideration, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms have the following meanings: "Affiliate": (a) any director or officer of any corporation or partner or joint venturer or Person holding a similar position in another Person or members of their families, whether or not living under the same roof, or any Person owning beneficially more than 5% of the outstanding common stock or other evidences of beneficial interest of the Person in question, (b) any Person of which any one or more of the Persons described in clause (a) above is an officer, director or beneficial owner of more than 5% of the shares or other beneficial interest and (c) any Person controlled by, controlling or under common control with the Person in question. "Alternate Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Agent as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve System (the "Board") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York 6 2 City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; "C/D Reserve Percentage" shall mean, for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board (or any successor), for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion Dollars in respect of new non-personal three-month certificates of deposit in the secondary market in Dollars in New York City and in an amount of $100,000 or more; "C/D Assessment Rate" shall mean, for any day, the net annual assessment rate (rounded upward to the nearest 1/100 of 1%) determined by Chase to be payable on such day to the Federal Deposit Insurance Corporation or any successor (the "FDIC") for FDIC's insuring time deposits made in Dollars at offices of Chase in the United States; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate, or both, for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Alternate Base Rate Loans": Loans hereunder at such time as they are made and/or being maintained at a rate of interest based upon the Alternate Base Rate. "Applicable Margin": for each Type of Loan during a Level I Period or Level II Period, the rate per annum set forth under the relevant column heading in Schedule IV. Increases or decreases in the Applicable Margin shall become effective on the first day of the Level I Period or Level II Period, as the case may be, to which such Applicable Margin relates. "Attributable Debt": means (i) as to any capitalized lease obligations, the Indebtedness carried on the balance sheet in respect thereof in accordance with GAAP and (ii) as to any operating leases, the total net amount of rent required to be paid under such leases during the remaining term thereof. "Auditor": any independent certified public accountant of nationally recognized standing and reputation selected by the Company. 7 3 "Available Commitments": at a particular time, an amount equal to the difference between (a) the amount of the Commitments at such time and (b) the aggregate unpaid principal amount at such time of all Loans. "Bank Obligations": as defined in subsection 6.1. "Benefitted Bank": as defined in subsection 8.7. "Borrowing Date": any Business Day specified in a notice pursuant to subsection 2.1(c) as a date on which the Company requests the Banks to make Loans hereunder. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Change in Control": of any corporation, (a) any Person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), other than the Company, that shall acquire more than 50% of the Voting Stock of such corporation or (b) any Person or group (as defined in preceding clause (a)), other than the Company, that shall acquire more than 20% of the Voting Stock of such corporation and, at any time following an acquisition described in this clause (b), the Continuing Directors shall not constitute a majority of the board of directors of such corporation. "Chase": The Chase Manhattan Bank, a New York banking corporation. "Closing Date": the date on which all of the conditions precedent for the Closing Date set forth in Section 4 are satisfied. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commitment": as to any Bank, its obligation to make a Tranche 1 Loan and a Tranche 2 Loan in the respective amounts not to exceed the amount set forth opposite such Bank's name in Schedule I, as such amount may be reduced from time to time as provided herein. "Commitment Percentage": as to any Bank, the percentage of the aggregate Commitments constituted by such Bank's Commitment. "Commitment Period": the period from and including the Closing Date to but not including the relevant Tranche 1 or Tranche 2 Termination Date, as the case may be, or such earlier date on which the Commitments shall terminate as provided herein. 8 4 "Commitment Transfer Supplement": a Commitment Transfer Supplement, substantially in the form of Exhibit B. "Consolidated Assets": the consolidated assets of the Company and its Subsidiaries, determined in accordance with GAAP. "Consolidated Earnings Before Interest and Taxes": for any period for which the amount thereof is to be determined, Consolidated Net Income for such period plus all amounts deducted in computing such Consolidated Net Income in respect of interest expense on Indebtedness and income taxes. "Consolidated Interest Expense": for any period for which the amount thereof is to be determined, all amounts deducted in computing Consolidated Net Income for such period in respect of interest expense on Indebtedness determined in accordance with GAAP. "Consolidated Net Income": for any period, the consolidated net income, if any, after taxes, of the Company and its Subsidiaries for such period determined in accordance with GAAP; provided, however, that Consolidated Net Income shall not include any gain or loss attributable to extraordinary items, any sale of assets not in the ordinary course of business or any taxes or tax savings as a result thereof. "Consolidated Net Tangible Assets": means the total amount of assets (less applicable reserves and other properly deductible items) after deducting therefrom (i) all current liabilities as disclosed on the consolidated balance sheet of the Company (excluding any thereof which are by their terms extendable or renewable at the option of the obligor thereon to a time more than 12 months after the time as of which the amount thereof is being computed and excluding any deferred income taxes that are included in current liabilities), and (ii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangible assets, all as set forth on the most recent consolidated balance sheet of the Company and computed in accordance with GAAP. "Consolidated Net Worth": as of the date of determination, all items which in conformity with GAAP would be included under shareholders' equity on a consolidated balance sheet of the Company and its Subsidiaries at such date. "Consolidated Total Capitalization": for any period for which the amount thereof is to be determined, the sum of Consolidated Net Worth at such date and Consolidated Total Debt at such date. "Consolidated Total Debt": the aggregate of all Indebtedness (including the current portion thereof) of the Company and its Subsidiaries on a consolidated basis. "Continuing Director": any member of the Board of Directors of the Company who is a member of such Board on the date of this Agreement, and any Person who is a member 9 5 of such Board and whose nomination as a director was approved by a majority of the Continuing Directors then on such Board. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Control Group Person": any Person which is a member of the controlled group or is under common control with the Company within the meaning of Section 414(b) or 414(c) of the Code or Section 4001(b)(1) of ERISA. "Default": any of the events specified in subsection 6.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Distribution": (a) the declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Company other than dividends payable solely in shares of common stock of the Company; (b) the purchase, redemption or other acquisition of any shares of any class of capital stock of the Company directly or indirectly through a Subsidiary or otherwise; and (c) any other distribution on or in respect of any shares of any class of capital stock of the Company. "Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Lending Office": the office of each Bank designated as such in Schedule I. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Lending Office": the office of each Bank designated as such in Schedule I. "Eurodollar Loans": Loans hereunder at such time as they are made and/or are being maintained at a rate of interest based upon the Eurodollar Rate. 10 6 "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the average (rounded upwards to the nearest whole multiple of one sixteenth of one percent) of the respective rates notified to the Agent by the Reference Banks as the rate at which each of their Eurodollar Lending Offices is offered Dollar deposits two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are then being conducted at or about 10:00 A.M., New York City time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Loan of such Reference Bank to be outstanding during such Interest Period. "Eurodollar Tranche": the collective reference to Eurodollar Loans having the same Interest Period (whether or not originally made on the same day). "Event of Default": any of the events specified in subsection 6.1, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act has been satisfied. "Facility": each of (a) the Tranche 1 Commitments and the Tranche 1 Loans made thereunder (the "Tranche 1 Facility") and (b) the Tranche 2 Commitments and the Tranche 2 Loans made thereunder (the "Tranche 2 Facility"). "February 1997 Five-Year Agreement and Amendment": the Agreement and Amendment, dated as of February 26, 1997 (as amended, modified or supplemented), among the Company, the Co-Agents (as defined therein), Chase, as Agent and as CAF Loan Agent (as defined therein), and the several banks and other financial institutions parties thereto, which adopts and incorporates by reference to the extent provided therein the Five-Year Composite Credit Agreement dated as of February 28, 1996. "Financing Lease": any lease of property, real or personal, if the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. "GAAP": (a) with respect to determining compliance by the Company with the provisions of subsections 5.6, 5.7 and 5.10, generally accepted accounting principles in the United States of America consistent with those utilized in preparing the audited financial statements referred to in subsection 3.3 and (b) with respect to the financial statements referred to in subsection 3.3 or the furnishing of financial statements pursuant to subsection 5.5 and otherwise, generally accepted accounting principles in the United States of America from time to time in effect. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 11 7 "Guarantee Obligation": any arrangement whereby credit is extended to one party on the basis of any promise of another, whether that promise is expressed in terms of an obligation to pay the Indebtedness of another, or to purchase an obligation owed by that other, to purchase assets or to provide funds in the form of lease or other types of payments under circumstances that would enable that other to discharge one or more of its obligations, whether or not such arrangement is listed in the balance sheet of the obligor or referred to in a footnote thereto, but shall not include endorsements of items for collection in the ordinary course of business. "Indebtedness": of a Person, at a particular date, the sum (without duplication) at such date of (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Financing Leases, (c) all obligations of such Person in respect of letters of credit, acceptances, or similar obligations issued or created for the account of such Person in excess of $1,000,000, (d) all liabilities secured by any Lien on any property owned by the Company or any Subsidiary even though such Person has not assumed or otherwise become liable for the payment thereof and (e) all Guarantee Obligations relating to any of the foregoing in excess of $1,000,000. "Insolvency" or "Insolvent": at any particular time, a Multiemployer Plan which is insolvent within the meaning of Section 4245 of ERISA. "Interest Payment Date": (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December, commencing on the first of such days to occur after Alternate Base Rate Loans are made or Eurodollar Loans are converted to Alternate Base Rate Loans, (b) as to any Eurodollar Loan in respect of which the Company has selected an Interest Period of one, two or three months, the last day of such Interest Period and (c) as to any Eurodollar Loan in respect of which the Company has selected a longer Interest Period than the periods described in clause (b), the last day of each March, June, September and December falling within such Interest Period and the last day of such Interest Period. "Interest Period": with respect to any Eurodollar Loans: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loans and ending one, two, three or six months thereafter (or, in the case of the Tranche 2 Loans, with the consent of all the Banks, nine or twelve months thereafter), as selected by the Company in its notice of borrowing as provided in subsection 2.2 or its notice of conversion as provided in subsection 2.8, as the case may be; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loans and ending one, two, three or six months thereafter (or, in the case of the Tranche 2 Loans, with the consent of all the Banks, nine or twelve months thereafter), as selected by the Company by irrevocable notice to the Agent not less than three Business Days prior 12 8 to the last day of the then current Interest Period with respect to such Eurodollar Loans; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a Eurodollar Loan would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) if the Company shall fail to give notice as provided above, the Company shall be deemed to have selected an Alternate Base Rate Loan to replace the affected Eurodollar Loan; (3) any Interest Period pertaining to a Eurodollar Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (4) any Interest Period pertaining to a Eurodollar Loan that would otherwise end after the relevant Tranche 1 or Tranche 2 Termination Date, as the case may be, shall end on such Tranche 1 or Tranche 2 Termination Date; and (5) the Company shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "July 1998 Term Loan Agreement": the $1,000,000,000 Agreement, dated as of July 10, 1998, among the Company, the several banks and other financial institutions from time to time parties thereto, the co-agents, documentation agent and syndication agents named therein and The Chase Manhattan Bank, as Agent and as CAF Loan Agent therein, as the same has been and may be amended, supplemented or otherwise modified or replaced or extended from time to time. "Level I Period": any period during which the lower of the publicly announced ratings by S&P and Moody's of the then current senior unsecured, non-credit enhanced, long-term Indebtedness of the Company that has been publicly issued are BB or better or Ba2 or better, respectively. "Level II Period": any period during which either of the publicly announced ratings by S&P or Moody's of the then current senior unsecured, non-credit enhanced, long-term Indebtedness of the Company that has been publicly issued are equal to or below BB- or unrated or equal to or below Ba3 or unrated, as the case may be. 13 9 "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing). "LifePoint": LifePoint Hospitals, Inc., a Delaware corporation to be formed after the Closing Date. "Loans": the collective reference to the Tranche 1 Loans and the Tranche 2 Loans. "Loan Documents": this Agreement and the Notes. "Moody's": Moody's Investors Service, Inc., or any successor thereto. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": means, with respect to any issuance or sale of Capital Stock or debt securities by the Company or any of its Subsidiaries, the cash proceeds received by the Company or such Subsidiaries net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions, and other customary fees and expenses incurred in connection with such issuance or sale. "Notes": as defined in subsection 2.1(b). "Participants": as defined in subsection 8.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Control Group Person is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Principal Property": means each acute care hospital providing general medical and surgical services (including real property but excluding equipment, personal property and hospitals which primarily provide specialty medical services, such as psychiatric and obstetrical and gynecological services) at least 50% of which is owned by the Company and its Subsidiaries on a consolidated basis and located in the United States of America. 14 10 "Purchasing Banks": as defined in subsection 8.6(c). "Reference Banks": Chase and Citibank, N.A. "Register": as defined in subsection 8.6(d). "Regulation U": Regulation U of the Board of Governors of the Federal Reserve System. "Regulation X": Regulation X of the Board of Governors of the Federal Reserve System. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13,.14,.16,.18,.19 or .20 of PBGC Reg. ss. 2615. "Required Banks": (i) during the Commitment Period, Banks whose Commitment Percentages aggregate at least 51% and (ii) after the Commitments have expired or been terminated, Banks whose outstanding Loans represent in the aggregate 51% of the aggregate unpaid principal amount of all outstanding Loans. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, the president, any executive or senior vice president or vice president of the Company, the chief financial officer, treasurer or controller of the Company. "S&P": Standard & Poor's Ratings Service, or any successor thereto. "Sale-and-Leaseback Transaction": means any arrangement entered into by the Company or any Significant Subsidiary with any person (other than the Company or a Significant Subsidiary), or to which any such person is a party, providing for the leasing to the Company or any Significant Subsidiary for a period of more than three years of any Principal Property which has been or is to be held or transferred by the Company or such Significant Subsidiary to such Person or to any other Person (other than the Company or a Significant Subsidiary), to which funds have been or are to be advanced by such Person on the security of the leased property. 15 11 "Significant Subsidiary": means, at any particular time, any Subsidiary of the Company having total assets of $15,000,000 or more at that time. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Spin-Cos": LifePoint and Triad. "Spin-Offs": the proposed tax-free spin-off distributions of the common stock of the Spin-Cos to the shareholders of the Borrower. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned directly or indirectly through one or more intermediaries, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "Taxes": as defined in subsection 2.13. "Tranche 1 Commitment": as to any Bank, the obligation of such Bank, if any, to make a Tranche 1 Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Tranche 1 Commitment" opposite such Bank's name on Schedule I. The original aggregate amount of the Tranche 1 Commitments is $500,000,000. "Tranche 1 Loan": as defined in Section 2.1(a). "Tranche 1 Note": as defined in Section 2.1(b). "Tranche 1 Percentage": as to any Bank at any time, the percentage which such Bank's Tranche 1 Commitment then constitutes of the aggregate Tranche 1 Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Bank's Tranche 1 Loans then outstanding constitutes of the aggregate principal amount of the Tranche 1 Loans then outstanding). "Tranche 1 Termination Date": September 30, 1999. "Tranche 2 Commitment": as to any Bank, the obligation of such Bank, if any, to make a Tranche 2 Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Tranche 2 Commitment" opposite such Bank's name on Schedule I. The original aggregate amount of the Tranche 2 Commitments is $500,000,000. "Tranche 2 Loan": as defined in Section 2.1(a). 16 12 "Tranche 2 Note": as defined in Section 2.1(c). "Tranche 2 Percentage": as to any Bank at any time, the percentage which such Bank's Tranche 2 Commitment then constitutes of the aggregate Tranche 2 Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Bank's Tranche 2 Loans then outstanding constitutes of the aggregate principal amount of the Tranche 2 Loans then outstanding). "Tranche 2 Termination Date": September 30, 2000. "Transfer Effective Date": as defined in each Commitment Transfer Supplement. "Transferee": as defined in subsection 8.6(f). "Triad": Triad Hospitals, Inc., a Delaware corporation to be formed after the Closing Date. "Type": as to any Loan, its nature as an Alternate Base Rate Loan or Eurodollar Loan. "Voting Stock": of any corporation, shares of capital stock or other securities of such corporation entitled to vote generally in the election of directors of such corporation. "Working Day": any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 17 13 SECTION 2. AMOUNT AND TERMS OF LOANS 2.1 Loans and Notes. (a) Subject to the terms and conditions hereof, each Bank severally agrees to make two loans (a "Tranche 1 Loan" and a "Tranche 2 Loan", respectively) to the Company on the Closing Date in an aggregate principal amount not to exceed the Commitment of such Bank in the respective amounts set forth opposite such Bank's name under the first and third columns on Schedule I. The Loans may be (i) Eurodollar Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof, as determined by the Company and notified to the Agent in accordance with subsection 2.1(d). (b) Upon the request by any Bank, the Tranche 1 Loan made by such Bank shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit A with appropriate insertions as to payee, date and principal amount (a "Tranche 1 Note"), payable to the order of such Bank and evidencing the obligation of the Company to pay a principal amount equal to the amount of the initial Tranche 1 Commitment of such Bank. Each Bank is hereby authorized to record the date, Type and amount of each Tranche 1 Loan made or converted by such Bank, and the date and amount of each payment or prepayment of principal thereof, and, in the case of Eurodollar Loans, the Interest Period with respect thereto, on the schedule annexed to and constituting a part of such Tranche 1 Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure of such Bank to make any such recordation shall not affect the obligations of the Company hereunder or under any Tranche 1 Note. Each such Tranche 1 Note shall (x) be dated the Closing Date, (y) be stated to mature on the Tranche 1 Termination Date, and (z) bear interest on the unpaid principal amount thereof from time to time outstanding at the applicable interest rate per annum determined as provided in subsection 2.7. (c) Upon the request by any Bank, the Tranche 2 Loan made by such Bank shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit B with appropriate insertions as to payee, date and principal amount (a "Tranche 2 Note"), payable to the order of such Bank and evidencing the obligation of the Company to pay a principal amount equal to the amount of the initial Tranche 2 Commitment of such Bank. Each Bank is hereby authorized to record the date, Type and amount of each Tranche 2 Loan made or converted by such Bank, and the date and amount of each payment or prepayment of principal thereof, and, in the case of Eurodollar Loans, the Interest Period with respect thereto, on the schedule annexed to and constituting a part of such Tranche 2 Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure of such Bank to make any such recordation shall not affect the obligations of the Company hereunder or under any Tranche 2 Note. Each such Tranche 2 Note shall (x) be dated the Closing Date, (y) be stated to mature on the Tranche 2 Termination Date, and (z) bear interest on the unpaid principal amount thereof from time to time outstanding at the applicable interest rate per annum determined as provided in subsection 2.7. (d) The Company may borrow under the Commitments on the Closing Date; provided that the Company shall give the Agent irrevocable notice (which notice must be received by the Agent (i) prior to 11:30 A.M., New York City time, three Business Days prior to the Closing Date, in the case of Eurodollar Loans, and (ii) prior to 10:00 A.M., New York City time, one Business Day prior to the Closing Date, in the case of Alternate Base Rate Loans), specifying (A) 18 14 the amount to be borrowed, (B) whether the borrowing is to be of Eurodollar Loans, Alternate Base Rate Loans, or a combination thereof, and (C) if the borrowing is to be entirely or partly of Eurodollar Loans, the length of the Interest Period therefor. Upon receipt of such notice from the Company, the Agent shall promptly notify each Bank thereof. Each Bank will make the amount of its pro rata share of each borrowing available to the Agent for the account of the Company at the office of the Agent set forth in subsection 8.2 prior to 12:00 P.M., New York City time, on the Closing Date in funds immediately available to the Agent. The proceeds of all such Loans will then be made available to the Company by the Agent at such office of the Agent by crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Agent by the Banks. 2.2 Fees. The Company agrees to pay to the Agent the other fees in the amounts, and on the date, agreed to by the Company and the Agent in the fee letter, dated February 25, 1999, between the Agent and the Company. 2.3 Termination or Reduction of Commitments. The Company shall have the right, upon not less than five Business Days' notice to the Agent, to terminate the Commitments or, from time to time, to reduce ratably the amount of the Commitments, provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, the then outstanding principal amount of the Loans would exceed the amount of the Commitments then in effect. In the case of any reduction, such notice shall specify whether such reduction is of Tranche 1 Commitments or Tranche 2 Commitments or a combination thereof. Any such reduction shall be in an amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof, and shall reduce permanently the amount of the Commitments then in effect. 2.4 Optional Prepayments. The Company may on the last day of the relevant Interest Period if the Loans to be prepaid are in whole or in part Eurodollar Loans, or at any time and from time to time if the Loans to be prepaid are Alternate Base Rate Loans, prepay the Loans, in whole or in part, without premium or penalty, upon at least three Business Days' irrevocable notice to the Agent, specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or Alternate Base Rate Loans or a combination thereof and whether the prepayment is of Tranche 1 Loans or Tranche 2 Loans or a combination thereof, and if of a combination thereof, the amount of prepayment allocable to each. Upon receipt of such notice the Agent shall promptly notify each Bank thereof. If such notice is given, the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments shall be in an aggregate principal amount of $5,000,000, or a whole multiple of $1,000,000 in excess thereof, and may only be made if, after giving effect thereto, subsection 2.6(c) shall not have been contravened. 2.5 Mandatory Prepayments and Commitment Reductions. (a) The Company shall prepay the Loans and reduce the Commitments in the amount of 100% of the Net Cash Proceeds of any sale or issuance of Capital Stock (excluding any stock issued pursuant to employee and/or director stock option or stock purchase plans) or incurrence of Indebtedness for borrowed money in excess of an aggregate principal amount of $25,000,000 (excluding transactions under $2,000,000) by the Borrower or any of its Subsidiaries after the Closing Date (excluding any Indebtedness 19 15 incurred by the Spin-Cos in connection with the Spin-Offs) within five Business Days following the date of any such sale, issuance or incurrence. (b) Amounts to be applied in connection with prepayments made pursuant to subsection 2.4 and 2.5 shall be applied, first, to the prepayment of the Tranche 1 Loans in their entirety and, second, to the Tranche 2 Loans. The application of any prepayment pursuant to this subsection 2.5 shall be made, first, to ABR Loans and, second, to Eurodollar Loans. Each prepayment of the Loans under this subsection 2.5 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. 2.6 Conversion Options; Minimum Amount of Loans. (a) The Company may elect from time to time to convert Eurodollar Loans to Alternate Base Rate Loans by giving the Agent at least two Business Days' prior irrevocable notice of such election (given before 10:00 A.M., New York City time, on the date on which such notice is required), provided that any such conversion of Eurodollar Loans shall, subject to the fourth following sentence, only be made on the last day of an Interest Period with respect thereto. The Company may elect from time to time to convert Alternate Base Rate Loans to Eurodollar Loans by giving the Agent at least three Business Days' prior irrevocable notice of such election (given before 11:30 A.M., New York City time, on the date on which such notice is required). Upon receipt of such notice, the Agent shall promptly notify each Bank thereof. Promptly following the date on which such conversion is being made each Bank shall take such action as is necessary to transfer its portion of such Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of outstanding Eurodollar Loans and Alternate Base Rate Loans may be converted as provided herein, provided that, unless the Required Banks otherwise agree, (i) no Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing, (ii) partial conversions shall be in an aggregate principal amount of $5,000,000 or a whole multiple thereof, and (iii) any such conversion may only be made if, after giving effect thereto, subsection 2.6(c) shall not have been contravened. (b) Any Eurodollar Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in subsection 2.6(a); provided that, unless the Required Banks otherwise agree, no Eurodollar Loan may be continued as such when any Event of Default has occurred and is continuing, but shall be automatically converted to an Alternate Base Rate Loan on the last day of the then current Interest Period with respect thereto. The Agent shall notify the Banks promptly that such automatic conversion contemplated by this subsection 2.6(b) will occur. (c) All borrowings, conversions, payments, prepayments and selection of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising any Eurodollar Tranche shall not be less than $10,000,000. At no time shall there be more than 10 Eurodollar Tranches. 2.7 Interest Rate and Payment Dates for Loans. (a) The Eurodollar Loans comprising each Eurodollar Tranche shall bear interest for each day during each Interest Period with 20 16 respect thereto on the unpaid principal amount thereof at a rate per annum equal to the Eurodollar Rate plus the Applicable Margin. (b) Alternate Base Rate Loans shall bear interest for each day from and including the date thereof on the unpaid principal amount thereof at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. (c) If all or a portion of the principal amount of any Loans shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), each Eurodollar Loan shall, unless the Required Banks otherwise agree, be converted to an Alternate Base Rate Loan at the end of the last Interest Period with respect thereto. Any such overdue principal amount shall bear interest at a rate per annum which is 2% above the rate which would otherwise be applicable pursuant to subsection 2.7(a) or (b), and any overdue interest or other amount payable hereunder shall bear interest at a rate per annum which is 2% above the Alternate Base Rate, in each case from the date of such non-payment until paid in full (after as well as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date. (e) The Company shall pay the entire principal amount of (i) the Tranche 1 Loans on the Tranche 1 Termination Date and (ii) the Tranche 2 Loans on the Tranche 2 Termination Date. 2.8 Computation of Interest and Fees. (a) Interest in respect of Alternate Base Rate Loans shall be calculated on the basis of a (i) 365-day (or 366-day, as the case may be) year for the actual days elapsed when such Alternate Base Rate Loans are based on the Prime Rate, and (ii) a 360-day year for the actual days elapsed when based on the Base CD Rate or the Federal Funds Effective Rate. Interest in respect of Eurodollar Loans shall be calculated on the basis of a 360-day year for the actual days elapsed. The Agent shall as soon as practicable notify the Company and the Banks of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate or the Applicable Margin or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate is announced, such Applicable Margin changes as provided herein or such change in or the Eurocurrency Reserve Requirements shall become effective, as the case may be. The Agent shall as soon as practicable notify the Company and the Banks of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Banks in the absence of manifest error. The Agent shall, at the request of the Company, deliver to the Company a statement showing the quotations used by the Agent in determining any interest rate pursuant to subsection 2.7(a) or (c). (c) If any Reference Bank's Commitment shall terminate (otherwise than on termination of all the commitments), or its Loan shall be assigned for any reason whatsoever, such Reference Bank shall thereupon cease to be a Reference Bank, and if, as a result of the foregoing, there shall only be one Reference Bank remaining, then the Agent (after consultation with the 21 17 Company) shall, by notice to the Company and the Banks, designate another Bank as a Reference Bank so that there shall at all times be at least two Reference Banks. (d) Each Reference Bank shall use its best efforts to furnished quotations of rates to the Agent as contemplated hereby. If any of the Reference Banks shall be unable or otherwise fails to supply such rates to the Agent upon its request, the rate of interest shall be determined on the basis of the quotations of the remaining Reference Banks or Reference Bank. 2.9 Inability to Determine Interest Rate. In the event that: (i) the Agent shall have determined (which determination shall be conclusive and binding upon the Company) that, by reason of circumstances affecting the interbank eurodollar market generally, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period; (ii) only one of the Reference Banks is able to obtain bids for its Dollar deposits for such Interest Period in the manner contemplated by the term "Eurodollar Rate"; or (iii) the Agent shall have received notice prior to the first day of such Interest Period from Banks constituting the Required Banks that the interest rate determined pursuant to subsection 2.8(a) for such Interest Period does not accurately reflect the cost to such Banks (as conclusively certified by such Banks) of making or maintaining their affected Loans during such Interest Period; with respect to (A) proposed Loans that the Company has requested be made as Eurodollar Loans, (B) Eurodollar Loans that will result from the requested conversion of Alternate Base Rate Loans into Eurodollar Loans or (C) the continuation of Eurodollar Loans beyond the expiration of the then current Interest Period with respect thereto, the Agent shall forthwith give facsimile or telephonic notice of such determination to the Company and the Banks at least one day prior to, as the case may be, the requested Borrowing Date for such Eurodollar Loans, the conversion date of such Loans or the last day of such Interest Period. If such notice is given (x) any requested Eurodollar Loans shall be made as Alternate Base Rate Loans, (y) any Alternate Base Rate Loans that were to have been converted to Eurodollar Loans shall be continued as Alternate Base Rate Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the then current Interest Period with respect thereto, to Alternate Base Rate Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar Loans shall be made, nor shall the Company have the right to convert Alternate Base Rate Loans to Eurodollar Loans. 2.10 Pro Rata Borrowings and Payments. (a) Borrowing by the Company of Loans shall be made ratably from the Banks in accordance with their Commitment Percentages. (b) All payments (including prepayments) to be made by the Company on account of principal, interest and fees shall be made without set-off, counterclaim or deduction of any kind and shall be made to the Agent, for the account of the Banks, at the Agent's office set forth in subsection 8.2, in lawful money of the United States of America and in immediately available funds. 22 18 The Agent shall distribute such payments to the Banks promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Business Day. 2.11 Illegality. Notwithstanding any other provisions herein, if after the date hereof the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the Bank shall, within 30 Business Days after it becomes aware of such fact, notify the Company, through the Agent, of such fact, (b) the commitment of such Bank hereunder to make Eurodollar Loans or convert Alternate Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (c) such Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Alternate Base Rate Loans on the respective last days of the then current Interest Periods for such Loans or within such earlier period as required by law. Each Bank shall take such action as may be reasonably available to it without legal or financial disadvantage (including changing its Eurodollar Lending Office) to prevent the adoption of or any change in any such Requirement of Law from becoming applicable to it. 2.12 Requirements of Law. (a) If after the date hereof the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law) after the date hereof from any central bank or other Governmental Authority: (i) shall subject any Bank to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loans made by it, or change the basis of taxation of payments to such Bank of principal, facility fee, interest or any other amount payable hereunder in respect of Loans (except for changes in the rate of tax on the overall net income of such Bank); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Bank which are not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank, by any amount which such Bank deems to be material, of making, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, in each case, in respect of its Eurodollar Loans, then, 23 19 in any such case, the Company shall promptly pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such additional cost or reduced amount receivable. If a Bank becomes entitled to claim any additional amounts pursuant to this subsection 2.12(a), it shall, within 30 Business Days after it becomes aware of such fact, notify the Company, through the Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by such Bank, through the Agent, to the Company shall be conclusive in the absence of manifest error. Each Bank shall take such action as may be reasonably available to it without legal or financial disadvantage (including changing its Eurodollar Lending Office) to prevent any such Requirement of Law or change from becoming applicable to it. This covenant shall survive the termination of this Agreement and payment of the outstanding Indebtedness hereunder or pursuant to the Notes. (b) In the event that after the date hereof a Bank is required to maintain reserves of the type contemplated by the definition of "Eurocurrency Reserve Requirements", such Bank may require the Company to pay, promptly after receiving notice of the amount due, additional interest on the related Eurodollar Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the excess of (i) (A) the applicable Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve Requirements over (ii) the applicable Eurodollar Rate. Any Bank wishing to require payment of any such additional interest on account of any of its Eurodollar Loans shall notify the Company no more than 30 Business Days after each date on which interest is payable on such Eurodollar Loan of the amount then due it under this subsection 2.12(b), in which case such additional interest on such Eurodollar Loan shall be payable to such Bank at the place indicated in such notice. Each such notification shall be accompanied by such information as the Company may reasonably request. 2.13 Capital Adequacy. If any Bank shall have determined that after the date hereof the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Bank or any corporation controlling such Bank with any request or directive after the date hereof regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority, does or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) by an amount which is reasonably deemed by such Bank to be material, then from time to time, promptly after submission by such Bank, through the Agent, to the Company of a written request therefor (such request shall include details reasonably sufficient to establish the basis for such additional amounts payable and shall be submitted to the Company within 30 Business Days after it becomes aware of such fact), the Company shall promptly pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. The agreements in this subsection 2.13 shall survive the termination of this Agreement and payment of the Loans and the Notes and all other amounts payable hereunder. 2.14 Taxes. (a) All payments made by the Company under this Agreement shall be made free and clear of, and without reduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or 24 20 withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority excluding, in the case of the Agent and each Bank, net income and franchise taxes imposed on the Agent or such Bank by the jurisdiction under the laws of which the Agent or such Bank is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Bank's Domestic Lending Office or Eurodollar Lending Office, as the case may be, is located or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Agent or any Bank hereunder or under the Notes, the amounts so payable to the Agent or such Bank shall be increased to the extent necessary to yield to the Agent or such Bank (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Company, as promptly as possible thereafter, the Company shall send to the Agent for its own account or for the account of such Bank, as the case may be, a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Company shall indemnify the Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Agent or any Bank as a result of any such failure. (b) Each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Company and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Bank is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Bank which delivers to the Company and the Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Company and the Agent two further copies of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to the Company, and such extensions or renewals thereof as may reasonably be requested by the Company, certifying in the case of a Form 1001 or 4224 that such Bank is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such cases an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such letter or form with respect to it and such Bank advises the Company that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. (c) The agreements in subsection 2.14 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 25 21 2.15 Indemnity. The Company agrees to indemnify each Bank and to hold each Bank harmless from any loss or expense (other than any loss of anticipated margin or profit) which such Bank may sustain or incur as a consequence of (a) default by the Company in payment when due of the principal amount of or interest on any Eurodollar Loans of such Bank, (b) default by the Company in making a borrowing or conversion after the Company has given a notice of borrowing in accordance with subsection 2.1(d) or a notice of continuation or conversion pursuant to subsection 2.6(a), (c) default by the Company in making any prepayment after the Company has given a notice in accordance with subsection 2.4 or 2.5 or (d) the making of a prepayment of a Eurodollar Loan on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it to maintain its Eurodollar Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. Any Bank claiming any amount under this subsection 2.15 shall provide calculations, in reasonable detail, of the amount of its loss or expense. This covenant shall survive termination of this Agreement and payment of the outstanding Indebtedness hereunder or pursuant to the Notes. 2.16 Application of Proceeds of Loans. Subject to the provisions of the following sentence, the Company may use the proceeds of the Loans for any lawful corporate purpose, including for the repurchase of shares of common stock of the Company and the repayment of loans under the February 1997 Five-Year Agreement and Amendment. The Company will not, directly or indirectly, apply any part of the proceeds of any such Loan for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U, or to refund any indebtedness incurred for such purpose, except in a manner which is not in violation of Regulations U and X. 2.17 Notice of Certain Circumstances; Assignment of Commitments Under Certain Circumstances. (a) Any Bank claiming any additional amounts payable pursuant to subsections 2.12, 2.13 or 2.14 or exercising its rights under subsection 2.11, shall, in accordance with the respective provisions thereof, provide notice to the Company and the Agent. Such notice to the Company and the Agent shall include details reasonably sufficient to establish the basis for such additional amounts payable or the rights to be exercised by the Bank. (b) Any Bank claiming any additional amounts payable pursuant to subsections 2.12, 2.13 or 2.14 or exercising its rights under subsection 2.11, shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or to change the jurisdiction of its applicable lending office if the making of such filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue or avoid the circumstances giving rise to such exercise and would not, in the sole determination of such Bank, be otherwise disadvantageous to such Bank. (c) In the event that the Company shall be required to make any additional payments to any Bank pursuant to subsections 2.12, 2.13 or 2.14 or any Bank shall exercise its rights under subsection 2.11, the Company shall have the right at its own expense, upon notice to such Bank and the Agent, to require such Bank to transfer and to assign without recourse (in accordance with and subject to the terms of subsection 8.6) all its interest, rights and obligations under this Agreement 26 22 to another financial institution (including any Bank) acceptable to the Agent (which approval shall not be unreasonably withheld) which shall assume such obligations; provided that (i) no such assignment shall conflict with any Requirement of Law and (ii) such assuming financial institution shall pay to such Bank in immediately available funds on the date of such assignment the outstanding principal amount of such Bank's Loans hereunder together with accrued interest thereon and all other amounts accrued for its account or owed to it hereunder, including, but not limited to additional amounts payable under subsections 2.2, 2.11, 2.12, 2.13, 2.14 and 2.15. SECTION 3. REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants that: 3.1 Corporate Organization and Existence. Each of the Company and each Subsidiary is a corporation, partnership or other entity duly organized and validly existing and in good standing under the laws of the jurisdiction in which it is organized (except, in the case of Subsidiaries, where the failure to be in good standing would not be material to the Company and its Subsidiaries on a consolidated basis) and has all necessary power to carry on the business now conducted by it. The Company has all necessary corporate power and has taken all corporate action required to make all the provisions of this Agreement and the Notes and all other agreements and instruments executed in connection herewith and therewith, the valid and enforceable obligations they purport to be. Each of the Company and each Subsidiary is duly qualified and in good standing in all jurisdictions other than that of its organization in which the physical properties owned, leased or operated by it are located (except, in the case of Subsidiaries, where the failure to be in good standing would not be material to the Company and its Subsidiaries on a consolidated basis), and is duly authorized, qualified and licensed under all laws, regulations, ordinances or orders of Governmental Authorities, or otherwise, to carry on its business in the places and in the manner presently conducted. 3.2 Subsidiaries. As of the date hereof, the Company has only the Subsidiaries set forth in Schedule II. Schedule II indicates all Subsidiaries of the Company which are not wholly-owned Subsidiaries. The capital stock and securities owned by the Company and its Subsidiaries in each of the Company's Subsidiaries are owned free and clear of any mortgage, pledge, lien, encumbrance, charge or restriction on the transfer thereof other than restrictions on transfer imposed by applicable securities laws and restrictions, liens and encumbrances outstanding on the date hereof and listed in said Schedule II. 3.3 Financial Information. The Company has furnished to the Agent and made available to each Bank copies of the following (the "SEC Reports"): (a) the Annual Report of the Company for the fiscal year ended December 31, 1997, containing the consolidated balance sheet of the Company and its Subsidiaries as at said date and the related consolidated statements of income, common stockholders' equity and changes in financial position for the fiscal year then ended, accompanied by the opinion of Ernst-Young LLP; 27 23 (b) the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 1997; (c) Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 31, 1998, June 30, 1998 and September 30, 1998; (d) Current Reports on Form 8-K filed with the Securities and Exchange Commission dated February 6, 1998, February 13, 1998, March 6, 1998, May 27, 1998, July 30, 1998, October 28, 1998, December 15, 1998 and February 24, 1999, respectively, and Schedule V attached hereto; and (e) the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 1998. Such financial statements (including any notes thereto) have been prepared in accordance with GAAP and fairly present the financial conditions of the corporations covered thereby at the dates thereof and the results of their operations for the periods covered thereby, subject to normal year-end adjustments in the case of interim statements. As of the date hereof and except as disclosed in the above-referenced reports, neither the Company nor any of its Subsidiaries has any known contingent liabilities of any significant amount which are not referred to in said financial statements or in the notes thereto which could reasonably be expected to have a material adverse effect on the business or assets or on the condition, financial or otherwise, of the Company and its Subsidiaries, on a consolidated basis. 3.4 Changes in Condition. Since December 31, 1998 there has been no material adverse change in the business or assets or in the condition, financial or otherwise, of the Company and its Subsidiaries, on a consolidated basis. 3.5 Assets. The Company and each Subsidiary have good and marketable title to all material assets carried on their books and reflected in the most recent balance sheet referred to in subsection 3.3 or furnished pursuant to subsection 5.5, except for assets held on Financing Leases or purchased subject to security devices providing for retention of title in the vendor, and except for assets disposed of as permitted by this Agreement. 3.6 Litigation. Except as disclosed in the Company's SEC Reports, and except as set forth on Schedule V hereto, there is no litigation, at law or in equity, or any proceeding before any federal, state, provincial or municipal board or other governmental or administrative agency pending or to the knowledge of the Company threatened which, after giving effect to any applicable insurance, may involve any material risk of a material adverse effect on the business or assets or on the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis or which seeks to enjoin the consummation of any of the transactions contemplated by this Agreement or any other Loan Document and involves any material risk that any such injunction will be issued, and no judgment, decree, or order of any federal, state, provincial or municipal court, board or other governmental or administrative agency has been issued against the Company or any Subsidiary which has, or may involve, a material risk of a 28 24 material adverse effect on the business or assets or on the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. With respect to the matters disclosed in the Company's SEC Reports, and the matters set forth on Schedule V hereto, since the date of such disclosures there has been no development which is material and adverse to the business or assets or to the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. 3.7 Tax Returns. The Company and each of its Subsidiaries have filed all tax returns which are required to be filed and have paid, or made adequate provision for the payment of, all taxes which have or may become due pursuant to said returns or to assessments received. The Company knows of no material additional assessments since said date for which adequate reserves appearing in the said balance sheet have not been established. 3.8 Contracts, etc. Attached hereto as Schedule III is a statement of outstanding Indebtedness of the Company and its Subsidiaries for borrowed money as of the date set forth therein and a complete and correct list of all agreements, contracts, indentures, instruments, documents and amendments thereto to which the Company or any Subsidiary is a party or by which it is bound pursuant to which any such Indebtedness of the Company and its Subsidiaries in excess of $25,000,000 is outstanding on the date hereof. Said Schedule III also includes a complete and correct list of all such Indebtedness of the Company and its Subsidiaries outstanding on the date indicated in respect of Guarantee Obligations in excess of $1,000,000 and letters of credit in excess of $1,000,000, and there have been no increases in such Indebtedness since said date other than as permitted by this Agreement. 3.9 No Legal Obstacle to Agreement. Neither the execution and delivery of this Agreement or of any Notes, nor the making by the Company of any borrowings hereunder, nor the consummation of any transaction herein or therein referred to or contemplated hereby or thereby nor the fulfillment of the terms hereof or thereof or of any agreement or instrument referred to in this Agreement, has constituted or resulted in or will constitute or result in a breach of the provisions of any contract to which the Company or any of its Subsidiaries is a party or by which it is bound or of the charter or by-laws of the Company, or the violation of any law, judgment, decree or governmental order, rule or regulation applicable to the Company or any of its Subsidiaries, or result in the creation under any agreement or instrument of any security interest, lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries. Other than those which have already been obtained, no approval, authorization or other action by any governmental authority or any other Person is required to be obtained by the Company or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement or the transactions contemplated hereby, or the making of any borrowing by the Company hereunder. 3.10 Defaults. Neither the Company nor any Subsidiary is in default under any provision of its charter or by-laws or, so as to affect adversely in any material manner the business or assets or the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis, under any provision of any agreement, lease or other instrument to which it is a party or by which it is bound or of any Requirement of Law. 29 25 3.11 Burdensome Obligations. Neither the Company nor any Subsidiary is a party to or bound by any agreement, deed, lease or other instrument, or subject to any charter, by-law or other corporate restriction which, in the opinion of the management thereof, is so unusual or burdensome as to in the foreseeable future have a material adverse effect on the business or assets or condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. The Company does not presently anticipate that future expenditures of the Company and its Subsidiaries needed to meet the provisions of any federal or state statutes, orders, rules or regulations will be so burdensome as to have a material adverse effect on the business or assets or condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. 3.12 Pension Plans. Each Plan maintained by the Company, any Subsidiary or any Control Group Person or to which any of them makes or will make contributions is in material compliance with the applicable provisions of ERISA and the Code. Neither the Company nor any Subsidiary nor any Control Group Person maintains, contributes to or participates in any Plan that is a "defined benefit plan" as defined in ERISA. The Company and its Subsidiaries have met all of the funding standards applicable to all Plans that are not Multiemployer Plans, and there exists no event or condition which would permit the institution of proceedings to terminate any Plan that is not a Multiemployer Plan. The current value of the benefits guaranteed under Title IV of ERISA of each Plan that is not a Multiemployer Plan does not exceed the current value of such Plan's assets allocable to such benefits. 3.13 Disclosure. Neither this Agreement nor any agreement, document, certificate or statement furnished to the Banks by the Company in connection herewith contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. 3.14 Environmental and Public and Employee Health and Safety Matters. The Company and each Subsidiary has complied with all applicable Federal, state, and other laws, rules and regulations relating to environmental pollution or to environmental regulation or control or to public or employee health or safety, except to the extent that the failure to so comply would not be reasonably likely to result in a material adverse effect on the business or assets or on the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. The Company's and the Subsidiaries' facilities do not contain, and have not previously contained, any hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants regulated under the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other applicable law relating to environmental pollution or public or employee health and safety, in violation of any such law, or any rules or regulations promulgated pursuant thereto, except for violations that would not be reasonably likely to result in a material adverse effect on the business or assets or on the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. The Company is aware of no events, conditions or circumstances involving environmental pollution or contamination or public or employee health or safety, in each case applicable to it or its Subsidiaries, that would be reasonably likely to result 30 26 in a material adverse effect on the business or assets or on the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. 3.15 Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect (except in a manner which is not in violation of Regulation U or X) or for any purpose which violates the provisions of the Regulations of the Board of Governors of the Federal Reserve System. If requested by any Bank or the Agent, the Company will furnish to the Agent and each Bank a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 3.16 Investment Company Act; Other Regulations. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Company is not subject to regulation under any Federal or State statute or regulation which limits its ability to incur Indebtedness. 3.17 Year 2000 Matters. Any reprogramming required to permit the proper functioning (but only to the extent that such proper functioning would otherwise be materially impaired by the occurrence of the year 2000) in the year 2000 of computer systems and other equipment containing embedded microchips, in either case owned or operated by the Company or any of its Subsidiaries or used or relied upon in the conduct of their business (including any such systems and other equipment supplied by others or with which the computer systems of the Company or any of its Subsidiaries interface), and the testing of all material systems and other equipment as so reprogrammed, will be completed by September 30, 1999, except where the failure to do so could not reasonably be expected to result in a material adverse change in the business or assets or in the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. The costs to the Company and its Subsidiaries that have not been incurred as of the date hereof for such reprogramming and testing and for the other reasonably foreseeable consequences to them of any improper functioning of other computer systems and equipment containing embedded microchips due to the occurrence of the year 2000 could not reasonably be expected to result in a Default or Event of Default or to have a material adverse change in the business or assets or in the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. SECTION 4. CONDITIONS The obligations of each Bank to make the Loans contemplated by subsection 2.1 shall be subject to the compliance by the Company with its agreements herein contained and to the satisfaction on or before the Closing Date and each Borrowing Date of such of the following further conditions as are applicable on the Closing Date or such Borrowing Date, as the case may be: 31 27 4.1 Loan Documents. The Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Company, with a counterpart for each Bank, and (ii) for the account of each Bank, if requested by such Bank, a Note conforming to the requirements hereof and executed by a duly authorized officer of the Company. 4.2 Legal Opinions. On the Closing Date and on any Borrowing Date as the Agent shall request, each Bank shall have received from any general, associate, or assistant general counsel to the Company, such opinions as the Agent shall have reasonably requested with respect to the transactions contemplated by this Agreement. 4.3 Company Officers' Certificate. The representations and warranties contained in Section 3 (as qualified by the disclosures in (i) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1997, (ii) the Company's Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, (iii) the Company's Reports on Form 8-K dated February 6, 1998, February 13, 1998, March 6, 1998, May 27, 1998, July 30, 1998, October 28, 1998, December 15, 1998 and February 24, 1999, (iv) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1998, in the case of each of the items referred to in clauses (i), (ii), (iii) and (iv), as filed with the Securities and Exchange Commission and previously distributed to the Agent and made available to each Bank and (v) Schedule V attached hereto) shall be true and correct in all material respects on the Closing Date and on and as of each Borrowing Date with the same force and effect as though made on and as of such date; no Default shall have occurred (except a Default which shall have been waived in writing or which shall have been cured) and no Default shall exist after giving effect to the Loan to be made; between December 31, 1998 and such Borrowing Date, neither the business nor assets, nor the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis shall have been adversely affected in any material manner as a result of any fire, flood, explosion, accident, drought, strike, lockout, riot, sabotage, confiscation, condemnation, or any purchase of any property by Governmental Authority, activities of armed forces, acts of God or the public enemy, new or amended legislation, regulatory order, judicial decision or any other event or development whether or not related to those enumerated above (all subject to the disclosures referred to above); and the Agent shall have received a certificate containing a representation to these effects dated such Borrowing Date and signed by a Responsible Officer. 4.4 Legality, etc. The making of the Loan to be made by such Bank on each Borrowing Date shall not subject such Bank to any penalty or special tax, shall not be prohibited by any Requirement of Law applicable to such Bank or the Company, and all necessary consents, approvals and authorizations of any Governmental Authority or any Person to or of any such Loan shall have been obtained and shall be in full force and effect. 4.5 General. All instruments and legal and corporate proceedings in connection with the Loans contemplated by this Agreement shall be satisfactory in form and substance to the Agent, and the Agent shall have received copies of all documents, and favorable legal opinions and records of corporate proceedings, which the Agent may have reasonably requested in connection with the Loans and other transactions contemplated by this Agreement. 32 28 4.6 Fees. The Agent shall have received the fees to be received on the Closing Date referred to in subsection 2.2. 4.7 Amendments to Existing Agreements. The conditions to the effectiveness of the Fifth Amendment to the February 1997 Five-Year Agreement and Amendment and the First Amendment to the July 1998 Term Loan Agreement shall have been satisfied. SECTION 5. GENERAL COVENANTS On and after the date hereof, until all of the Notes and all other amounts payable pursuant hereto shall have been paid in full and so long as the Commitments shall remain in effect, the Company covenants that the Company will comply, and will cause each of its Subsidiaries to comply, with such of the provisions of this Section 5 and such other provisions of this Agreement as are applicable to the Person in question. 5.1 Taxes, Indebtedness, etc. (a) Each of the Company and its Subsidiaries will duly pay and discharge, or cause to be paid and discharged, before the same shall become in arrears, all taxes, assessments, levies and other governmental charges imposed upon such corporation and its properties, sales and activities, or any part thereof, or upon the income or profits therefrom; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Company or the Subsidiary in question shall have set aside on its books appropriate reserves with respect thereto. (b) Each of the Company and its Subsidiaries will promptly pay when due, or in conformance with customary trade terms, all other Indebtedness and liabilities incident to its operations; provided, however, that any such Indebtedness or liability need not be paid if the validity or amount thereof shall currently be contested in good faith and if the Company or the Subsidiary in question shall have set aside on its books appropriate reserves with respect thereto. The Subsidiaries will not create, incur, assume or suffer to exist any Indebtedness, except: Indebtedness outstanding on the date hereof and listed on Schedule III; Indebtedness that is owing to the Company or any other Subsidiary; Indebtedness incurred pursuant to an accounts receivable program; and (iv) additional Indebtedness at any time outstanding in an aggregate principal amount not to exceed 10% of Consolidated Assets. 5.2 Maintenance of Properties; Compliance with Law. Each of the Company and its Subsidiaries (a) will keep its material properties in good repair, working order and condition and will from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto and will comply at all times with the provisions of all material leases and other material agreements to which it is a party so as to prevent any loss or forfeiture thereof or thereunder unless compliance therewith is being currently contested in good faith by appropriate proceedings and (b) in the case of the Company or any Subsidiary of the Company while such Person remains a Subsidiary, will do all things necessary to preserve, renew and keep in full force and effect and in good standing its corporate existence and franchises 33 29 necessary to continue such businesses. The Company and its Subsidiaries will comply in all material respects with all valid and applicable Requirements of Law (including any such laws, rules, regulations or governmental orders relating to the protection of environmental or public or employee health or safety) of the United States, of the States thereof and their counties, municipalities and other subdivisions and of any other jurisdiction, applicable to the Company and its Subsidiaries, except where compliance therewith shall be contested in good faith by appropriate proceedings, the Company or the Subsidiary in question shall have set aside on its books appropriate reserves in conformity with GAAP with respect thereto, and the failure to comply therewith could not reasonably be expected to, in the aggregate, have a material adverse effect on the business or assets or on the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. 5.3 Transactions with Affiliates. Neither the Company nor any of its Subsidiaries will enter into any transactions, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any of their Affiliates (other than the Company and its Subsidiaries) (excluding the Spin-Offs and the transitional services agreements to be entered into with LifePoint and Triad in connection therewith) unless such transaction is otherwise permitted under this Agreement, is in the ordinary course of the Company's or such Subsidiary's business and is upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in an arm's-length transaction. 5.4 Insurance. The Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained, with financially sound and reputable insurers including any Subsidiary which is engaged in the business of providing insurance protection, insurance (including, without limitation, professional liability insurance against claims for malpractice) with respect to its properties and business and the properties and business of its Subsidiaries against loss or damage of the kinds customarily insured against of such types and such amounts as are customarily carried under similar circumstances by other corporations. Such insurance may be subject to co-insurance, deductibility or similar clauses which, in effect, result in self-insurance of certain losses, and the Company may self-insure against such loss or damage, provided that adequate insurance reserves are maintained in connection with such self-insurance. 5.5 Financial Statements. The Company will and will cause each of its Subsidiaries to maintain a standard modern system of accounting in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with GAAP consistently applied, and will furnish the following to each Bank (in duplicate if so requested): (a) Annual Statements. As soon as available, and in any event within 120 days after the end of each fiscal year, the consolidated balance sheet as at the end of each fiscal year and consolidated statements of profit and loss and of retained earnings for such fiscal year of the Company and its Subsidiaries, together with comparative consolidated figures for the next preceding fiscal year, accompanied by reports or certificates of an Auditor, to the effect that such balance sheet and statements were prepared in accordance with GAAP consistently applied and fairly present the financial position of the Company and its 34 30 Subsidiaries as at the end of such fiscal year and the results of their operations and changes in financial position for the year then ended and the statement of such Auditor and of a Responsible Officer of the Company that such Auditor and Responsible Officer have caused the provisions of this Agreement to be reviewed and that nothing has come to their attention to lead them to believe that any Default exists hereunder or, if such is not the case, specifying such Default or possible Default and the nature thereof. In addition, such financial statements shall be accompanied by a certificate of a Responsible Officer of the Company containing computations showing compliance with subsections 5.6 through 5.8, 5.10 and 5.12. (b) Quarterly Statements. As soon as available, and in any event within 60 days after the close of each of the first three fiscal quarters of the Company and its Subsidiaries in each year, consolidated balance sheets as at the end of such fiscal quarter and consolidated profit and loss and retained earnings statements for the portion of the fiscal year then ended, of the Company and its Subsidiaries, together with computations showing compliance with subsections 5.6 through 5.8, 5.10 and 5.12, accompanied by a certificate of a Responsible Officer of the Company that such statements and computations have been properly prepared in accordance with GAAP, consistently applied, and fairly present the financial position of the Company and its Subsidiaries as at the end of such fiscal quarter and the results of their operations and changes in financial position for such quarter and for the portion of the fiscal year then ended, subject to normal audit and year-end adjustments, and to the further effect that he has caused the provisions of this Agreement and all other agreements to which the Company or any of its Subsidiaries is a party and which relate to Indebtedness to be reviewed, and has no knowledge that any Default has occurred under this Agreement or under any such other agreement, or, if said Responsible Officer has such knowledge, specifying such Default and the nature thereof. (c) Notice of Material Litigation; Defaults. The Company will promptly notify each Bank in writing, by delivery of the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission or otherwise, as to any litigation or administrative proceeding to which it or any of its Subsidiaries may hereafter be a party which, after giving effect to any applicable insurance, may involve any material risk of any material judgment or liability or which may otherwise result in any material adverse change in the business or assets or in the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. Promptly upon acquiring knowledge thereof, the Company will notify each Bank of the existence of any Default, including, without limitation, any default in the payment of any Indebtedness for money borrowed of the Company or any Subsidiary or under the terms of any agreement relating to such Indebtedness, specifying the nature of such Default and what action the Company has taken or is taking or proposes to take with respect thereto. Promptly upon acquiring knowledge thereof, the Company will notify each Bank of a change in the publicly announced ratings by S&P and Moody's of the then current senior unsecured, non-credit enhanced, long-term Indebtedness of the Company. 35 31 (d) ERISA Reports. The Company will furnish the Agent with copies of any request for waiver of the funding standards or extension of the amortization periods required by Sections 303 and 304 of ERISA or Section 412 of the Code promptly after any such request is submitted by the Company to the Department of Labor or the Internal Revenue Service, as the case may be. Promptly after a Reportable Event occurs, or the Company or any of its Subsidiaries receives notice that the PBGC or any Control Group Person has instituted or intends to institute proceedings to terminate any pension or other Plan that is a "defined benefit plan" as defined in ERISA, or prior to the Plan administrator's terminating such Plan pursuant to Section 4041 of ERISA, the Company will notify the Agent and will furnish to the Agent a copy of any notice of such Reportable Event which is required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its institution of such proceedings or its intent to institute such proceedings, or any notice to the PBGC that a Plan is to be terminated, as the case may be. The Company will promptly notify each Bank upon learning of the occurrence of any of the following events with respect to any Plan which is a Multiemployer Plan: a partial or complete withdrawal from any Plan which may result in the incurrence by the Company or any of is Subsidiaries of withdrawal liability in excess of $1,000,000 under Subtitle E of Title IV of ERISA, or of the termination, insolvency or reorganization status of any Plan under such Subtitle E which may result in liability to the Company or any of its Subsidiaries in excess of $1,000,000. In the event of such a withdrawal, upon the request of the Agent or any Bank, the Company will promptly provide information with respect to the scope and extent of such liability, to the best of the Company's knowledge. (e) Reports to Stockholders, etc. Promptly after the sending, making available or filing of the same, copies of all reports and financial statements which the Company shall send or make available to its stockholders including, without limitation, all reports on Form 8-K, 10-Q or 10-K or any similar form hereafter in use which the Company shall file with the Securities and Exchange Commission. (f) Other Information. From time to time upon request of the Agent or any Bank, the Company will furnish information regarding the business affairs and condition, financial or otherwise, of the Company and its Subsidiaries. The Company agrees that any authorized officers and representatives of any Bank shall have the right during reasonable business hours to examine the books and records of the Company and its Subsidiaries, and to make notes and abstracts therefrom, to make an independent examination of its books and records for the purpose of verifying the accuracy of the reports delivered by the Company and its Subsidiaries pursuant to this Agreement or otherwise, and ascertaining compliance with this Agreement. (g) Confidentiality of Information. Each Bank acknowledges that some of the information furnished to such Bank pursuant to this subsection 5.5 may be received by such Bank prior to the time it shall have been made public, and each Bank agrees that it will keep all information so furnished confidential and shall make no use of such information until it shall have become public, except (i) in connection with matters involving operations under or enforcement of this Agreement or the Notes, (ii) in 36 32 accordance with each Bank's obligations under law or pursuant to subpoenas or other process to make information available to governmental agencies and examiners or to others, (iii) to each Bank's corporate Affiliates and Transferees and prospective Transferees so long as such Persons agree to be bound by this subsection 5.5(g) or (iv) with the prior consent of the Company. 5.6 Ratio of Consolidated Total Debt to Consolidated Total Capitalization. The Company and its Subsidiaries will not at any time have outstanding Consolidated Total Debt in an amount in excess of 65% of Consolidated Total Capitalization. 5.7 Interest Coverage Ratio. On the last day of each fiscal quarter of the Company, the Consolidated Earnings Before Interest and Taxes of the Company and its Subsidiaries for the four consecutive fiscal quarters of the Company then ending will be an amount which equals or exceeds 200% of the Consolidated Interest Expense of the Company and its Subsidiaries for the same four consecutive fiscal quarters. 5.8 Distributions. The Company will not make any Distribution except that, so long as no Event of Default exists or would exist after giving effect thereto, the Company may make a Distribution. 5.9 Merger or Consolidation. The Company will not become a constituent corporation in any merger or consolidation unless the Company shall be the surviving or resulting corporation and immediately before and after giving effect to such merger or consolidation there shall exist no Default; provided that the Company may merge into another Subsidiary owned by the Company for the purposes of causing the Company to be incorporated in a different jurisdiction in the United States or causing the Company to change its name. 5.10 Sales of Assets. The Company and its Subsidiaries may from time to time sell or otherwise dispose of all or any part of their respective assets; provided, however, that in any fiscal year, the Company and its Subsidiaries will not (a) sell or dispose of (including, without limitation, any disposition resulting from any merger or consolidation involving a Subsidiary of the Company, and any Sale-and-Leaseback Transaction), outside of the ordinary course of business, to Persons other than the Company and its Subsidiaries, assets constituting in the aggregate more than 12% of Consolidated Assets of the Company and its Subsidiaries as at the end of the immediately preceding fiscal year (calculated after giving pro forma effect thereto to the Spin-Offs) (excluding the Spin-Offs) and (b) exchange with any Persons other than the Company and its Subsidiaries any asset or group of assets for another asset or group of assets unless (i) such asset or group of assets are exchanged for an asset or group of assets of a substantially similar type or nature, (ii) on a pro forma basis both before and after giving effect to such exchange, no Default or Event of Default shall have occurred and be continuing, (iii) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of the asset or group of assets being transferred by the Company or such Subsidiary and the asset or group of assets being acquired by the Company or such Subsidiary are substantially equal and (iv) the aggregate of (x) all assets of the Company and its Subsidiaries sold pursuant to subsection 5.10(a) (including, without limitation, any disposition resulting from 37 33 any merger or consolidation involving a Subsidiary of the Company, and any Sale-and-Leaseback Transaction) (excluding the Spin-Offs) and (y) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of all assets of the Company and its Subsidiaries exchanged pursuant to this subsection 5.10(b) does not exceed 20% of Consolidated Assets of the Company and its Subsidiaries as at the end of the immediately preceding fiscal year (calculated after giving pro forma effect thereto to the Spin-Offs). 5.11 Compliance with ERISA. Each of the Company and its Subsidiaries will meet, and will cause all Control Group Persons to meet, all minimum funding requirements applicable to any Plan imposed by ERISA or the Code (without giving effect to any waivers of such requirements or extensions of the related amortization periods which may be granted), and will at all times comply, and will cause all Control Group Persons to comply, in all material respects with the provisions of ERISA and the Code which are applicable to the Plans. At no time shall the aggregate actual and contingent liabilities of the Company under Sections 4062, 4063, 4064 and other provisions of ERISA with respect to all Plans (and all other pension plans to which the Company, any Subsidiary, or any Control Group Person made contributions prior to such time) exceed $7,500,000. Neither the Company nor its Subsidiaries will permit any event or condition to exist which could permit any Plan which is not a Multiemployer Plan to be terminated under circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to the assets of the Company or any of its Subsidiaries. 5.12 Negative Pledge. The Company will not and will ensure that no Subsidiary will create or have outstanding any lien or security interest on or over any Principal Property in respect of any Indebtedness and the Company will not create or have outstanding any lien or security interest on or over the capital stock of any of its Subsidiaries that own a Principal Property and will ensure that no Subsidiary will create or have outstanding any lien or security interest on or over the capital stock of any of its respective Subsidiaries that own a Principal Property except in either case for: (a) any security for the purchase price or cost of construction of real property acquired by the Company or any of its Subsidiaries (or additions, substantial repairs, alterations or substantial improvements thereto) or equipment, provided that such Indebtedness and such security are incurred within 18 months of the acquisition or completion of construction (or alteration or repair) and full operation; (b) any security existing on property or on capital stock, as the case may be, at the time of acquisition of such property or capital stock, as the case maybe, by the Company or a Subsidiary or on the property or capital stock, as the case may be, of a corporation at the time of the acquisition of such corporation by the Company or a Subsidiary (including acquisitions through merger or consolidation); (c) any security created in favor of the Company or a Subsidiary; (d) any security created by operation of law in favor of government agencies of the United States of America or any State thereof; 38 34 (e) any security created in connection with the borrowing of funds if within 120 days such funds are used to repay Indebtedness in at least the same principal amount as secured by other security of Principal Property or capital stock of a Subsidiary that owns a Principal Property, as the case may be, with an independent appraised fair market value at least equal to the appraised fair market value of the Principal Property or capital stock of a Subsidiary that owns a Principal Property, as the case may be, secured by the new security; and (f) any extension, renewal or replacement of any security referred to in the foregoing clauses (a) through (e) provided that the amount thereby secured is not increased and such security is not extended to other property of the Company or its Subsidiaries; unless any Loans made and/or to be made to and all other sums payable by the Company under this Agreement shall be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness shall be so secured. Notwithstanding the foregoing, the Company and any one or more Subsidiaries may, without securing the Loans made and/or to be made to and all other sums payable by the Company under this Agreement, create, issue or assume Indebtedness which would otherwise be subject to the foregoing restrictions in an aggregate principal amount which, together with all other such Indebtedness of the Company and its Subsidiaries (not including (i) Indebtedness permitted to be secured pursuant to the foregoing clauses (a) through (f) and the aggregate Attributable Debt or (ii) Indebtedness incurred by one or more Subsidiaries of the Company and thereafter assumed by LifePoint and/or Triad (and/or their respective subsidiaries) in connection with the Spin-Offs and in respect of which such Subsidiaries of the Company are thereupon released), including Indebtedness in respect of Sale-and-Lease-back Transactions (other than those permitted by subsection 5.13(b)), does not exceed 10% of Consolidated Net Tangible Assets of the Company and its Subsidiaries (calculated after giving pro forma effect thereto as if the Spin-Offs occurred on the first day of the testing period thereof). 5.13 Sale-and-Lease-back Transactions. Neither the Company nor any Significant Subsidiary will enter into any Sale-and-Lease-back Transaction with respect to any Principal Property with any Person (other than the Company or a Subsidiary) unless either (a) the Company or such Significant Subsidiary would be entitled, pursuant to the provisions described in subsection 5.12(a) through (f) to incur Indebtedness secured by a security on the property to be leased without equally and ratably securing the Loans made and/or to be made to and all other sums payable by the Company under this Agreement, or (b) the Company during or immediately after the expiration of 120 days after the effective date of such transaction applies to the voluntary retirement of its Indebtedness and/or the acquisition or construction of Principal Property an amount equal to the greater of the net proceeds of the sale of the property leased in such transaction or the fair value in the opinion of the chief financial officer of the Company of the leased property at the time such transaction was entered into. 39 35 SECTION 6. DEFAULTS 6.1 Events of Default. Upon the occurrence of any of the following events: (a) any default shall be made by the Company in any payment in respect of: (i) interest payable hereunder as the same shall become due and such default shall continue for a period of five days; or (ii) principal of any of the Indebtedness hereunder or evidenced by the Notes as the same shall become due, whether at maturity, by prepayment, by acceleration or otherwise; or (b) any default shall be made by either the Company or any Subsidiary of the Company in the performance or observance of any of the provisions of subsections 5.6 through 5.10, 5.12 and 5.13; or (c) any default shall be made in the due performance or observance of any other covenant, agreement or provision to be performed or observed by either the Company or any Subsidiary under this Agreement, and such default shall not be rectified or cured to the satisfaction of the Required Banks within a period expiring 30 days after written notice thereof by the Agent to the Company; or (d) any representation or warranty of or with respect to the Company or any Subsidiary of the Company to the Banks in connection with this Agreement shall have been untrue in any material respect on or as of the date made and the facts or circumstances to which such representation or warranty relates shall not have been subsequently corrected to make such representation or warranty no longer incorrect; or (e) any default shall be made in the payment of any item of Indebtedness of the Company or any Subsidiary or under the terms of any agreement relating to such Indebtedness and such default shall continue without having been duly cured, waived or consented to, beyond the period of grace, if any, therein specified; provided, however, that such default shall not constitute an Event of Default unless (i) the outstanding principal amount of such item of Indebtedness exceeds $10,000,000, or (ii) the aggregate outstanding principal amount of such item of Indebtedness and all other items of Indebtedness of the Company and its Subsidiaries as to which such defaults exist and have continued without being duly cured, waived or consented to beyond the respective periods of grace, if any, therein specified exceeds $25,000,000, or (iii) such default shall have continued without being rectified or cured to the satisfaction of the Required Banks for a period of 30 days after written notice thereof by the Agent to the Company; or (f) either the Company or any Significant Subsidiary shall be involved in financial difficulties as evidenced: (i) by its commencement of a voluntary case under Title 11 of the United States Code as from time to time in effect, or by its authorizing, by appropriate proceedings of its board of directors or other governing body, the commencement of such a voluntary case; 40 36 (ii) by the filing against it of a petition commencing an involuntary case under said Title 11 which shall not have been dismissed within 60 days after the date on which said petition is filed or by its filing an answer or other pleading within said 60-day period admitting or failing to deny the material allegations of such a petition or seeking, consenting or acquiescing in the relief therein provided; (iii) by the entry of an order for relief in any involuntary case commenced under said Title 11; (iv) by its seeking relief as a debtor under any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by its consenting to or acquiescing in such relief; (v) by the entry of an order by a court of competent jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors, or (iii) assuming custody of, or appointing a receiver or other custodian for, all or a substantial part of its property; (vi) by its making an assignment for the benefit of, or entering into a composition with, its creditors, or appointing or consenting to the appointment of a receiver or other custodian for all or a substantial part of its property; or (g) a Change in Control of the Company shall occur; then and in each and every such case, (x) the Agent may, with the consent of the Required Banks, or shall, at the direction of the Required Banks, proceed to protect and enforce the rights of the Banks by suit in equity, action at law and/or other appropriate proceeding either for specific performance of any covenant or condition contained in this Agreement or any Note or in any instrument delivered to each Bank pursuant to this Agreement, or in aid of the exercise of any power granted in this Agreement or any Note or any such instrument or assignment, and (y) the Agent may, with the consent of the Required Banks, or shall, at the direction of the Required Banks, by notice in writing to the Company terminate the obligations of the Banks to make the Loans hereunder, and thereupon such obligations shall terminate forthwith and (z) (unless there shall have occurred an Event of Default under subsection 6.1(f), in which case the obligations of the Banks to make the Loans hereunder shall automatically terminate and the unpaid balance of the Indebtedness hereunder and accrued interest thereon and all other amounts payable hereunder (the "Bank Obligations") shall automatically become due and payable) the Agent may, with the consent of the Required Banks, or shall, at the direction of the Required Banks, by notice in writing to the Company declare all or any part of the unpaid balance of the Bank Obligations then outstanding to be forthwith due and payable, and thereupon such unpaid balance or part thereof shall become so due and payable without presentment, protest or further demand or notice of any kind, all of which are hereby expressly waived, the obligations of the Banks to make further Loans hereunder shall terminate forthwith, and the Agent may, with the consent of the Required 41 37 Banks, or shall, at the direction of the Required Banks, proceed to enforce payment of such balance or part thereof in such manner as the Agent may elect, and each Bank may offset and apply toward the payment of such balance or part thereof, and to the curing of any such Event of Default, any Indebtedness from such Bank to the Company, including any Indebtedness represented by deposits in any general or special account maintained with such Bank. 6.2 Annulment of Defaults. An Event of Default shall not be deemed to be in existence for any purpose of this Agreement if the Agent, with the consent of or at the direction of the Required Banks, subject to subsection 8.1, shall have waived such event in writing or stated in writing that the same has been cured to its reasonable satisfaction, but no such waiver shall extend to or affect any subsequent Event of Default or impair any rights of the Agent or the Banks upon the occurrence thereof. 6.3 Waivers. The Company hereby waives to the extent permitted by applicable law (a) all presentments, demands for performance, notices of nonperformance (except to the extent required by the provisions hereof), protests, notices of protest and notices of dishonor in connection with any of the Indebtedness hereunder or evidenced by the Notes, (b) any requirement of diligence or promptness on the part of any Bank in the enforcement of its rights under the provisions of this Agreement or any Note, and (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law and any defense of any kind which the Company may now or hereafter have with respect to its liability under this Agreement or any Note. 6.4 Course of Dealing. No course of dealing between the Company and any Bank shall operate as a waiver of any of the Banks' rights under this Agreement or any Note. No delay or omission on the part of any Bank in exercising any right under this Agreement or any Note or with respect to any of the Bank Obligations shall operate as a waiver of such right or any other right hereunder. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. No waiver or consent shall be binding upon any Bank unless it is in writing and signed by the Agent or such of the Banks as may be required by the provisions of this Agreement. The making of a Loan hereunder during the existence of a Default shall not constitute a waiver thereof. SECTION 7. THE AGENT 7.1 Appointment. Each Bank hereby irrevocably designates and appoints Chase as the Agent of such Bank under this Agreement, and each such Bank irrevocably authorizes Chase, as the Agent for such Bank, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Agent, by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, 42 38 duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. 7.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 7.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or for any failure of the Company to perform its obligations hereunder. The Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Company. 7.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and all future holders of the Notes. 7.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall promptly give notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks; provided that, unless and until the Agent shall have 43 39 received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 7.6 Non-Reliance on Agent and Other Banks. Each Bank expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Company, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 7.7 Indemnification. The Banks agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to the respective amounts of their then existing Loans hereunder, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Indebtedness hereunder or pursuant to the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 7.8 Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company as though the Agent was not the Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement 44 40 as any Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include the Agent in its individual capacity. 7.9 Successor Agent. The Agent may resign as Agent, as the case may be, upon 10 days' notice to the Banks. If the Agent shall resign as Agent, under this Agreement, then the Required Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be approved by the Company, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation hereunder as Agent, the provisions of this subsection 7.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 8. MISCELLANEOUS 8.1 Amendments and Waivers. Neither this Agreement, any Note, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Required Banks, the Agent and the Company may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or the Notes or changing in any manner the rights of the Banks or of the Company hereunder or thereunder or waiving, on such terms and conditions as the Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity (whether as stated, by acceleration or otherwise) of any Indebtedness hereunder, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to the Banks hereunder, or reduce the principal amount thereof, or change the amount of any Bank's Commitment or amend, modify or waive any provision of this subsection 8.1 or reduce the percentage specified in the definition of Required Banks, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement, in each case without the written consent of each Bank directly affected thereby, or (b) amend, modify or waive any provision of Section 7 without the written consent of the then Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Company, the Banks, the Agent and all future holders of the Notes. In the case of any waiver, the Company, the Banks and the Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 8.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or 45 41 three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when sent, confirmation of receipt received, addressed as follows in the case of the Company and the Agent and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Company: Columbia/HCA Healthcare Corporation One Park Plaza Nashville, Tennessee 37203 Attention: David Anderson Telecopy: (615) 344-2015 The Agent: The Chase Manhattan Bank 270 Park Avenue - 48th Floor New York, New York 10017 Attention: Dawn Lee Lum Telecopy: (212) 270-3279 with a copy to: Chase Agent Bank Services 1 Chase Manhattan Plaza - 8th Floor New York, New York 10081 Attention: Janet Belden Telecopy: (212) 552-5658 provided that any notice, request or demand to or upon the Agent or the Banks pursuant to Section 2 shall not be effective until received. 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 8.5 Payment of Expenses and Taxes; Indemnity. (a) The Company agrees (i) to pay or reimburse the Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the Notes and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, 46 42 including, without limitation, the reasonable fees and disbursements of counsel to the Agent, (ii) to pay or reimburse each Bank and the Agent for all their reasonable costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes and any such other documents, including, without limitation, reasonable fees and disbursements of counsel to the Agent and to each of the Banks and (iii) to pay, indemnify, and hold each Bank and the Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes and any such other documents. (b) The Company will indemnify each of the Agent and the Banks and the directors, officers and employees thereof and each Person, if any, who controls each one of the Agent and the Banks (any of the foregoing, an "Indemnified Person") and hold each Indemnified Person harmless from and against any and all claims, damages, liabilities and expenses (including without limitation all fees and disbursements of counsel with whom an Indemnified Person may consult in connection therewith and all expenses of litigation or preparation therefor) which an Indemnified Person may incur or which may be asserted against it in connection with any litigation or investigation involving this Agreement, the use of any proceeds of any Loans under this Agreement by the Company or any Subsidiary, any officer, director or employee thereof other than litigation commenced by the Company against any of the Agent or the Banks which (i) seeks enforcement of any of the Company's rights hereunder and (ii) is determined adversely to any of the Agent or the Banks. (c) The agreements in this subsection 8.5 shall survive repayment of the Notes and all other amounts payable hereunder. 8.6 Successors and Assigns; Participations; Purchasing Banks. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Banks, the Agent, all future holders of the Notes and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. (b) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loans owing to such Bank, any Notes held by such Bank, any Commitments of such Bank or any other interests of such Bank hereunder. In the event of any such sale by a Bank of a participating interest to a Participant, such Bank's obligations under this Agreement to the other parties under this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Notes for all purposes under this Agreement, and the Company and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. The Company agrees that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been 47 43 declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of offset in respect of its participating interest in amounts owing under this Agreement and any Notes to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement or any Notes, provided that such right of offset shall be subject to the obligation of such Participant to share with the Banks, and the Banks agree to share with such Participant, as provided in subsection 8.7. The Company also agrees that each Participant shall be entitled to the benefits of subsections 2.11, 2.12, 2.13 and 2.15 with respect to its participation in the Commitments and the Eurodollar Loans outstanding from time to time; provided that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Bank would have been entitled to receive in respect of the amount of the participation transferred by such transferor Bank to such Participant had no such transfer occurred. No Participant shall be entitled to consent to any amendment, supplement, modification or waiver of or to this Agreement or any Note, unless the same is subject to clause (a) of the proviso to subsection 8.1. (c) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any Bank or any affiliate thereof, and, with the consent of the Company and the Agent (which in each case shall not be unreasonably withheld) to one or more additional banks or financial institutions ("Purchasing Banks") all or any part of its rights and obligations under this Agreement and the Notes pursuant to a Commitment Transfer Supplement, executed by such Purchasing Bank, such transferor Bank and the Agent (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Company); provided, however, that (i) the Commitments purchased by such Purchasing Bank that is not then a Bank shall be equal to or greater than $10,000,000 and (ii) the transferor Bank which has transferred part of its Loans and Commitments to any such Purchasing Bank shall retain a minimum Commitment, after giving effect to such sale, equal to or greater than $10,000,000. Upon (i) such execution of such Commitment Transfer Supplement, (ii) delivery of an executed copy thereof to the Company and (iii) payment by such Purchasing Bank, such Purchasing Bank shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement, to the same extent as if it were an original party hereto with the Commitment Percentage of the Commitments set forth in such Commitment Transfer Supplement. Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Bank under this Agreement and the Notes. Upon the consummation of any transfer to a Purchasing Bank, pursuant to this subsection 8.6(c), the transferor Bank, the Agent and the Company shall make appropriate arrangements so that, if required, replacement Notes are issued to such transferor Bank and new Notes or, as appropriate, replacement Notes, are issued to such Purchasing Bank, in each case in principal amounts reflecting their Commitment Percentages or, as appropriate, their outstanding Loans as adjusted pursuant to such Commitment Transfer Supplement. (d) The Agent shall maintain at its address referred to in subsection 8.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the 48 44 recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Agent and the Banks may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Bank and a Purchasing Bank (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Company and the Agent) together with payment to the Agent of a registration and processing fee of $2,500, the Agent shall (i) promptly accept such Commitment Transfer Supplement (ii) on the Transfer Effective Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Banks and the Company. (f) Subject to subsection 5.5(g), the Company authorizes each Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee") and any prospective Transferee any and all financial information in such Bank's possession concerning the Company which has been delivered to such Bank by the Company pursuant to this Agreement or which has been delivered to such Bank by the Company in connection with such Bank's credit evaluation of the Company prior to entering into this Agreement. (g) If, pursuant to this subsection 8.6, any interest in this Agreement or any Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Bank shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Bank (for the benefit of the transferor Bank, the Agent and the Company) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Company or the transferor Bank with respect to any payments to be made to such Transferee in respect of the Loans, (ii) to furnish to the transferor Bank (and, in the case of any Purchasing Bank registered in the Register, the Agent and the Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Bank, to provide the transferor Bank (and, in the case of any Purchasing Bank registered in the Register, the Agent and the Company) a new form 4224 or Form 1001 upon the obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (h) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection 8.6 concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including any pledge or assignment by a Bank of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 49 45 8.7 Adjustments; Set-off. If any Bank (a "Benefitted Bank") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by offset, pursuant to events or proceedings of the nature referred to in subsection 6.1(f), or otherwise) in a greater proportion than any such payment to and collateral received by any other Bank, if any, in respect of such other Bank's Loans, or interest thereon, such Benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loans, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Bank so purchasing a portion of another Bank's Loan may exercise all rights of a payment (including, without limitation, rights of offset) with respect to such portion as fully as if such Bank were the direct holder of such portion. 8.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Agent. 8.9 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.10 WAIVERS OF JURY TRIAL. THE COMPANY, THE AGENT AND THE BANKS EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 8.11 Submission To Jurisdiction; Waivers. The Company hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; and (ii) consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same. 50 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COLUMBIA/HCA HEALTHCARE CORPORATION By: /s/ David G. Anderson ---------------------------------------------- Name: David G. Anderson Title: Vice President-Finance & Treasurer THE CHASE MANHATTAN BANK, as Agent and as a Bank By: /s/ Dawn Lee Lum ---------------------------------------------- Name: Dawn Lee Lum Title: Vice President 51 47 THE BANK OF NEW YORK By: /s/ Ann Marie Hughes ------------------------------------------ Name: Ann Marie Hughes Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: ------------------------------------------ Name: Title: DEN DANSKE BANK AKTIESELSKAB By: ------------------------------------------ Name: Title: DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Susan L. Pearson ------------------------------------------ Name: Susan L. Pearson Title: Director By: /s/ Stephan A. Wiedemann ------------------------------------------ Name: Stephan A. Wiedemann Title: Director FIRST AMERICAN NATIONAL BANK By: /s/ Sandy Hamrick ------------------------------------------ Name: Sandy Hamrick Title: Senior Vice President 52 48 FIRST COMMERCIAL BANK By: ------------------------------------------ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By: /s/ L. Richard Schiller ------------------------------------------ Name: L. Richard Schiller Title: Vice President FLEET NATIONAL BANK By: /s/ Maryann S. Smith ------------------------------------------ Name: Maryann S. Smith Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED, ATLANTA AGENCY By: /s/ Koichi Hasegawa ------------------------------------------ Name: Koichi Hasegawa Title: Senior Vice President and Deputy General Manager NATIONSBANK, N.A. By: /s/ Kevin Wagley ------------------------------------------ Name: Kevin Wagley Title: Vice President 53 49 THE NORTHERN TRUST COMPANY By: /s/ Stephen B. Bowman ------------------------------------------ Name: Stephen B. Bowman Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ W.J. Brown ------------------------------------------ Name: W.J. Brown Title: Vice President SOCIETE GENERALE By: /s/ J. Staley Stewart ------------------------------------------ Name: J. Staley Stewart Title: Director THE SUMITOMO BANK, LIMITED By: ------------------------------------------ Name: Title: SUNTRUST BANK, NASHVILLE, N.A. By: /s/ Mark D. Mattson ------------------------------------------ Name: Mark D. Mattson Title: Vice President 54 50 TORONTO-DOMINION (TEXAS), INC. By: /s/ Alva J. Jones ------------------------------------------ Name: Title: WACHOVIA BANK, N.A. By: /s/ Kenneth Washington ------------------------------------------ Name: Kenneth Washington Title: Vice President 55 SCHEDULE I Commitment Amounts and Percentages; Lending Offices; Addresses for Notice A. COMMITMENT AMOUNTS AND PERCENTAGES.
TRANCHE 1 PERCENTAGE OF TRANCHE 2 PERCENTAGE OF COMMITMENT TRANCHE 1 COMMITMENT TRANCHE 2 NAME OF BANK AMOUNT TOTAL AMOUNT TOTAL ------------ ------ ------ ------- ------ The Chase Manhattan Bank $ 92,500,000 18.5000% $ 92,500,000 12.2500% NationsBank, N.A. 61,250,000 12.2500% 61,250,000 12.2500% The Bank of New York 61,250,000 12.2500% 61,250,000 12.2500% The Bank of Nova Scotia 61,250,000 12.2500% 61,250,000 12.2500% Toronto-Dominion (Texas) Inc. 61,250,000 12.2500% 61,250,000 12.2500% Deutsche Bank AG New York Branch 32,500,000 6.5000% 32,500,000 6.5000% and/or Cayman Islands Branch Fleet National Bank 32,500,000 6.5000% 32,500,000 6.5000% SunTrust Bank, Nashville, N.A. 22,500,000 4.5000% 22,500,000 4.5000% Wachovia Bank, N.A. 22,500,000 4.5000% 22,500,000 4.5000% The First National Bank of Chicago 12,500,000 2.5000% 12,500,000 2.5000% The Industrial Bank of Japan, Limited, 12,500,000 2.5000% 12,500,000 2.5000% Atlanta Agency The Northern Trust Company 12,500,000 2.5000% 12,500,000 2.5000% Societe Generale 12,500,000 2.5000% 12,500,000 2.5000% First American National Bank 2,500,000 0.5000% 2,500,000 2.5000% TOTAL $500,000,000 100.0% $500,000,000 100.0% - -----
56 B. LENDING OFFICES; ADDRESSES FOR NOTICE. THE CHASE MANHATTAN BANK Domestic Lending Office: The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Eurodollar Lending Office: The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Address for Notices: The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Attention: Dawn Lee Lum Telephone: (212) 270-2472 Telecopy: (212) 270-3279 With a copy to: Chase Agent Bank Services 1 Chase Manhattan Plaza New York, NY 10081 Attention: Janet Belden Telecopy: (212) 552-5658 NATIONSBANK, N.A. Domestic Lending Office: Nationsbank (Charlotte) 414 Union Street, 7th Floor Nashville, TN 37239-1697 Eurodollar Lending Office: Nationsbank (Charlotte) 414 Union Street, 7th Floor Nashville, TN 37239-1697 Address for Notices: Nationsbank (Charlotte) 414 Union Street, 7th Floor Nashville, TN 37239-1697 Attention: Kevin Wagley Telephone: (615) 749-3802 Telecopy: (615) 749-4640 57 THE BANK OF NEW YORK Domestic Lending Office: Bank of New York One Wall Street, 22nd Floor New York, NY 10286 Eurodollar Lending Office: Bank of New York One Wall Street, 22nd Floor New York, NY 10286 Address for Notices: Bank of New York One Wall Street, 22nd Floor New York, NY 10286 Attention: Anne Marie Hughes Telephone: (212) 635-1339 Telecopy: (212) 635-6434 THE BANK OF NOVA SCOTIA Domestic Lending Office: Bank of Nova Scotia (Atlanta) 600 Peachtree Street N.E., Suite 2700 Atlanta, GA 30308 Eurodollar Lending Office: Bank of Nova Scotia (Atlanta) 600 Peachtree Street N.E., Suite 2700 Atlanta, GA 30308 Address for Notices: Bank of Nova Scotia (Atlanta) 600 Peachtree Street N.E., Suite 2700 Atlanta, GA 30308 Attention: Carolyn Calloway Telephone: (404) 877-1507 Telecopy: (404) 888-8998 TORONTO-DOMINION (TEXAS), INC. Domestic Lending Office: Toronto-Dominion (Texas), Inc. 909 Fannin Street, 17th Floor Houston, TX 77010 Eurodollar Lending Office: Toronto-Dominion (Texas), Inc. 909 Fannin Street, 17th Floor Houston, TX 77010 58 Address for Notices: Toronto Dominion Corporate Banking 31 West 52nd Street New York, NY 10019-6101 Attention: Darlene Haut Telephone: (212) 827-7746 Telecopy: (212) 262-1926 DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH Domestic Lending Office: Deutsche Bank AG 31 West 52nd Street New York, NY 10019 Eurodollar Lending Office: Deutsche Bank AG 31 West 52nd Street New York, NY 10019 Address for Notices: Deutsche Bank AG 31 West 52nd Street New York, NY 10019 Attention: Sue Pearson Telephone: (212) 469-7140 Telecopy: (212) 469-8701 FLEET NATIONAL BANK Domestic Lending Office: Fleet Bank (Boston-State Street) 1 Federal Street - MA0FD07B Boston, MA 02110 Eurodollar Lending Office: Fleet Bank (Boston-State Street) 1 Federal Street - MA0FD07B Boston, MA 02110 Address for Notices: Fleet Bank (Boston-State Street) 1 Federal Street - MA0FD07B Boston, MA 02110 Attention: Mary Ann Smith 59 Telephone: (617) 346-4613 Telecopy: (617) 346-4666 SUNTRUST BANK, NASHVILLE, N.A. Domestic Lending Office: SunTrust Bank 201 4th Avenue North, 3rd Floor Nashville, TN 37219 Eurodollar Lending Office: SunTrust Bank 201 4th Avenue North, 3rd Floor Nashville, TN 37219 Address for Notices: SunTrust Bank 201 4th Avenue North, 3rd Floor Nashville, TN 37219 Attention: Mark D. Mattson Telephone: (615) 748-4831 Telecopy: (615) 748-5269 WACHOVIA BANK, N.A. Domestic Lending Office: Wachovia Bank (Atlanta) 191 Peachtree Street N.E., Mail Code 3940 Atlanta, GA 30303 Eurodollar Lending Office: Wachovia Bank (Atlanta) 191 Peachtree Street N.E., Mail Code 3940 Atlanta, GA 30303 Address for Notices: Wachovia Bank (Atlanta) 191 Peachtree Street N.E., Mail Code 3940 Atlanta, GA 30303 Attention: Kenneth Washington Telephone: (404) 332-1044 Telecopy: (404) 332-5016 THE FIRST NATIONAL BANK OF CHICAGO Domestic Lending Office: First Chicago NBD Corp. (Chicago) One First National Plaza, 8th Floor Chicago, IL 60670 60 Eurodollar Lending Office: First Chicago NBD Corp. (Chicago) One First National Plaza, 8th Floor Chicago, IL 60670 Address for Notices: First Chicago NBD Corp. (Chicago) One First National Plaza, 8th Floor Chicago, IL 60670 Attention: Richard Schiller Telephone: (312) 732-5932 Telecopy: (312) 732-2016 THE INDUSTRIAL BANK OF JAPAN, LIMITED ATLANTA AGENCY Domestic Lending Office: Industrial Bank of Japan (Atlanta) 191 Peachtree Street N.E., Suite 3600 Atlanta, GA 30303-1757 Eurodollar Lending Office: Industrial Bank of Japan (Atlanta) 191 Peachtree Street N.E., Suite 3600 Atlanta, GA 30303-1757 Address for Notices: Industrial Bank of Japan (Atlanta) 191 Peachtree Street N.E., Suite 3600 Atlanta, GA 30303-1757 Attention: James Masters Telephone: (404) 420-3327 Telecopy: (404) 524-8509 THE NORTHERN TRUST COMPANY Domestic Lending Office: Northern Trust Company (Chicago) 50 South LaSalle Street - B-0 Chicago, IL 60675 Eurodollar Lending Office: Northern Trust Company (Chicago) 50 South LaSalle Street - B-0 Chicago, IL 60675 Address for Notices: Northern Trust Company (Chicago) 50 South LaSalle Street - B-0 Chicago, IL 60675 Attention: Stephen B. Bowman 61 Telephone: (312) 444-7946 Telecopy: (312) 630-6082 SOCIETE GENERALE Domestic Lending Office: SG Cowen (Los Angeles) 2029 Century Park East, Suite 2900 Los Angeles, CA 90067 Eurodollar Lending Office: SG Cowen (Los Angeles) 2029 Century Park East, Suite 2900 Los Angeles, CA 90067 Address for Notices: SG Cowen (Los Angeles) 2029 Century Park East, Suite 2900 Los Angeles, CA 90067 Attention: J. Staley Stewart Telephone: (310) 788-7103 Telecopy: (310) 551-1537 FIRST AMERICAN NATIONAL BANK Domestic Lending Office: First American National Bank (Nashville) First American Center, 2nd Floor Nashville, TN 37237-0203 Eurodollar Lending Office: First American National Bank (Nashville) First American Center, 2nd Floor Nashville, TN 37237-0203 Address for Notices: First American National Bank (Nashville) First American Center, 2nd Floor Nashville, TN 37237-0203 Attention: Sandy Hamrick Telephone: (615) 748-2191 Telecopy: (615) 748-8480 62 SCHEDULE IV Applicable Margins
================================================================================ LOANS - -------------------------------------------------------------------------------- ALTERNATE BASE RATE LOANS EURODOLLAR LOANS - -------------------------------------------------------------------------------- LEVEL I PERIOD .7500% 1.750% - -------------------------------------------------------------------------------- LEVEL II PERIOD 1.500% 2.500% ================================================================================
EX-10.B 3 1ST AMENDMENT TO 7/98 & 1 BILLION AGREEMENT 1 EXHIBIT 10(b) EXECUTION COPY FIRST AMENDMENT FIRST AMENDMENT, dated as of March 30, 1999 (this "Amendment"), to the Credit Agreement, dated as of July 10, 1998 (the "July 1998 Credit Agreement"), among COLUMBIA/HCA HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), the several banks and other financial institutions from time to time parties hereto (the "Banks"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, THE BANK OF NEW YORK, THE FIRST NATIONAL BANK OF CHICAGO, FLEET NATIONAL BANK, TORONTO DOMINION (TEXAS), INC. AND WACHOVIA BANK OF GEORGIA, N.A. as Co-Agents (collectively, the "Co-Agents"), NATIONSBANK, N.A., as documentation agent for the Banks hereunder (the "Documentation Agent") and THE BANK OF NOVA SCOTIA and DEUTSCHE BANK SECURITIES INC., as co-syndication agents for the Banks hereunder (the "Co-Syndication Agents"); and THE CHASE MANHATTAN BANK, a New York banking corporation, as agent for the Banks hereunder (in such capacity, the "Agent"). W I T N E S S E T H : WHEREAS, the parties hereto wish to amend certain provisions of the July 19998 Credit Agreement on the terms set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the July 1998 Credit Agreement shall be used as so defined. 2. Amendment to Section 1.1 of the July 1998 Credit Agreement. Section 1.1 of the July 1998 Credit Agreement is hereby amended as follows: (a) by inserting in such section the following new defined terms in proper alphabetical order: "'First Amendment': First Amendment dated March 30, 1999 to the Agreement." "'LifePoint': LifePoint Hospitals, Inc., a Delaware corporation to be formed." "'Triad': Triad Hospitals, Inc., a Delaware corporation to be formed." (b) by deleting the defined term "Subsidiary" in its entirety and inserting in lieu thereof the following new defined term in proper alphabetical order: "'Subsidiary': as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only 2 2 by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, directly or indirectly through one or more intermediaries, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company.". 3. Amendment to Section 3.12 of the July 1998 Credit Agreement. Section 3.12 of the July 1998 Credit Agreement is hereby amended by deleting the following sentence: "Neither the Company nor any Subsidiary nor any Control Group Person maintains, contributes to or participates in any Plan that is a "defined benefit plan" as defined in ERISA." 4. Amendment to Section 3.17 of the July 1998 Credit Agreement. Section 3.17 of the July 1998 Credit Agreement is hereby amended by inserting the following clause immediately following the words "September 30, 1999": ", except where the failure to do so could not reasonably be expected to result in a material adverse change in the business or assets or in the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis." 5. Amendment to Section 4.3 of the July 1998 Credit Agreement. Section 4.3 of the July 1998 Credit Agreement is hereby amended by deleting such section in its entirety and substituting in lieu thereof the following: "4.3 Company Officers' Certificate. The representations and warranties contained in Section 3 (as qualified by the disclosures in (i) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1997, (ii) the Company's Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, (iii) the Company's Reports on Form 8-K dated February 6, 1998, February 13, 1998, March 6, 1998, May 27, 1998, July 30, 1998, October 28, 1998, December 15, 1998 and February 24, 1999 and (iv) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1998, as filed with the Securities and Exchange Commission, previously distributed to the Agent and made available to the Banks) shall be true and correct in all material respects on the Closing Date and on and as of each Borrowing Date with the same force and effect as though made on and as of such date; no Default shall have occurred (except a Default which shall have been waived in writing or which shall have been cured) and no Default shall exist after giving effect to the Loan to be made; between December 31, 1997 and such Borrowing Date, neither the business nor assets, nor the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis shall have been adversely affected in any material manner as a result of any fire, flood, explosion, accident, drought, strike, lockout, riot, sabotage, confiscation, 3 3 condemnation, or any purchase of any property by Governmental Authority, activities or armed forces, acts of God or the public enemy, new or amended legislation, regulatory order, judicial decision or any other event or development whether or not related to those enumerated above (all subject to the disclosures enumerated above); and the Agent shall have received a certificate containing a representation to these effects dated such Borrowing Date and signed by a Responsible Officer.". 6. Amendment to Section 5.3 of the July 1998 Credit Agreement. Section 5.3 of the July 1998 Credit Agreement is hereby amended by deleting such section in its entirety and substituting in lieu thereof the following: "5.3 Transactions with Affiliates. Neither the Company nor any of its Subsidiaries will enter into any transactions, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any of their Affiliates (other than the Company and its Subsidiaries) (excluding the tax-free spin-off distributions of the common stock of Life Point and Triad to the shareholders of the Company and the transitional services agreements to be entered into with LifePoint and Triad in connection therewith) unless such transaction is otherwise permitted under this Agreement, is in the ordinary course of the Company's or such Subsidiary's business and is upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in an arm's-length transaction.". 7. Amendment to Section 5.5 of the July 1998 Credit Agreement. Section 5.5 of the July 1998 Credit Agreement is hereby amended by deleting subsection 5.5(d) in its entirety and substituting in lieu thereof the following: "(d) ERISA Reports. The Company will furnish the Agent with copies of any request for waiver of the funding standards or extension of the amortization periods required by Sections 303 and 304 of ERISA or Section 412 of the Code promptly after any such request is submitted by the Company to the Department of Labor or the Internal Revenue Service, as the case may be. Promptly after a Reportable Event occurs, or the Company or any of its Subsidiaries receives notice that the PBGC or any Control Group Person has instituted or intends to institute proceedings to terminate any pension or other Plan that is a "defined benefit plan" as defined in ERISA, or prior to the Plan administrator's terminating such Plan pursuant to Section 4041 of ERISA, the Company will notify the Agent and will furnish to the Agent a copy of any notice of such Reportable Event which is required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its institution of such proceedings or its intent to institute such proceedings, or any notice to the PBGC that a Plan is to be terminated, as the case may be. The Company will promptly notify each Bank upon learning of the occurrence of any of the following events with respect to any Plan which is a Multiemployer Plan: a partial or complete withdrawal from any Plan which may 4 4 result in the incurrence by the Company or any of is Subsidiaries of withdrawal liability in excess of $1,000,000 under Subtitle E of Title IV of ERISA, or of the termination, insolvency or reorganization status of any Plan under such Subtitle E which may result in liability to the Company or any of its Subsidiaries in excess of $1,000,000. In the event of such a withdrawal, upon the request of the Agent or any Bank, the Company will promptly provide information with respect to the scope and extent of such liability, to the best of the Company's knowledge. 8. Amendment to Section 5.9 of the July 1998 Credit Agreement. Section 5.9 of the July 1998 Credit Agreement is hereby amended by inserting the following clause at the end of the paragraph immediately following the words "United States": "or causing the Company to change its name." 9. Amendment to Section 5.10 of the July 1998 Credit Agreement. Section 5.10 of the July 1998 Credit Agreement is hereby amended by deleting such section in its entirety and substituting in lieu thereof the following: "5.10 Sales of Assets. The Company and its Subsidiaries may from time to time sell or otherwise dispose of all or any part of their respective assets; provided, however, that in any fiscal year, the Company and its Subsidiaries will not (a) sell or dispose of (including, without limitation, any disposition resulting from any merger or consolidation involving a Subsidiary of the Company, and any Sale-and- Leaseback Transaction), outside of the ordinary course of business, to Persons other than the Company and its Subsidiaries, assets constituting in the aggregate more than 12% of Consolidated Assets of the Company (calculated after giving pro forma effect thereto as if the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company occurred on the first day of the testing period thereof) and its Subsidiaries as at the end of the immediately preceding fiscal year (excluding the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company) and (b) exchange with any Persons other than the Company and its Subsidiaries any asset or group of assets for another asset or group of assets unless (i) such asset or group of assets are exchanged for an asset or group of assets of a substantially similar type or nature, (ii) on a pro forma basis both before and after giving effect to such exchange, no Default or Event of Default shall have occurred and be continuing, (iii) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of the asset or group of assets being transferred by the Company or such Subsidiary and the asset or group of assets being acquired by the Company or such Subsidiary are substantially equal and (iv) the aggregate of (x) all assets of the Company and its Subsidiaries sold pursuant to subsection 5.10(a) (including, without limitation, any disposition resulting from any merger or consolidation involving a Subsidiary of the Company, and any Sale- and-Leaseback Transaction) (excluding the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders 5 5 of the Company) and (y) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of all assets of the Company and its Subsidiaries exchanged pursuant to this subsection 5.10(b) does not exceed 20% of Consolidated Assets of the Company and its Subsidiaries as at the end of the immediately preceding fiscal year (calculated after giving pro forma effect thereto as if the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company occurred on the first day of the testing period thereof).". 10. Amendment to Section 5.11 of the July 1998 Credit Agreement. Section 5.11 of the July 1998 Credit Agreement is hereby amended by deleting such section in its entirety and substituting in lieu thereof the following: "5.11 Compliance with ERISA. Each of the Company and its Subsidiaries will meet, and will cause all Control Group Persons to meet, all minimum funding requirements applicable to any Plan imposed by ERISA or the Code (without giving effect to any waivers of such requirements or extensions of the related amortization periods which may be granted), and will at all times comply, and will cause all Control Group Persons to comply, in all material respects with the provisions of ERISA and the Code which are applicable to the Plans. At no time shall the aggregate actual and contingent liabilities of the Company under Sections 4062, 4063, 4064 and other provisions of ERISA with respect to all Plans (and all other pension plans to which the Company, any Subsidiary, or any Control Group Person made contributions prior to such time) exceed $7,500,000. Neither the Company nor its Subsidiaries will permit any event or condition to exist which could permit any Plan which is not a Multiemployer Plan to be terminated under circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to the assets of the Company or any of its Subsidiaries." 11. Amendment to Section 5.12 of the July 1998 Credit Agreement. Section 5.12 of the July 1998 Credit Agreement is hereby amended by deleting the paragraph immediately after clause (f) in its entirety and substituting in lieu thereof the following: "unless any Loans made and/or to be made to and all other sums payable by the Company under this Agreement shall be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness shall be so secured. Notwithstanding the foregoing, the Company and any one or more Subsidiaries may, without securing the Loans made and/or to be made to and all other sums payable by the Company under this Agreement, create, issue or assume Indebtedness which would otherwise be subject to the foregoing restrictions in an aggregate principal amount which, together with all other such Indebtedness of the Company and its Subsidiaries (not including (i) Indebtedness permitted to be secured pursuant to the foregoing clauses (a) through (f) and the aggregate Attributable Debt or (ii) Indebtedness incurred by one or more Subsidiaries of the 6 6 Company and thereafter assumed by Life Point and/or Triad (and/or their respective Subsidiaries) in connection with the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company), including Indebtedness in respect of Sale-and-Lease-back Transactions (other than those permitted by subsection 5.13(b)), does not exceed 10% of Consolidated Net Tangible Assets of the Company and its Subsidiaries (calculated after giving pro forma effect thereto as if the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company occurred on the first day of the testing period thereof).". 12. Effective Date; Conditions Precedent. This Amendment will become effective on March 30, 1999 (the "Effective Date") subject to the compliance by the Company with its agreements herein contained and to the satisfaction on or before the Effective Date of the following further conditions: (a) Loan Documents. The Agent shall have received copies of this Amendment, executed and delivered by a duly authorized officer of the Company, with a counterpart for each Bank, and executed and delivered by the Required Banks. (b) Company Officers' Certificate. The representations and warranties contained in Section 3 of the July 1998 Credit Agreement (as qualified by the disclosures in (i) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1997, (ii) the Company's Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 1998, June 30, 1998, September 30, 1998 and (iii) the Company's Reports on Form 8-K dated February 6, 1998, February 13, 1998, March 6, 1998, May 27, 1998, July 30, 1998, October 28, 1998, December 15, 1998 and February 24, 1998 and (iv) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1998, as filed with the Securities and Exchange Commission, previously distributed to the Agent and made available to the Banks) shall be true and correct in all material respects on the Effective Date with the same force and effect as though made on and as of such date; on and as of the Effective Date and after giving effect to this Amendment, no Default shall have occurred (except a Default which shall have been waived in writing or which shall have been cured); and the Agent shall have received a certificate containing a representation to these effects dated the Effective Date and signed by a Responsible Officer. (c) Fifth Amendment to February 1997 Five-Year Agreement and Amendment. The February 1997 Five-Year Agreement and Amendment shall have been amended in a manner corresponding to the amendments hereof. 13. Legal Obligation. The Company represents and warrants to each Bank that this Amendment constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyances, reorganization, moratorium and other similar laws relating 7 7 to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 14. Continuing Effect; Application. Except as expressly amended hereby, the July 1998 Credit Agreement shall continue to be and shall remain in full force and effect in accordance with its terms. 15. Expenses. The Company agrees to pay or reimburse the Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Amendment and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent. 16. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 17. Counterparts. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Amendment signed by all the parties shall be lodged with the Company and the Agent. 8 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COLUMBIA/HCA HEALTHCARE CORPORATION By: /s/ David G. Anderson ----------------------------------------- Name: David G. Anderson Title: Vice President - Finance and Treasurer THE CHASE MANHATTAN BANK, as Agent and as a Bank By: /s/ Dawn Lee Lum ----------------------------------------- Name: Dawn Lee Lum Title: Vice President ABN AMRO BANK N.V., as a Bank By: /s/ Steven L. Hipsman ----------------------------------------- Name: Steven L. Hipsman Title: Vice President By: /s/ Robert A. Budnek ----------------------------------------- Name: Robert A. Budnek Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Co-Agent By: /s/ Kevin Wagley ----------------------------------------- Name: Kevin Wagley Title: Vice President 9 9 THE BANK OF NEW YORK, as Co-Agent By: /s/ Ann Marie Hughes ----------------------------------------- Name: Ann Marie Hughes Title: Vice President THE BANK OF NOVA SCOTIA, as Co-Syndication Agent and as a Bank By: /s/ W.J. Brown ----------------------------------------- Name: W.J. Brown Title: Vice President DEUTSCHE BANK SECURITIES, INC., as Co-Syndication Agent By: /s/ Iain Stewart By: /s/ Steven N. Warden -------------------------- ----------------------------------------- Name: Iain Stewart Name: Steven N. Warden Title: Vice President Title: Managing Director DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCH(ES), as a Bank By: /s/ Stephan A. Wiedemann By: /s/ Susan L. Pearson --------------------------- ----------------------------------------- Name: Stephan A. Wiedemann Name: Susan L. Pearson Title: Director Title: Director FIRST AMERICAN NATIONAL BANK, as a Bank By: /s/ Sandy Hamrick ----------------------------------------- Name: Sandy Hamrick Title: Senior Vice President 10 10 THE FIRST NATIONAL BANK OF CHICAGO, as Co-Agent By: /s/ L. Richard Schiller ----------------------------------------- Name: L. Richard Schiller Title: Vice President FIRST UNION NATIONAL BANK, as a Bank By: /s/ Joseph H. Tower ----------------------------------------- Name: Title: FLEET NATIONAL BANK, as Co-Agent By: /s/ Maryann S. Smith ----------------------------------------- Name: Maryann Smith Title: Vice President KEYBANK NATIONAL ASSOCIATION, as a Bank By: /s/ Thomas J. Purcell ----------------------------------------- Name: Thomas J. Purcell Title: Vice President NATIONSBANK, N.A. as Documentation Agent and as a Bank By: /s/ Kevin Wagley ----------------------------------------- Name: Kevin Wagley Title: Vice President 11 11 SUNTRUST BANK, NASHVILLE, N.A., as a Bank By: /s/ Mark D. Mattson ----------------------------------------- Name: Mark D. Mattson Title: Vice President TORONTO DOMINION (TEXAS), INC., as Co-Agent By: /s/ Alva J. Jones ----------------------------------------- Name: Alva J. Jones Title: Vice President UNION PLANTERS BANK OF MIDDLE TENNESSEE, N.A., as a Bank By: /s/ William A. Collier ----------------------------------------- Name: William A. Collier Title: Vice President WACHOVIA BANK OF GEORGIA, N.A., as Co-Agent By: /s/ Kenneth Washington ----------------------------------------- Name: Kenneth Washington Title: Vice President EX-10.C 4 5TH AMENDMENT TO THE 5 YEAR AGREEMENT 1 EXHIBIT 10(c) EXECUTION COPY FIFTH AMENDMENT FIFTH AMENDMENT, dated as of March 30, 1999 (this "Fifth Amendment"), to the Agreement and Amendment dated as of February 26, 1997, as amended by the First Amendment, dated as of June 17, 1997, the Second Amendment, dated as of February 3, 1998, the Third Amendment, dated as of March 26, 1998 and the Fourth Amendment, dated as of July 10, 1998 (as the same may be amended, supplemented or modified from time to time, the "February 1997 Five-Year Agreement and Amendment") among COLUMBIA/HCA HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), the several banks and other financial institutions from time to time parties hereto (the "Banks"), BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, THE BANK OF NEW YORK, DEUTSCHE BANK AG, FLEET NATIONAL BANK, THE FUJI BANK LIMITED, THE INDUSTRIAL BANK OF JAPAN, LIMITED, ATLANTA AGENCY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, NATIONSBANK, N.A., PNC BANK NATIONAL ASSOCIATION, TORONTO DOMINION (TEXAS), INC., UNION BANK OF SWITZERLAND, NEW YORK BRANCH AND WACHOVIA BANK OF GEORGIA, N.A., as Co-Agents (collectively, the "Co-Agents"), THE SAKURA BANK, LTD. NEW YORK BRANCH, THE SUMITOMO BANK LIMITED, SUNTRUST BANK, NASHVILLE, N.A., WELLS FARGO BANK, N.A., as Lead Managers (collectively, the "Lead Managers") and THE CHASE MANHATTAN BANK, a New York banking corporation as Agent for the Banks hereunder ("Chase", and in such capacity, the "Agent") and as CAF Loan Agent (in such capacity, the "CAF Loan Agent"). W I T N E S S E T H : WHEREAS, for the convenience of the parties to the agreement and amendment dated as of February 28, 1996 (the "February 1996 Agreement and Amendment"), among the Company, the several banks and other financial institutions from time to time parties thereto and Chase, as agent for the Banks hereunder and as CAF Loan Agent, a composite conformed copy (the "Five-Year Composite Conformed Credit Agreement") of the Credit Agreement, dated as of February 10, 1994 as incorporated by reference into and amended by the September 1994 Agreement and Amendment, the February 1995 Agreement and Amendment and the February 1996 Agreement and Amendment was prepared and delivered to such parties; WHEREAS, the February 1997 Five-Year Agreement and Amendment adopts and incorporates by reference all of the terms and provisions of the Five-Year Composite Conformed Credit Agreement, subject to the amendment thereto provided for in the February 1997 Five-Year Agreement and Amendment; WHEREAS, the parties hereto wish to amend certain provisions of the February 1997 Five-Year Agreement and Amendment on the terms set forth herein; 2 2 NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the February 1997 Five-Year Agreement and Amendment shall be used as so defined. 2. Amendments to the February 1997 Five-Year Agreement and Amendment in respect of the Letter of Credit Facility. (a) Section 3 of the February 1997 Five-Year Agreement and Amendment is hereby amended as follows: (1) by inserting in such section the following new defined terms in proper alphabetical order: "`Aggregate Outstanding Extensions of Credit`: as to any Bank at any time, an amount equal to the sum of (a) the aggregate principal amount of all Loans made by such Bank then outstanding and (b) such Bank's Commitment Percentage of the L/C Obligations then outstanding."; "`Application`: an application, in such form as the Issuing Bank may specify from time to time, requesting the Issuing Bank to open a Letter of Credit."; "`Issuing Bank`: Chase or any of its Affiliates in their capacity as issuer of any Letter of Credit."; "`L/C Commitment`: $1,250,000,000."; "`L/C Fee Payment Date`: the last day of each March, and June, September and December."; "`L/C Obligations`: at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to subsection 2A.5(a)."; "`L/C Participants`: the collective reference to all the Banks other than the Issuing Bank."; "`Letters of Credit`: as defined in paragraph 2A.1(a)."; "`Reimbursement Obligation`: the obligation of the Company to reimburse the Issuing Bank pursuant to subsection 2A.5(a) for amounts drawn under Letters of Credit."; "`Uniform Customs`: the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time."; 3 3 (2) by deleting the defined terms "Available Commitment", "Borrowing Date", "Commitment" and "Loan Documents" in their entirety and substituting in lieu thereof the following new defined terms in proper alphabetical order: "`Available Commitment`: as to any Bank, at any time, an amount equal to the excess, if any, of (a) such Bank's Commitment over (b) such Bank's Aggregate Outstanding Extensions of Credit."; "`Borrowing Date`: any Business Day specified in a notice pursuant to subsection 2.1(c), 2.2(b) or 2A.2 as a date on which the Company requests the Banks to make Revolving Credit Loans or CAF Loans or issue Letters of Credit, as the case may be, hereunder."; "`Commitment`: as to any Bank, the obligation of such Bank to make Loans to and/or issue or participate in Letters of Credit issued on behalf of the Company hereunder in an aggregate principal and/or face amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name on Schedule I."; "`Loan Documents`: this Agreement, the Notes and the Applications.". (b) The February 1997 Five-Year Agreement and Amendment is hereby amended by adding the following new Sections after Section 5A reading as follows: (1) "SECTION 5B. Letter of Credit Facility. The Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by adding the following new Section 2A immediately prior to Section 3 as follows: `SECTION 2A. LETTERS OF CREDIT 2A.1 L/C Commitment. (a) Subject to the terms and conditions hereof, the Issuing Bank, in reliance on the agreements of the other Banks set forth in subsection 2A.4(a), agrees to issue letters of credit (such letters of credit, "Letters of Credit") for the account of the Company on any Business Day during the Commitment Period in such form as may be approved from time to time by the Issuing Bank; provided that the Issuing Bank shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (1) the L/C Obligations would exceed the L/C Commitment or (2) the aggregate amount of the Available Commitments would be less than zero. (b) Each Letter of Credit shall expire no later than the earlier of (x) the first anniversary of its date of issuance (it being agreed that a provision in a Letter of Credit for automatic renewal of such Letter of Credit for a period of no more than one year at a time in the absence of a termination notice shall not be deemed to be an expiry date of later than the date such termination notice would be effective) and (y) the date that is five Business Days prior to the Termination Date, provided that any Letter of Credit with a 4 4 one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). (c) The Issuing Bank shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Bank or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 2A.2 Procedure for Issuance of Letters of Credit. The Company may from time to time request that the Issuing Bank issue a Letter of Credit by delivering to the Issuing Bank at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank may request. Upon receipt of any Application, the Issuing Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Bank be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and the Company. The Issuing Bank shall furnish a copy of such Letter of Credit to the Company promptly following the issuance thereof. 2A.3 Fees and Other Charges. (a) The Company will pay a fee on all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans, shared ratably among the Banks and payable quarterly in arrears on each L/C Fee Payment Date after the date of issuance of each Letter of Credit. In addition, the Company shall pay to the Agent, for the account of the Issuing Bank, a fronting fee with respect to each Letter of Credit in an amount equal to 0.125% of the face amount of such Letter of Credit. Such fronting fee shall be payable quarterly in arrears and shall be nonrefundable. (b) In addition to the foregoing fees, the Company shall pay or reimburse the Issuing Bank for such normal and customary costs and expenses as are incurred or charged by the Issuing Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. (c) The Agent shall, promptly following its receipt thereof, distribute to the Issuing Bank and the L/C Participants all fees received by the Agent for their respective accounts pursuant to this subsection. 2A.4 L/C Participations. (a) The Issuing Bank irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Bank, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest 5 5 equal to such L/C Participant's Commitment Percentage in the Issuing Bank's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Bank thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Bank that, if a draft is paid under any Letter of Credit for which the Issuing Bank is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the Issuing Bank's address specified herein an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. (b) If any amount required to be paid by any L/C Participant to the Issuing Bank pursuant to paragraph 2A.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Bank under any Letter of Credit is paid to the Issuing Bank within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Bank on demand an amount equal to the product of (1) such amount, times (2) the daily average Federal funds rate, as quoted by the Issuing Bank, during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Bank, times (3) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to paragraph 2A.4(a) is not in fact made available to the Issuing Bank by such L/C Participant within three Business Days after the date such payment is due, the Issuing Bank shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Alternate Base Rate Loans hereunder. A certificate of the Issuing Bank submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Bank has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with subsection 2A.4(a), the Issuing Bank receives any payment related to such Letter of Credit (whether directly from the Company or otherwise, including proceeds of collateral applied thereto by the Issuing Bank), or any payment of interest on account thereof, the Issuing Bank will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by the Issuing Bank shall be required to be returned by the Issuing Bank, such L/C Participant shall return to the Issuing Bank the portion thereof previously distributed by the Issuing Bank to it. 2A.5 Reimbursement Obligation of the Company. (a) The Company agrees to reimburse the Issuing Bank on each date on which the Issuing Bank notifies the Company of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Bank for the amount of (1) such draft so paid and (2) any taxes, fees, charges or other costs or expenses incurred by the Issuing Bank in connection with such payment. Each such payment shall be made to the Issuing Bank at its address for notices specified 6 6 herein in lawful money of the United States of America and in immediately available funds. (b) Interest shall be payable on any and all amounts remaining unpaid by the Company under this subsection from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate set forth in (i) until the second Business Day following the date of the applicable drawing, subsection 2.7(b) and (ii) thereafter, subsection 2.7(c). 2A.6 Obligations Absolute. (a) The Company's obligations under this Section 2A shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against the Issuing Bank or any beneficiary of a Letter of Credit. (b) The Company also agrees with the Issuing Bank that the Issuing Bank shall not be responsible for, and the Company's Reimbursement Obligations under subsection 2A.5(a) shall not be affected by, among other things, (1) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or (2) any dispute between or among the Company and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or (3) any claims whatsoever of the Company against any beneficiary of such Letter of Credit or any such transferee. (c) The Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Bank's gross negligence or willful misconduct. (d) The Company agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence of willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Company and shall not result in any liability of the Issuing Bank to the Company. 2A.7 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Issuing Bank shall promptly notify the Company of the date and amount thereof. The responsibility of the Issuing Bank to the Company in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 7 7 2A.8 Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 2A, the provisions of this Section 2A shall apply.`". (2) "SECTION 5C. Paragraph (a) of subsection 2.1 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting the first sentence of such paragraph (a) and substituting in lieu thereof the following: `Subject to the terms and conditions hereof, each Bank severally agrees to make loans ("Revolving Credit Loans") to the Company from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Bank's Commitment Percentage of the then outstanding L/C Obligations, does not exceed the amount of such Bank's Commitment.`". (3) "SECTION 5D. Paragraph (a) of subsection 2.4 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting the proviso at the end of the first sentence of such paragraph (a) and substituting in lieu thereof the following: `provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans made on the effective date thereof, the aggregate principal amount of the Revolving Credit Loans then outstanding, when added to the then outstanding L/C Obligations, would exceed the Commitments then in effect.`". (4) "SECTION 5E. Clause (i) of paragraph (a) of subsection 2.12 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such clause (i) of such paragraph and substituting in lieu thereof the following: `(i) shall subject any Bank to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Bank in respect thereof (except for taxes covered by subsection 2.14 and changes in the rate of tax on the overall net income of such Bank);`". (5) "SECTION 5F. Paragraph (a) of subsection 2.12 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting the end of the first sentence of such paragraph (a) and substituting in lieu thereof the following: 8 8 `and the result of any of the foregoing is to increase the cost to such Bank, by an amount which such Bank deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Company shall promptly pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable.`". (6) "SECTION 5G. Subsection 2.13 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting the first sentence of such subsection 2.13 and substituting in lieu thereof the following: `In the event that any Bank shall have determined that any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Bank or any corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Bank or such corporation could have achieved but for such change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission by such Bank, through the Agent, to the Company of a written request therefore (such request shall include details reasonably sufficient to establish the basis for such amounts payable and shall be submitted to the Company within 30 Business Days after it becomes aware of such fact), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction.`". (7) "SECTION 5H. Subsection 3.1 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting the second sentence of such subsection 3.1 and substituting in lieu thereof the following: `The Company has all necessary corporate power and has taken all corporate action required to make all the provisions of this Agreement, the Notes, the Applications and all other agreements and instruments executed in connection herewith and therewith, the valid and enforceable obligations they purport to be`". (8) "SECTION 5I. Subsection 3.9 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection 3.9 in its entirety and substituting in lieu thereof the following: 9 9 `3.9 No Legal Obstacle to Agreement. Neither the execution and delivery of this Agreement, the Applications or any Notes, nor the making by the Company of any borrowings hereunder, nor the consummation of any transaction herein or therein referred to or contemplated hereby or thereby nor the fulfillment of the terms hereof or thereof or of any agreement or instrument referred to in this Agreement, has constituted or resulted in or will constitute or result in a breach of the provisions of any contract to which the Company or any of its Subsidiaries is a party or by which it is bound or of the charter or by-laws of the Company, or the violation of any law, judgment, decree or governmental order, rule or regulation applicable to the Company or any of its Subsidiaries, or result in the creation under any agreement or instrument of any security interest, lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries. Other than those which have already been obtained, no approval, authorization or other action by any governmental authority or any other Person is required to be obtained by the Company or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement, the Applications or the transactions contemplated hereby, or the making of any borrowing by the Company hereunder.`". (9) "SECTION 5J. Section 4 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting the lead-in sentence of such Section 4 and substituting in lieu thereof the following: `The obligations of each Bank to make the extensions of credit requested to be made by it shall be subject to the compliance by the Company with its agreements herein contained and to the satisfaction, immediately prior to or concurrently with the making of such extensions of credit on the Closing Date and each Borrowing Date of such of the following further conditions as are applicable on the Closing Date or the Borrowing Date, as the case may be:`". (10) "Section 5K. Section 4.5 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection 4.5 in its entirety and substituting in lieu thereof the following: 4.5 Legality, etc. The making of any extension of credit to be made by such Bank on each Borrowing Date shall not subject such Bank to any penalty or special tax, shall not be prohibited by any Requirement of Law applicable to such Bank or the Company, and all necessary consents, approvals and authorizations of any Governmental Authority or any Person to or of any such extension of credit shall have been obtained and shall be in full force and effect.`" (11) "SECTION 5L. Section 5 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year 10 10 Agreement and Amendment is hereby amended by deleting the lead-in sentence of such Section 5 and substituting in lieu thereof the following: `On and after the date hereof, until all of the Notes, any Letter of Credit and all other amounts payable pursuant hereto shall have been paid in full and so long as the Commitments shall remain in effect, the Company covenants that the Company will comply, and will cause each of its Subsidiaries to comply, with such of the provisions of this Section 5 and such other provisions of this Agreement as are applicable to the Person in question.`". (12) "SECTION 5M. Paragraph (a) of subsection 6.1 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such paragraph (a) and substituting in lieu thereof the following: `(a) any default shall be made by the Company in any payment in respect of: (i) interest on any of the Notes, on any Reimbursement Obligation or any facility fee payable hereunder as the same shall become due and such default shall continue for a period of five days; or (ii) principal of any of the Indebtedness evidenced by the Notes or any Reimbursement Obligation as the same shall become due, whether at maturity, by prepayment, by acceleration or otherwise; or`". (13) "SECTION 5N. The acceleration clause immediately following paragraph (g) of subsection 6.1 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such acceleration clause in its entirety and substituting in lieu thereof the following: `then and in each and every such case, (x) the Agent may, with the consent of the Required Banks, or shall, at the direction of the Required Banks, proceed to protect and enforce the rights of the Banks by suit in equity, action at law and/or other appropriate proceeding either for specific performance of any covenant or condition contained in this Agreement, any Letter of Credit or any Note or in any instrument delivered to each Bank pursuant to this Agreement, or in aid of the exercise of any power granted in this Agreement, any Letter of Credit or any Note or any such instrument or assignment, and (y) the Agent may, with the consent of the Required Banks, or shall, at the direction of the Required Banks, by notice in writing to the Company terminate the obligations of the Banks to make further extensions of credit hereunder, and thereupon such obligations shall terminate forthwith and (z) (unless there shall have occurred an Event of Default under subsection 6.1(f), in which case the obligations of the Banks to make further extensions of credit hereunder shall automatically terminate and the unpaid balance of the Notes and accrued interest thereon and all other amounts payable hereunder (including, without limitation, all amounts of L/C Obligations, whether 11 11 or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder (collectively, the "Bank Obligations") shall automatically become due and payable) the Agent may, with the consent of the Required Banks, or shall, at the direction of the Required Banks, by notice in writing to the Company declare all or any part of the unpaid balance of the Bank Obligations then outstanding to be forthwith due and payable, and thereupon such unpaid balance or part thereof shall become so due and payable without presentment, protest or further demand or notice of any kind, all of which are hereby expressly waived, the obligations of the Banks to make further extensions of credit hereunder shall terminate forthwith, and the Agent may, with the consent of the Required Banks, or shall, at the direction of the Required Banks, proceed to enforce payment of such balance or part thereof in such manner as the Agent may elect, and each Bank may offset and apply toward the payment of such balance or part thereof, and to the curing of any such Event of Default, any Indebtedness from such Bank to the Company, including any Indebtedness represented by deposits in any general or special account maintained with such Bank. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Company shall at such time deposit in a cash collateral account opened by the Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Company hereby grants to the Agent, for the benefit of the Issuing Bank and the L/C Participants, a security interest in such cash collateral to secure all obligations of the Company under this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have been expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Company hereunder and under the Notes. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Company hereunder and under the Notes shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Company. The Company shall execute and deliver to the Agent, for the account of the Issuing Bank and the L/C Participants, such further documents and instruments as the Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account`". (14) "SECTION 5O. Subsection 7.8 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting the second sentence of such subsection 7.8 and substituting in lieu thereof the following: 12 12 `With respect to its Loans made or renewed by it and any Note issued to it and with respect to any Letter of Credit issued or participated in by it, the Agent and the CAF Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include the Agent in its individual capacity.`". (15) "SECTION 5P. Subsection 8.7 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection 8.7 in its entirety and substituting in lieu thereof the following: `8.7 Adjustments; Set-off. (a) If any Bank (a "benefitted Bank") at any time shall receive any payment of all or part of its Loans or its interests in the Reimbursement Obligations owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in subsection 6.1(f), for otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans or its interests in the Reimbursement Obligations owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loan or its interests in the Reimbursement Obligations owing to it, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Bank so purchasing a portion of another Bank's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion.`". 3. Other Amendments to the February 1997 Agreement and Amendment. (a) Section 3 of the February 1997 Five-Year Agreement and Amendment is hereby amended as follows: (1) by inserting in such section the following new defined terms in proper alphabetical order: "`Fifth Amendment`: Fifth Amendment dated March 30, 1999 to the Five-Year Agreement and Amendment." "`Fifth Amendment Date`: March 30, 1999." 13 13 "`LifePoint`: LifePoint Hospitals, Inc., Delaware corporation to be formed." "`Triad`: Triad Hospitals, Inc., a Delaware corporation to be formed." (2) by deleting the defined term "Subsidiary" in its entirety and inserting in lieu thereof the following new defined term in proper alphabetical order: "`Subsidiary`: as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, directly or indirectly through one or more intermediaries, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company." (b) Section 6B of the February 1997 Five-Year Agreement and Amendment is hereby amended by adding the following new paragraphs after Section 6B as follows: "SECTION 6C. Pension Plans. The Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference to this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting subsection 3.12 in its entirety and substituting in lieu thereof the following: `3.12. Pension Plans. Each Plan maintained by the Company, any Subsidiary or any Control Group Person or to which any of them makes or will make contributions is in material compliance with the applicable provisions of ERISA and the Code. Neither the Company, any Subsidiary, nor any Control Group Person has since August 31, 1986 maintained, contributed to or participated in any Multiemployer Plan, with respect to which a complete withdrawal would result in any withdrawal liability. The Company and its Subsidiaries have met all of the funding standards applicable to all Plans that are not Multiemployer Plans, and there exists no event or condition which would permit the institution of proceedings to terminate any Plan that is not a Multiemployer Plan. The current value of the benefits guaranteed under Title IV of ERISA of each Plan that is not a Multiemployer Plan does not exceed the current value of such Plan's assets allocable to such benefits.`" "SECTION 6D. Year 2000 Matters. The Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference to this February 1997 Five- 14 14 Year Agreement and Amendment is hereby amended by adding the following new subsection immediately following subsection 3.16 therein as follows: `3.17 Year 2000 Matters. As of the Fifth Amendment Date, any reprogramming required to permit the proper functioning (but only to the extent that such proper functioning would otherwise be materially impaired by the occurrence of the year 2000) in the year 2000 of computer systems and other equipment containing embedded microchips, in either case owned or operated by the Company or any of its Subsidiaries or used or relied upon in the conduct of their business (including any such systems and other equipment supplied by others or with which the computer systems of the Company or any of its Subsidiaries interface), and the testing of all material systems and other equipment as so reprogrammed, will be completed by September 30, 1999, except where the failure to do so could not reasonably be expected to result in a material adverse change in the business or assets or in the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis. As of the Fifth Amendment Date, the costs to the Company and its Subsidiaries that have not been incurred as of the date hereof for such reprogramming and testing and for the other reasonably foreseeable consequences to them of any improper functioning of other computer systems and equipment containing embedded microchips due to the occurrence of the year 2000 could not reasonably be expected to result in a Default or Event of Default or to have a material adverse change in the business or assets or in the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis.`". (c) Section 8I of the February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following: "SECTION 8I. Sales of Assets. Subsection 5.10 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following: `5.10 Sales of Assets. The Company and its Subsidiaries may from time to time sell or otherwise dispose of all or any part of their respective assets; provided, however, that in any fiscal year, the Company and its Subsidiaries will not (a) sell or dispose of (including, without limitation, any disposition resulting from any merger or consolidation involving a Subsidiary of the Company, and any Sale-and-Leaseback Transaction), outside of the ordinary course of business, to Persons other than the Company and its Subsidiaries, assets constituting in the aggregate more than 12% of Consolidated Assets of the Company (calculated after giving pro forma effect thereto as if the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company occurred on the first day of the testing period thereof) and its Subsidiaries as at the 15 15 end of the immediately preceding fiscal year (excluding the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company) and (b) exchange with any Persons other than the Company and its Subsidiaries any asset or group of assets for another asset or group of assets unless (i) such asset or group of assets are exchanged for an asset or group of assets of a substantially similar type or nature, (ii) on a pro forma basis both before and after giving effect to such exchange, no Default or Event of Default shall have occurred and be continuing, (iii) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of the asset or group of assets being transferred by the Company or such Subsidiary and the asset or group of assets being acquired by the Company or such Subsidiary are substantially equal and (iv) the aggregate of (x) all assets of the Company and its Subsidiaries sold pursuant to subsection 5.10(a) (including, without limitation, any disposition resulting from any merger or consolidation involving a Subsidiary of the Company, and any Sale-and-Leaseback Transaction) (excluding the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company) and (y) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of all assets of the Company and its Subsidiaries exchanged pursuant to this subsection 5.10(b) does not exceed 20% of Consolidated Assets of the Company and its Subsidiaries as at the end of the immediately preceding fiscal year (calculated after giving pro forma effect thereto as if the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company occurred on the first day of the testing period thereof).`". (d) Section 8K of the February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such section in its entirety and substituting in lieu thereof the following: "SECTION 8K. Company Officers' Certificate. Subsection 4.3 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following: `4.3 Company Officers' Certificate. The representations and warranties contained in Section 3 (as qualified by the disclosures in (i) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1997, (ii) the Company's Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, (iii) the Company's Reports on Form 8-K dated February 6, 1998, February 13, 1998, March 6, 1998, May 27, 1998, July 30, 1998, October 28, 1998, December 15, 1998 and February 24, 1999 and (iv) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1998, as filed with the Securities and Exchange Commission, previously distributed to the Agent and made available to the Banks) shall be true and correct in all material respects on the Closing Date and on and as of each Borrowing Date with the same force and effect as though made on and as 16 16 of each Borrowing Date with the same force and effect as though made on and as of such date; no Default shall have occurred (except a Default which shall have been waived in writing or which shall have been cured) and no Default shall exist after giving effect to the Loan to be made; between December 31, 1994 and such Borrowing Date, neither the business nor assets, nor the condition, financial or otherwise, of the Company and its Subsidiaries on a consolidated basis shall have been adversely affected in any material manner as a result of any fire, flood, explosion, accident, drought, strike, lockout, riot, sabotage, confiscation, condemnation, or any purchase of any property by Governmental Authority, activities or armed forces, acts of God or the public enemy, new or amended legislation, regulatory order, judicial decision or any other event or development whether or not related to those enumerated above (all subject to the disclosures enumerated above); and the Agent shall have received a certificate containing a representation to these effects dated such Borrowing Date and signed by a Responsible Officer`". (e) The February 1997 Five-Year Agreement and Amendment is hereby amended by adding the following new paragraphs after Section 8K reading as follows: "SECTION 8L. ERISA Reports. Subsection 5.5(d) of the Five-Year Composite Conformed Credit as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following: `5.5(d) ERISA Reports. The Company will furnish the Agent with copies of any request for waiver of the funding standards or extension of the amortization periods required by Sections 303 and 304 of ERISA or Section 412 of the Code promptly after any such request is submitted by the Company to the Department of Labor or the Internal Revenue Service, as the case may be. Promptly after a Reportable Event occurs, or the Company or any of its Subsidiaries receives notice that the PBGC or any Control Group Person has instituted or intends to institute proceedings to terminate any pension or other Plan that is a "defined benefit plan" as defined in ERISA, or prior to the Plan administrator's terminating such Plan pursuant to Section 4041 of ERISA, the Company will notify the Agent and will furnish to the Agent a copy of any notice of such Reportable Event which is required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its institution of such proceedings or its intent to institute such proceedings, or any notice to the PBGC that a Plan is to be terminated, as the case may be. The Company will promptly notify each Bank upon learning of the occurrence of any of the following events with respect to any Plan which is a Multiemployer Plan: a partial or complete withdrawal from any Plan which may result in the incurrence by the Company or any of is Subsidiaries of withdrawal liability in excess of $1,000,000 under Subtitle E of Title IV of ERISA, or of the termination, insolvency or reorganization status of any Plan under such Subtitle E which may result in liability to the Company or any of its Subsidiaries in excess of 17 17 $1,000,000. In the event of such a withdrawal, upon the request of the Agent or any Bank, the Company will promptly provide information with respect to the scope and extent of such liability, to the best of the Company's knowledge.`". "SECTION 8M. Compliance with ERISA. Subsection 5.11 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following: "`5.11 Compliance with ERISA. Each of the Company and its Subsidiaries will meet, and will cause all Control Group Persons to meet, all minimum funding requirements applicable to any Plan imposed by ERISA or the Code (without giving effect to any waivers of such requirements or extensions of the related amortization periods which may be granted), and will at all times comply, and will cause all Control Group Persons to comply, in all material respects with the provisions of ERISA and the Code which are applicable to the Plans. At no time shall the aggregate actual and contingent liabilities of the Company under Sections 4062, 4063, 4064 and other provisions of ERISA with respect to all Plans (and all other pension plans to which the Company, any Subsidiary, or any Control Group Person made contributions prior to such time) exceed $7,500,000. Neither the Company nor its Subsidiaries will permit any event or condition to exist which could permit any Plan which is not a Multiemployer Plan to be terminated under circumstances which would cause the lien provided for in Section 4068 of ERISA to attach to the assets of the Company or any of its Subsidiaries.`". "SECTION 8N. Negative Pledge. Subsection 5.12 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting in lieu thereof the following: `5.12 Negative Pledge. The Company will not and will ensure that no Subsidiary will create or have outstanding any security on or over any Principal Property in respect of any Indebtedness and the Company will not create or have outstanding any security on or over the capital stock of any of its Subsidiaries that own a Principal Property and will ensure that no Subsidiary will create or have outstanding any security on or over the capital stock of any of its respective Subsidiaries that own a Principal Property except in either case for: (a) any security for the purchase price or cost of construction of real property acquired by the Company or any of its Subsidiaries (or additions, substantial repairs, alterations or substantial improvements thereto) or equipment, provided that such Indebtedness and such security are incurred within 18 months of the acquisition or completion of construction (or alteration or repair) and full operation; 18 18 (b) any security existing on property or on capital stock, as the case may be, at the time of acquisition of such property or capital stock, as the case maybe, by the Company or a Subsidiary or on the property or capital stock, as the case may be, of a corporation at the time of the acquisition of such corporation by the Company or a Subsidiary (including acquisitions through merger or consolidation); (c) any security created in favor of the Company or a Subsidiary; (d) any security created by operation of law in favor of government agencies of the United States of America or any State thereof; (e) any security created in connection with the borrowing of funds if within 120 days such funds are used to repay Indebtedness in at least the same principal amount as secured by other security of Principal Property or capital stock of a Subsidiary that owns a Principal Property, as the case may be, with an independent appraised fair market value at least equal to the appraised fair market value of the Principal Property or capital stock of a Subsidiary that owns a Principal Property, as the case may be, secured by the new security; and (f) any extension, renewal or replacement of any security referred to in the foregoing clauses (a) through (e) provided that the amount thereby secured is not increased; unless any Loans made and/or to be made to and all other sums payable by the Company under this Agreement shall be secured equally and ratably with (or prior to) such Indebtedness so long as such Indebtedness shall be so secured. Notwithstanding the foregoing, the Company and any one or more Subsidiaries may, without securing the Loans made and/or to be made to and all other sums payable by the Company under this Agreement, create, issue or assume Indebtedness which would otherwise be subject to the foregoing restrictions in an aggregate principal amount which, together with all other such Indebtedness of the Company and its Subsidiaries (not including (i) Indebtedness permitted to be secured pursuant to the foregoing clauses (a) through (f) and the aggregate Attributable Debt or (ii) Indebtedness incurred by one or more Subsidiaries of the Company and thereafter assumed by Life Point and/or Triad (and/or their respective Subsidiaries) in connection with the tax-free spin-off distributions of the common stock of Life Point and Triad to the shareholders of the Company), including Indebtedness in respect of Sale-and-Lease-back Transactions (other than those permitted by subsection 5.13(b)), does not exceed 10% of Consolidated Net Tangible Assets of the Company and its Subsidiaries (calculated after giving pro forma effect thereto as if the tax-free spin-off distributions of the common stock of LifePoint and Triad to the shareholders of the Company occurred on the first day of the testing period thereof).`". "SECTION 8O. Transactions with Affiliates. Subsection 5.3 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-Year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting the following: 19 19 `5.3 Transactions with Affiliates. Neither the Company nor any of its Subsidiaries will enter into any transactions, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any of their Affiliates (other than the Company and its Subsidiaries) (excluding the tax-free spin-off distributions of the common stock of Life Point and Triad to the shareholders of the Company and the transitional services agreements to be entered into with Life Point and Triad in connection therewith) unless such transaction is otherwise permitted under this Agreement, is in the ordinary course of the Company's or such Subsidiary's business and is upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in an arm's-length transaction.`". "SECTION 8P. Merger or Consolidation. Subsection 5.9 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into this February 1997 Five-year Agreement and Amendment is hereby amended by deleting such subsection in its entirety and substituting the following: `5.9 Merger or Consolidation. The Company will not become a constituent corporation in any merger or consolidation unless the Company shall be the surviving or resulting corporation and immediately before and after giving effect to such merger or consolidation there shall exist no Default; provided that the Company may merge into another Subsidiary owned by the Company for the purposes of causing the Company to be incorporated in a different jurisdiction in the United States or causing the Company to change its name.`". 4. Effective Date; Conditions Precedent. This Fifth Amendment will become effective on March 30, 1999 (the "Effective Date") subject to the compliance by the Company with its agreements herein contained and to the satisfaction on or before the Effective Date of the following further conditions: (a) Loan Documents. The Agent shall have received copies of this Fifth Amendment, executed and delivered by a duly authorized officer of the Company, with a counterpart for each Bank, and executed and delivered by the Required Banks. (b) Company Officers' Certificate. The representations and warranties contained in Section 3 of the Five-Year Composite Conformed Credit Agreement as adopted and incorporated by reference into, and as amended by, the February 1997 Five-Year Agreement and Amendment (as qualified by the disclosures in (i) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1997, (ii) the Company's Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, (iii) the Company's Reports on Form 8-K dated February 6, 1998, February 13, 1998, March 6, 1998, May 27, 1998, July 30, 1998, October 28, 1998, December 15, 1998 and February 24, 1999 and (iv) the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1998, as filed with the Securities and Exchange Commission, previously distributed to the Agent and made 20 20 available to the Banks) shall be true and correct in all material respects on the Effective Date with the same force and effect as though made on and as of such date; on and as of the Effective Date and after giving effect to this Fifth Amendment, no Default shall have occurred (except a Default which shall have been waived in writing or which shall have been cured); and the Agent shall have received a certificate containing a representation to these effects dated the Effective Date and signed by a Responsible Officer. (c) Amendment to July 1998 Term Loan Facility. The July 1998 Term Loan Facility shall have been amended in a manner corresponding to the amendments contained in Section 3 hereof. 5. Legal Obligation. The Company represents and warrants to each Bank that this Fifth Amendment constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyances, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 6. Continuing Effect; Application. Except as expressly amended hereby, the February 1997 Five-Year Agreement and Amendment shall continue to be and shall remain in full force and effect in accordance with its terms. 7. Expenses. The Company agrees to pay or reimburse the Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Fifth Amendment and any other documents prepared in connection herewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent. 8. GOVERNING LAW. THIS FIFTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS FIFTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 9. Counterparts. This Fifth Amendment may be executed by one or more of the parties to this Fifth Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Fifth Amendment signed by all the parties shall be lodged with the Company and the Agent. 21 21 IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. COLUMBIA/HCA HEALTHCARE CORPORATION By: /s/ David G. Anderson ------------------------------------ Name: David G. Anderson Title: Vice President-Finance and Treasurer THE CHASE MANHATTAN BANK, as Agent, as CAF Loan Agent and as a Bank By: /s/ Dawn Lee Lum ------------------------------------ Name: Dawn Lee Lum Title: Vice President THE CHASE MANHATTAN BANK or any of its Affiliates, as Issuing Bank By: /s/ Dawn Lee Lum ------------------------------------ Name: Dawn Lee Lum Title: Vice President ABN AMRO BANK N.V., as a Bank By: /s/ Steven L. Hipsman ------------------------------------ Name: Steven L. Hipsman Title: Vice President By: /s/ Robert A. Budnek ------------------------------------ Name: Robert A. Budnek Title: Vice President 22 22 ARAB BANK PLC, GRAND CAYMAN BRANCH, as a Bank By: /s/ Nofal Barbar ------------------------------------ Name: Nofal Barbar Title: Executive Vice President and Regional Manager BANCA MONTE DEI PASCHI DI SIENA SpA, as a Bank By: /s/ G. Natalicchi ------------------------------------ Name: G. Natalicchi Title: Senior Vice President and General Manager By: /s/ Brian R. Landy ------------------------------------ Name: Brian R. Landy Title: Vice President BANCA NAZIONALE DEL LAVORO, SpA, as a Bank By: /s/ Giulio Giovine ------------------------------------ Name: Giulio Giovine Title: Vice President By: /s/ Leonardo Valentini ------------------------------------ Name: Leonardo Valentini Title: First Vice President BANK ONE TEXAS, N.A., as a Bank By: /s/ L. Richard Schiller ------------------------------------ Name: L. Richard Schiller Title: Vice President 23 23 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Co-Agent and as a Bank By: /s/ Kevin Wagley ------------------------------------ Name: Kevin Wagley Title: Vice President THE BANK OF NEW YORK, as a Co-Agent and as a Bank By: /s/ Ann Marie Hughes ------------------------------------ Name: Ann Marie Hughes Title: Vice President THE BANK OF NOVA SCOTIA, as a Bank By: /s/ W.J. Brown ------------------------------------ Name: W.J. Brown Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY, as a Bank By: /s/ Jesse A. Reid, Jr. ------------------------------------ Name: Jesse A. Reid, Jr. Title: Vice President BANQUE NATIONALE DE PARIS -Houston Agency, as a Bank By: /s/ Warren G. Parham ------------------------------------ Name: Warren G. Parham Title: Vice President 24 24 BARNETT BANK, N.A., as a Bank By: ------------------------------------ Name: Title: CITIBANK, N.A., as a Bank By: /s/ Gregory K. Park ------------------------------------ Name: Gregory K. Park Title: Vice President COMERICA BANK, as a Bank By: /s/ Colleen M. Murphy ------------------------------------ Name: Colleen M. Murphy Title: Assistant Vice President CORESTATES BANK, N.A., as a Bank By: ------------------------------------ Name: Title: CRESTAR BANK, as a Bank By: /s/ C. Gray Key ------------------------------------ Name: C. Gray Key Title: Vice President THE DAI-ICHI KANGYO BANK, LIMITED, ATLANTA AGENCY, as a Bank By: /s/ Christopher Fahey ------------------------------------ Name: Christopher Fahey Title: Vice President 25 25 DEN DANSKE BANK AKTIESELSKAB, as a Bank CAYMAN ISLANDS BRANCH c/o New York Branch By: /s/ Dennis T. Shugrue ------------------------------------ Name: Dennis T. Shugrue Title: Assistant Vice President By: /s/ John A. O'Neill ------------------------------------ Name: John A. O'Neill Title: Vice President DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCH(ES), as a Co-Agent and as a Bank By: /s/ Susan L. Pearson ------------------------------------ Name: Susan L. Pearson Title: Director By: /s/ Stephan A. Wiedemann ------------------------------------ Name: Stephan A. Wiedemann Title: Director FIRST HAWAIIAN BANK, as a Bank By: /s/ Charles L. Jenkins ------------------------------------ Name: Charles L. Jenkins Title: Vice President, Manager FIRST AMERICAN NATIONAL BANK, as a Bank By: /s/ Sandy Hamrick ------------------------------------ Name: Sandy Hamrick Title: Senior Vice President 26 26 THE FIRST NATIONAL BANK OF CHICAGO, as a Bank By: /s/ L. Richard Schiller ------------------------------------ Name: L. Richard Schiller Title: Vice President FIRST UNION NATIONAL BANK, as a Bank By: /s/ Joseph H. Tower ------------------------------------ Name: Title: FLEET NATIONAL BANK, as a Co-Agent and as a Bank By: /s/ Maryann Smith ------------------------------------ Name: Maryann Smith Title: Vice President THE FUJI BANK LIMITED, as a Co-Agent and as a Bank By: /s/ Raymond Ventura ------------------------------------ Name: Raymond Ventura Title: Vice President and Manager THE INDUSTRIAL BANK OF JAPAN, LIMITED, ATLANTA AGENCY, as a Co-Agent and as a Bank By: /s/ Koichi Hasegawa ------------------------------------ Name: Koichi Hasegawa Title: Senior Vice President and Deputy General Manager 27 27 KEYBANK NATIONAL ASSOCIATION, as a Bank By: /s/ Thomas J. Purcell ------------------------------------ Name: Thomas J. Purcell Title: Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION, as a Bank By: /s/ Beatrice E. Kossodo ------------------------------------ Name: Beatrice E. Kossodo Title: Senior Vice President THE MITSUI TRUST AND BANKING COMPANY, LIMITED, NEW YORK BRANCH, as a Bank By: /s/ Margaret Holloway ------------------------------------ Name: Margaret Holloway Title: Vice President and Manager NATIONAL CITY BANK OF KENTUCKY, as a Bank By: /s/ Deroy Scott ------------------------------------ Name: Deroy Scott Title: Vice President NATIONSBANK, N.A. as a Co-Agent and as a Bank By: /s/ Kevin Wagley ------------------------------------ Name: Kevin Wagley Title: Vice President 28 28 THE NORTHERN TRUST COMPANY, as a Bank By: /s/ Christina L. Jaluc ------------------------------------ Name: Christina L. Jaluc Title: Second Vice President PNC BANK, N.A., as a Co-Agent and as a Bank By: /s/ Kathryn M. Bohr ------------------------------------ Name: Kathryn M. Bohr Title: Vice President THE SAKURA BANK, LTD. NEW YORK BRANCH, as a Lead Manager and as a Bank By: /s/ Yasuhiro Terada ------------------------------------ Name: Yasuhiro Terada Title: Senior Vice President THE SUMITOMO BANK, LIMITED, as a Lead Manager and as a Bank By: /s/ Gary Franke ------------------------------------ Name: Gary Franke Title: Vice President and Manager STB DELAWARE FUNDING TRUST I, as a Bank By: /s/ Donald C. Hargadon ------------------------------------ Name: Donald C. Hargadon Title: Assistant Vice President 29 29 SUNTRUST BANK, NASHVILLE, N.A., as a Lead Manager and as a Bank By: ------------------------------------ Name: Title: THE TOKAI BANK, LIMITED, NEW YORK BRANCH, as a Bank By: /s/ Shinichi Nakatani ------------------------------------ Name: Shinichi Nakatani Title: Assistant General Manager TORONTO DOMINION (TEXAS), INC., as a Bank By: /s/ Jimmy Simlen ------------------------------------ Name: Jimmy Simlen Title: Vice President THE TOKYO TRUST & BANKING CO., LTD., as a Bank By: /s/ M. Hosoda ------------------------------------ Name: M. Hosoda Title: Vice President UBS AG, STAMFORD BRANCH, as a Co-Agent and as a Bank By: /s/ Leo L. Baltz ------------------------------------ Name: Leo L. Baltz Title: Director By: /s/ Robert H. Riley III ------------------------------------ Name: Robert H. Riley III Title: Executive Director 30 30 UNION PLANTERS BANK OF MIDDLE TENNESSEE, N.A. By: /s/ William A. Collier ------------------------------------ Name: William A. Collier Title: Vice President WACHOVIA BANK OF GEORGIA, N.A., as a Co-Agent and as a Bank By: /s/ Kenneth Washington ------------------------------------ Name: Kenneth Washington Title: Vice President WELLS FARGO BANK, N.A., as a Lead Manager and as a Bank By: /s/ Timothy A. McDevitt ------------------------------------ Name: Timothy A. McDevitt Title: Vice President By: /s/ Donald A. Hartmann ------------------------------------ Name: Donald A. Hartmann Title: Senior Vice President YASUDA TRUST AND BANKING CO., LTD., as a Bank By: /s/ Junichiro Kawamura ------------------------------------ Name: Junichiro Kawamura Title: Vice President 31 31 THE NORINCHUKIN BANK, NEW YORK BRANCH, as a Bank By: /s/ Yoshiro Niiro ------------------------------------ Name: Yoshiro Niiro Title: General Manager NATIONAL WESTMINSTER BANK PLC By: NatWest Capital Markets Limited, its Agent By: /s/ Jeremy Hood ------------------------------------ Name: Jeremy Hood Title: Vice President By: Greenwich Capital Markets, Inc., its Agent By: /s/ Jeremy Hood ------------------------------------ Name: Jeremy Hood Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ William E. Magee ------------------------------------ Name: William E. Magee Title: Duly Authorized Signatory CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Henry Reukauf ------------------------------------ Name: Henry Reukauf Title: Vice President EX-12 5 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 COLUMBIA/HCA HEALTHCARE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 (DOLLARS IN MILLIONS)
1999 1998 ---- ---- EARNINGS: Income from continuing operations before minority interests and income taxes.......................................... $584 $401 Fixed charges, excluding capitalized interest............... 142 188 ---- ---- $726 $589 ==== ==== FIXED CHARGES: Interest charged to expense................................. $111 $153 Interest portion of rental expense and amortization of deferred loan costs....................................... 31 35 ---- ---- Fixed charges, excluding capitalized interest............... 142 188 Capitalized interest........................................ 6 4 ---- ---- $148 $192 ==== ==== Ratio of earnings to fixed charges.......................... 4.91 3.07
EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF INCOME AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 586 0 3,889 1,639 419 4,234 15,410 6,261 18,797 3,192 5,566 0 0 6 7,473 18,797 0 4,655 0 2,582 892 338 111 570 248 322 0 0 0 322 0.50 0.50 EPS - Basic per SFAS No. 128 EPS - Diluted per SFAS No. 128
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