<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PROVINCE HEALTHCARE COMPANY
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8062 (APPLIED FOR)
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
109 WESTPARK DRIVE, SUITE 180
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 370-1377
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
RICHARD D. GORE
109 WESTPARK DRIVE, SUITE 180
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 370-1377
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<C> <C>
H. KURT VON MOLTKE J. VAUGHAN CURTIS
KIRKLAND & ELLIS ALSTON & BIRD LLP
200 EAST RANDOLPH DRIVE 1201 WEST PEACHTREE STREET
CHICAGO, ILLINOIS 60601 ATLANTA, GEORGIA 30309
(312) 861-2000 (404) 881-7000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.01 per share............. $98,325,000 $29,796
========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
computed in accordance with Rule 457(o).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
AUGUST 27, 1997
5,700,000 SHARES
[LOGO] PROVINCE HEALTHCARE
COMMON STOCK
------------------
All of the shares of Common Stock, par value $0.01 per share (the "Common
Stock") of Province Healthcare Company ("Province" or the "Company"), offered
hereby are being sold by the Company. Prior to this offering there has been no
public market for the Common Stock. It is presently estimated that the initial
public offering price will be between $13.00 and $15.00 per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. Application has been made for the
approval and trading of the Common Stock on the Nasdaq National Market under the
symbol "PRHC."
Upon completion of the offering, officers and directors of the Company and
affiliates of the Company's officers and directors will beneficially own 49.3%
of the Common Stock (46.7% if the Underwriters' over-allotment option is
exercised in full). Accordingly, officers and directors of the Company and
affiliates of the Company's officers and directors acting in concert will
effectively be able to control the election of directors and management and
operations of the Company. See "Risk Factors -- Effective Control by Certain
Stockholders."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(2)......................... $ $ $
===============================================================================================================
</TABLE>
(1) Before deducting expenses of the offering estimated at $1,200,000, payable
by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
855,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of the Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
ALEX. BROWN & SONS
INCORPORATED
GOLDMAN, SACHS & CO.
ROBERTSON, STEPHENS & COMPANY
THE ROBINSON-HUMPHREY COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[PHOTOGRAPHS OF THE COMPANY'S EIGHT HOSPITALS]
THE UNDERWRITERS AND OTHER PERSONS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus.
THE COMPANY
Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. In developing a platform for
the provision of health care services within target markets, the Company seeks
to acquire hospitals which are the sole or primary providers of health care in
those communities. After acquiring a hospital, the Company seeks to improve the
hospital's operating performance and to broaden the range of services provided
to the community. The Company offers a wide range of inpatient and outpatient
medical services and also provides specialty services, including skilled
nursing, geriatric psychiatry and rehabilitation. The Company currently owns or
leases eight general acute care hospitals in four states with a total of 570
licensed beds. The Company also provides management services to 50 primarily
non-urban hospitals in 17 states with a total of 3,448 licensed beds. For the
year ended December 31, 1996, and the six months ended June 30, 1997, the
Company had net operating revenue of $129.9 million and $80.9 million,
respectively.
The Company believes that non-urban markets are attractive to health care
service providers. Because non-urban service areas have smaller populations,
there are generally only one or two hospitals in each non-urban market,
resulting in less competition. The relative dominance of the acute care hospital
in these smaller markets also limits the entry of alternate site providers,
which provide services such as outpatient surgery, rehabilitation or diagnostic
imaging. The demographic characteristics of non-urban markets and the relative
strength of the local hospital also make non-urban markets less attractive to
HMOs and other forms of managed care. In addition, the Company believes that
non-urban communities are generally characterized by a high level of patient and
physician loyalty that fosters cooperative relationships among the local
hospital, physicians and patients. Despite these attractive characteristics,
many not-for-profit and governmental operators of non-urban hospitals are under
pressure due to capital constraints, limited management resources and the
challenges of managing in a complex health care regulatory environment. These
pressures often result in diminished operating and financial performance which
can lead owners to sell or lease their hospitals to companies, like Province,
that have greater financial and management resources.
The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. To achieve this end, the Company
seeks to acquire hospitals which are the primary providers of health care in
their markets and which present the opportunity to increase profitability and
market share. The Company targets acquisition candidates that: (i) have a
minimum service area population of 20,000 with a stable or growing employment
base; (ii) are the sole or primary providers of health care services in the
community; (iii) have annual net patient revenue of at least $12.0 million; and
(iv) have financial performance that will benefit from Province management's
proven operating skills. The Company's goal is to acquire two to four hospitals
each year of the approximately 1,100 non-urban hospitals that fit the Company's
acquisition profile.
Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. Key elements of the Company's operating strategy are to:
(i) expand the breadth of services offered in the community to increase local
market share; (ii) improve hospital operations by implementing appropriate
expense controls, managing staffing levels, reducing supply costs, and
renegotiating certain vendor contracts; (iii) recruit additional general
practitioners and specialty physicians to the community; and (iv) form
relationships with local employers and regional tertiary providers to solidify
the position of the Company's hospital as the focal point of the community's
health care delivery system.
3
<PAGE> 5
Prior to its 1996 recapitalization and merger with PHC of Delaware, Inc.
("PHC"), the Company operated under the name Brim, Inc. ("Brim"). The current
operations of the Company include certain Brim operations and all of the
operations of PHC. Brim and its predecessors have provided health care services,
including managing and operating non-urban hospitals, since the 1970s. PHC was
founded in February 1996 by Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR
Fund IV") and Martin S. Rash to acquire and operate hospitals in attractive
non-urban markets. In December 1996, Brim was recapitalized (the
"Recapitalization"). Subsequently, the operations of Brim and PHC were combined
in a merger (the "Merger"). In connection with the Recapitalization, Mr. Rash
and Richard D. Gore were elected as the senior management of the Company.
The Company's management team has extensive experience in acquiring and
operating previously under-performing non-urban hospitals. Prior to co-founding
PHC, Mr. Rash was the Chief Operating Officer of Community Health Systems, Inc.
("Community"), an acquiror and operator of non-urban hospitals. During Mr.
Rash's tenure, Community acquired many non-urban hospitals and owned or leased
36 hospitals at December 31, 1995. Mr. Gore was previously employed as Vice
President and Controller of Quorum Health Group, Inc., an owner, operator and
manager of acute care hospitals. John M. Rutledge, the Company's Chief Operating
Officer, was previously employed as a Regional Vice President/Group Director at
Community, reporting directly to Mr. Rash. Steven P. Taylor, the Company's
Senior Vice President of Acquisitions and Development, was previously President
of Brim Healthcare, Inc., a subsidiary of the Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 5,700,000 shares
Common Stock to be outstanding after the
offering......................................... 15,698,314 shares(1)
Use of proceeds.................................... To repay certain indebtedness, to
redeem a portion of the Company's
preferred stock and to repurchase a
portion of the shares of Common Stock
issued upon conversion of preferred
stock. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............. "PRHC"
</TABLE>
- ---------------
(1) Gives effect to the conversion of the Company's outstanding Series B Junior
Preferred Stock, no par value (the "Junior Preferred Stock") into 2,451,218
shares of Common Stock and the repurchase of 1,034,414 of such shares of
Common Stock (in each case at an assumed initial public offering price of
$14.00 per share), but does not include 385,765 shares of Common Stock
issuable upon the exercise of outstanding options issued pursuant to the
Company's 1997 Long-Term Equity Incentive Plan at a weighted average
exercise price of $3.38 per share.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ---------------------------
PRO PRO
FORMA FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
-------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net operating revenue.................... $102,067 $101,214 $129,855 $153,136 $58,290 $80,861 $80,861
Operating expenses(2).................... 91,559 92,173 120,644 143,652 50,017 66,226 66,226
Capital costs(3)......................... 6,071 6,493 10,568 13,059 4,296 9,314 7,832
Costs of recapitalization................ -- -- 11,570 11,570 -- -- --
Loss (gain) on sale of assets............ (635) (2,814) 442 442 106 (159) (159)
-------- -------- -------- -------- ------- ------- -------
Income (loss) from continuing operations
before provision for income taxes...... 5,072 5,362 (13,369) (15,587) 3,871 5,480 6,962
Provision (benefit) for income taxes..... 2,097 1,953 (4,464) (5,328) 1,846 2,081 2,659
-------- -------- -------- -------- ------- ------- -------
Income (loss) from continuing
operations............................. 2,975 3,409 (8,905) $(10,259) 2,025 3,399 $ 4,303
======== =======
Income (loss) from discontinued
operations, less applicable income
taxes.................................. (157) (264) 6,015 182 --
-------- -------- -------- ------- -------
Net income (loss)........................ $ 2,818 $ 3,145 (2,890) 2,207 3,399
======== ========
Preferred stock dividends and
accretion.............................. (172) -- (2,384)
-------- ------- -------
Net income (loss) applicable to common
shareholders........................... $ (3,062) $ 2,207 $ 1,015
======== ======= =======
Pro forma net income (loss) per share
applicable to common
shareholders(1)(4):
Income (loss) from continuing
operations........................... $ (1.03) $ (0.64) $ 0.23 $ 0.11 $ 0.27
======== =======
Income from discontinued operations.... 0.68 0.02 --
-------- ------- -------
Net income (loss) applicable to common
shareholders......................... $ (0.35) $ 0.25 $ 0.11
======== ======= =======
Pro forma shares used in computing net
income (loss) per share applicable to
common shareholders(1)(4).............. 8,843 15,959 8,843 8,843 15,959
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATISTICAL DATA(5):
Hospitals owned or leased (at end of period).............. 4 4 7 5 7
Licensed beds (at end of period).......................... 294 294 513 371 517
Admissions................................................ 8,868 8,839 11,460 5,101 7,371
Patient days.............................................. 57,161 56,088 64,647 29,368 40,837
Adjusted patient days(6).................................. 91,047 92,085 115,805 50,992 73,367
Average length of stay (days)(7).......................... 6.5 6.4 5.6 5.8 5.5
Gross outpatient service revenue (in thousands)........... $46,312 $51,414 $ 78,561 $32,336 $53,680
Gross outpatient service revenue (% of gross patient
service revenue)........................................ 37.2% 39.1% 44.2% 42.4% 44.3%
EBITDAR (in thousands)(8)................................. $10,508 $ 9,041 $ 11,311 $ 8,273 $14,635
EBITDAR margin(9)......................................... 10.3% 8.9% 8.7% 14.2% 18.1%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
AS
ACTUAL ADJUSTED(10)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 6,016 $ 10,424
Total assets.............................................. 96,853 101,261
Long-term obligations, less current maturities............ 78,436 41,804
Mandatory redeemable preferred stock...................... 46,340 --
Common stockholders' equity (deficit)..................... (60,308) 29,515
</TABLE>
See accompanying notes on following page.
5
<PAGE> 7
- ---------------
(1) Pro forma 1996 and 1997 statements of operations data give effect to: (i)
the operating results of the three hospitals acquired by the Company in
1996 (the "1996 Acquired Hospitals") for periods prior to their
acquisition; (ii) the sale in July 1997 of 3,755 shares of Junior Preferred
Stock and 958,225 shares of Common Stock; (iii) Leeway & Co.'s exercise in
August 1997 of its warrant to purchase 343,265 shares of Common Stock; (iv)
the conversion of the Junior Preferred Stock and accumulated and unpaid
dividends with an aggregate carrying amount of approximately $33.1 million
into 2,451,218 shares of Common Stock in connection with the offering (the
"Preferred Stock Conversion"); and (v) the sale of the Common Stock in the
offering, and the application of the estimated net proceeds thereof to the
repurchase of the Common Stock issued with respect to 13,636 of the shares
of Junior Preferred Stock, the redemption of the Company's Series A Senior
Preferred Stock, no par value (the "Senior Preferred Stock") and the
repayment of debt, as described in "Use of Proceeds," as if all such
transactions had been completed as of January 1, 1996 and assuming an
initial public offering price of $14.00 per share. Net income (loss) per
share applicable to common shareholders on the 1996 and 1997 pro forma
amounts are based on the same assumptions outlined above.
(2) Includes an increase in insurance expense in the second half of 1996 due to
a change in estimate of $2.1 million.
(3) Includes rentals and leases, depreciation and amortization and interest
expense.
(4) Pro forma net income (loss) per share applicable to common shareholders for
the historical year ended December 31, 1996 and the historical six months
ended June 30, 1996 and 1997 is computed using the weighted average number
of shares of Common Stock outstanding during the period, including dilutive
common equivalent shares from stock options and warrants (using the
treasury stock method). The 7,280,020 common shares issued in the
Recapitalization and the Merger in December 1996 have been included in the
pro forma calculation as if the Recapitalization and the Merger had
occurred as of the first day of 1996. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, all other Common Stock
issued, and Common Stock options and warrants granted by the Company at
prices below the initial public offering price during the twelve-month
period prior to the initial public offering have been included in the
calculation as if they were outstanding for the full fiscal year (using the
treasury stock method). Historical net income (loss) per share has not been
presented since the historical capitalization of the Company is not
meaningful due to the significant change in the capital structure of the
Company resulting from the Recapitalization. Supplemental pro forma net
income (loss) per share applicable to common shareholders as required by
Accounting Principles Board Opinion No. 15, Earnings per Share, has not
been presented as that information is provided in the pro forma net income
(loss) per share applicable to common shareholders presentation referred to
in (1) above.
(5) Excludes Fifth Avenue Hospital in Seattle, Washington, which was sold in
May 1995.
(6) Adjusted patient days have been calculated based on an industry-accepted,
revenue-based formula (multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital) to reflect an approximation of
the number of inpatients and outpatients served.
(7) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.
(8) "EBITDAR" is defined to mean earnings before interest, taxes, depreciation
and amortization, rentals and leases, cumulative effect of change in
accounting method, costs of the Recapitalization, loss (gain) on sale of
assets, and income (loss) from discontinued operations, net of taxes.
EBITDAR has been adjusted in 1996 to exclude the increase in insurance
expense due to a change in estimate of $2.1 million. The Company has
included EBITDAR data because such data are one measure in determining the
enterprise value of the Company. EBITDAR is not a measure of financial
performance under generally accepted accounting principles and should not
be considered an alternative to net income as a measure of operating
performance or to cash flows from operating activities as a measure of
liquidity.
(9) EBITDAR margin represents EBITDAR divided by net operating revenue.
(10) The pro forma balance sheet data as of June 30, 1997 gives effect to: (i)
the sale in July 1997 of 3,755 shares of Junior Preferred Stock and 958,225
shares of Common Stock; (ii) the payment in July 1997 of $211,200 on the
note receivable for Common Stock; (iii) Leeway & Co.'s exercise in August
1997 of its warrant to purchase 343,265 shares of Common Stock; (iv) the
conversion from no par value to $0.01 par value Common Stock in connection
with the Reincorporation (as defined below); (v) the Preferred Stock
Conversion; and (vi) the sale of Common Stock in the offering and the
application of the estimated net proceeds thereof to the repurchase of
Common Stock issued with respect to 13,636 of the shares of Junior
Preferred Stock, the redemption of Senior Preferred Stock and the repayment
of debt, as described in "Use of Proceeds," as if all such transactions had
been completed as of June 30, 1997 and assuming an initial public offering
price of $14.00 per share.
6
<PAGE> 8
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this Prospectus, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
nationally and in regions where the Company operates; demographic changes; the
effect of existing or future governmental regulation and federal and state
legislative and enforcement initiatives on the Company's business, including the
recently-enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the Company's
ability to attract and retain qualified management personnel and to recruit and
retain physicians and other health care personnel to the non-urban markets it
serves; the effect of managed care initiatives on the non-urban markets served
by the Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in this
Prospectus. Certain of these factors are discussed in more detail elsewhere in
this Prospectus. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments. See "Risk Factors."
Unless the context otherwise requires, references in this Prospectus to
"Province" or the "Company" shall mean Province Healthcare Company and its
predecessors (including Principal Hospital Company, formerly known as Brim,
Inc.), together with Province Healthcare Company's direct and indirect
subsidiaries. Unless otherwise indicated, all information contained in this
Prospectus: (i) has been adjusted to give effect to the Recapitalization, the
Merger, the 3-for-1 stock split effected in May 1997, and the Reincorporation
(as defined below); and (ii) assumes no exercise of the Underwriters'
over-allotment option.
7
<PAGE> 9
THE COMPANY
Prior to the Recapitalization and the Merger with PHC, the Company operated
under the name Brim, Inc. The current operations of the Company include certain
Brim operations and all of the operations of PHC. Brim and its predecessors have
provided health care services, including managing and operating non-urban
hospitals, since the 1970s. PHC was founded in February 1996 by GTCR Fund IV and
Mr. Rash to acquire and operate hospitals in non-urban communities in the United
States. In December 1996, Brim was recapitalized. Following the
Recapitalization, new members of the Board of Directors were elected, and
Messrs. Rash and Gore were elected as Brim's Chief Executive Officer and Chief
Financial Officer, respectively; the operations of Brim and PHC were combined in
the Merger; and the Company operated under the name Principal Hospital Company.
During 1996, prior to the Recapitalization, PHC purchased Memorial Mother
Frances Hospital in Palestine, Texas and leased Starke Memorial Hospital in
Knox, Indiana, and Brim leased Parkview Regional Hospital in Mexia, Texas
(collectively, the "1996 Acquisitions"). In August 1997, the Company leased
Needles Desert Community Hospital in Needles, California (the "Needles
Acquisition").
In September 1997, the Company's predecessor, Principal Hospital Company,
will be merged with and into Province Healthcare Company, a Delaware
corporation, to change the name and jurisdiction of incorporation of Principal
Hospital Company and to make certain other changes to the Company's authorized
capitalization (the "Reincorporation").
The Company's principal executive offices are located at 109 Westpark
Drive, Suite 180, Brentwood, Tennessee 37027, and its telephone number is (615)
370-1377.
THE RECAPITALIZATION AND THE MERGER
On December 18, 1996, Brim was recapitalized pursuant to an Investment
Agreement among GTCR Fund IV, Brim and PHC. Prior to the Recapitalization, Brim
was owned by certain of its officers and employees, and PHC was controlled by
GTCR Fund IV, which owned 80.7% of its common stock. Following the
Recapitalization, GTCR Fund IV controlled both Brim and PHC, and merged a
subsidiary of Brim into PHC. The combination was accounted for as a merger of
businesses under common control.
As a result of the Recapitalization and the subsequent Merger with PHC, and
immediately thereafter, the Company was controlled by GTCR Fund IV, and the
Common Stock ownership of the Company was as follows: certain
pre-Recapitalization Brim shareholders (the "Continuing Shareholders") -- 10.9%;
GTCR Fund IV -- 61.0%; Leeway & Co. -- 11.5%; Messrs. Rash and Gore -- 15.7%;
and two banks -- 0.9%. After giving effect to: (i) the sale in July 1997 by the
Company of shares of its Junior Preferred Stock and Common Stock; (ii) the
exercise in August 1997 of the warrant held by Leeway & Co.; (iii) the Preferred
Stock Conversion; and (iv) the application of a portion of the proceeds of the
offering to repurchase the Common Stock issued to GTCR Fund IV and Leeway & Co.
with respect to 13,636 of their shares of Junior Preferred Stock (in the case of
clauses (iii) and (iv) assuming an initial public offering price of $14.00 per
share and as if such transactions occurred prior to the offering); the Common
Stock ownership of the Company immediately prior to the issuance of shares of
Common Stock pursuant to the offering will be as follows: the Continuing
Shareholders -- 10.8%; GTCR Fund IV -- 59.0%; Leeway & Co. -- 15.3%; Messrs.
Rash and Gore -- 13.9%; and two banks -- 1.0%.
The principal elements of the Recapitalization included the following:
- The outstanding common stock of certain of Brim's shareholders (the
"Redeemed Shareholders") was exchanged for redeemable preferred stock (the
"Redeemable Stock").
8
<PAGE> 10
- GTCR Fund IV, Messrs. Rash and Gore, and two banks (together with Leeway
& Co., the "Investors") purchased an aggregate of 1,912,124 shares of
Common Stock and 6,805 shares of Junior Preferred Stock, for an aggregate
purchase price of $7.5 million.
- Leeway & Co. purchased 20,000 shares of Senior Preferred Stock, 3,752
shares of Junior Preferred Stock, 833,778 shares of Common Stock and a
warrant to purchase 343,265 shares of Common Stock for an aggregate
purchase price of $24.1 million.
- Through a series of transactions, the Continuing Shareholders received
3,580 shares of Junior Preferred Stock and 795,562 shares of Common Stock
in exchange for their Brim common stock.
- Brim repaid its existing debt of $5.4 million and entered into a $100.0
million credit facility with First Union National Bank and certain other
lenders and borrowed $35.0 million under the term loan portion of the
facility and $37.0 million under the revolving credit portion of the
facility.
- Brim redeemed all of the Redeemable Stock for $42.3 million and settled
outstanding stock options for $8.0 million. Brim also redeemed preferred
stock held by General Electric Credit Corporation for $29.9 million.
In connection with the Recapitalization, an aggregate of $11.6 million was
charged to operations, consisting of $8.0 million paid to settle outstanding
stock options, $2.2 million of severance payments and $1.4 million of
transaction-related costs, principally professional fees.
Following the Recapitalization, a subsidiary of Brim was merged into PHC,
and PHC became a subsidiary of Brim. In connection with the Merger, the
stockholders of PHC received an aggregate of 14,403 shares of Junior Preferred
Stock and 3,738,556 shares of Common Stock, and PHC's existing debt of $19.6
million was repaid.
9
<PAGE> 11
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information
relating to the Company and the Common Stock before making an investment in the
Common Stock offered hereby.
RISKS OF ACQUISITION STRATEGY
A key element of the Company's growth strategy is expansion through the
acquisition of acute care hospitals in attractive non-urban markets. There can
be no assurance that the Company will be able to acquire hospitals which meet
its target criteria on satisfactory terms, or of the number of such acquisitions
the Company will make during a period of time. Expenses arising from the
Company's efforts to complete acquisitions, increase services offered or
increase its market penetration could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that the Company will be able to implement its growth strategy
successfully or manage its expanded operations effectively and profitably.
The Company faces competition for acquisitions primarily from other
for-profit health care companies as well as not-for-profit entities. Some of the
Company's competitors have greater financial and other resources than the
Company. Increased competition for the acquisition of non-urban acute care
hospitals could have an adverse impact on the Company's ability to acquire such
hospitals on favorable terms.
Hospital acquisitions generally require a longer period to complete than
acquisitions in many other businesses and are subject to additional uncertainty.
In recent years, the legislatures and attorneys general of several states have
shown a heightened level of interest in transactions involving the sale of
hospitals by not-for-profit entities. Although the level of interest varies from
state to state, the trend is to provide for increased governmental review, and
in some cases approval, of transactions in which not-for-profit entities sell a
health care facility. Attorneys general in certain states, including California,
where the Company owns or leases four hospitals, have been especially active in
evaluating these transactions. Although the Company has not yet been adversely
affected as a result of these trends, such increased scrutiny may increase the
difficulty or prevent the completion of transactions with not-for-profit
organizations in certain states in the future.
EFFECT OF REIMBURSEMENT AND PAYMENT POLICIES; HEALTH CARE REFORM LEGISLATION
The Company's owned and leased hospitals derive a substantial portion of
their revenue from Medicare and Medicaid programs. Such programs are highly
regulated and are subject to frequent and substantial changes. In recent years,
changes in Medicare and Medicaid programs have resulted in limitations on, and
reduced levels of, payment and reimbursement for a substantial portion of
hospital procedures and costs. Congress recently enacted the Balanced Budget Act
of 1997, which establishes a plan to balance the federal budget by fiscal year
2002, and includes significant additional reductions in spending levels for the
Medicare and Medicaid programs.
Federal and state proposals are pending that would impose further
limitations on governmental payments to health care providers such as the
Company and increase co-payments and deductibles. In addition, a number of
states are considering legislation designed to reduce their Medicaid
expenditures and to provide universal coverage and additional care and/or to
impose additional taxes on hospitals to help finance or expand the states'
Medicaid systems. Significant additional reductions in payment levels could have
a material adverse effect on the business, financial condition and results of
operations of the Company.
An increasing number of related legislative proposals have been introduced
or proposed in Congress and in some state legislatures that would effect major
changes in the health care system, either nationally or at the state level.
Among the proposals under consideration or already enacted are price controls on
hospitals, insurance market reforms to increase the availability of group health
10
<PAGE> 12
insurance coverage to small businesses, and requirements that all businesses
offer health insurance coverage to their employees. While the Company
anticipates that payments to hospitals will be reduced as a result of future
federal and state legislation, it is uncertain at this time what legislation on
health care reform may ultimately be enacted or whether other changes in the
administration or interpretation of governmental health care programs will
occur. There can be no assurance that future health care legislation or other
changes in the administration or interpretation of governmental health care
programs will not have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- Health Care
Reform, Regulation and Licensing."
CURRENT PUBLICITY
Significant media and public attention has recently been focused on the
hospital industry due to ongoing investigations reportedly related to certain
referral, cost reporting, and billing practices, laboratory and home health care
services and physician ownership and joint ventures involving hospitals. The
alleged practices have been the subject of federal and state investigations, as
well as other proceedings.
As part of its hospital operations, the Company operates laboratories and
provides some home health care services. The Company also has significant
Medicare and Medicaid billings. The Company monitors its billing practices for
compliance with applicable law, in accordance with standard industry
interpretations of such laws. However, in the current investigations,
authorities may take positions that are inconsistent with industry practices,
including the Company's. In addition, there can be no assurance that the Company
or other hospital operators will not be the subject of future investigations or
inquiries. The positions taken by authorities in the current investigations or
any future investigations of the Company or other providers could have a
material adverse effect on the Company's business, financial condition or
results of operations. See "-- Health Care Regulation" and "Business -- Health
Care Reform, Regulation and Licensing" and "-- Hospital Operations -- Regulatory
Compliance Program."
DEPENDENCE ON MANAGEMENT
The Company's success is largely dependent on the skills, experience and
efforts of its senior management. The Company's operations are also dependent on
the efforts, ability and experience of key members of its local management
staffs. The loss of services of one or more members of the Company's senior
management or of a significant portion of its local management staff could have
a material adverse effect on the Company's business, financial condition or
results of operations. The Company does not maintain key man life insurance
policies on any of its officers. See "Management."
DEPENDENCE ON PHYSICIANS
The success of the Company's owned and leased hospitals is dependent upon
the number and quality of the physicians on the medical staff of, or who admit
patients to, such facilities, the admissions practices of such physicians and
the maintenance of good relations between the Company and such physicians.
Hospital physicians are generally not employees of the Company and most staff
physicians have admitting privileges at other hospitals. Only a limited number
of physicians are interested in practicing in the non-urban communities in which
the Company's hospitals are located, and the loss of physicians in these
communities, or the inability of the Company to recruit physicians to these
communities, could have a material adverse effect on the Company's business,
financial condition and results of operations. The operations of the Company's
hospitals may also be affected by the shortage of nurses and certain other
health care professionals in these communities. See "Business -- Employees and
Medical Staff."
11
<PAGE> 13
HEALTH CARE REGULATION
The health care industry is subject to extensive federal, state and local
laws and regulations relating to issues such as licensure, conduct of
operations, ownership of facilities, addition of facilities and services, and
prices for services, that are extremely complex and for which, in many
instances, the industry has the benefit of little or no regulatory or judicial
interpretation. In particular, Medicare and Medicaid anti-kickback amendments
codified under Section 1128B(b) of the Social Security Act (the "Anti-kickback
Amendments") prohibit certain business practices and relationships that might
affect the provision and cost of health care services reimbursable under
Medicare and Medicaid, including the payment or receipt of remuneration for the
referral of patients whose care will be paid for by Medicare or other
governmental programs. Sanctions for violating the Anti-kickback Amendments
include criminal penalties and civil sanctions, including fines and possible
exclusion from government programs such as Medicare and Medicaid. Pursuant to
the Medicare and Medicaid Patient and Program Protection Act of 1987, the
Department of Health and Human Services ("HHS") has issued regulations that
describe some of the conduct and business relationships permissible under the
Anti-kickback Amendments ("Safe Harbors"). The fact that a given business
arrangement does not fall within a Safe Harbor does not render the arrangement
per se illegal. Business arrangements of health care service providers that fail
to satisfy the applicable Safe Harbor criteria, however, risk increased scrutiny
by enforcement authorities. The "Health Insurance Portability and Accountability
Act of 1996," which became effective January 1, 1997, amends, among other
things, Title XI (42.U.S.C. 1301 et seq.) to broaden the scope of certain fraud
and abuse laws to include all health care services, whether or not they are
reimbursed under a federal program. See " -- Current Publicity."
The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. No Safe Harbor for physician recruitment is currently in force. The
Company also enters into certain leases with physicians, and is a party to
certain joint ventures with physicians. The Company is also a participant in a
group purchasing joint venture. There can be no assurance that regulatory
authorities who enforce the Anti-kickback Amendments will not determine that the
Company's physician recruiting activities, other physician arrangements or group
purchasing activities violate the Anti-kickback Amendments or other federal
laws. Such a determination could subject the Company to liabilities under the
Social Security Act, including exclusion of the Company from participation in
Medicare and Medicaid. See "Business -- Health Care Reform, Regulation and
Licensing."
In addition, Section 1877 of the Social Security Act (commonly known as the
"Stark Laws"), which restricts referrals by physicians of Medicare and other
government-program patients to providers of a broad range of designated health
services with which they have ownership or certain other financial arrangements,
was amended effective January 1, 1995, to broaden significantly the scope of
prohibited physician referrals under the Medicare and Medicaid programs to
providers with which referring physicians have ownership or certain other
financial arrangements (the "Self-Referral Prohibitions"). Many states have
adopted or are considering similar legislative proposals, some of which extend
beyond the Medicaid program to prohibit the payment or receipt of remuneration
for the referral of patients and physician self-referrals regardless of the
source of the payment for the care. The Company's participation in and
development of joint ventures and other financial relationships with physicians
and others could be adversely affected by these amendments and similar state
enactments.
Both federal and state government agencies have announced heightened and
coordinated civil and criminal enforcement efforts. One federal initiative,
Operation Restore Trust, is focused on investigating health care providers in
the home health and nursing home industries as well as on medical suppliers to
these providers in 17 states, including California, Texas and Colorado, where
the Company provides home health and nursing home care. The Office of Inspector
General and Department of Justice have from time to time established enforcement
initiatives that focus on specific billing practices or other suspected areas of
abuse. Current initiatives include a focus on
12
<PAGE> 14
hospital billing for outpatient charges associated with inpatient services, as
well as hospital laboratory billing practices.
Some states require state approval for purchase, construction and expansion
of health care facilities, including findings of need for additional or expanded
health care facilities or services. Certificates of Need ("CONs"), which are
issued by governmental agencies with jurisdiction over health care facilities,
may be required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. Following a number of
years of decline, the number of states requiring CONs is on the rise. There can
be no assurances that the Company will be able to obtain required CONs.
The laws, rules and regulations described above are subject to considerable
interpretation. If a determination is made that the Company is in violation of
such laws, rules or regulations, or if further changes in the regulatory
framework occur, any such determination or changes could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Health Care Reform, Regulation and Licensing."
COMPETITION
Competition among hospitals and other health care providers in the United
States has intensified in recent years as hospital occupancy rates have declined
as a result of cost containment pressures, changing technology, changes in
government regulation and reimbursement, changes in practice patterns (e.g.,
shifting from inpatient to outpatient treatments), the impact of managed care
organizations, and other factors. The Company's hospitals face competition from
larger tertiary care centers, outpatient service providers and other local
non-urban hospitals, which provide similar services to those offered by the
Company's hospitals. Some of the hospitals that compete with the Company are
owned by governmental agencies or not-for-profit corporations supported by
endowments and charitable contributions, and can finance capital expenditures on
a tax-exempt basis. In addition, the Company faces competition for acquisitions
primarily from for-profit hospital management companies as well as
not-for-profit entities. Some of the Company's competitors are larger, may be
more established and may have more capital and other resources than the Company.
See "Business -- Competition."
NEED FOR ADDITIONAL CAPITAL; SUBSTANTIAL INDEBTEDNESS
The Company's acquisition program requires substantial capital resources.
In addition, the operations of its existing hospitals require ongoing capital
expenditures for renovation and expansion and the addition of costly medical
equipment and technology utilized in the hospitals. The Company may incur
indebtedness and may issue, from time to time, debt or equity securities to fund
any such expenditures. There can be no assurance that sufficient financing will
be available on terms satisfactory to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Business Strategy."
As of June 30, 1997, after giving effect to: (i) the Investors' purchases
in July 1997 of Junior Preferred Stock and Common Stock; (ii) Leeway & Co.'s
exercise of its warrant to purchase Common Stock; (iii) the Preferred Stock
Conversion; and (iv) the application of the net proceeds of the offering, the
Company's total long-term debt (excluding current maturities) would be $41.8
million or 58.6% of its total capitalization. The Company has a $100.0 million
line of credit with a group of banks and is presently discussing an increase of
the line of credit to $175.0 million to $200.0 million. See "Capitalization,"
"Pro Forma Condensed Consolidated Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to holders of the Common Stock, including the following: (i) the
Company's ability to obtain additional
13
<PAGE> 15
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for its operations; (iii) certain of the
Company's borrowings are at variable rates of interest, which makes the Company
vulnerable to increases in interest rates; and (iv) such indebtedness contains
numerous financial and other restrictive covenants (including restrictions on
payments of dividends, incurrences of indebtedness and sales of assets), the
failure to comply with which may result in an event of default which, if not
cured or waived, could cause such indebtedness to be declared immediately due
and payable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
CONCENTRATION OF HOSPITALS IN CALIFORNIA
Four of the Company's eight owned and leased hospitals are located in
California and, excluding Needles Desert Community Hospital in Needles,
California which was acquired in August 1997, for the six months ended June 30,
1997, 39.8% of the Company's net operating revenue was derived from its
hospitals located in California. Accordingly, the Company may be particularly
sensitive to economic, competitive and regulatory conditions in California.
California has created a voluntary health insurance purchasing cooperative
that seeks to make health care coverage more affordable for businesses with five
to fifty employees and, effective January 1, 1995, began changing the payment
system for participants in its Medicaid program in certain counties from
fee-for-service arrangements to managed care plans. While none of the Company's
hospitals are located in the counties targeted for conversion to managed care,
if the state is able to implement successfully managed care in these counties,
this initiative could be expanded throughout the state. Reduction in
reimbursement levels in California, including reductions due to the
implementation of managed care, could have a material adverse effect on the
business, financial condition and results of operations of the Company.
California recently adopted a law requiring standards and regulations to be
developed to ensure hospitals meet seismic performance standards. Within three
years after adoption of the standards by the California Building Standards
Commission, owners of subject properties are to evaluate their facilities and
develop a plan and schedule for complying with the standards. To date, the
Commission has adopted evaluation criteria but has not yet adopted the retrofit
standards. Therefore, the Company is unable, at this time, to evaluate its
facilities to determine whether the requirements will have any material adverse
effect on the Company's operations.
PROFESSIONAL LIABILITY
In recent years, physicians, hospitals and other health care providers have
become subject to an increasing number of lawsuits alleging malpractice, product
liability or related legal theories, many of which involve large claims and
significant defense costs. To cover claims arising out of the operations of
owned, leased and managed hospitals, the Company maintains professional
malpractice liability insurance and general liability insurance in amounts that
management believes to be sufficient for its operations, although some claims
may exceed the scope of the coverage in effect. The cost of malpractice and
other liability insurance has risen significantly during the past few years.
While the Company's professional and other liability insurance has been adequate
in the past to provide for liability claims, there can be no assurance that such
insurance will continue to be available for the Company to maintain adequate
levels of insurance. The Company's management contracts with its managed
hospitals generally require the hospital to indemnify the Company against
certain claims and to maintain specified amounts of insurance, however, there
can be no assurance the hospitals will maintain such insurance or that such
indemnities will be available.
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<PAGE> 16
EFFECTIVE CONTROL BY CERTAIN STOCKHOLDERS
Upon completion of the offering, the Company's officers and directors and
their affiliates as a group will beneficially own 49.3% of the outstanding
shares of Common Stock, including the 37.7% of the shares of Common Stock which
will be owned by GTCR Fund IV. As a result of such ownership, these
stockholders, if acting together, will effectively have the ability to elect the
Board of Directors and thereby control the affairs and management of the
Company. This may have the effect of delaying, deferring or preventing a change
in control of the Company. See "Principal Stockholders" and "Management."
BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS
The Company will receive net proceeds of approximately $73.0 million from
the offering (at an assumed public offering price of $14.00 per share) after
deduction of the underwriting discounts and estimated expenses of the offering.
Of this amount, $21.9 million will be used to redeem the Senior Preferred Stock,
including all accrued and unpaid dividends thereon, held by Leeway & Co., and
$14.5 million will be used to repurchase the Common Stock issued to GTCR Fund IV
and Leeway & Co. in respect of the conversion in connection with the offering of
13,636 of their shares of Junior Preferred Stock. See "Use of Proceeds" and
"Certain Relationships and Related Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations between the Company and the Representatives of the Underwriters
and may not be indicative of the market price for shares of the Common Stock
after the offering. See "Underwriting." There can be no assurance that an active
trading market will develop or be maintained or as to the price at which the
Common Stock will trade if and when such a market develops. The Company has
applied for approval and trading of the Common Stock on the Nasdaq National
Market. The market price of the Common Stock may be subject to significant
fluctuations in response to variations in the Company's operating results and
other factors, including future acquisitions or divestitures of hospitals,
market rates of interest, developments affecting the health care industry
generally, the enactment of health care reform, reductions in payment rates and
changes in governmental regulation. In addition, the stock market in recent
years has experienced price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies, and the
price of the Common Stock could be affected by such fluctuations.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. In addition, the terms of the Company's bank credit agreement prohibit
the payment of cash dividends. Any future indebtedness incurred to refinance the
Company's existing indebtedness or to fund future growth may prohibit or limit
the Company's ability to pay dividends. See "Dividend Policy."
SUBSTANTIAL DILUTION
The assumed initial public offering price of $14.00 per share will exceed
the net tangible book value per share of the Common Stock after the offering by
$12.70 per share. Purchasers of the Common Stock in the offering will experience
immediate and substantial dilution in the amount of $12.70 per share, and
present stockholders will receive a material increase in the book value of their
shares of Common Stock. See "Dilution."
15
<PAGE> 17
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
There will be 15,698,314 shares of Common Stock outstanding upon completion
of the offering (16,553,314 shares if the Underwriters over-allotment option is
exercised in full). All of the 5,700,000 shares offered in the offering will be
eligible for resale in the public market without restriction by persons other
than affiliates of the Company upon completion of the offering. All of the
remaining 9,998,314 shares of Common Stock are "restricted securities" as that
term is defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Commencing 90 days after the completion of the offering,
7,280,020 shares of Common Stock will be eligible for sale in the public market
pursuant to Rule 144. The remaining restricted shares of Common Stock will
become eligible for sale pursuant to Rule 144 thereafter. The Company, each of
its officers and directors and substantially all of the current stockholders
have agreed not to sell or otherwise dispose of any of the shares of Common
Stock owned by them in the public market for a period of 180 days after the date
of this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated. Sales of substantial amounts of the Company's Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Common Stock and could impair the
Company's ability to raise additional capital through the sale of equity
securities. See "Description of Capital Stock" and "Shares Eligible for Future
Sale."
In connection with the Recapitalization, the Company entered into a
Registration Agreement (the "Registration Agreement") which provides certain
demand and piggyback registration rights to the Company's current stockholders
who hold an aggregate of 9,998,314 shares of Common Stock, substantially all of
which shares are subject to the 180-day restrictions described above. The
registration rights are subject to certain notice requirements, timing
restrictions and volume limitations which may be imposed by the underwriters of
such offering. See "Shares Eligible for Future Sale -- Registration Agreement."
In addition, the Company expects to register the issuance of up to 1,300,000
shares of Common Stock authorized under its 1997 Long-Term Equity Incentive Plan
following the offering. See "Management -- Long-Term Equity Incentive Plan."
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<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the offering, after deducting
estimated underwriting discounts and offering expenses and assuming an initial
public offering price of $14.00 per share, are estimated to be $73.0 million
($84.1 million if the Underwriters' over-allotment option is exercised in full).
Of this amount, $36.6 million will be used to reduce the outstanding term and
revolving loan balance under the Credit Agreement, dated as of December 17,
1996, among the Company and the lenders named therein (the "Credit Agreement");
$21.9 million will be used to redeem in full the outstanding Senior Preferred
Stock and all accrued and unpaid dividends thereon; and $14.5 million will be
used to repurchase shares of Common Stock issued upon conversion of 13,636 of
the shares of the Junior Preferred Stock held by GTCR Fund IV and Leeway & Co.
See "Certain Relationships and Related Transactions." The Company continuously
seeks out appropriate acquisition candidates and is frequently engaged in
discussions regarding potential acquisitions.
Borrowings under the Credit Agreement bear interest at a floating rate,
which is calculated on the basis of the agent's prime rate, the federal funds
rate or LIBOR, plus, in each case, a margin depending upon the Company's
outstanding indebtedness. As of June 30, 1997, the effective rate was 8.5%.
Borrowings under the revolving loan portion of the Credit Agreement mature on
December 16, 1999 and borrowings under the term loan portion of the Credit
Agreement mature on December 16, 2002. The Credit Agreement was entered into in
connection with the Recapitalization.
The Senior Preferred Stock, which will be redeemed with a portion of the
proceeds of this offering, accrues dividends on a daily basis at a per annum
rate of 11.0% on the sum of the liquidation value plus accumulated and unpaid
dividends thereon ($21.9 million as of the assumed offering date of October 15,
1997). The Company would be required to redeem the Senior Preferred Stock in
full on December 17, 2005.
The Junior Preferred Stock, which will be converted to shares of Common
Stock in connection with this offering, accrues dividends on a daily basis at a
per annum rate of 8.0% on the sum of the liquidation value plus accumulated and
unpaid dividends thereon ($34.3 million as of the assumed offering date of
October 15, 1997). The Company would be required to redeem the Junior Preferred
Stock in full on December 17, 2006.
DIVIDEND POLICY
The Company currently intends to retain its earnings for use in its
business and therefore does not anticipate declaring or paying any cash
dividends in the foreseeable future. The Credit Agreement prohibits the payment
of dividends by the Company (other than dividends paid in the Company's stock).
Any future determination to declare or pay cash dividends will be made by the
Board of Directors in light of the Company's earnings, financial position,
capital requirements, credit agreements and such other factors as the Board of
Directors deems relevant at such time. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 6 of Notes to Consolidated Financial Statements.
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<PAGE> 19
CAPITALIZATION
The following table sets forth as of June 30, 1997: (i) the capitalization
of the Company; (ii) the capitalization of the Company on a pro forma basis; and
(iii) the capitalization of the Company on a pro forma as adjusted basis to
reflect the sale of the shares of Common Stock offered hereby (based on an
assumed offering price of $14.00 per share) and the application of the estimated
net proceeds therefrom all as if they occurred on June 30, 1997.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 6,016 $10,424 $10,424
======= ======= =======
Current maturities of long-term obligations............ $ 1,640 $ 1,640 $ 1,640
======= ======= =======
Long-term obligations, less current maturities(2):..... $78,436 $78,436 $41,804
Mandatory redeemable preferred stock(3):
Series A redeemable senior preferred stock, no par
value, authorized: 25,000 shares; issued and
outstanding: 20,000 shares (net of issuance and
warrant costs of $843,000 and $139,000,
respectively); 20,000 shares pro forma and no
shares pro forma as adjusted...................... 19,018 19,018 --
Series B redeemable junior preferred stock, no par
value, authorized: 50,000 shares; issued and
outstanding: 28,540 shares (net of issuance costs
of $1,218,000); no shares pro forma and pro forma
as adjusted....................................... 27,322 -- --
------- ------- -------
Total mandatory redeemable preferred stock........... 46,340 19,018 --
Common stockholders' equity (deficit):
Common stock, no par value, authorized: 20,000,000
shares; issued and outstanding: 7,280,020 shares;
$0.01 par value, authorized: 25,000,000 shares;
issued and outstanding: 11,032,728 shares pro
forma and 15,698,314 shares pro forma as
adjusted(4)....................................... 3,276 110 157
Additional paid-in capital........................... -- 36,846 94,349
Notes receivable for Common Stock.................... (391) (180) (180)
Common stock warrant................................. 139 -- --
Retained earnings (deficit).......................... (63,332) (64,811) (64,811)
------- ------- -------
Total common stockholders' equity (deficit)....... (60,308) (28,035) 29,515
------- ------- -------
Total capitalization......................... $64,468 $69,419 $71,319
======= ======= =======
</TABLE>
- ---------------
(1) Gives effect to: (i) the Investors' purchases in July 1997 of an aggregate
of 3,755 shares of Junior Preferred Stock and 958,225 shares of Common Stock
for an aggregate purchase price of $4.2 million; (ii) the payment in July
1997 of $211,200 on the note receivable for Common Stock; (iii) Leeway &
Co.'s exercise in August 1997 of its warrant to purchase 343,265 shares of
Common Stock; (iv) the conversion from no par value to $0.01 par value
Common Stock in connection with the Reincorporation; and (v) the Preferred
Stock Conversion.
(2) For information regarding the Company's long-term obligations, see Note 6 of
Notes to Consolidated Financial Statements.
(3) For information regarding the Company's mandatory redeemable preferred
stock, see Note 7 of Notes to Consolidated Financial Statements.
(4) Excludes 385,765 shares of Common Stock issuable upon exercise of
outstanding stock options with a weighted average exercise price of $3.38
per share. See "Management -- Long-Term Equity Incentive Plan" and Notes 8
and 17 of Notes to Consolidated Financial Statements.
18
<PAGE> 20
DILUTION
The net tangible book value (deficit) of the Company at June 30, 1997 was
$(69.4 million), or $(9.54) per share of Common Stock. Net tangible book value
(deficit) per share of Common Stock represents the amount of total assets less
total liabilities, mandatory redeemable preferred stock, minority interests and
intangible assets, divided by the number of shares of Common Stock outstanding
at June 30, 1997. After giving effect to: (i) the sale in July 1997 of 3,755
shares of Junior Preferred Stock and 958,225 shares of Common Stock; (ii) Leeway
& Co.'s exercise in August 1997 of its warrant to purchase 343,265 shares of
Common Stock; (iii) the Preferred Stock Conversion; and (iv) the sale by the
Company of the 5,700,000 shares of Common Stock offered hereby (at an assumed
initial public offering price of $14.00 per share) and the application of the
net proceeds as set forth under "Use of Proceeds," the pro forma net tangible
book value of the Company at June 30, 1997 would have been $20.4 million, or
$1.30 per share of Common Stock. This represents an immediate increase in net
tangible book value of $10.84 per common share to existing stockholders and an
immediate dilution of $12.70 per common share to investors purchasing Common
Stock in the offering, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $14.00
------
Net tangible book value (deficit) per common share prior
to the offering(1)..................................... $(9.54)
Increase per common share attributable to new investors... 10.84
------
Pro forma net tangible book value per common share after the
offering.................................................. 1.30
------
Dilution per common share to new investors(2)............... $12.70
======
</TABLE>
The following table summarizes certain differences between the existing
stockholders and the new investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and new investors
(based on an assumed initial public offering price of $14.00 per share), in each
case on a pro forma basis after giving effect to: (i) the sale in July 1997 of
3,755 shares of Junior Preferred Stock and 958,225 shares of Common Stock; (ii)
the payment in July 1997 of $211,200 on the note receivable for Common Stock;
(iii) Leeway & Co.'s exercise in August 1997 of its warrant to purchase 343,265
shares of Common Stock; (iv) the conversion from no par value to $0.01 par value
Common Stock in connection with the Reincorporation; (v) the Preferred Stock
Conversion; and (vi) the sale of the shares of Common Stock in the offering and
the application of the estimated net proceeds thereof to the redemption of
Senior Preferred Stock, the repurchase of certain shares of Common Stock and the
repayment of debt, as described in "Use of Proceeds".
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing investors(1)............... 9,998,314 63.7% $ 23,692,593 22.9% $ 2.37
New investors....................... 5,700,000 36.3 79,800,000 77.1 $14.00
---------- ----- ------------ -----
Total..................... 15,698,314 100.0% $103,492,593 100.0%
========== ===== ============ =====
</TABLE>
- ---------------
(1) Excludes common shares issuable upon the exercise of outstanding options to
purchase 385,765 shares of Common Stock pursuant to the Company's 1997
Long-Term Equity Incentive Plan at a weighted average exercise price of
$3.38 per share.
(2) Dilution is determined by subtracting pro forma net tangible book value per
common share after giving effect to this offering from the initial public
offering price per share. Dilution to new investors will be $12.04 if the
Underwriters' over-allotment option is exercised in full.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company: (i) as of and for each of the five fiscal years ended December 31,
1996, which information has been derived from the audited consolidated financial
statements of the Company; and (ii) as of and for the six-month periods ended
June 30, 1996 and 1997, which information has been derived from consolidated
financial statements of the Company which are unaudited but which, in the
opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments necessary
(consisting of normal recurring adjustments) for a fair presentation of the
results for such periods. The selected consolidated financial data are qualified
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:(1)
Net operating revenue.................... $69,245 $84,859 $102,067 $101,214 $129,855 $58,290 $ 80,861
Operating expenses(2).................... 62,600 77,046 91,559 92,173 120,644 50,017 66,226
Rentals and leases....................... 2,492 2,735 3,781 4,133 5,232 2,556 2,881
Depreciation and amortization............ 934 1,310 1,530 1,771 2,813 893 2,492
Interest expense......................... 969 896 760 589 2,523 847 3,941
Costs of recapitalization................ -- -- -- -- 11,570 -- --
Loss (gain) on sale of assets............ (7) (10) (635) (2,814) 442 106 (159)
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing operations
before provision for income taxes...... 2,257 2,882 5,072 5,362 (13,369) 3,871 5,480
Provision (benefit) for income taxes..... 1,021 1,731 2,097 1,953 (4,464) 1,846 2,081
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing
operations............................. 1,236 1,151 2,975 3,409 (8,905) 2,025 3,399
Income (loss) from discontinued
operations, less applicable
income taxes........................... 496 593 (157) (264) 6,015 182 --
------- ------- -------- -------- -------- ------- --------
Income (loss) before cumulative effect of
change in accounting for income
taxes.................................. 1,732 1,744 2,818 3,145 (2,890) 2,207 3,399
Cumulative effect of change in accounting
for income taxes....................... -- 1,141 -- -- -- -- --
------- ------- -------- -------- -------- ------- --------
Net income (loss)........................ $ 1,732 $ 2,885 $ 2,818 $ 3,145 (2,890) 2,207 3,399
======= ======= ======== ========
Preferred stock dividends and
accretion.............................. ....... (172) -- (2,384)
-------- ------- --------
Net income (loss) per share applicable to
common shareholders.................... $ (3,062) $ 2,207 $ 1,015
======== ======= ========
Pro forma net income (loss) per share
applicable to common shareholders(3):
Income (loss) from continuing
operations............................. $ (1.03) $ 0.23 $ 0.11
Income from discontinued operations...... 0.68 0.02 --
-------- ------- --------
Net income (loss) applicable to common
shareholders........................... $ (0.35) $ 0.25 $ 0.11
======== ======= ========
Pro forma shares used in computing net
income (loss) per share applicable to
common shareholders(3)................. 8,843 8,843 8,843
Cash dividends declared per common
share.................................. -- -- -- -- -- -- --
OTHER DATA:(1)
EBITDAR(4)............................... $ 6,645 $ 7,813 $ 10,508 $ 9,041 $ 11,311 $ 8,273 $ 14,635
EBITDAR margin(5)........................ 9.6% 9.2% 10.3% 8.9% 8.7% 14.2% 18.1%
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Cash and cash equivalents................ $ 538 $ 2,477 $ 1,819 $ 2,287 $ 11,256 $ 3,390 $ 6,016
Total assets............................. 29,512 42,895 46,057 47,075 94,025 53,154 96,853
Long-term obligations, less current
maturities............................. 4,587 8,972 6,892 5,519 76,633 5,045 78,436
Mandatory redeemable preferred stock..... -- 8,816 8,816 8,816 46,227 8,816 46,340
Common stockholders' equity (deficit).... 6,514 9,305 11,640 14,666 (61,323) 26,700 (60,308)
</TABLE>
- ---------------
(1) The Company's financial statements for the periods presented are not
strictly comparable due to the significant effect that acquisitions,
divestitures and the Recapitalization have had on such statements. See Notes
3 and 4 of Notes to Consolidated Financial Statements.
(2) Includes an increase in insurance expense in the second half of 1996 due to
a change in estimate of $2.1 million.
(3) Pro forma net income (loss) per share applicable to common shareholders is
computed using the weighted average number of shares of Common Stock
outstanding during the period, including dilutive common equivalent shares
from stock options and warrants (using the treasury stock method). The
7,280,020 common shares issued in the Recapitalization and the Merger in
December 1996 have been included in the pro forma calculation as if the
Recapitalization and the Merger had occurred as of the first day of 1996.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all other Common Stock issued, and Common Stock options and
warrants granted, by the Company at prices below the initial public offering
price during the twelve-month period prior to the initial public offering
have been included in the calculation as if they were outstanding for the
full fiscal year (using the treasury stock method). Historical net income
(loss) per share has not been presented since the historical capitalization
of the Company is not meaningful due to the significant change in the
capital structure of the Company resulting from the Recapitalization.
(4) "EBITDAR" is defined to mean earnings before interest, taxes, depreciation,
amortization, rentals and leases, cumulative effect of change in accounting
method, costs of Recapitalization, loss (gain) on sale of assets, and income
(loss) from discontinued operations, net of taxes. EBITDAR has been adjusted
in 1996 to exclude the increase in insurance expense due to a change in
estimate of $2.1 million. The Company has included EBITDAR data because such
data are one measure in determining the enterprise value of the Company.
EBITDAR is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net
income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity.
(5) EBITDAR margin represents EBITDAR divided by net operating revenue.
21
<PAGE> 23
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On February 1, 1996, the Company acquired Parkview Regional Hospital from
Parkview Regional Hospital, Inc. (a not-for-profit organization). On July 26,
1996, the Company acquired Memorial Mother Frances Hospital from Memorial
Hospital Foundation of Palestine, Inc. On November 1, 1996, the Company acquired
Starke Memorial Hospital from Starke County, Indiana.
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1997 gives effect to: (i) the sale in July 1997 of 3,755 shares of
Junior Preferred Stock and 958,225 shares of Common Stock; (ii) the payment in
July 1997 of $211,200 on the note receivable for Common Stock; (iii) Leeway &
Co.'s exercise in August 1997 of its warrant to purchase 343,265 shares of
Common Stock; (iv) the conversion from no par value to $0.01 par value Common
Stock in connection with the Reincorporation; (v) the Preferred Stock
Conversion; and (vi) the sale of the Common Stock in the offering and the
application of the estimated net proceeds thereof to the repurchase of certain
shares of Common Stock, the redemption of Senior Preferred Stock and the
repayment of debt, as described in "Use of Proceeds," as if all such
transactions had been completed as of June 30, 1997 and assuming an initial
public offering price of $14.00 per share.
The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1996 and the six months ended June 30, 1997, give
effect to: (i) the operating results of the 1996 Acquired Hospitals for periods
prior to their acquisition; (ii) the sale in July 1997 of 3,755 shares of Junior
Preferred Stock and 958,225 shares of Common Stock; (iii) Leeway & Co.'s
exercise in August 1997 of its warrant to purchase 343,265 shares of Common
Stock; (iv) the Preferred Stock Conversion; and (v) the sale of the Common Stock
in the offering and the application of the estimated net proceeds thereof to the
repurchase of certain shares of Common Stock, the redemption of Senior Preferred
Stock and the repayment of debt, as described in "Use of Proceeds," as if all
such transactions had been completed as of January 1, 1996 and assuming an
initial public offering price of $14.00 per share.
The pro forma condensed consolidated financial information presented herein
does not purport to represent what the Company's results of operations or
financial position would have been had such transactions in fact occurred at the
beginning of the periods presented or to project the Company's results of
operations in any future period. The pro forma result of operations, which do
not take into account certain operational changes instituted by the Company upon
acquisition of its hospitals, are not necessarily indicative of the results that
may be expected from such hospitals. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the audited
financial statements, including the notes thereto, included elsewhere in this
Prospectus.
22
<PAGE> 24
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-OFFERING OFFERING
PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(1) ADJUSTMENTS(2) CONSOLIDATED
---------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................... $ 6,016 $ 4,182(a) $ 73,014(g)
211(b) (14,482)(h)
15(c) (21,900)(i)
(36,632)(j) $ 10,424
Accounts receivable, less allowance for doubtful
accounts........................................ 28,292 28,292
Other current assets.............................. 10,477 10,477
-------- ------- -------- --------
Total current assets....................... 44,785 4,408 -- 49,193
Property, plant and equipment, net.................. 39,066 39,066
Unallocated purchase price.......................... 6,822 6,822
Other assets........................................ 6,180 6,180
-------- ------- -------- --------
Total assets............................... $ 96,853 $ 4,408 $ -- $101,261
======== ======= ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................. $ 7,982 $ 7,982
Accrued salaries and benefits..................... 5,085 5,085
Accrued expenses.................................. 5,451 5,451
Current maturities of long-term obligations....... 1,640 1,640
-------- ------- -------- --------
Total current liabilities.................. 20,158 -- -- 20,158
Long-term obligations, less current maturities...... 78,436 $(36,632)(j) 41,804
Third-party settlements............................. 5,984 5,984
Other liabilities................................... 6,243 $ 1,479(d) (1,900)(i)
(2,022)(e) 3,800
-------- ------- -------- --------
90,663 (543) (38,532) 51,588
Mandatory redeemable preferred stock................
Senior preferred stock.......................... 19,018 (19,018)(i) --
Junior preferred stock.......................... 27,322 3,755(a)
(31,077)(e) --
-------- ------- -------- --------
46,340 (27,322) (19,018) --
Common stockholders' equity (deficit)
Common stock...................................... 3,276 427(a) 57(g)
154(c) (10)(h)
(3,772)(f)
25(e) 157
Additional paid-in-capital........................ -- 3,772(f) 72,957(g)
33,074(e) (14,472)(h)
(982)(i) 94,349
Notes receivable for common stock................. (391) 211(b) (180)
Common stock warrant.............................. 139 (139)(c) --
Retained earnings (deficit)....................... (63,332) (1,479)(d) (64,811)
-------- ------- -------- --------
(60,308) 32,273 57,550 29,515
-------- ------- -------- --------
$ 96,853 $ 4,408 $ -- $101,261
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
- ---------------
(1) Reflects the effects of equity transactions occurring prior to or
simultaneously with the closing of the sale of Common Stock in the offering.
(2) Reflects the effects of the sale of the Common Stock in the offering and the
application of the estimated net proceeds thereof.
23
<PAGE> 25
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Reflects the sale in July 1997 of 3,755 shares of Junior Preferred
Stock and 958,225 shares of Common Stock for cash proceeds of $4,182
as follows:
Common Stock....................................... $ 427
Junior Preferred Stock............................. 3,755
--------
Cash proceeds...................................... $ 4,182
========
(b) Reflects the payment in July 1997 of $211 on the notes receivable for
Common Stock.
(c) Reflects Leeway & Co.'s exercise in August 1997 of its warrant to
purchase 343,265 shares of Common Stock for cash proceeds of $15 as
follows:
Common Stock....................................... $ 154
Common Stock warrant............................... (139)
--------
Cash proceeds...................................... $ 15
========
(d) Reflects the accrual of $1,479 of dividends on the Senior Preferred
Stock and Junior Preferred Stock for the period from July 1, 1997 to
the anticipated closing date of the offering.
(e) Reflects the conversion of 32,295 shares of Junior Preferred Stock
with a liquidation value of $32,295 net of issuance costs of $1,218
and estimated accumulated and unpaid dividends of $2,022 into
2,451,218 shares of Common Stock as follows (at an assumed offering
price of $14.00 per share):
Accumulated and unpaid dividends................... $ (2,022)
Junior Preferred Stock............................. (31,077)
Common Stock....................................... 25
Additional paid-in-capital......................... 33,074
--------
$ --
========
(f) Reflects the reclassification of $3,772 from Common Stock to
additional paid-in-capital upon conversion from no par to $0.01 par
value Common Stock in connection with the Reincorporation.
(g) Reflects the sale of 5,700,000 shares of Common Stock in the offering
at an assumed offering price of $14.00 per share, for net proceeds of
$73,014 as follows:
Common Stock....................................... $ 57
Additional paid-in-capital......................... 72,957
--------
Cash proceeds...................................... $ 73,014
========
(h) Reflects the repurchase of 1,034,414 shares of Common Stock issued
with respect to the conversion of 13,636 of the shares of Junior
Preferred Stock held by GTCR Fund IV and Leeway & Co. using offering
proceeds of $14,482 as follows:
Common Stock....................................... $ (10)
Additional paid-in-capital......................... (14,472)
--------
Cash disbursed..................................... $(14,482)
========
(i) Reflects the redemption of 20,000 shares of Senior Preferred Stock
with a liquidation value of $20,000 net of issuance and warrant costs
of $982 and the payment of estimated accumulated and unpaid dividends
of $1,900 using offering proceeds of $21,900 as follows:
Accumulated and unpaid dividends................... $ (1,900)
Senior Preferred Stock............................. (19,018)
Additional paid-in-capital......................... (982)
--------
Cash disbursed..................................... $(21,900)
========
(j) Reflects the application of the remaining proceeds from the offering
of $36,632 for the repayment of long-term obligations.
</TABLE>
24
<PAGE> 26
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
--------------------- -----------------------
1996 1996
ACQUIRED ACQUIRED PRO FORMA
COMPANY HOSPITALS HOSPITALS OFFERING CONSOLIDATED
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net operating revenue............ $ 129,855 $ 23,281 $153,136
Operating expenses............... 120,644 23,008 143,652
Rentals and leases............... 5,232 5,232
Depreciation and amortization.... 2,813 $ (375)(a) 2,438
Interest expense................. 2,523 3,031 (44)(b) $(121)(d) 5,389
Costs of recapitalization........ 11,570 11,570
Loss on sale of assets........... 442 442
--------- -------- ------- ----- --------
Loss from continuing operations
before income taxes............ (13,369) (2,758) 419 121 (15,587)
Income tax benefit............... (4,464) -- (912)(c) 48(c) (5,328)
--------- -------- ------- ----- --------
Loss from continuing
operations..................... (8,905) (2,758) 1,331 73 (10,259)
--------- -------- ------- ----- --------
Preferred stock dividends and
accretion...................... (172) -- 172(e) --
--------- -------- ------- ----- --------
Loss from continuing operations
applicable to common shares.... $ (9,077) $ (2,758) $ 1,331 $ 245 $(10,259)
========= ======== ======= ===== ========
Loss per common share:
Primary and fully diluted...... $ (0.64)
========
Weighted average shares used in
earnings per share computation:
Primary and fully diluted...... 15,959
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
25
<PAGE> 27
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Net operating revenue................................ $80,861 $80,861
Operating expenses................................... 66,226 66,226
Rentals and leases................................... 2,881 2,881
Depreciation and amortization........................ 2,492 2,492
Interest expense..................................... 3,941 $(1,482)(d) 2,459
Gain on sale of assets............................... (159) (159)
------- ------- -------
Income from continuing operations before income
taxes.............................................. 5,480 1,482 6,962
Provision for income taxes........................... 2,081 578(c) 2,659
------- ------- -------
Income from continuing operations.................... 3,399 904 4,303
------- ------- -------
Preferred stock dividends and accretion.............. (2,384) 2,384(e) --
------- ------- -------
Income from continuing operations applicable to
common shares...................................... $ 1,015 $ 3,288 $ 4,303
======= ======= =======
Income per common share:
Primary and fully diluted.......................... $ 0.27
=======
Weighted average shares used in earnings per share
computation:
Primary and fully diluted.......................... 15,959
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
26
<PAGE> 28
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
- ---------------
(a) Reflects the elimination of the historical depreciation expense of the 1996
Acquired Hospitals and the inclusion of the Company's depreciation expense.
(b) Reflects the elimination of the historical interest expense related to debt
of the 1996 Acquired Hospitals not assumed in the acquisitions, and the
inclusion of the Company's interest expense related to debt used to finance
the acquisitions.
(c) Reflects the inclusion of income tax expense (benefit) based on the combined
federal and state statutory rate of 39% applied to adjusted pre-tax income
or loss.
(d) Reflects the elimination of the interest expense associated with the $36,632
of long-term obligations to be repaid with the net proceeds of the offering.
(e) Reflects the elimination of the dividends and the accretion of issuance
costs on the Senior Preferred Stock to be redeemed with a portion of the net
proceeds of the offering and Junior Preferred Stock to be converted into
Common Stock in connection with the offering.
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus.
OVERVIEW
Province Healthcare Company is a health care services company focused on
acquiring and operating hospitals in attractive non-urban markets in the United
States. The Company currently operates eight general acute care hospitals in
four states with a total of 570 licensed beds, and manages 50 hospitals in 17
states with a total of 3,448 licensed beds.
Prior to the Recapitalization and the Merger with PHC, the Company operated
under the name Brim, Inc. The current operations of the Company include certain
Brim operations and all of the operations of PHC. Prior to the Recapitalization,
Brim operated primarily through two divisions: the Health Care Group, which
primarily managed and leased hospitals, and the Senior Living Group, which was
responsible for Brim's assisted living facilities. In February 1996, Brim
acquired Parkview Regional Hospital in Mexia, Texas ("Parkview"). PHC was
founded in February 1996 by GTCR Fund IV and Martin S. Rash to acquire and
operate hospitals in attractive non-urban markets. PHC acquired its first
hospital, Memorial Mother Frances Hospital in Palestine, Texas ("Memorial Mother
Frances"), in July 1996 and acquired another hospital, Starke Memorial Hospital
in Knox, Indiana ("Starke Memorial"), in October 1996. In December 1996, Brim
sold its Senior Living Group and Brim was recapitalized. The operations of Brim
and PHC were subsequently combined in the Merger. See "The Recapitalization and
The Merger."
An integral part of the Company's strategy is to acquire non-urban acute
care hospitals. See "Business -- Business Strategy." Because of the financial
impact of the Company's recent acquisitions and divestitures, it is difficult to
make meaningful comparisons between the Company's financial statements for the
fiscal periods presented. In addition, due to the relatively small number of
owned and leased hospitals, each hospital acquisition can materially affect the
overall operating margin of the Company. Upon the acquisition of a hospital, the
Company typically takes a number of steps to lower operating costs. See
"Business -- Hospital Operations." The impact of such actions may be offset by
cost increases to expand services, strengthen medical staff and improve market
position. The benefits of these investments and of other activities to improve
operating margins generally do not occur immediately. Consequently, the
financial performance of a newly-acquired hospital may adversely affect overall
operating margins in the near term. As the Company makes additional hospital
acquisitions, the Company expects that this effect will be mitigated by the
expanded financial base of existing hospitals and the allocation of corporate
overhead among a larger number of hospitals.
RECAPITALIZATION AND MERGER
In December 1996, Brim was recapitalized. Pursuant to the Recapitalization:
(i) each of the Investors purchased shares of the Common Stock and Junior
Preferred Stock; (ii) Leeway & Co. also purchased shares of Senior Preferred
Stock and a warrant to purchase additional shares of Common Stock; (iii) the
Company's current Board of Directors and senior management were elected; (iv)
Brim repaid its existing indebtedness and entered into the Credit Agreement; and
(v) the Company redeemed stock held by the Redeemed Stockholders and settled
outstanding Brim stock options. In connection with the Recapitalization, an
aggregate of $11.6 million was charged to operations, consisting of $8.0 million
paid to settle Brim stock options, $2.2 million of severance payments, and $1.4
million of transaction-related costs (principally professional fees). See "The
Recapitalization and The Merger."
Following the Recapitalization, a subsidiary of Brim was merged into PHC,
such that PHC became a subsidiary of the Company. Pursuant to the Merger, the
stockholders of PHC received an
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<PAGE> 30
aggregate of 14,403 shares of Junior Preferred Stock and 3,738,556 shares of
Common Stock, and PHC's existing indebtedness of $19.6 million was repaid.
ACQUISITIONS AND DIVESTITURES
In February 1995, Brim acquired two senior living residences for $15.8
million. In September 1995, Brim sold the real property of the two facilities
and leased them back under an operating lease agreement for a minimum lease term
of 15 years. In May 1995, Brim sold Fifth Avenue Hospital, located in Seattle,
Washington, for $6.0 million and recorded a pre-tax gain on this transaction of
$2.5 million. In February 1996, Brim acquired Parkview by entering into a
15-year operating lease agreement with two five-year renewal terms, and by
purchasing certain assets and assuming certain liabilities for a purchase price
of $1.8 million.
In July 1996, PHC purchased certain assets and assumed certain liabilities
of Memorial Mother Frances for a purchase price of $23.2 million in a
transaction resulting in PHC owning 95.0% of the hospital. In October 1996, PHC
acquired Starke Memorial by assuming certain liabilities and entering into a
capital lease agreement, and by purchasing certain net assets for a purchase
price of $7.7 million.
In August 1997, the Company acquired Needles Desert Community Hospital
("Needles") by assuming certain liabilities and entering into an operating lease
agreement, and by purchasing certain net assets for a purchase price of $1.3
million.
All of the foregoing acquisitions were accounted for as purchases.
DISCONTINUED OPERATIONS
During the past three years, Brim discontinued certain operations. In May
1995, Brim discontinued its business of providing managed care administration
and practice management services to physician groups, reporting an after-tax
loss of $0.7 million on the disposal. In September 1995, Brim disposed of its
stand-alone business of providing surgery on an outpatient basis for a loss of
$0.4 million, net of taxes. In December 1996, immediately prior to the
Recapitalization, Brim sold its senior living business for a gain of $5.5
million, net of taxes. The net results of operations of these businesses are
included in "Discontinued Operations" in the 1994, 1995 and 1996 consolidated
financial statements.
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<PAGE> 31
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from the consolidated statements of operations of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net patient service revenue................... 76.5% 75.0% 80.3% 74.5% 86.1%
Management and professional services
revenue..................................... 15.7 19.3 14.6 16.5 10.4
Other revenue................................. 7.8 5.7 5.1 9.0 3.5
----- ----- ----- ----- -----
Net operating revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and benefits................ 52.6 54.6 50.6 49.4 41.8
Purchased services.......................... 16.5 14.2 15.0 14.6 12.8
Supplies.................................... 10.8 10.0 10.1 9.0 9.7
Provision for doubtful accounts............. 5.0 4.5 7.4 4.8 7.3
Other operating expenses.................... 4.8 7.6 9.8 8.0 10.4
Rentals and leases.......................... 3.7 4.1 4.0 4.4 3.6
Depreciation and amortization............... 1.5 1.7 2.2 1.5 3.1
Interest expense............................ 0.7 0.6 1.9 1.5 4.9
Costs of recapitalization................... -- -- 8.9 -- --
Loss (gain) on sale of assets............... (0.6) (2.8) 0.3 0.2 (0.2)
----- ----- ----- ----- -----
Income (loss) from continuing operations
before provision for income taxes........... 5.0% 5.3% (10.3)% 6.6% 6.8%
Income (loss) from continuing operations...... 2.9% 3.4% (6.9)% 3.5% 4.2%
Net income (loss)............................. 2.8% 3.1% (2.2)% 3.8% 4.2%
</TABLE>
Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The percentage of revenues received from the Medicare
program is expected to increase due to the general aging of the population. The
payment rates under the Medicare program for inpatients are based on a
prospective payment system ("PPS"), based upon the diagnosis of a patient. While
these rates are indexed for inflation annually, the increases have historically
been less than actual inflation. In addition, states, insurance companies and
employers are actively negotiating the amounts paid to hospitals as opposed to
their standard rates. The trend toward managed care, including health
maintenance organizations, preferred provider organizations and various other
forms of managed care, may affect the hospitals' ability to maintain their
current rate of net revenue growth.
Net operating revenue is comprised of: (i) net patient service revenue from
the Company's owned and leased hospitals; (ii) management and professional
services revenue; and (iii) other revenue.
Net patient service revenue for the owned and leased hospitals is reported
net of contractual adjustments and policy discounts of $52.1 million, $57.4 and
$77.0 million for the years ended December 31, 1994, 1995 and 1996,
respectively; and $32.9 million and $51.5 million for the six months ended June
30, 1996 and 1997, respectively. The adjustments principally result from
differences between the hospitals' customary charges and payment rates under the
Medicare and Medicaid programs. Customary charges have generally increased at a
faster rate than the rate of increase for Medicare and Medicaid payments.
Operating expenses of the hospitals primarily consist of salaries and benefits,
purchased services, supplies, provision for doubtful accounts and other
operating expenses (principally consisting of utilities, insurance, property
taxes, travel, freight, postage, telephone, advertising, repairs and
maintenance).
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<PAGE> 32
Management and professional services revenue is comprised of fees from
management and professional consulting services provided to third-party
hospitals pursuant to management contracts and consulting arrangements, plus
reimbursable expenses. Operating expenses for the management and professional
services business primarily consist of salaries and benefits and reimbursable
expenses.
Other revenue includes interest income and other miscellaneous revenue.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net operating revenue was $80.9 million in 1997, compared to $58.3 million
in 1996, an increase of $22.6 million, or 38.8%.
Net patient service revenue totaled $69.6 million in 1997, compared to
$43.4 million in 1996, an increase of $26.2 million, or 60.4%. This increase is
principally the result of the 1996 Acquisitions. Memorial Mother Frances and
Starke Memorial net patient revenue for 1997 totaled $22.1 million. The 1996
results reflect five months operations of Parkview, while the 1997 results
reflect six months. This accounts for $0.9 million of the increase. The
remaining $3.2 million increase is attributable to increased patient volumes,
new patient services and increased customary charges at the Company's four other
hospitals. On a same hospital basis, net patient service revenue increased by
5.6% to $41.9 million.
Management and professional services revenue totaled $8.4 million in 1997,
compared to $9.6 million in 1996, a decrease of $1.2 million, or 12.5%. This
decrease results primarily from rebilled salaries ($1.0 million in 1996). The
remaining decrease of $0.2 million results from a decline in consulting fees at
the managed hospitals.
Other revenue totaled $2.9 million in 1997, compared to $5.3 million in
1996, a decrease of $2.4 million, or 45.3%. Of this decrease, $1.0 million
relates to a fee received in 1996 in connection with a failed merger. The
remaining $1.4 million decrease relates to a decline in miscellaneous other
revenues.
Salaries, wages and benefits totaled $33.8 million in 1997, compared to
$28.8 million in 1996, an increase of $5.0 million, or 17.4%. The 1996
Acquisitions resulted in an increase of $8.0 million. This increase was
partially offset by a reduction in the number of employees, which resulted in a
decrease of $3.0 million.
Purchased services expense totaled $10.3 million in 1997, compared to $8.5
million in 1996, an increase of $1.8 million, or 21.2%. The 1996 Acquisitions
resulted in an increase of $2.8 million. This increase was partially offset by a
reduction of $1.0 million in expense on a same hospital basis.
Supplies expense totaled $7.8 million in 1997 compared to $5.3 million in
1996, an increase of $2.5 million, or 47.2%. The 1996 Acquisitions resulted in
an increase of $2.3 million. The remaining $0.2 million relates to an increase
in patient volumes in 1997.
Provision for doubtful accounts totaled $5.9 million in 1997, compared to
$2.8 million in 1996, an increase of $3.1 million, or 110.7%. The 1996
Acquisitions resulted in an increase of $2.6 million. The provision increased
$0.9 million on a same hospital basis. The provision at the management company
decreased $0.5 million as a result of recoveries in 1997 on previously written
off accounts.
Other operating expenses totaled $8.4 million in 1997, compared to $4.7
million in 1996, an increase of $3.7 million, or 78.7%. The 1996 Acquisitions
resulted in an increase of $2.5 million. On a same hospital basis, other
operating expenses increased $0.3 million in correlation to the increased net
patient services revenue at these hospitals. The remaining increase of $0.9
million relates to increased acquisition activity and increased corporate
operations expenses.
EBITDAR totaled $14.6 million in 1997, compared to $8.3 million in 1996, an
increase of $6.3 million, or 75.9%. While EBITDAR should not be considered in
isolation or construed as a substitute for net income or a better indicator of
liquidity than cash flow from operating activities, which are
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<PAGE> 33
determined in accordance with generally accepted accounting principles, it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements.
Rentals and leases totaled $2.9 million in 1997, compared to $2.6 million
in 1996, an increase of $0.3 million, or 11.5%. The 1996 Acquisitions resulted
in an increase of $0.2 million. The remaining $0.1 million increase relates to
increases on a same hospital basis.
Depreciation and amortization totaled $2.5 million in 1997, compared to
$0.9 million in 1996, an increase of $1.6 million, or 177.8%. The 1996
Acquisitions resulted in an increase of $1.4 million. The remaining $0.2 million
increase relates to increases as a result of increases in property, plant and
equipment on a same hospital basis.
Interest expense totaled $3.9 million in 1997, compared to $0.8 million in
1996, an increase of $3.1 million, or 387.5%. This increase resulted primarily
from $72.0 million of new bank debt incurred in connection with the
Recapitalization.
The Company recorded a gain on sale of assets of $0.2 million in 1997,
compared to a loss of $0.1 million in 1996. The gain in 1997 relates primarily
to the sale of the remaining assets of Fifth Avenue Hospital. The loss in 1996
related to the sale of assets in the normal course of business.
The net result of the above was that the Company recorded net income from
operations of $3.4 million for the six months ended June 30, 1997, compared to
$2.2 million in 1996, an increase of $1.2 million, or 54.5%.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net operating revenue was $129.9 million in 1996, compared to $101.2
million in 1995, an increase of $28.7 million, or 28.4%.
Net patient service revenue totaled $104.3 million in 1996, compared to
$75.9 million in 1995, an increase of $28.4 million, or 37.4%. This increase is
principally the result of the 1996 Acquisitions which provide combined 1996 net
patient service revenue of $22.3 million. The 1996 amounts include eleven months
of revenue for Parkview, five months of revenue for Memorial Mother Frances, and
three months of revenue for Starke Memorial. The remaining $6.1 million increase
is attributable to increased patient volumes, new patient services and increased
customary charges at the Company's four other hospitals. On a same hospital
basis, net patient service revenue increased by 7.1% to $79.4 million.
Management and professional services revenue totaled $18.9 million in 1996,
compared to $19.6 million in 1995, a decrease of $0.7 million, or 3.6%. The
decrease is principally the result of a decline in consulting fees at the
managed hospitals.
Other revenue totaled $6.6 million in 1996, compared to $5.8 million in
1995, an increase of $0.8 million, or 13.8%. This increase is principally
attributable to a $1.0 million fee received in 1996 relating to a failed merger.
Salaries, wages and benefits expenses totaled $65.7 million in 1996,
compared to $55.3 million in 1995, an increase of $10.4 million, or 18.8%. The
1996 Acquisitions accounted for $8.9 million of this increase. Salaries, wages
and benefits increased $1.5 million on a same hospital basis, primarily as a
result of increases in rates of pay.
Purchased services expense totaled $19.5 million in 1996, compared to $14.4
million in 1995, an increase of $5.1 million, or 35.4%. The 1996 Acquisitions
accounted for $4.2 million of this increase. Also, purchased services increased
$0.9 million on a same hospital basis, primarily as a result of increased
professional fees at the corporate level related to merger and acquisition
activity and increased use of contract labor.
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<PAGE> 34
Supplies expense totaled $13.1 million in 1996, compared to $10.1 million
in 1995, an increase of $3.0 million, or 29.7%. The 1996 Acquisitions accounted
for $2.7 million of this increase. The remaining $0.3 million increase was due
to increased patient volumes and new patient services.
Provision for doubtful accounts totaled $9.6 million in 1996, compared to
$4.6 million in 1995, an increase of $5.0 million, or 108.7%. The 1996
Acquisitions accounted for $2.4 million of this increase. The provision
increased $2.6 million on a same hospital basis.
Other operating expenses totaled $12.8 million in 1996, compared to $7.7
million in 1995, an increase of $5.1 million, or 66.2%. The 1996 Acquisitions
accounted for $1.3 million of this increase. Insurance expense increased $2.1
million. The remaining increase of $1.7 million resulted from increased costs on
a same hospital basis, in correlation to the increased net patient services
revenue at these hospitals, and increased acquisition activity.
EBITDAR, as adjusted to exclude the increase in insurance expense in 1996
due to a change in estimate of $2.1 million, totaled $11.3 million in 1996,
compared to $9.0 million in 1995, an increase of $2.3 million, or 25.6%. This
increase relates principally to increased patient service revenue.
Rentals and leases totaled $5.2 million in 1996, compared to $4.1 million
in 1995, an increase of $1.1 million, or 26.8%. Of this increase, $0.5 million
resulted from the 1996 Acquisitions. The remaining increase resulted from
scheduled rent increases in the long-term facilities leases at the other
hospitals of $0.2 million, and increases in other lease and rental obligations
of $0.4 million.
Depreciation and amortization totaled $2.8 million in 1996, compared to
$1.8 million in 1995, an increase of $1.0 million, or 55.6%. This increase
resulted from the 1996 Acquisitions.
Interest expense totaled $2.5 million in 1996, compared to $0.6 million in
1995, an increase of $1.9 million, or 316.7%. This increase resulted primarily
from new borrowings to finance the 1996 Acquisitions. In July 1996, the Company
borrowed $13.7 million to finance the acquisition of Memorial Mother Frances,
and in October 1996 borrowed an additional $5.6 million to finance the
acquisition of Starke Memorial. Following the Recapitalization and the Merger in
December 1996, the $19.3 million noted above was refinanced with a portion of
the borrowings of $72.0 million under the Credit Agreement. The interest rates
on this debt ranged from 8.1% to 9.3% during 1996. The remaining increase
relates to increased interest rates on variable-rate debt, the balance ($5.3
million) of which was paid in full following the Merger in December 1996.
Interest rates on this debt ranged from 7.0% to 10.0% during 1996. See
"-- Liquidity and Capital Resources."
Recapitalization expense totaled $11.6 million in 1996. This expense
consisted of $8.0 million paid to settle options, $2.2 million of severance
payments, and $1.4 million of transaction-related costs (principally
professional fees).
The Company recorded a loss on sale of assets of $0.4 million in 1996,
compared to a gain of $2.8 million in 1995. The 1996 loss related to the sale of
certain assets in connection with the Recapitalization. The gain in 1995
resulted from the sale of Fifth Avenue Hospital in May 1995.
The net result of the above was that the Company recorded a loss from
continuing operations before provision for income taxes of $13.4 million in
1996, compared to income from continuing operations of $5.4 million in 1995, a
decrease of $18.8 million, or 348.1%.
The Company recognized an income tax benefit of $4.5 million in 1996, as a
result of the $13.4 million loss from continuing operations (33.4% effective
rate), compared to tax expense of $2.0 million in 1995 on income of $5.4 million
(36.4% effective rate). The benefit in 1996 resulted in an increase in deferred
tax assets to a balance of $6.4 million at December 31, 1996. Management
believes it is more likely than not that the deferred tax assets will ultimately
be realized through future taxable income from operations.
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<PAGE> 35
Income from discontinued operations, net of income taxes, in 1996 was $6.0
million, compared to a loss of $0.3 million in 1995. The Company's senior living
business was sold in December 1996. The $6.0 million is comprised of income from
operations of the senior living business of $0.5 million, net of taxes, for the
year ended December 31, 1996, plus a gain on the disposal of $5.5 million, net
of taxes. The loss from discontinued operations, net of income taxes, in 1995 of
$0.3 million resulted from the loss from operations and loss on sale of the
Company's managed care and outpatient surgery discontinued business $(1.5
million), offset by the income from operations of the senior living business
$(1.2 million).
The net result of the above was that the Company recorded a net loss in
1996 of $2.9 million, compared to net income of $3.1 million in 1995, a decrease
of $6.0 million, or 193.5%. Pro forma net loss per share was $0.35 in 1996. The
loss per share for the year ended December 31, 1996 is computed using the
weighted average number of shares of Common Stock outstanding during the period,
including dilutive common equivalent shares from stock options and warrants. The
7,280,020 shares of Common Stock issued pursuant to the Recapitalization and the
Merger have been included in the pro forma calculations as if such transactions
had occurred as of the first day of 1996. All other Common Stock and common
equivalent shares issued by the Company at prices below the initial public
offering price during the twelve-month period prior to the public offering have
been included in the calculation as if they were outstanding for the full fiscal
year (treasury stock method).
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net operating revenue was $101.2 million in 1995, compared to $102.1
million in 1994, a decrease of $0.9 million, or less than 1.0%.
Net patient service revenue totaled $75.9 million in 1995, compared to
$78.1 million in 1994, a decrease of $2.2 million, or 2.8%, primarily due to the
sale of Fifth Avenue Hospital in May 1995. On a same hospital basis, net patient
service revenue increased by 1.4% to $74.1 million.
Management and professional services revenue totaled $19.6 million in 1995,
compared to $16.0 million in 1994, an increase of $3.6 million, or 22.5%. This
increase resulted primarily from an increase in consulting fees on special
projects.
Other revenue was $5.8 million in 1995, compared to $8.0 million in 1994, a
decrease of $2.2 million, or 27.5%. This decrease is the result of a decrease in
miscellaneous revenues at the hospitals of $0.9 million, primarily as a result
of the sale of Fifth Avenue Hospital $(0.5 million) in May 1995. Another $1.3
million related to decreased revenue at a subsidiary which invested in
outpatient surgery centers, and a decrease in other miscellaneous revenue.
Salaries, wages and benefits expenses totaled $55.3 million in 1995
compared to $53.7 million in 1994, an increase of $1.6 million, or 3.0%. This
increase is principally the result of increased rates of pay.
Purchased services expense totaled $14.4 million in 1995, compared to $16.9
million in 1994, a decrease of $2.5 million, or 14.8%. This decrease is
principally the result of the sale of Fifth Avenue Hospital.
Supplies expense totaled $10.1 million in 1995, compared to $11.0 million
in 1994, a decrease of $0.9 million, or 8.2%. This decrease is principally the
result of decreased patient services revenue as a result of the sale of Fifth
Avenue Hospital.
Provision for doubtful accounts totaled $4.6 million in 1995, compared to
$5.1 million in 1994, a decrease of $0.5 million, or 9.8%. This decrease is the
result of decreased patient service revenue in 1995 and the sale of Fifth Avenue
Hospital.
Other operating expenses totaled $7.7 million in 1995, compared to $4.9
million in 1994, an increase of $2.8 million, or 57.1%. This increase is
principally the result of increased operating
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<PAGE> 36
expense at the hospitals of $1.8 million, $0.5 million at the management
company, and $0.5 million related to merger activity in 1995.
EBITDAR totaled $9.0 million in 1995, compared to $10.5 million in 1994, a
decrease of $1.5 million, or 14.3%. This decrease is primarily due to the net
result of an increase in salaries and benefits, a decrease in purchased
services, a decrease in supplies, and a decrease in provision for doubtful
accounts.
Rentals and leases totaled $4.1 million in 1995, compared to $3.8 million
in 1994, an increase of $0.3 million, or 7.9%. This increase is the result of
scheduled rent increases in the long-term facilities leases at the hospitals of
$0.1 million and increases in other lease and rental obligations of $0.2
million.
Depreciation and amortization totaled $1.8 million in 1995, compared to
$1.5 million in 1994, an increase of $0.3 million, or 20.0%, which is primarily
attributable to increases in property and equipment.
Interest expense totaled $0.6 million in 1995, compared to $0.8 million in
1994, a decrease of $0.2 million, or 25.0%. This decrease resulted primarily
from a decrease in average debt balances.
The Company recorded a gain on sale of assets in 1995 of $2.8 million,
compared to a gain of $0.6 million in 1994. The sale of Fifth Avenue Hospital
resulted in $2.5 million of the gain in 1995.
The Company recorded income from continuing operations, before provision
for income taxes, of $5.4 million in 1995, compared to $5.1 million in 1994, an
increase of $0.3 million, or 5.9%. The Company recorded a provision for income
taxes of $2.0 million in 1995 (36.4% effective rate), compared to $2.1 million
in 1994 (41.3% effective rate). The difference in the effective rates for 1995
and 1994 relates principally to the tax effect of the change in the valuation
allowance for deferred tax assets.
Loss from discontinued operations, less applicable income taxes, was $0.3
million in 1995, compared to $0.2 million in 1994, a $0.1 million increase. The
loss in 1994 relates to the operations of the senior living, managed care and
outpatient surgery business discontinued operations, whereas the loss in 1995
relates to the loss from operations and the loss from the sale of the managed
care and outpatient surgery discontinued operations, offset by the income from
operations of the senior living business.
The net result of the above was that the Company recorded net income of
$3.1 million for the year ended December 31, 1995, compared to net income of
$2.8 million in 1994, an increase of $0.3 million, or 10.7%.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $24.6 million,
including cash and cash equivalents of $6.0 million. The ratio of current assets
to current liabilities was 2.2 to 1.0 at June 30, 1997, compared to 2.0 to 1.0
at December 31, 1996.
As with the hospital industry in general, a major component of the
Company's working capital is accounts receivable arising from services provided
to patients of its owned and leased hospitals. Payments on accounts receivable
are made by third-party payors (Medicare, Medicaid, and insurance plans) and
directly by the patients. The Company believes that the average collection
period for its owned and leased hospitals is consistent with the industry
average. Fees for management and professional services are generally paid
monthly.
The Company's cash requirements, excluding acquisitions, have historically
been funded by cash generated from operations. Cash from operations was $2.7
million for the year ended December 31, 1994, $3.7 million for the year ended
December 31, 1995, and $1.8 million for the year ended December 31, 1996. The
decrease in 1996 is primarily due to the net loss of $2.9 million.
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<PAGE> 37
Cash provided by (used in) operations was $(1.5 million) for the six months
ended June 30, 1997 and $7.4 million for the six months ended June 30, 1996.
The Company used cash for investing activities of $0.7 million, $1.5
million, $17.3 million and $5.7 million for the years ended December 31, 1994,
1995 and 1996, and for the six months ended June 30, 1997, respectively. These
amounts relate to acquisitions, divestitures of hospitals and purchases and
disposals of property, plant and equipment in each period.
Cash provided by (used in) financing activities totaled $(2.6 million),
$(1.7 million), $24.5 million and $2.0 million for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30, 1997, respectively.
The 1996 amount results from the proceeds from long-term debt, net of debt
refinancing and recapitalization.
Capital expenditures for owned and leased hospitals may vary from year to
year depending on facility improvements and service enhancements undertaken by
the hospitals. Management services activities do not require significant capital
expenditures. Capital expenditures for the year ended December 31, 1996 were
$14.0 million, which included $1.4 million in connection with the renovation of
Colorado Plains Medical Center and $0.6 million in connection with the
information system installation at General Hospital. Capital expenditures for
the six months ended June 30, 1997 were $5.5 million. The Company expects to
make capital expenditures in 1997 of $8.5 million, exclusive of any
acquisitions. Planned capital expenditures for 1997 include capital improvements
at the Company's owned and leased hospitals $(6.5 million), as well as
expenditures for standardizing management information systems for the owned and
leased hospitals and the corporate office $(2.0 million).
The Company intends to purchase or lease additional acute care hospitals,
and is actively seeking such acquisitions. There can be no assurance that the
Company will not require additional debt or equity financing for any particular
acquisition, or that any needed financing will be available on favorable terms.
As part of the Recapitalization, the Company entered into a $100.0 million
Credit Agreement in December 1996, with First Union National Bank of North
Carolina, as agent for a syndicated group of lenders. The facility consists of a
revolving credit facility in an amount of up to $65.0 million and a term loan
facility in the amount of $35.0 million. Amounts outstanding under the Credit
Agreement at June 30, 1997 and December 31, 1996 were $74.0 million and $72.0
million, respectively, of which $35.0 million relates to the term loan portion
of the Credit Agreement. Borrowings under the Credit Agreement bear interest, at
the Company's option, at the adjusted base rate or at the adjusted LIBOR rate.
Interest ranged from 7.9% to 9.5% during the six-month period ended June 30,
1997, and 8.1% to 9.3% during the year ended December 31, 1996. In March 1997,
as required under the Credit Agreement, the Company entered into an interest
rate swap agreement, which effectively converted for a three-year period $35.0
million of floating-rate borrowings to fixed-rate borrowings, with a current
effective rate of 8.8%. The Company pays a commitment fee of one-half of one
percent on the unused portion of the revolving credit facility. The Company may
prepay the principal amount outstanding under the Credit Agreement at any time
before maturity. The revolving credit facility matures on December 16, 1999. The
term loan is payable in quarterly installments ranging from $1.3 million,
commencing in the second quarter of 1998, to $2.3 million in 2002, plus one
payment of $2.0 million in 2002. Borrowings under the revolver for acquisitions
require the consent of the lenders.
The Credit Agreement contains limitations on the Company's ability to incur
additional indebtedness, (including contingent obligations), sell material
assets, retire, redeem or otherwise reacquire its capital stock, acquire the
capital stock or assets of another business, and pay dividends. The Credit
Agreement also requires the Company to maintain a specified net worth and meet
or exceed certain coverage, leverage, and indebtedness ratios. Indebtedness
under the Credit Agreement is secured by substantially all assets of the
Company.
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<PAGE> 38
Management is discussing with its lenders potential amendments to the
Credit Agreement to increase the credit facility to $175.0 million to $200.0
million. There can be no assurances that such amendments will be made.
The Company believes that its cash flow from operations, together with
borrowings available under the Credit Agreement and the net proceeds of the
offering, will be sufficient to fund the Company's operating expenses, capital
expenditures and debt service requirements for the foreseeable future. The
Company will continue to pursue its acquisition strategy and in connection
therewith may pursue additional financings and incur additional indebtedness.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company has generally been able to offset increases in operating
costs by increasing charges for services and expanding services. The Company has
also implemented cost control measures to curb increases in operating costs and
expenses. In light of cost containment measures imposed by government agencies
and private insurance companies, the Company is unable to predict its ability to
offset or control future cost increases, or its ability to pass on the increased
costs associated with providing health care services to patients with government
or managed care payors, unless such payors correspondingly increase
reimbursement rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 128, Earnings per Share
and SFAS No. 129, Disclosure of Information about Capital Structure. These
statements are effective for periods ending after December 15, 1997.
SFAS No. 128 establishes standards for computing and presenting earnings
per share. This Statement simplifies the standards for computing earnings per
share and requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation. The
adoption of SFAS No. 128 would have had no impact on the calculation of earnings
per share assuming the calculation was modified to treat: (i) the 7,280,020
shares issued in the Recapitalization and the Merger in December 1996 as being
outstanding for the entire period presented; and (ii) to treat all other Common
Stock issued, and Common Stock options and warrants granted, by the Company at
prices below the initial public offering price during the twelve-month period
prior to the initial public offering as if they were outstanding for the entire
period presented.
SFAS No. 129 establishes standards for disclosing information about a
company's capital structure. The adoption of SFAS No. 129 is not expected to
materially alter disclosures presently being provided.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
The Statement establishes standards for the reporting and display of
comprehensive income and its components. The Statement requires that all items
that are income be reported in a financial statement that is displayed with the
same prominence as other financial statements. The Statement was only recently
issued, and the Company has not yet determined the impact of adoption on its
disclosure requirements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The Statement is effective for financial
37
<PAGE> 39
statements for fiscal years beginning after December 15, 1997. The Statement was
only recently issued, and the Company has not yet determined the impact of
adoption on its disclosure requirements.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this discussion, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in
regions where the Company operates; demographic changes; the effect of existing
or future governmental regulation and federal and state legislative and
enforcement initiatives on the Company's business, including the
recently-enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the Company's
ability to attract and retain qualified management personnel and to recruit and
retain physicians and other health care personnel to the non-urban markets it
serves; the effect of managed care initiatives on the non-urban markets served
by the Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in this
Prospectus. Certain of these factors are discussed in more detail elsewhere in
this Prospectus. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments. See "Risk Factors."
38
<PAGE> 40
BUSINESS
OVERVIEW
Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. In developing a platform for
the provision of health care services within target markets, the Company seeks
to acquire hospitals which are the sole or primary providers of health care in
those communities. After acquiring a hospital, the Company seeks to improve the
hospital's operating performance and to broaden the range of services provided
to the community. The Company offers a wide range of inpatient and outpatient
medical services and also provides specialty services including skilled nursing,
geriatric psychiatry and rehabilitation. The Company currently owns or leases
eight general acute care hospitals in four states with a total of 570 licensed
beds. The Company also provides management services to 50 primarily non-urban
hospitals in 17 states with a total of 3,448 licensed beds. For the year ended
December 31, 1996, and the six months ended June 30, 1997, the Company had net
operating revenue of $129.9 million and $80.9 million, respectively.
The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. To achieve this end, the Company
seeks to acquire hospitals which are the primary providers of health care in
their markets and which present the opportunity to increase profitability and
market share. The Company targets acquisition candidates that: (i) have a
minimum service area population of 20,000 with a stable or growing employment
base; (ii) are the sole or primary providers of health care services in the
community; (iii) have annual net patient revenue of at least $12.0 million; and
(iv) have financial performance that will benefit from Province management's
proven operating skills. The Company's goal is to acquire two to four hospitals
each year of the approximately 1,100 non-urban hospitals that fit the Company's
acquisition profile.
Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. Key elements of the Company's operating strategy are to:
(i) expand the breadth of services offered in the community to increase local
market share; (ii) improve hospital operations by implementing appropriate
expense controls, managing staffing levels, reducing supply costs and
renegotiating certain vendor contracts; (iii) recruit additional general
practitioners and specialty physicians to the community; and (iv) form
relationships with local employers and regional tertiary providers to solidify
the position of the Company's hospital as the focal point of the community's
health care delivery system.
Prior to its 1996 Recapitalization and Merger with PHC, the Company
operated under the name Brim, Inc. The current operations of the Company include
certain Brim operations and all of the operations of PHC. Brim and its
predecessors have provided health care services, including managing and
operating non-urban hospitals, since the 1970s. PHC was founded in February 1996
by GTCR Fund IV and Martin S. Rash to acquire and operate hospitals in
attractive non-urban markets. In December 1996, Brim was recapitalized.
Subsequently, the operations of Brim and PHC were combined in the Merger. In
connection with the Recapitalization, Mr. Rash and Richard D. Gore were elected
as the senior management of the Company.
The Company's management team has extensive experience in acquiring and
operating previously under-performing non-urban hospitals. Prior to co-founding
PHC, Mr. Rash was the Chief Operating Officer of Community, an acquiror and
operator of non-urban hospitals. During Mr. Rash's tenure, Community acquired
many non-urban hospitals and owned or leased 36 hospitals at December 31, 1995.
Mr. Gore was previously employed as Vice President and Controller of Quorum
Health Group, Inc., an owner, operator and manager of acute care hospitals. John
M. Rutledge, the Company's Chief Operating Officer, was previously employed as a
Regional Vice President/Group Director at Community, reporting directly to Mr.
Rash. Steven P. Taylor, the Company's Senior Vice President of Acquisitions and
Development, was previously President of Brim Healthcare, Inc., a subsidiary of
the Company.
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<PAGE> 41
THE NON-URBAN HEALTH CARE MARKET
According to United States Census data, 33.7% of the United States
population lives in counties with populations of less than 150,000. In these
non-urban communities, hospitals are typically the primary source of health
care, and, in many cases, a single hospital is the only provider of acute care
services. As of October 1996, there were approximately 1,500 non-urban hospitals
in the United States, over 1,100 of which were owned by not-for-profit or
governmental entities.
The Company believes that non-urban health care markets are attractive to
health care service providers. Because non-urban service areas have smaller
populations, there are generally only one or two hospitals in each non-urban
market, resulting in less competition. The relative dominance of the acute care
hospital in these smaller markets also limits the entry of alternate site
providers, which provide services such as outpatient surgery, rehabilitation or
diagnostic imaging. The demographic characteristics and the relative strength of
the local hospital also make non-urban markets less attractive to HMOs and other
forms of managed care. In addition, the Company believes that non-urban
communities are generally characterized by a high level of patient and physician
loyalty that fosters cooperative relationships among the local hospital,
physicians and patients.
Although the characteristics of the non-urban health care market present a
number of opportunities, hospitals in such markets have been under considerable
pressure. The not-for-profit and governmental entities that typically own and
operate these hospitals may have limited access to the capital required to keep
pace with advances in medical technology and to make needed capital
improvements. Non-urban hospitals also frequently lack the management resources
necessary to control hospital expenses, recruit physicians and expand health
care services. The increasingly dynamic and complex health care regulatory
environment compounds these pressures. Collectively, these factors frequently
lead to poor operating performance, a decline in the breadth of services
offered, dissatisfaction by community physicians and the perception of subpar
quality of care in the community. As a result, patients migrate to, or are
referred by local physicians to, hospitals in larger urban markets. Patient
migration further increases the financial pressure on non-urban physicians and
hospitals, thereby limiting their ability to address the issues which have led
to these pressures.
As a result of these pressures, not-for-profit and governmental owners of
non-urban hospitals have increasingly sought to sell or lease these hospitals to
companies, like Province, that have the access to capital and management
resources to better serve the community. The Company believes that a significant
opportunity for consolidation exists in the non-urban health care market.
BUSINESS STRATEGY
The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. The key elements of the Company's
strategy are to:
Acquire Hospitals in Attractive Non-Urban Markets. The Company seeks
to acquire hospitals which are the sole or primary provider of health care
in their markets and which present the opportunity to increase
profitability and local market share. Approximately 1,100 non-urban
hospitals fit the Company's acquisition profile, and the Company's goal is
to acquire two to four such hospitals each year.
Expand Breadth of Services to Increase Local Market Share. The
Company seeks to provide additional health care services and care programs
in response to the needs of the community. These services may include
specialty inpatient services, outpatient services, home health care and
mental health clinics. The Company may also make capital investments in
technology and the physical plant to further improve both the quality of
health care and the reputation of the hospital in the community. By
providing a broader range of services and a more attractive care setting,
the Company believes it can increase health care expenditures captured
locally and limit patient migration to larger urban facilities, thereby
increasing hospital revenue.
40
<PAGE> 42
Improve Hospital Operations. Following the acquisition of a hospital,
the Company augments local management with appropriate operational and
financial managers and installs its standardized information system. The
local management team implements appropriate expense controls, manages
staffing levels according to patient volumes, reduces supply costs by
requiring strict compliance with the Company's national supply arrangements
and renegotiates certain vendor contracts.
Recruit Physicians. The Company believes that recruiting physicians in
local communities is key to increasing the quality and breadth of health
care. The Company works with the local hospital board, management and
medical staff to determine the number and type of additional physicians
needed in the community. The Company's corporate physician recruiting staff
then assists the local management team in identifying and recruiting
specific physicians to the community to meet those needs.
Develop Health Care Networks. The Company plans to form networks to
address local employers' integrated health care needs and to solidify the
position of the Company's hospitals as the focal point of their respective
community's health care delivery system. As part of its efforts to develop
these networks, the Company seeks relationships with regional tertiary care
providers.
ACQUISITION PROGRAM
The Company's goal is to acquire two to four hospitals each year which are
primary providers of health care in attractive non-urban markets and which
present the opportunity to increase the hospitals' profitability and local
market share. The Company acquires hospital operations by purchasing hospitals
or by entering into long-term leases. The Company targets acquisition candidates
that: (i) have a minimum service area population of 20,000 with a stable or
growing employment base; (ii) are the sole or primary providers of health care
services in the community; (iii) have annual net patient revenue of at least
$12.0 million; and (iv) have financial performance that will benefit from
management's proven operating skills. There are approximately 1,100 hospitals in
the United States which meet the Company's target criteria. See "Risk
Factors -- Risks of Acquisition Strategy."
In addition to responding to requests for proposals from entities which are
seeking to sell or lease a hospital, the Company proactively identifies
acquisition targets through three sources. The Company: (i) seeks to acquire
selected hospitals to which it provides contract management services; (ii)
identifies attractive markets and hospitals and initiates meetings with hospital
owners to discuss the benefits to the community of a possible acquisition by the
Company; and (iii) seeks to acquire non-urban hospitals from, or form joint
ventures with, hospital systems comprised of one or more urban tertiary care
hospitals and a number of non-urban hospitals. Such joint ventures allow the
tertiary care hospital to maintain an affiliation to provide tertiary care for
the non-urban hospitals without the management responsibility.
The Company believes that it generally takes six to twelve months between
the hospital owner's decision to accept offers and the consummation of a sale or
lease. After a potential acquisition has been identified, the Company undertakes
a systematic approach to evaluating and closing the transaction. The Company
begins the acquisition process with a thorough due diligence review of the
target hospital. The Company utilizes its dedicated teams of experienced
personnel to conduct a formalized review of all aspects of the target's
operations, including Medicare reimbursement, purchasing, fraud and abuse
compliance, litigation, capital requirements, and environmental issues. During
the course of its due diligence review, the Company prepares an operating plan
for the target hospital, identifies opportunities for operating efficiencies and
physician recruiting needs, and assesses productivity and management information
systems. Throughout the process, the Company works closely with community
decision-makers in order to enhance both the community's understanding of the
Company's philosophy and abilities and the Company's knowledge of the needs of
the community.
41
<PAGE> 43
The competition to acquire non-urban hospitals is intense, and the Company
believes that often the acquiror will be selected for a variety of reasons, not
exclusively on the basis of price. The Company believes it is well positioned to
compete for acquisitions for several reasons. The Company's management team has
extensive experience in acquiring and operating previously under-performing
non-urban hospitals. The Company also benefits from access to capital, strong
financial and operating systems, a national purchasing organization, and
training programs. The Company believes its strategy of increasing the access
to, and the quality of, health care in the communities served by its hospitals
aligns its interests with those of the communities. The Company believes that
this alignment of interests, together with the Company's reputation for
providing market-specific, high quality health care, its focus on physician
recruiting and its proactive approach to identifying acquisition targets, enable
the Company to compete successfully for acquisitions.
During 1996, the Company purchased Memorial Mother Frances in Palestine,
Texas and leased Parkview in Mexia, Texas and Starke Memorial in Knox, Indiana.
In August 1997, the Company leased Needles in Needles, California. The Company
provided management services to Parkview and Needles prior to their respective
acquisitions.
HOSPITAL OPERATIONS
Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. The Company implements an operating plan designed to
reduce costs by improving operating efficiency and increasing revenue through
the expansion of the breadth of services offered by the hospitals and the
recruitment of physicians to the community. The Company also plans to form
health care networks with employers in the community and regional tertiary care
hospitals. Management believes that the long-term growth potential of a hospital
is dependent on the Company's ability to add appropriate health care services
and effectively recruit physicians.
Each hospital management team is comprised of a chief executive officer,
chief financial officer and chief nursing officer. The Company believes that the
quality of the local management team at each hospital is critical to the
hospital's success, because the management team is responsible for implementing
the elements of the Company's operating plan. The operating plan is developed by
the local management team in conjunction with the Company's senior management
team and sets forth revenue enhancement strategies and specific expense
benchmarks. The Company has implemented a performance-based compensation program
for each local management team based upon the achievement of the goals set forth
in the operating plan. See "Risk Factors -- Dependence on Management."
While the local management team is responsible for the day-to-day
operations of the hospitals, the Company's corporate staff provides support
services to each hospital, including physician recruiting, corporate compliance,
reimbursement advice, standardized information systems, human resources,
accounting, cash management and other finance activities, tax and insurance
support. Financial controls are maintained through utilization of standardized
policies and procedures. The Company promotes communication among its hospitals
so that local expertise and improvements can be shared throughout the Company's
network.
As part of the Company's efforts to improve access to high quality health
care in the communities it serves, the Company adds appropriate services at its
hospitals. Services and care programs added may include specialty inpatient
services, such as cardiology, geriatric psychiatry, skilled nursing,
rehabilitation and subacute care, and outpatient services such as same-day
surgery, radiology, laboratory, pharmacy services and physical therapy. The
Company may also add home health care services and mental health clinics.
Management believes the establishment of quality emergency room departments and
obstetrics and gynecological services are particularly important, because they
are often the most visible services provided to the community. The Company also
makes capital investments in technology and facilities to increase the quality
and breadth of services
42
<PAGE> 44
available in the communities. By increasing the services provided at the
Company's hospitals and upgrading the technology used in providing such
services, the Company believes that it improves the quality of care and the
hospitals' reputation in each community, which in turn may increase patient
census and revenue.
To achieve the operating efficiencies set forth in the operating plan, the
Company: (i) evaluates existing hospital management; (ii) adjusts staffing
levels according to patient volumes using best demonstrated practices by
department; (iii) capitalizes on purchasing efficiencies and renegotiates
certain vendor contracts; and (iv) installs a standardized management
information system. The Company also enforces strict protocols for compliance
with the Company's supply contracts. The Company participates in a joint venture
with a large investor-owned hospital company pursuant to which all of the
Company's owned and leased hospitals purchase supplies and certain equipment at
prices which management believes are among the most favorable in the industry.
Vendor contracts are also evaluated, and based on cost comparisons, contracts
are either renegotiated or terminated. The Company prepares for the transition
of management information systems to its standardized system prior to the
completion of an acquisition, so that the newly-acquired hospital can typically
begin using the Company's management information systems immediately following
completion of the acquisition.
The Company works with local hospital boards, management and medical staff
to determine the number and type of additional physicians needed in the
community. The Company's corporate staff then assists the local management team
in identifying and recruiting specific physicians to the community to meet those
needs. The majority of physicians who relocate their practices to the
communities served by the Company's hospitals are identified by the Company's
internal physician recruiting staff, which is supplemented by the efforts of
independent recruiting firms. When recruiting a physician to a community, the
Company generally guarantees the physician a minimum level of revenue during a
limited initial period and assists the physician with his or her transition to
the community. The Company requires the physician to repay some or all of the
amounts expended for such assistance in the event the physician leaves the
community within a specified period. The Company prefers not to employ
physicians, and relocating physicians rarely become employees of the Company.
See "Risk Factors -- Dependence on Physicians" and " -- Health Care Regulation."
The Company plans to form networks to address local employers' health care
needs and to solidify the position of the Company's hospitals as the focal point
of their respective community's health care delivery system. As part of its
efforts to develop these networks, the Company also seeks relationships with
regional tertiary care providers.
Owned and Leased Hospitals
The Company currently owns or leases eight general acute care hospitals in
California, Texas, Colorado and Indiana with a total of 570 licensed beds. Six
of the Company's eight hospitals are the only hospital in the town in which they
are located. The owned and leased hospitals represented 80.3% and 86.1% of the
Company's net operating revenues for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively.
The Company's hospitals offer a wide range of inpatient medical services
such as operating/recovery rooms, intensive care units, diagnostic services and
emergency room services, as well as outpatient services such as same-day
surgery, radiology, laboratory, pharmacy services and physical therapy. The
Company's hospitals also frequently provide certain specialty services which
include skilled nursing, geriatric psychiatry, rehabilitation and home health
care services. The Company's hospitals do not provide highly specialized
surgical services such as organ transplants and open heart surgery and are not
engaged in extensive medical research or educational programs.
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<PAGE> 45
The following table sets forth certain information with respect to each of
the Company's currently owned and leased hospitals.
<TABLE>
<CAPTION>
LICENSED OWNED/
HOSPITAL BEDS LEASED
- -------- -------- --------
<S> <C> <C>
Colorado Plains Medical Center
Fort Morgan, Colorado..................................... 40 Leased(1)
General Hospital
Eureka, California........................................ 83 Leased(2)
Memorial Mother Frances Hospital
Palestine, Texas.......................................... 97 Owned(3)
Needles Desert Community Hospital
Needles, California....................................... 53 Leased(4)
Ojai Valley Community Hospital
Ojai, California.......................................... 116(5) Owned
Palo Verde Hospital
Blythe, California........................................ 55 Leased(6)
Parkview Regional Hospital
Mexia, Texas.............................................. 77 Leased(7)
Starke Memorial Hospital
Knox, Indiana............................................. 49 Leased(8)
---
Total............................................. 570
</TABLE>
- ---------------
(1) The lease expires in April 2014 and is subject to a five-year renewal term.
The Company has a right of first refusal to purchase the hospital.
(2) The lease expires in December 2000. The Company has the option to purchase
the hospital at any time prior to termination of the lease, subject to
regulatory approval.
(3) The hospital is owned by a partnership of which the Company is the sole
general partner (with a 1.0% general partnership interest) and has a 94.0%
limited partnership interest, subject to an option by the other limited
partner to acquire an additional 5.0% interest.
(4) The lease expires in July 2012, and is subject to three five-year renewal
terms. The Company has a right of first refusal to purchase the hospital.
(5) Includes a 66-bed skilled nursing facility.
(6) The lease expires in December 2002, and is subject to a ten-year renewal
option. The Company has the option to purchase the hospital at any time
prior to termination of the lease, subject to regulatory approval.
(7) The lease expires in January 2011, and is subject to two five-year renewal
terms. The Company has a right of first refusal to purchase the hospital.
(8) The lease expires in September 2016, and is subject to two ten-year renewal
options. The Company has a right of first refusal to purchase the hospital.
Colorado Plains Medical Center is located approximately 70 miles northeast
of Denver and is the only hospital in town. The hospital is the only rural-based
Level III trauma center in Colorado, and one of only 10 such rural centers in
the United States. Colorado Plains recently completed an $8.5 million expansion
project which included expansion of surgery, recovery, emergency room and
radiology facilities as well as a new entrance. The Company is planning a
renovation of the hospital's obstetrical and medical/surgical units in 1998. The
closest competing hospitals are located approximately 50 miles away. Colorado
Plains is a sole community provider as designated under Medicare and has a
service area population of approximately 43,000.
General Hospital is located approximately 300 miles north of San Francisco.
The hospital also operates a newly-completed ambulatory surgery center located
near the hospital. The Company expects to complete a renovation of General
Hospital's obstetrical unit by December 1997. There is one other hospital in
Eureka, and two small hospitals located 15 and 20 miles away. The nearest
tertiary care hospitals are located approximately 160 miles away. General
Hospital's service area population is approximately 122,000.
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<PAGE> 46
Memorial Mother Frances Hospital is located approximately halfway between
Dallas and Houston, and approximately 50 miles from Tyler, Texas. The hospital
recently added a six-bed inpatient rehabilitation unit and a ten-bed geriatric
psychiatry unit. Memorial Mother Frances has a relationship with a tertiary care
hospital in Tyler. The hospital's primary competitor is also located in
Palestine. The hospital's service area population is approximately 104,000.
Needles Desert Community Hospital is located approximately 100 miles south
of Las Vegas, Nevada and is the only hospital in town. The hospital's primary
competitor is located approximately 20 miles away. Needles is a sole community
provider as designated under Medicare and has a service area population of
approximately 47,000.
Ojai Valley Community Hospital is located approximately 85 miles northeast
of Los Angeles and is the only hospital in town. Along with its 50-bed acute
care hospital, Ojai Valley has a 66-bed skilled nursing facility. In 1997, Ojai
Valley purchased a home health business and opened a rural health clinic in a
neighboring town. The hospital's primary competitors are located 18 to 20 miles
away, but due to the geography and traffic conditions, such hospitals are 30 to
60 minutes away by car. The hospital's service area population is approximately
30,000.
Palo Verde Hospital is located in southeast California near the Arizona
border. It is 120 miles east of Palm Springs, California and is the only
hospital in town. The hospital's primary competitors are one small hospital
located 45 miles away and two large hospitals located approximately 100 miles
away. Palo Verde is a sole community provider as designated under Medicare and
has a service area population of approximately 20,000 that increases
substantially during the winter months due to a seasonal inflow of residents.
Parkview Regional Hospital is located approximately 40 miles east of Waco,
Texas and is the only hospital in town. The hospital recently completed a $5.7
million expansion and renovation project which included a new emergency room and
new radiology, surgery and inpatient rehabilitation departments. Parkview is
currently completing an outpatient rehabilitation center on the hospital campus.
The hospital's primary competitors are hospitals located 35 to 40 miles away.
The hospital's service area population is approximately 40,000.
Starke Memorial Hospital is located approximately 50 miles from South Bend,
Indiana and is the only hospital in town. The hospital opened a five-bed
geriatric psychiatry unit in April 1997 and is affiliated with a tertiary
hospital in South Bend. Starke Memorial's primary competitors are two large
hospitals, located approximately 30 and 35 miles away. The hospital's service
area population is approximately 25,000.
The Company also leases approximately 8,000 square feet of office space for
its corporate headquarters in Brentwood, Tennessee, and owns a 48,000 square
foot office building in Portland, Oregon.
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<PAGE> 47
Operating Statistics
The following table sets forth certain operating statistics for the
Company's owned or leased hospitals (excluding Fifth Avenue Hospital in Seattle,
Washington, which was sold in May 1995) for each of the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Hospitals owned or leased (at end of
period)................................... 4 4 7 5 7
Licensed beds (at end of period)............ 294 294 513 371 517
Beds in service (at end of period).......... 243 243 407 274 411
Admissions.................................. 8,868 8,839 11,460 5,101 7,371
Average length of stay (days)(1)............ 6.5 6.4 5.6 5.8 5.5
Patient days................................ 57,161 56,088 64,647 29,368 40,837
Adjusted patient days(2).................... 91,047 92,085 115,805 50,992 73,367
Occupancy rate (% of licensed beds)(3)...... 53.3 52.3 42.4 45.1 43.6
Occupancy rate (% of beds in service)(4).... 64.4 63.2 54.8 59.8 54.9
Net patient service revenue (in
thousands)................................ $71,335 $71,452 $101,573 $43,392 $69,581
Gross outpatient service revenue (in
thousands)................................ $46,312 $51,414 $ 78,561 $32,336 $53,680
</TABLE>
- ---------------
(1) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.
(2) Adjusted patient days have been calculated based on an industry-accepted
revenue-based formula (multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital) to reflect an approximation of
the number of inpatients and outpatients served.
(3) Percentages are calculated by dividing average daily census by average
licensed beds.
(4) Percentages are calculated by dividing average daily census by average beds
in service.
Sources of Revenue
The Company receives payments for patient care from private insurance
carriers, federal Medicare programs for elderly and disabled patients, HMOs,
preferred provider organizations ("PPOs"), state Medicaid programs, the Civilian
Health and Medical Program of the Uniformed Services ("CHAMPUS"), employers and
patients directly.
The following table sets forth the percentage of the patient days of the
Company's owned and leased hospitals (excluding Fifth Avenue Hospital and the
66-bed skilled nursing facility at Ojai Valley Community Hospital) from various
payors for the periods indicated. The data for the periods presented are not
strictly comparable due to the significant effect that acquisitions have had on
the Company. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- -----------------
1994 1995 1996(1) 1996 1997(1)
----- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Medicare............................................. 49.1% 50.2% 54.9% 53.8% 59.8%
Medicaid............................................. 14.2 16.8 16.0 16.2 14.2
Private and other sources............................ 36.7 33.0 29.1 30.0 26.0
----- ----- ----- ----- -----
Total...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) All percentages in this table exclude Fifth Avenue Hospital and the 66-bed
skilled nursing facility at Ojai Valley Community Hospital. Substantially
all of the revenue at the Ojai Valley skilled nursing facility is provided
by Medicaid. Including the Ojai Valley skilled nursing facility, the
percentage of revenue from Medicare, Medicaid and private and other sources
would have been 37.8%, 40.8% and 21.4%, for the year ended December 31,
1996, and 45.6%, 32.2% and 22.2% for the six months ended June 30, 1997.
46
<PAGE> 48
Quality Assurance
The Company's hospitals implement quality assurance procedures to ensure a
consistently high level of care. Each hospital has a medical director who
supervises and is responsible for the quality of medical care provided. In
addition, each hospital has a medical advisory committee comprised of physicians
who review the professional credentials of physicians applying for medical staff
privileges at the hospital. Medical advisory committees also review and monitor
surgical outcomes along with procedures performed and the quality of the
logistical, medical and technological support provided to the physician. The
Company surveys all of its patients either during their stay at the hospital or
subsequently by mail to identify potential areas of improvement. All of the
Company's hospitals are accredited by the Joint Commission on Accreditation of
Health Care Organizations other than Palo Verde, which is currently pursuing
accreditation.
Regulatory Compliance Program
The Company is developing a corporate-wide compliance program. In June
1997, the Company hired Starley Carr as its Vice President of Corporate
Compliance. Prior to joining the Company, Mr. Carr served with the Federal
Bureau of Investigation, where he investigated various white collar crimes,
including those related to the health care industry. The Company's compliance
program will focus on all areas of regulatory compliance, including physician
recruitment, reimbursement and cost reporting practices, laboratory and home
health care operations. See "Risk Factors -- Health Care Regulation" and
"-- Current Publicity."
MANAGEMENT SERVICES
The Company's management services division provides comprehensive
management services to 50 primarily non-urban hospitals in 17 states with a
total of 3,448 licensed beds. These services are provided under three- to
five-year contracts with the Company. The Company generally provides a chief
executive officer, who is an employee of the Company, and may also provide a
chief financial officer, but it does not typically employ other hospital
personnel. The Company provides a continuum of solutions to the problems faced
by these hospitals through services which may include instituting new financial
and operating systems and various management initiatives, such as establishing a
local or regional provider network to efficiently meet a community's health care
needs. Management believes the Company's contract management business provides a
competitive advantage in identifying and developing relationships with suitable
acquisition candidates and in understanding the local markets in which such
hospitals operate. This division represented 14.6% and 10.4% of net operating
revenue for the year ended December 31, 1996 and the six months ended June 30,
1997, respectively. See " -- Professional Liability."
COMPETITION
The primary bases of competition among hospitals in non-urban markets are
the quality and scope of medical services, strength of referral network,
location, and, to a lesser extent, price. With respect to the delivery of
general acute care services, most of the Company's hospitals face less
competition in their immediate patient service areas than would be expected in
larger communities. While the Company's hospitals are generally the primary
provider of health care services in their respective communities, its hospitals
face competition from larger tertiary care centers and, in some cases, other
non-urban hospitals. Some of the hospitals that compete with the Company are
owned by governmental agencies or not-for-profit entities supported by
endowments and charitable contributions, and can finance capital expenditures on
a tax-exempt basis.
The Company faces competition for acquisitions primarily from for-profit
hospital management companies as well as not-for-profit entities. Some of the
Company's competitors have greater financial and other resources than the
Company. Increased competition for the acquisition of non-urban acute care
hospitals could have an adverse impact on the Company's ability to acquire such
hospitals on favorable terms.
47
<PAGE> 49
EMPLOYEES AND MEDICAL STAFF
As of June 30, 1997, the Company had 1,647 full-time equivalent employees,
19 of whom were corporate personnel. The remaining employees, most of whom are
nurses and office personnel, work at the hospitals. None of the Company's
employees is covered by a collective bargaining agreement. The Company considers
relations with its employees to be good.
The Company typically does not employ physicians and, as of June 30, 1997,
the Company employed only nine practicing physicians. Certain of the Company's
hospital services, including emergency room coverage, radiology, pathology and
anesthesiology services, are provided through independent contractor
arrangements with physicians.
GOVERNMENT REIMBURSEMENT
Medicare payments for general hospital inpatient care are based on a
prospective payment system ("PPS"). Under the PPS, a hospital receives a fixed
amount for operating costs based on the established fixed payment amount per
discharge for categories of hospital treatment, commonly known as a diagnosis
related group ("DRG"), for each Medicare inpatient. DRG payments do not consider
a specific hospital's costs, but are adjusted for area wage differentials. The
DRG payments do not include reimbursement for capital costs. Psychiatric
services, long-term care, rehabilitation, pediatric services and certain
designated research hospitals, and distinct parts of rehabilitation and
psychiatric units within hospitals, are currently exempt from PPS and are
reimbursed on a cost-based system, subject to specific reimbursement caps (known
as TEFRA limits). For the year ended December 31, 1996, the Company had only one
unit that was reimbursed under this methodology.
For several years, the percentage increases to the DRG rates have been
lower than the percentage increases in the cost of goods and services purchased
by general hospitals. The index used to adjust the DRG rates is based on the
cost of goods and services purchased by hospitals as well as those purchased by
non-hospitals (the "Market Basket"). The historical Market Basket rates of
increase were 2.0%, 1.5% and 2.0% for federal fiscal years 1995, 1996 and 1997,
respectively. The Company anticipates that future legislation may decrease the
future rate of increase for DRG payments, but is unable to predict the amount of
the final reduction. Medicare reimburses general hospitals' capital costs
separately from DRG payments.
Outpatient services provided at general hospitals typically are reimbursed
by Medicare at the lower of customary charges or approximately 90% of actual
cost, subject to additional limits on the reimbursement of certain outpatient
services.
The Company anticipates that future legislation may reduce the aggregate
reimbursement received, but is unable to predict the amount of the final
reduction.
Each state has its own Medicaid program that is funded jointly by the state
and federal government. Federal law governs how each state manages its Medicaid
program, but there is wide latitude for states to customize Medicaid programs to
fit the needs and resources of their citizens. As a result, each state Medicaid
plan has its own payment formula and recipient eligibility criteria. The
Company's current operations are in states that have historically had
well-funded Medicaid programs with adequate payment rates.
The Company owns or leases four hospitals in California. The Medicaid
program in California, known as Medi-Cal, reimburses hospital inpatient cost on
one of three methods: (i) cost-based, subject to various limits known as
MIRL/PIRL limits; (ii) negotiated rate per discharge or per diem for hospitals
under contract; or (iii) managed care initiatives, where payment rates tend to
be capitated and networks must be formed. Three of the Company's four California
hospitals are cost-based for Medi-Cal and the other is paid under the contract
method. None of the cost-based hospitals is currently subject to a MIRL/PIRL
limit, because their cost per discharge has historically been below the limit.
There can be no assurance that this will remain the case in the future. Medi-
48
<PAGE> 50
Cal currently has a managed care initiative that is primarily targeted at urban
areas. The Company does not expect that Medi-Cal will begin rural managed care
contracting in the near future.
Medicare has special payment provisions for "Sole Community Hospitals" or
SCHs. An SCH is generally the only hospital in at least a 35-mile radius.
Colorado Plains, Needles and Palo Verde qualify as SCHs under Medicare
regulations. Special payment provisions related to SCHs include a higher DRG
rate, which is based on a blend of hospital-specific costs and the national DRG
rate; and a 90% payment "floor" for capital costs, thereby guaranteeing the
hospital SCH capital reimbursement equal to 90% of capital cost. In addition,
the CHAMPUS program has special payment provisions for hospitals recognized as
SCHs for Medicare purposes.
The Omnibus Budget Reconciliation Act of 1993 provides for certain budget
targets through federal fiscal year 1997, which, if not met, may result in
adjustments in payment rates. In recent years, changes in Medicare and Medicaid
programs have resulted in limitations on, and reduced levels of, payment and
reimbursement for a substantial portion of hospital procedures and costs.
Congress recently enacted the Balanced Budget Act of 1997, which establishes a
plan to balance the federal budget by fiscal year 2002, and includes significant
additional reductions in spending levels for the Medicare and Medicaid programs.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and determinations,
requirements for utilization review and new governmental funding restrictions,
all of which may materially increase or decrease program payments as well as
affect the cost of providing services and the timing of payment to facilities.
The final determination of amounts earned under the programs often requires many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions.
Management believes that adequate provision has been made for such adjustments.
Until final adjustment, however, significant issues remain unresolved and
previously determined allowances could become either inadequate or more than
ultimately required.
HEALTH CARE REFORM, REGULATION AND LICENSING
Certain Background Information
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Medicare,
Medicaid, and other public and private hospital cost-containment programs,
proposals to limit health care spending, proposals to limit prices and industry
competitive factors are among the many factors which are highly significant to
the health care industry. In addition, the health care industry is governed by a
framework of federal and state laws, rules and regulations that are extremely
complex and for which the industry has the benefit of only limited regulatory or
judicial interpretation. Although the Company believes it is in compliance in
all material respects with such laws, rules and regulations, if a determination
is made that the Company was in violation of such laws, rules or regulations,
its business, financial condition and results of operations could be materially
adversely affected.
There continue to be federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as the Company and proposals to increase co-payments and deductibles from
program and private patients. The Company's facilities also are affected by
controls imposed by government and private payors designed to reduce admissions
and lengths of stay. Such controls, including what is commonly referred to as
"utilization review," have resulted in fewer of certain treatments and
procedures being performed. Utilization review entails the review of the
admission and course of treatment of a patient by a third party. Utilization
review by third-party peer review organizations ("PROs") is required in
connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties is also required under many managed care
arrangements.
49
<PAGE> 51
Many states have enacted, or are considering enacting, measures that are
designed to reduce their Medicaid expenditures and to make certain changes to
private health care insurance. Various states have applied, or are considering
applying, for a federal waiver from current Medicaid regulations to allow them
to serve some of their Medicaid participants through managed care providers.
These proposals also may attempt to include coverage for some people who
presently are uninsured, and generally could have the effect of reducing
payments to hospitals, physicians and other providers for the same level of
service provided under Medicaid.
Certificate of Need Requirements
Some states require approval for construction and expansion of health care
facilities, including findings of need for additional or expanded health care
facilities or services. Certificates of Need ("CONs"), which are issued by
governmental agencies with jurisdiction over health care facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. However, Texas and
California, states in which the Company operates six of its eight hospitals, do
not currently require CONs for hospital construction or changes in the mix of
services. The Company is unable to predict whether it will be able to obtain any
CON that may be necessary to accomplish its business objectives in any
jurisdiction where such CONs are required.
Anti-kickback and Self-Referral Regulations
Sections of the Anti-Fraud and Abuse Amendments to the Social Security Act,
commonly known as the "anti-kickback" statute (the "Anti-kickback Amendments"),
prohibit certain business practices and relationships that might affect the
provision and cost of health care services reimbursable under Medicare and
Medicaid, including the payment or receipt of remuneration for the referral of
patients whose care will be paid for by Medicare or other government programs.
Sanctions for violating the Anti-kickback Amendments include criminal penalties
and civil sanctions, including fines and possible exclusion from government
programs such as the Medicare and Medicaid programs. Pursuant to the Medicare
and Medicaid Patient and Program Protection Act of 1987, the U.S. Department of
Health and Human Services has issued regulations that create Safe Harbors under
the Anti-kickback Amendments. A given business arrangement which does not fall
within a Safe Harbor is not per se illegal; however, business arrangements of
health care service providers that fail to satisfy the applicable Safe Harbor
criteria risk increased scrutiny by enforcement authorities. The "Health
Insurance Portability and Accountability Act of 1996," which became effective
January 1, 1997 broadened the scope of certain fraud and abuse laws, such as the
Anti-kickback Amendments, to include all health care services, whether or not
they are reimbursed under a federal program.
The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. No Safe Harbor for physician recruitment is currently in force.
Although the Company is not subject to the Internal Revenue Service Revenue
Rulings and related authority addressing recruitment activities by tax-exempt
facilities, management believes that such IRS authority tends to set the
industry standard for acceptable recruitment activities. The Company believes
that its recruitment policies are being conducted in accordance with the IRS
authority and industry practice. The Company also enters into certain leases
with physicians and is a party to certain joint ventures with physicians. The
Company also participates in a group purchasing joint venture. The Company
believes that these arrangements do not violate the Anti-kickback Amendments.
There can be no assurance that regulatory authorities who enforce the
Anti-kickback Amendments will not determine that the Company's physician
recruiting activities, other physician arrangements, or group purchasing
activities violate the Anti-kickback Amendments or other federal laws. Such a
determination could subject the Company to liabilities under the Social Security
Act, including exclusion of the Company from participation in Medicare and
Medicaid. See "Business -- Health Care Reform, Regulation and Licensing."
50
<PAGE> 52
The Company's operations necessarily involve financial relationships with
physicians on the medical staff. Such arrangements include professional services
agreements for services at its hospitals and physician recruitment incentives to
encourage physicians to establish private practices in markets served by the
Company's owned or leased hospitals. Although the Company believes that these
arrangements are lawful, no safe harbor provisions apply to physician
recruitment arrangements not involving physician employment. Evolving
interpretations of current, or the adoption of new, federal or state laws or
regulations could affect these arrangements.
There is increasing scrutiny by law enforcement authorities, the Office of
Inspector General ("OIG") of the Department of Health and Human Services
("HHS"), the courts, and Congress of arrangements between health care providers
and potential referral sources to ensure that the arrangements are not designed
as a mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators have also demonstrated a willingness to look behind
the formalities of a business transaction to determine the underlying purpose of
payments between health care providers and potential referral sources.
Enforcement actions have increased, as evidenced by recent highly publicized
enforcement investigations of certain hospital activities. Although, to its
knowledge, the Company is not currently the subject of any investigation which
is likely to have a material adverse effect on its business, financial condition
or results of operations, there can be no assurance that the Company and its
hospitals will not be the subject of investigations or inquiries in the future.
See "Risk Factors--Current Publicity."
In addition, provisions of the Social Security Act restrict referrals by
physicians of Medicare and other government-program patients to providers of a
broad range of designated health services with which they have ownership or
certain other financial arrangements (the "Stark Laws"). A person making a
referral, or seeking payment for services referred, in violation of Stark would
be subject to the following sanctions: (i) civil money penalties of up to
$15,000 for each service; (ii) assessments equal to twice the dollar value for
each service; and/or (iii) exclusion from participation in the Medicare Program
(which can subject the person to exclusion from participation in state health
care programs). Further, if any physician or entity enters into an arrangement
or scheme that the physician or entity knows or should know has the principal
purpose of assuring referrals by the physician to a particular entity, and the
physician directly made referrals to such entity, then such physician or entity
could be subject to a civil money penalty of up to $100,000. Many states have
adopted or are considering similar legislative proposals, some of which extend
beyond the Medicaid program to prohibit the payment or receipt of remuneration
for the referral of patients and physician self-referrals regardless of the
source of the payment for the care. The Company's contracts with physicians on
the medical staff of its hospitals and its participation in and development of
joint ventures and other financial relationships with physicians could be
adversely affected by these amendments and similar state enactments.
The Company is unable to predict the future course of federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework or in the
interpretation of these laws, rules and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Environmental Regulations
The Company's health care operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, are also subject to various other
environmental laws, rules and regulations.
Health Care Facility Licensing Requirements
The Company's health care facilities are subject to extensive federal,
state and local legislation and regulation. In order to maintain their operating
licenses, health care facilities must comply with
51
<PAGE> 53
strict standards concerning medical care, equipment and hygiene. Various
licenses and permits also are required in order to dispense narcotics, operate
pharmacies, handle radioactive materials and operate certain equipment. The
Company's health care facilities hold all required governmental approvals,
licenses and permits. All licenses, provider numbers and other permits or
approvals required to perform the Company's business operations are held by
subsidiaries of the Company. Each of the Company's facilities that is eligible
for accreditation is fully accredited by the Joint Commission on Accreditation
of Health Care Organizations other than Palo Verde, which is currently pursuing
accreditation.
Utilization Review Compliance and Hospital Governance
The Company's health care facilities are subject to and comply with various
forms of utilization review. In addition, under the Medicare prospective payment
system, each state must have a PRO to carry out a federally mandated system of
review of Medicare patient admissions, treatments and discharges in general
hospital. Medical and surgical services and practices are extensively supervised
by committees of staff doctors at each health care facility, are overseen by
each health care facility's local governing board, the primary voting members of
which are physicians and community members, and are reviewed by the Company's
quality assurance personnel. The local governing boards also help maintain
standards for quality care, develop long-range plans, establish, review and
enforce practices and procedures and approve the credentials and disciplining of
medical staff members.
Governmental Developments Regarding Sales of Not-for-Profit Hospitals
In recent years, the legislatures and attorneys general of several states
have shown a heightened level of interest in transactions involving the sale of
non-profit hospitals. Although the level of interest varies from state to state,
the trend is to provide for increased governmental review, and in some cases
approval, of transactions in which not-for-profit corporations sell a health
care facility. Attorneys general in certain states, including California, have
been especially active in evaluating these transactions. Although the Company
has not yet been adversely affected as a result of these trends, such increased
scrutiny may increase the difficulty or prevent the completion of transactions
with not-for-profit organizations in certain states in the future.
California Seismic Standards
California recently adopted a law requiring standards and regulations to be
developed to ensure hospitals meet seismic performance standards. Within three
years after adoption of the standards by the California Building Standards
Commission, owners of subject properties are to evaluate their facilities and
develop a plan and schedule for complying with the standards. To date, the
Commission has adopted evaluation criteria but has not yet adopted the retrofit
standards. Therefore, the Company is unable, at this time, to evaluate its
facilities to determine whether the requirements or the cost of complying with
these requirements will have a material adverse effect on the Company's
business, financial condition or results of operations.
PROFESSIONAL LIABILITY
As part of its business, the Company is subject to claims of liability for
events occurring as part of the ordinary course of hospital operations. To cover
these claims, the Company maintains professional malpractice liability insurance
and general liability insurance in amounts which management believes to be
sufficient for its operations, although some claims may exceed the scope of the
coverage in effect. The Company also maintains umbrella coverage. At various
times in the past, the cost of malpractice and other liability insurance has
risen significantly. Therefore, there can be no assurance that such insurance
will continue to be available at a reasonable price for the Company to maintain
adequate levels of insurance.
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<PAGE> 54
Through its typical hospital management contract, the Company attempts to
protect itself from such liability by requiring the hospital to maintain certain
specified limits of insurance coverage, including professional liability,
comprehensive general liability, worker's compensation and fidelity insurance,
and by requiring the hospital to name the Company as an additional insured party
on the hospital's professional and comprehensive general liability policies. The
Company's management contracts also usually provide for the indemnification of
the Company by the hospital against claims that arise out of the actions of the
hospital employees, medical staff members and other non-Company personnel.
However, there can be no assurance the hospitals will maintain such insurance or
that such indemnities will be available.
LEGAL PROCEEDINGS
The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, breach of management contracts or for wrongful restriction of or
interference with physician's staff privileges. In certain of these actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. The Company is currently not a party to any proceeding which, in
management's opinion, would have a material adverse effect on the Company's
business, financial condition or results of operations.
53
<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
directors and executive officers as of August 15, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin S. Rash................... 42 President, Chief Executive Officer and Director
Richard D. Gore.................. 45 Executive Vice President and Chief Financial Officer
John M. Rutledge................. 39 Senior Vice President and Chief Operating Officer
Steven P. Taylor................. 45 Senior Vice President of Acquisitions and Development
James O. McKinney................ 43 Senior Vice President of Managed Operations
Brenda B. Rector................. 49 Vice President and Controller
Bruce V. Rauner.................. 41 Chairman of the Board and Director
Joseph P. Nolan.................. 32 Director
A.E. Brim........................ 67 Director
Michael T. Willis................ 53 Director
David L. Steffy.................. 54 Director
</TABLE>
Mr. Rash has served as the President and Chief Executive Officer and as a
director of the Company since the Recapitalization in December 1996. From
February 1996 to December 1996, Mr. Rash served as Chief Executive Officer of
PHC. Mr. Rash was employed by Community Health Systems, Inc. from 1986 to
February 1996, and served as its Chief Operating Officer from February 1994 to
February 1996.
Mr. Gore has served as Executive Vice President and Chief Financial Officer
of the Company since the Recapitalization in December 1996. From April 1996 to
December 1996, Mr. Gore served as Executive Vice President and Chief Financial
Officer of PHC. Mr. Gore served as Vice President and Controller of Quorum
Health Group, Inc. from February 1990 to April 1996.
Mr. Rutledge has served as Senior Vice President and Chief Operating
Officer of the Company since December 1996. From 1986 to October 1996, Mr.
Rutledge served in several senior management positions with Community Health
Systems, Inc., most recently serving as a Regional Vice President/Group Director
from 1992 to October 1996.
Mr. Taylor has served as Senior Vice President of Acquisitions and
Development of the Company since the Merger in December 1996. From 1986 to
December 1996, Mr. Taylor served as President of Brim Healthcare, Inc., a
subsidiary of the Company ("Brim Healthcare"). Mr. Taylor is a Fellow of the
American College of Healthcare Executives.
Mr. McKinney has served as Senior Vice President of Managed Operations of
the Company and President of Brim Healthcare since January 1997. From 1994 to
1997, Mr. McKinney served as Senior Vice President of Brim Healthcare. He served
as a Vice President of Brim Healthcare from 1990 to 1994.
Ms. Rector has served as Vice President and Controller of the Company since
the Merger in December 1996. From October 1996 to December 1996, Ms. Rector
served as Vice President and Controller of PHC. From October 1990 to October
1996, Ms. Rector served as a partner in Ernst & Young LLP's health care industry
practice.
Mr. Rauner has served as Chairman of the Board and as a director of the
Company since the Merger in December 1996, and served as a director of PHC from
its inception in February 1996 to December 1996. Mr. Rauner has been a Principal
with Golder, Thoma, Cressey, Rauner, Inc. since
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<PAGE> 56
1981. Mr. Rauner is also a director of Lason, Inc., Polymer Group, Inc.,
Coinmach Laundry Corporation, Esquire Communications Ltd. and COREStaff, Inc.
Mr. Nolan has served as a director of the Company since the
Recapitalization in December 1996, and served as a director of PHC from its
inception in February 1996 to December 1996. Mr. Nolan has been a Principal of
Golder, Thoma, Cressey, Rauner, Inc. since July 1996. Mr. Nolan joined Golder,
Thoma, Cressey, Rauner, Inc. in February 1994. From May 1990 to January 1994,
Mr. Nolan served as Vice President Corporate Finance at Dean Witter Reynolds
Inc. Mr. Nolan is also a director of Lason, Inc. and Esquire Communications Ltd.
Mr. Brim formed Brim, Inc. and has served as a director of the Company
since its formation. He has served as Chairman Emeritus since December 1996.
From the Company's formation until December 1996, he served as Chairman and
Chief Executive Officer of the Company.
Mr. Willis has served as a director of the Company since August 1997. Mr.
Willis has served as Chairman of the Board, Chief Executive Officer and
President of COREStaff, Inc. since 1993. Mr. Willis is also a director of
Southwest Bank of Texas.
Mr. Steffy has served as a director of the Company since August 1997. Mr.
Steffy is a founder and director of Intensiva HealthCare Corporation, a
long-term acute care hospital company, Odyessy Healthcare Inc., a hospice health
care company and Arcadian Healthcare Management, an operator of rural healthcare
service networks. From 1985 to 1996, Mr. Steffy was Vice Chairman and Director
of Community Health Systems, Inc., a company he co-founded.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of Messrs. Brim, Nolan and
Willis. Mr. Brim served as Chairman and Chief Executive Officer of the Company
until the Merger in December 1996, and he is currently an employee of the
Company. See "--Employment Agreements" for a description of Mr. Brim's
employment agreement. Mr. Nolan is a Principal of Golder, Thoma, Cressey,
Rauner, Inc., which is a party to a professional services agreement with the
Company which will terminate immediately prior to the consummation of the
offering. See "Certain Relationships and Related Transactions."
During 1996, the Board had no separate compensation committee and
compensation of executive officers was determined by the Board.
No executive officer of the Company served as a member of the compensation
committee or as a director of any other entity whose executive officer serves as
a director of the Company.
55
<PAGE> 57
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company and its
subsidiaries to the Company's chief executive officer and four other most highly
compensated executive officers during the year ended December 31, 1996 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
----------------------------- COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1)
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Martin S. Rash(2)..................................... 1996 229,166 114,583 --
President and Chief Executive Officer
Richard D. Gore(3).................................... 1996 123,958 61,979 --
Executive Vice President and Chief Financial Officer
Steven P. Taylor...................................... 1996 196,027 48,180 6,436
Senior Vice President of Acquisitions and
Development
James O. McKinney..................................... 1996 141,036 20,974 4,760
Senior Vice President of Managed Operations
A.E. Brim............................................. 1996 228,947 53,521 6,111
Former Chief Executive Officer
</TABLE>
- ---------------
(1) Reflects Company contributions under a 401(k) plan.
(2) Mr. Rash was compensated at an annual salary of $250,000, and he joined PHC
upon its formation in February 1996 and became the Company's Chief Executive
Officer in December 1996.
(3) Mr. Gore was compensated at an annual salary of $175,000 and he joined PHC
in April 1996 and became the Company's Executive Vice President and Chief
Financial Officer in December 1996.
DIRECTOR COMPENSATION
Directors of the Company who are employees of the Company or its
subsidiaries are not entitled to receive any fees for serving as directors.
Following the consummation of the offering, non-employee directors of the
Company will receive a fee of $1,000 per board meeting attended and will be
reimbursed for out-of-pocket expenses related to the Company's business. In
addition, non-employee directors of the Company will be eligible to participate
in the Company's 1997 Long-Term Equity Incentive Plan.
EMPLOYMENT AGREEMENTS
The Company entered into Senior Management Agreements with Messrs. Rash and
Gore effective as of December 17, 1996. Messrs. Rash and Gore will be the
Company's Chief Executive Officer and Chief Financial Officer, respectively, and
will receive annual base salaries determined by the Company's Board of Directors
(the "Board"). Mr. Rash's annual base salary may not be less than $250,000 and
Mr. Gore's salary may not be less than $175,000. Each will be eligible to
receive a bonus each year of up to 50% of his annual base salary for such year,
based on the achievement of certain operational and financial objectives. Their
employment periods continue until their resignation, disability, or death, or
until the Board determines that termination of their employment is in the best
interests of the Company. In the event Mr. Rash's or Mr. Gore's employment is
terminated by the Company without cause or as a result of death or disability,
the Company has agreed to pay to such executive an amount equal to twice his
annual base salary; provided that such severance payments cease upon acceptance
of employment with an entity which owns and operates rural hospitals. Messrs.
Rash and Gore have agreed not to compete with the Company or solicit Company
employees following the termination of their employment for a period of two
years in the case of Mr. Rash, or one year the case of Mr. Gore.
The Company entered into Employment Agreements with Messrs. Taylor and Brim
effective as of December 17, 1996. Mr. Taylor will serve as a Senior Vice
President of the Company and will
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<PAGE> 58
receive an annual base salary of $176,000. Mr. Brim will receive an annual base
salary of $121,680. The base salaries of Messrs. Taylor and Brim will be
increased in accordance with increases in the salary of similarly situated
executives of the Company. Mr. Taylor is entitled to a bonus each year equal to
50% of his annual base salary contingent upon the Company's achievement of
budget targets. The Company has agreed to pay the interest on a $200,000 loan
made to Mr. Taylor by U.S. Bank of Oregon, provided that such loan must be
repaid no later than the effective date of the Registration Statement of which
this Prospectus is a part. Mr. Brim is entitled to an automobile and expense
allowance and the Company pays certain club dues on his behalf. Each employment
agreement terminates on the earliest to occur of the executive's death,
permanent disability, termination for cause, voluntary termination and December
17, 1999. In the event the employment of Mr. Taylor or Mr. Brim is terminated
without cause, the Company has agreed to pay such executive an amount equal to
his base salary and, in the case of Mr. Taylor, the maximum bonus payment, for
the unexpired portion of the term of such executive's employment. Messrs. Taylor
and Brim have agreed not to compete with the Company or solicit Company
employees during the term of their employment, and have agreed not to disclose
confidential information regarding the Company.
LONG-TERM EQUITY INCENTIVE PLAN
In March 1997 the Board adopted the 1997 Long-Term Equity Incentive Plan,
and in September 1997 the Board and the stockholders approved an increase in the
number of shares available pursuant to the plan (as amended, the "1997 Plan").
The 1997 Plan provides for grants of stock options, stock appreciation rights
("SARs") in tandem with options, restricted stock, performance awards and any
combination of the foregoing to certain directors, officers and key employees of
the Company and its subsidiaries. A total of 1,300,000 shares of Common Stock
will be available for issuance pursuant to the 1997 Plan.
The 1997 Plan will be administered by the Compensation Committee. As grants
to be awarded under the 1997 Plan will be made entirely in the discretion of the
Compensation Committee, the recipients, amounts and values of future benefits to
be received pursuant to the 1997 Plan are not determinable. In March 1997 the
Company granted options to purchase an aggregate of 385,765 shares of Common
Stock. All of such options have an exercise price of $3.38 per share, and all of
such options are subject to vesting in five equal annual installments.
Pursuant to the 1997 Plan, the Compensation committee may award grants of
incentive stock options conforming to the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("incentive options"),
and other stock options ("non-qualified options"), subject to a maximum award of
155,556 options or SARs to any one grantee in any calendar year. The exercise
price of any option will be determined by the Compensation Committee in its
discretion, provided that the exercise price of an incentive option may not be
less than 100% of the fair market value of a share of Common Stock on the date
of grant of the option, and the exercise price of an incentive option awarded to
a person who owns stock constituting more than 10% of the voting power of the
Company may not be less than 110% of such fair market value on such date.
The term of each option will be established by the Compensation Committee,
subject to a maximum term of 10 years from the date of grant in the case of a
non-qualified option or an incentive option and of five years from the date of
grant in the case of an incentive option granted to a person who owns stock
constituting more than 10% of the voting power of the Company. In addition, the
1997 Plan provides that all options generally cease vesting on, and terminate 90
days after, the date on which a grantee ceases to be a director, officer or
employee of the Company or its subsidiaries, although the 1997 Plan allows
certain exceptions depending upon the circumstances of cessation. In the case of
the grantee's death or disability, all of the grantee's options become fully
vested and exercisable and remain so for one year after the date of death or
disability. In the event of retirement, only the options vested on the date of
retirement remain exercisable, for a period of three years after retirement, so
long as the grantee does not compete with the Company during such period. Upon
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<PAGE> 59
termination for cause, all options terminate immediately. In addition,
immediately prior to a change in control of the Company, all options become
fully vested and exercisable.
The Compensation Committee may grant SARs in tandem with stock options to
any optionee pursuant to the 1997 Plan. SARs become exercisable only when, to
the extent and on the conditions that the related options are exercisable, and
they expire at the same time the related options expire. The exercise of an
option results in the immediate forfeiture of any related SAR to the extent the
option is exercised, and the exercise of an SAR results in the immediate
forfeiture of any related option to the extent the SAR is exercised.
Upon exercise of an SAR, the grantee will receive an amount in cash and/or
shares of Common Stock equal to the difference between the fair market value of
a share of Common Stock on the date of exercise and the exercise price of the
option to which it relates, multiplied by the number of shares as to which the
SAR is exercised.
Under the 1997 Plan, the Compensation Committee may award restricted stock
subject to such conditions and restrictions, and for such duration (which shall
be at least six months except as otherwise described below), as it determines in
its discretion. A grantee will be required to pay the Company at least the
aggregate par value of any shares of restricted stock within ten days of the
date of grant, unless such shares are treasury shares. Except as otherwise
provided by the Compensation Committee, all restrictions on a grantee's
restricted stock will lapse immediately prior to a change in control of the
Company or at such time as the grantee ceases to be a director, officer or
employee of the Company and its subsidiaries due to death, disability or
retirement. If a grantee ceases to serve as such a director, office or employee
for any other reason, all his or her restricted stock as to which the applicable
restrictions have not lapsed will be forfeited immediately.
Pursuant to the 1997 Plan, the Compensation Committee may grant performance
awards contingent upon achievement of set goals and objectives with respect to
specified performance criteria. Performance awards may include specific
dollar-value target awards, performance units, the value of which is established
by the Compensation Committee at the time of grant, and/or performance shares,
the value of which is equal to the fair market value of a share of Common Stock
on the date of grant. The value of a performance award may be fixed or fluctuate
on the basis of specified performance criteria. Unless the Compensation
Committee determines otherwise, no award under the 1997 Plan may vest and become
exercisable within six months of the date of grant; provided that all awards
vest immediately prior to a change in control of the Company and in certain
other circumstances upon a participant's termination of employment or
performance of services for the Company as described above. Unless the
Compensation Committee determines otherwise, no award made pursuant to the 1997
Plan will be transferable otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order, and each award
may be exercised only by the grantee or his or her guardian or legal
representative.
The Board may amend or terminate the 1997 Plan in its discretion, except
that no amendment will become effective without prior approval of the Company's
stockholders if such approval is necessary for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
stock exchange listing requirements. If not previously terminated by the Board,
the 1997 Plan will terminate on March 3, 2007.
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<PAGE> 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REDEMPTION OF SENIOR PREFERRED STOCK AND COMMON STOCK CONVERSION AND REPURCHASE
Of the estimated $73.0 million in net proceeds from the offering, $21.9
million will be used to redeem all of the outstanding shares of the Senior
Preferred Stock, which are held by Leeway & Co. In addition, in connection with
the offering, all outstanding shares of Junior Preferred Stock will be converted
into shares of Common Stock based on the liquidation value of the Junior
Preferred Stock and the initial public offering price, and the Company will use
a portion of the proceeds from the offering to repurchase from GTCR Fund IV and
Leeway & Co. the shares of Common Stock which are issued upon conversion of
13,636 of their shares of Junior Preferred Stock for an aggregate purchase price
of $14.5 million (based on an assumed initial offering price of $14.00).
Dividends have accrued daily at a rate of 11.0% per annum on the Senior
Preferred Stock and 8.0% per annum on the Junior Preferred Stock since the date
of issuance.
RECENT STOCK PURCHASES
In connection with the Recapitalization, the stockholders of the Company
entered into a Stockholders Agreement with the Company (the "Stockholders
Agreement"). On July 15, 1997, pursuant to the terms of the Stockholders
Agreement and a Purchase Agreement dated as of July 15, 1997 between the Company
and the Investors, the Company sold to GTCR Fund IV, Leeway & Co., Messrs. Rash
and Gore and the two other Investors an aggregate of 3,755 shares of Junior
Preferred Stock and an aggregate of 958,225 shares of Common Stock for an
aggregate purchase price of $4.2 million. In addition, in August 1997, Leeway &
Co. exercised its warrant to purchase 343,265 shares of Common Stock for an
aggregate exercise price of $15,447.
EXECUTIVE NOTES
In connection with the Recapitalization, the Company loaned $112,956 to Mr.
Rash and $67,768 to Mr. Gore pursuant to promissory notes (the "Executive
Notes"). In addition, in connection with the Recapitalization, Mr. Gore borrowed
an additional $211,200 from the Company pursuant to a demand note (the "Demand
Note") which was subsequently repaid. The Company loaned such amounts to Messrs.
Rash and Gore to finance a portion of their purchase of the Company's securities
pursuant to the Recapitalization. The Executive Notes and the Demand Note bear
interest at a rate per annum equal to the lesser of: (i) the rate designated in
The Wall Street Journal as the "prime rate;" and (ii) the highest rate permitted
by applicable law. The principal amount of the Executive Notes and all interest
accrued thereon mature on December 17, 2002. The Executive Notes may be prepaid
in whole or in part at any time.
PROFESSIONAL SERVICES AGREEMENT
The Company has a Professional Services Agreement with Golder, Thoma,
Cressey, Rauner, Inc. pursuant to which Golder, Thoma, Cressey, Rauner, Inc.
provides financial and management consulting services. Under this agreement,
Golder, Thoma, Cressey, Rauner, Inc. receives an annual management fee of
$200,000 and a fee of 1.25% of the amount of debt and equity investments, for
their assistance in obtaining such investments. During 1996 and through June 30,
1997, the Company had paid or accrued $1.4 million and $99,179, respectively, in
fees under the agreement. An additional $52,274 is payable in connection with
the Company's sale of securities in July 1997. The agreement will be terminated
immediately prior to the consummation of the offering, and no fee is payable
with respect to the issuance of Common Stock in the offering. Messrs. Rauner and
Nolan will continue to serve as directors of the Company, however, and they will
be compensated as non-employee directors. See "Management -- Director
Compensation."
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<PAGE> 61
STOCKHOLDERS AGREEMENT AND SENIOR MANAGEMENT AGREEMENTS
In connection with the Recapitalization, and in addition to becoming
parties to the Stockholders Agreement, Messrs. Rash and Gore entered into Senior
Management Agreements with the Company, GTCR Fund IV and Leeway & Co. (as
amended, the "Executive Agreements"). The Executive Agreements provide that a
portion of the Common Stock purchased by each of Messrs. Rash and Gore is
subject to vesting (the "Vesting Shares"). Upon completion of the offering, 50%
of the Vesting Shares will become vested, and the remaining Vesting Shares will
become vested in equal installments on the first three anniversaries of the
completion of the offering. The Executive Agreements entitle the Company and
GTCR Fund IV to repurchase from each of Messrs. Rash and Gore upon the
termination of his employment: (i) Junior Preferred Stock and vested Common
Stock at a price equal to fair market value; and (ii) unvested Common Stock at a
price equal to original cost. The Stockholders Agreement entitles the Company
and GTCR Fund IV to repurchase shares of the Common Stock and Junior Preferred
Stock from an employee stockholder upon the termination of such employee's
employment by the Company at a price equal to fair market value. The
Stockholders Agreement and the Executive Agreements also contain restrictions on
the transfer of the Company's securities. Pursuant to the Stockholders
Agreement, the stockholders agree to consent to and participate in any sale of
the Company approved by the Board and by the holders of a majority of the Common
Stock. Upon the completion of the offering, the Stockholders Agreement will be
terminated, and the portions of the Executive Agreements which restrict the
transfer of the Company's securities will be terminated.
REGISTRATION AGREEMENT
At the time of the Recapitalization the Company entered into a Registration
Agreement with its stockholders. See "Shares Eligible for Future
Sale -- Registration Agreement."
SENIOR LIVING DIVESTITURE
Prior to the Recapitalization in December 1996, Brim divested its senior
living business through a series of transactions. In connection therewith, Mr.
Brim and certain other persons who were officers and directors of Brim invested
an aggregate of $5.8 million in the purchasers of Brim's senior living business.
In addition, in connection with the divestiture of the senior living business, a
limited liability company whose members included Mr. Brim, Mr. Taylor and
certain other persons who were officers and directors of Brim at such time
purchased from Brim three medical buildings for a purchase price of $406,500
plus the assumption of approximately $800,000 of indebtedness.
OPTION SETTLEMENTS
In connection with the Recapitalization, all outstanding stock options of
Brim, Inc. were bought out. Pursuant to this option buyout, Messrs. Brim,
McKinney and Taylor received $861,326, $144,498 and $861,326, respectively, in
respect of their Brim, Inc. stock options.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 31, 1997 and immediately following the
offering by: (i) each person who is known by the Company to own beneficially
more than five percent of the Common Stock; (ii) each director and Named
Executive Officer of the Company; and (iii) all directors and executive officers
of the Company as a group. To the knowledge of the Company, each of the persons
named in the table has sole voting and investment power as to the shares shown
unless otherwise noted. Unless otherwise noted, the address of each holder of
five percent or more of the Common Stock is the Company's corporate address.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING OFFERING(1)
------------------- -------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV, L.P.(2)...... 5,050,446 58.9% 5,912,791 37.7%
Bruce V. Rauner(2)................................... 5,050,446 58.9 5,912,791 37.7
Joseph P. Nolan(2)................................... 5,050,446 58.9 5,912,791 37.7
Leeway & Co.(3)...................................... 1,353,488 15.8 1,525,557 9.7
Martin S. Rash....................................... 799,217 9.3 828,297 5.3
Richard D. Gore...................................... 507,197 5.9 561,572 3.6
Steven P. Taylor..................................... 149,778 1.7 201,203 1.3
James O. McKinney.................................... 23,112 * 31,047 *
A.E. Brim(4)......................................... 149,778 1.7 201,203 1.3
Michael T. Willis.................................... -- -- -- --
David L. Steffy...................................... -- -- -- --
All executive officers and directors as a group (11
persons)........................................... 6,679,528 77.8% 7,736,113 49.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Gives effect to the Preferred Stock Conversion and the repurchase of Shares
of Common Stock with a portion of the proceeds of the offering, in each case
at an assumed initial public offering price of $14.00 per share and an
assumed conversion date of October 15, 1997.
(2) All of such shares are held of record by GTCR Fund IV. Golder, Thoma,
Cressey, Rauner, Inc. is the general partner of GTCR IV, L.P., which is the
general partner of GTCR Fund IV. Messrs. Rauner and Nolan are Principals of
Golder, Thoma, Cressey, Rauner, Inc., and may be deemed to share the power
to vote and dispose of such shares. The address of GTCR Fund IV is 6100
Sears Tower, Chicago, Illinois 60606. Each of Messrs. Rauner and Nolan
disclaims beneficial ownership of the shares of Common Stock owned by GTCR
Fund IV.
(3) The address of Leeway & Co. is c/o State Street Bank and Trust Company,
Master Trust Division -- Q4W, P.O. Box 1992, Boston, Massachusetts 02101.
(4) All of such shares are held of record by Brim Capital Corporation.
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Reincorporation, the Company's authorized capital
stock will consist of 25.0 million shares of Common Stock, par value $0.01 per
share, 25,000 shares of Senior Preferred Stock, 50,000 shares of Junior
Preferred Stock and 100,000 shares of Preferred Stock. At July 31, 1997, there
were 8,238,245 shares of Common Stock, 20,000 shares of Senior Preferred Stock,
32,295 shares of Junior Preferred Stock and no shares of Preferred Stock
outstanding. Upon completion of the offering and after giving effect to the use
of proceeds therefrom and the Preferred Stock Conversion in connection with the
offering, 15,698,314 shares of Common Stock will be issued and outstanding, and
no shares of Senior Preferred Stock, Junior Preferred Stock or Preferred Stock
will be outstanding. The following summary of certain provisions of the
Company's capital stock describes all material provisions of, but does not
purport to be complete, and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and the Bylaws of the Company that are
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<PAGE> 63
included as exhibits to the Registration Statement of which this Prospectus
forms a part and by the provisions of applicable law.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered will be upon payment therefor, validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
Preferred Stock, the holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time determine. See
"Dividend Policy." The shares of Common Stock are not redeemable or convertible,
and the holders thereof have no preemptive or subscription rights to purchase
any securities of the Company. Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive pro rata the
assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. Each outstanding share of
Common Stock is entitled to vote on all matters submitted to a vote of
stockholders.
Application has been made for approval and trading of the Common Stock on
the Nasdaq National Market under the symbol "PRHC."
PREFERRED STOCK
The Board may, without any further vote or action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in one or more series with such designations, rights, preferences and
limitations as the Board may determine, including the consideration received
therefor. The Board also has the authority to determine the number of shares
comprising each series, dividend rates, redemption provisions, liquidation
preferences, sinking fund provisions, conversion rights and voting rights
without the approval by the holders of Common Stock. Although it is not possible
to state the effect that any issuance of Preferred Stock might have on the
rights of holders of Common Stock, the issuance of Preferred Stock may have one
or more of the following effects: (i) to restrict Common Stock dividends if
Preferred Stock dividends have not been paid; (ii) to dilute the voting power
and equity interest of holders of Common Stock to the extent that any series of
Preferred Stock has voting rights or is convertible into Common Stock; or (iii)
to prevent current holders of Common Stock from participating in the
distribution of the Company's assets upon liquidation until any liquidation
preferences granted to holders of Preferred Stock are satisfied. In addition,
the issuance of Preferred Stock may, under certain circumstances, have the
effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Company's Certificate of Incorporation or any reorganization, consolidation,
merger or other similar transaction involving the Company. As a result, the
issuance of the Preferred Stock may discourage bids for the Common Stock at a
premium over the market price therefor, and could have a materially adverse
effect on the market value of the Common Stock. Upon consummation of the
offering and the redemption in full of the Senior Preferred Stock and conversion
of the Junior Preferred Stock, there will be no shares of Preferred Stock
outstanding. The Board of Directors does not presently intend to issue any
shares of Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
Following the Reincorporation, the Company will be governed by the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to
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<PAGE> 64
the stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Following the Reincorporation, the Company's Certificate of Incorporation
will limit the liability of directors to the fullest extent permitted by the
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for: (i) breach of the
director's duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption; and
(iv) any transaction from which the director derives an improper personal
benefit. This provision of the Company's Certificate of Incorporation has no
effect on the availability of equitable remedies such as injunction or
rescission. Additionally, this provision will not limit liability under state or
federal securities laws. The Certificate of Incorporation also provides that the
Company shall indemnify directors and officers of the Company to the fullest
extent permitted by such law. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS AFFECTING CHANGE OF CONTROL
The Company's Certificate of Incorporation and By-laws include certain
restrictions on who may call a special meeting of stockholders and prohibit
certain actions by written consent of the holders of the Common Stock. The
effect of these provisions may be the delaying, deterring or preventing of a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Board.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 15,698,314 shares of
Common Stock outstanding (16,553,314 shares if Underwriter's over-allotment
option is exercised in full). Of these shares, the 5,700,000 shares of Common
Stock sold in the offering will be tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company (an "Affiliate"), as that term is defined in Rule 144
under the Securities Act ("Rule 144"), which shares will be subject to the
resale limitations of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date the "restricted securities" (as that phrase is defined in
Rule 144) were acquired from the Company and the date they were acquired from an
Affiliate, then the holder of such restricted securities (including an
Affiliate) is entitled to sell a number of shares within any three-month period
that does not exceed the greater of 1% of the then outstanding shares of the
Common Stock (approximately 157,000 shares immediately after this offering) or
the average weekly reported volume of trading of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding such sale. The holder
may only sell such shares through unsolicited brokers' transactions. Sales under
Rule 144 are also subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information concerning the Company. Affiliates may sell shares not constituting
restricted shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year period. Commencing 90 days after
the
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<PAGE> 65
completion of the offering, 7,280,020 shares of Common Stock will be eligible
for sale in the public market under Rule 144, subject to the volume limitations
and other requirements described above, without consideration of the contractual
restrictions described below.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above. Ninety days after the date of this Prospectus,
no shares of Common Stock will be eligible for sale without restriction under
Rule 144(k).
Notwithstanding the foregoing, the Company, its directors and executive
officers have agreed that for a period of 180 days after the date of the
offering they will not, without the prior written consent of Alex. Brown & Sons
Incorporated, offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock except pursuant to the Underwriting Agreement. Of
the approximately 7,280,020 shares of Common Stock otherwise eligible for sale
as discussed above, substantially all are subject to such agreements.
Prior to the offering there has been no market for the Common Stock. The
Company can make no predictions as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the Common
Stock in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices. See "Risk Factors -- Shares Eligible
for Future Sale; Registration Rights."
REGISTRATION AGREEMENT
In connection with the Recapitalization in December 1996, the stockholders
of the Company at such time (the "Original Stockholders") entered into a
Registration Agreement with the Company (the "Registration Agreement"). The
Registration Agreement provides for certain demand registration rights to the
Original Stockholders, and to subsequent holders of the Common Stock acquired by
the Original Stockholders in connection with the Recapitalization. The demand
registration rights commence from and after the 180th day after the closing of
the Company's initial public offering of its securities. The holders of a
majority of the registrable securities held by the Original Stockholders (and
their permitted transferees) other than Leeway & Co. are entitled to request two
long-form registrations in which the Company pays all registration expenses and
an unlimited number of short-form registrations in which the Company pays all
registration expenses. Such holders are also entitled to request an unlimited
number of long-form registrations in which holders of registrable securities pay
their pro-rata share of registration expenses. The holders of a majority of the
registrable securities held by Leeway & Co. (and their permitted transferees)
are entitled to request one long-form registration in which the Company pays all
registration expenses and an unlimited number of long-form registrations in
which the holders of registrable securities pay their share of registration
expenses. The Company is entitled to postpone a demand registration for up to
one year under certain circumstances, and is not required to effect a demand
registration within one year of a previous registration in which holders of
registrable securities participated without reduction of the number of their
included shares.
The Registration Agreement also provides that, subject to certain
limitations, the Original Stockholders (and their permitted transferees) may
request inclusion of their shares in a registration of securities by the Company
(other than pursuant to the initial public offering of Common Stock or a demand
registration). Expenses incurred in connection with the exercise of such
piggyback registration rights are borne by the Company.
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<PAGE> 66
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the Underwriters named below (the "Underwriters") through their
Representatives, Alex. Brown & Sons Incorporated, Goldman, Sachs & Co.,
Robertson, Stephens & Company LLC, and The Robinson-Humphrey Company, Inc. have
severally agreed to purchase from the Company, the following respective numbers
of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated.............................
Goldman, Sachs & Co.........................................
Robertson, Stephens & Company LLC...........................
The Robinson-Humphrey Company, Inc..........................
---------
Total............................................. 5,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 855,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 5,700,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,700,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Subject to certain exceptions, the Company has agreed not to issue, offer,
sell, sell short or otherwise dispose of any shares of Common Stock for a period
of 180 days from the date of this Prospectus without the prior written consent
of Alex. Brown & Sons Incorporated. In addition, stockholders of the Company
holding in the aggregate shares of Common Stock and options to
purchase shares of Common Stock, have agreed not to offer or otherwise
dispose of any such Common Stock for a period of 180 days from the date of this
Prospectus without the prior written consent of Alex. Brown & Sons Incorporated.
See "Shares Eligible for Future Sale."
65
<PAGE> 67
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended, certain persons
participating in this offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids which
may have the effect of stabilizing, maintaining or otherwise affecting the
market price of the Common Stock at a level above that which might otherwise
prevail in the open market. A "stabilizing bid" is a bid for or the purchase of
Common Stock on behalf of the Underwriters for the purpose of fixing or
maintaining the price of the Common Stock. A "syndicate covering transaction" is
the bid for or the purchase of the Common Stock on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with the
offering. A "penalty bid" is an arrangement permitting the Representatives to
reclaim the selling concession otherwise accruing to an Underwriter or syndicate
member in connection with the offering if the Common Stock originally sold by
such Underwriter or syndicate member is purchased by the Underwriters in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representatives of the Underwriters believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kirkland & Ellis, a partnership including professional
corporations, Chicago, Illinois. Certain legal matters will be passed upon for
the Underwriters by Alston & Bird LLP, Atlanta, Georgia. Certain regulatory
matters relating to the conduct of the Company's business will be passed upon by
Waller Lansden Dortch & Davis, A Professional Limited Liability Company,
Nashville, Tennessee.
EXPERTS
The consolidated financial statements of Province Healthcare Company at
December 31, 1996, and for the year then ended, appearing in this Prospectus and
Registration Statement, and the related supplemental schedule included elsewhere
in the Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Province Healthcare
Company (formerly Brim, Inc.) as of December 31, 1995 and for the years ended
December 31, 1994 and 1995 have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Memorial Hospital Foundation for
the years ended May 31, 1995 and 1996 and for the period June 1, 1996 through
July 25, 1996 included in this Prospectus have been audited by Harrell, Rader,
Bonner & Bolton, independent auditors, as set forth
66
<PAGE> 68
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
CHANGE IN ACCOUNTANTS
In connection with the Recapitalization, the Company appointed Ernst &
Young LLP, independent auditors, as independent accountants for the Company, to
replace KPMG Peat Marwick LLP, independent certified public accountants, whom
the Company dismissed in December 1996.
During the two fiscal years prior to the Recapitalization, there were no
disagreements with KPMG Peat Marwick LLP on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure nor
did KPMG Peat Marwick LLP's reports on the financial statements for such periods
contain an adverse opinion or disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope or accounting.
In connection with the filing of the Company's Registration Statement on
Form S-1, KPMG Peat Marwick LLP was provided with a copy of this disclosure and
was requested by the Company to furnish a letter addressed to the Commission
stating whether they agree with the above statements. A copy of KPMG Peat
Marwick LLP's letter to the Commission is filed as an exhibit to the
Registration Statement on Form S-1.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 pursuant to the Securities
Act with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
items of which are omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed with the Registration Statement as
exhibits are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the Registration Statement. For further information about
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the consolidated financial statements, schedules
and exhibits filed as a part thereof.
Upon completion of the offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or
any part thereof may also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet web site at http://www.sec.gov that
contains reports, proxy statements and other information.
67
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
PROVINCE HEALTHCARE COMPANY
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Report of KPMG Peat Marwick LLP, Independent Auditors....... F-3
Consolidated Balance Sheets at December 31, 1995 and 1996... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-5
Consolidated Statements of Changes in Common Stockholders'
Equity (Deficit) for the Years Ended December 31, 1994,
1995 and 1996............................................. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
Condensed Consolidated Balance Sheet at June 30, 1997
(Unaudited)............................................... F-23
Condensed Consolidated Statements of Income for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........... F-24
Condensed Consolidated Statement of Changes in Common
Stockholders' Equity (Deficit) for the Six Months Ended
June 30, 1997 (Unaudited)................................. F-25
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........... F-26
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-27
MEMORIAL MOTHER FRANCES HOSPITAL
Report of Harrell, Rader, Bonner & Bolton LLP, Independent
Auditors.................................................. F-30
Consolidated Statements of Operations for the Years Ended
May 31, 1995 and 1996 and for the period June 1, 1996 to
July 25, 1996............................................. F-31
Consolidated Statements of Cash Flows for the Years Ended
May 31, 1995 and 1996 and for the period June 1, 1996 to
July 25, 1996............................................. F-32
Notes to Consolidated Financial Statements.................. F-33
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Province Healthcare Company
We have audited the accompanying consolidated balance sheet of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until September , 1997) and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, changes in common stockholders' equity (deficit), and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Province Healthcare Company and subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
April 30, 1997,
except for Note 16, and Notes 1 and 17, as to which the dates are
May 8, 1997 and September , 1997, respectively
The foregoing report is in the form that will be signed upon the completion
of the reincorporation described in Note 17 to the consolidated financial
statements.
Ernst & Young LLP
Nashville, Tennessee
August 26, 1997
F-2
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Province Healthcare Company
We have audited the accompanying consolidated balance sheet of Province
Healthcare Company (formerly Brim, Inc.) and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, changes in common
stockholders' equity (deficit), and cash flows for the years ended December 31,
1994 and 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Province
Healthcare Company (formerly Brim, Inc.) and subsidiaries as of December 31,
1995, and the results of their operations and their cash flows for the years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Portland, Oregon
March 8, 1996
F-3
<PAGE> 72
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,287 $ 11,256
Accounts receivable, less allowance for doubtful accounts
of $2,078 in 1995 and $4,477 in 1996................... 18,286 22,829
Inventories............................................... 1,754 2,883
Prepaid expenses and other................................ 6,403 8,355
------- --------
Total current assets.............................. 28,730 45,323
Property, plant and equipment, net.......................... 10,201 35,865
Other assets:
Unallocated purchase price................................ -- 7,265
Investments in other health care-related businesses....... 4,564 423
Other..................................................... 3,580 5,149
------- --------
8,144 12,837
------- --------
$47,075 $ 94,025
======= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,065 $ 7,915
Accrued salaries and benefits............................. 3,661 7,772
Accrued expenses.......................................... 2,128 5,359
Current maturities of long-term obligations............... 839 1,489
------- --------
Total current liabilities......................... 10,693 22,535
Long-term obligations, less current maturities.............. 5,519 76,633
Third-party settlements..................................... 6,472 6,604
Other liabilities........................................... 909 3,349
------- --------
12,900 86,586
Mandatory redeemable preferred stock........................ 8,816 46,227
Common stockholders' equity (deficit):
Common stock -- no par value; authorized 10,000,000 shares
in 1995 and 20,000,000 in 1996; issued and outstanding
813,529 in 1995 and 7,280,020 in 1996.................. 414 3,276
Notes receivable for common stock......................... -- (391)
Common stock warrant...................................... -- 139
Retained earnings (deficit)............................... 14,252 (64,347)
------- --------
14,666 (61,323)
------- --------
$47,075 $ 94,025
======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 73
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Net patient service revenue............................... $ 78,109 $ 75,871 $104,325
Management and professional services...................... 15,969 19,567 18,937
Other..................................................... 7,989 5,776 6,593
-------- -------- --------
Net operating revenue............................. 102,067 101,214 129,855
-------- -------- --------
Expenses:
Salaries, wages and benefits.............................. 53,659 55,289 65,704
Purchased services........................................ 16,879 14,411 19,485
Supplies.................................................. 11,035 10,143 13,115
Provision for doubtful accounts........................... 5,056 4,601 9,578
Other operating expenses.................................. 4,930 7,729 12,762
Rentals and leases........................................ 3,781 4,133 5,232
Depreciation and amortization............................. 1,530 1,771 2,813
Interest expense.......................................... 760 589 2,523
Costs of recapitalization................................. -- -- 11,570
Loss (gain) on sale of assets............................. (635) (2,814) 442
-------- -------- --------
Total expenses.................................... 96,995 95,852 143,224
-------- -------- --------
Income (loss) from continuing operations before provision
for income taxes.......................................... 5,072 5,362 (13,369)
Provision (benefit) for income taxes........................ 2,097 1,953 (4,464)
-------- -------- --------
Income (loss) from continuing operations.................... 2,975 3,409 (8,905)
(Loss) Income from discontinued operations, less applicable
income taxes.............................................. (157) (264) 6,015
-------- -------- --------
Net income (loss)........................................... $ 2,818 $ 3,145 $ (2,890)
======== ======== ========
Preferred stock dividends and accretion..................... (172)
--------
Net loss applicable to common and common equivalent shares.. $ (3,062)
========
Pro forma income (loss) per common and common equivalent
share:
Loss from continuing operations........................... $ (1.03)
Income from discontinued operations....................... 0.68
--------
Net loss per common and common equivalent share........... $ (0.35)
========
Pro forma number of common and common equivalent shares..... 8,843
========
</TABLE>
See accompanying notes.
F-5
<PAGE> 74
PROVINCE HEALTHCARE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
NO PAR VALUE RECEIVABLE
COMMON STOCK FOR COMMON RETAINED
------------------ COMMON STOCK EARNINGS
SHARES AMOUNT STOCK WARRANT (DEFICIT) TOTAL
--------- ------ ---------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994...... 837,154 $ 824 $ -- $ -- $ 8,289 $ 9,113
Issuance of stock............. 33,490 546 -- -- -- 546
Retirement of stock........... (52,922) (837) -- -- -- (837)
Net income.................... -- -- -- -- 2,818 2,818
--------- ------ ----- ---- -------- --------
Balance at December 31, 1994.... 817,722 533 -- -- 11,107 11,640
Issuance of stock............. 12,328 245 -- -- -- 245
Retirement of stock........... (16,521) (364) -- -- -- (364)
Net income.................... -- -- -- 3,145 3,145
--------- ------ ----- ---- -------- --------
Balance at December 31, 1995.... 813,529 414 -- -- 14,252 14,666
Recapitalization
transaction................ 6,466,491 2,862 (391) 139 (75,537) (72,927)
Dividends and accretion....... -- -- -- -- (172) (172)
Net loss...................... -- -- -- -- (2,890) (2,890)
--------- ------ ----- ---- -------- --------
Balance at December 31, 1996.... 7,280,020 $3,276 $(391) $139 $(64,347) $(61,323)
========= ====== ===== ==== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 75
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 2,818 $ 3,145 $ (2,890)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 1,962 2,438 2,813
Other amortization........................................ -- -- 62
Provision for doubtful accounts........................... 5,076 4,734 9,578
Loss (income) from investments............................ 64 (86) 272
Deferred income taxes..................................... 278 (112) 4,628
Gain on sale of assets.................................... (361) (2,608) (8,519)
Provision for professional liability...................... -- -- 1,700
Changes in operating assets and liabilities, net of
effects from acquisitions and disposals:
Accounts receivable..................................... (9,493) (5,269) (9,142)
Inventories............................................. 124 (140) 43
Prepaid expenses and other current assets............... (408) 3,178 (6,587)
Accounts payable and accrued expenses................... 1,044 (1,880) 5,610
Accrued salaries and benefits........................... -- -- 3,977
Third-party settlements................................. 1,693 62 244
Other liabilities....................................... (136) 232 (23)
------- -------- --------
Net cash provided by operating activities................... 2,661 3,694 1,766
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (5,271) (1,398) (14,017)
Net capital contributions and withdrawals -- investments.... (1,489) (2,063) 1,775
Purchase of acquired companies.............................. (4,364) (15,765) (24,946)
Proceeds from sale of assets................................ 5,688 20,607 21,948
Sale of marketable securities............................... 1,031 -- --
Escrow deposit on facility purchase......................... 3,829 (3,829) --
Other....................................................... (138) 921 (2,104)
------- -------- --------
Net cash used in investing activities....................... (714) (1,527) (17,344)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 2,871 39 90,779
Repayments of debt.......................................... (5,185) (1,619) (31,875)
Additions to deferred loan costs............................ -- -- (2,959)
Issuance of common stock.................................... 546 245 --
Repurchase of common stock.................................. (837) (364) --
Recapitalization............................................ -- -- (31,398)
------- -------- --------
Net cash (used in) provided by financing activities......... (2,605) (1,699) 24,547
------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (658) 468 8,969
Cash and cash equivalents at beginning of year.............. 2,477 1,819 2,287
------- -------- --------
Cash and cash equivalents at end of year.................... $ 1,819 $ 2,287 $ 11,256
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year............................... $ 750 $ 1,435 $ 1,450
======= ======== ========
Income taxes paid during the year........................... $ 1,842 $ 4,183 $ 2,288
======= ======== ========
ACQUISITIONS
Fair value of assets acquired............................... $ 4,632 $ 15,784 $ 37,228
Liabilities assumed......................................... (268) (19) (12,282)
------- -------- --------
Cash paid................................................... $ 4,364 $ 15,765 $ 24,946
======= ======== ========
SALE OF ASSETS
Assets sold................................................. $ 5,364 $ 17,791 $ 13,274
Liabilities released........................................ -- 505 155
Debt assumed by purchaser................................... (37) (297) --
Gain on sale of assets...................................... 361 2,608 8,519
------- -------- --------
Cash received............................................... $ 5,688 $ 20,607 $ 21,948
======= ======== ========
NONCASH TRANSACTIONS
Property, plant and equipment acquired through capital
leases.................................................... $ -- $ -- $ 2,761
======= ======== ========
Noncash issuance of stock in connection with
recapitalization.......................................... $ -- $ -- $ 4,118
======= ======== ========
Dividends and accretion..................................... $ -- $ -- $ 172
======= ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 76
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Province Healthcare Company (formerly known as Brim, Inc. until January 16,
1997 and as Principal Hospital Company from January 16, 1997 until September ,
1997) and subsidiaries (the Company) are engaged in the business of owning,
leasing and managing hospitals in non-urban communities principally in the
northwestern and southwestern United States. As more fully described in Note 3,
Brim, Inc. consummated a leveraged recapitalization on December 18, 1996.
2. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiaries and partnerships in which the Company or one of
its subsidiaries is a general partner and has a controlling interest. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with an original
maturity of three months or less when acquired. The Company places its cash in
financial institutions that are federally insured and limits the amount of
credit exposure with any one financial institution.
PATIENT ACCOUNTS RECEIVABLE
The Company's primary concentration of credit risk is patient accounts
receivable, which consist of amounts owed by various governmental agencies,
insurance companies and private patients. The Company manages the receivables by
regularly reviewing its accounts and contracts and by providing appropriate
allowances for uncollectible amounts. Significant concentrations of gross
patient accounts receivable at December 31, 1996, consist of receivables from
Medicare and Medicaid of 29% and 17%, respectively. Concentration of credit risk
relating to accounts receivable is limited to some extent by the diversity and
number of patients and payors and the geographic dispersion of the Company's
operations.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Routine
maintenance and repairs are charged to expense as incurred. Expenditures that
increase values, change capacities or extend useful lives are capitalized.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets, which range from 3 to 40 years. Amortization of equipment
under capital leases is included in the provision for depreciation.
F-8
<PAGE> 77
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
Deferred loan costs are included in other noncurrent assets and are
amortized over the term of the related debt by the interest method. At December
31, 1996, deferred loan costs and accumulated amortization were $2,959,000 and
$62,000, respectively.
RISK MANAGEMENT
The Company maintains self-insured medical and dental plans for employees.
Claims are accrued under these plans as the incidents that give rise to them
occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, including claim settlement expenses, in accordance with an average
lag time and past experience. The Company has entered into reinsurance
agreements for certain plans with independent insurance companies to limit its
losses on claims.
The Company is insured for professional liability based on a claims-made
policy purchased in the commercial insurance market. The provision for
professional liability and comprehensive general liability claims include
estimates of the ultimate costs for claims incurred but not reported, in
accordance with actuarial projections based on past experience. Management is
aware of no potential professional liability claims whose settlement, if any,
would have a material adverse effect on the Company's consolidated financial
position or results of operations.
OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist primarily of insurance liabilities,
including an estimated liability for incurred but not reported professional
liability claims, supplemental deferred compensation liability and minority
interests in net assets of subsidiaries.
PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Estimated settlements under third-party reimbursement
agreements are accrued in the period the related services are rendered and
adjusted in future periods as final settlements are determined.
Approximately 61%, 61% and 62% of gross patient service revenue for the
years ended December 31, 1994, 1995 and 1996, is from participation in the
Medicare and state sponsored Medicaid programs. Laws and regulations governing
the Medicare and Medicaid programs are complex and subject to interpretation.
The Company believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened investigations
involving allegations of potential wrongdoing. While no such regulatory
inquiries have been made, compliance with such laws and regulations can be
subject to future government review and interpretation as well as significant
regulatory action including fines, penalties, and exclusion from the Medicare
and Medicaid programs.
STOCK BASED COMPENSATION
The Company, from time to time, grants stock options for a fixed number of
common shares to employees. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and accordingly, recognizes no compensation expense for the stock option grants
when the exercise price of the options equals, or is greater than, the market
price of the underlying stock on the date of grant.
F-9
<PAGE> 78
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA NET (LOSS) INCOME PER SHARE
Pro forma net loss per share for the year ended December 31, 1996 is
computed using the weighted average number of shares of common stock outstanding
during the period, including dilutive common equivalent shares from stock
options and warrants (using the treasury stock method). The 7,280,020 common
shares issued in the recapitalization and the merger of a subsidiary of Brim
into PHC of Delaware, Inc. (see Note 3) in December 1996 have been included in
the pro forma calculation as if the recapitalization had occurred as of the
first day of 1996. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, all other common stock issued, and common stock options
and warrants granted, by the Company at prices below the initial public offering
price during the twelve-month period prior to the initial public offering have
been included in the calculation as if they were outstanding for the full fiscal
year (using the treasury stock method).
Historical net (loss) income per share has not been presented in these
financial statements, since the historical capitalization of the Company is not
meaningful due to the change in the capital structure of the Company resulting
from the recapitalization (see Note 3).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 128, Earnings per Share
and SFAS No. 129, Disclosure of Information about Capital Structure. These
statements are effective for periods ending after December 15, 1997.
SFAS No. 128 establishes standards for computing and presenting earnings
per share. This Statement simplifies the standards for computing earnings per
share and requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation. The
adoption of SFAS No. 128 would have had no impact on the calculation of earnings
per share assuming the calculation was modified (i) to treat the 7,280,020
shares issued in the recapitalization and the merger in December 1996 as being
outstanding for the entire period presented, and (ii) to treat all other common
stock issued, and common stock options and warrants granted, by the Company at
prices below the initial public offering price during the twelve-month period
prior to the initial public offering as if they were outstanding for the entire
period presented.
SFAS No. 129 establishes standards for disclosing information about a
company's capital structure. The adoption of SFAS No. 129 is not expected to
materially alter disclosures presently being provided.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation. These
reclassifications had no effect on the results of operations previously
reported.
3. RECAPITALIZATION
On December 18, 1996, Brim was recapitalized pursuant to an Investment
Agreement dated November 21, 1996, by and between Brim and Golder, Thoma,
Cressey, Rauner Fund IV, L.P. (GTCR) and PHC of Delaware, Inc. (PHC). Prior to
the recapitalization, Brim was owned by certain of its officers and employees.
PHC was founded in February 1996 by GTCR and Mr. Martin Rash, and was controlled
by GTCR through an 80.7% common stock ownership. Following the recapitalization
F-10
<PAGE> 79
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Brim, GTCR controlled both Brim and PHC, and merged a subsidiary of Brim into
PHC as discussed below. The combination of Brim and PHC was accounted for as a
merger of businesses under common control.
The main objectives of the recapitalization were to: (i) sell those
subsidiaries engaged in senior living activities which the Company no longer
desired to pursue; (ii) sell newly issued shares of common and preferred stock,
and common stock warrants; (iii) borrow the funds needed to complete the
recapitalization; (iv) repurchase the shares of common stock and stock options
held by certain Brim shareholders; (v) repurchase the shares of preferred stock
held by General Electric Credit Corporation; and (vi) repay certain
indebtedness.
The principal elements of the recapitalization included the following:
- Brim sold for cash its two wholly-owned subsidiaries engaged in senior
living activities for a gross sales price of $19.7 million, and sold for
cash certain real estate properties for a price of $406,500.
- GTCR purchased 1,425,333 shares, Mr. Rash purchased 22,889 shares, Mr.
Richard Gore purchased 42,667 shares, two banks purchased 21,333 shares,
and Leeway & Co., a subsidiary of AT&T, purchased 833,778 shares of Brim
newly-designated common stock for cash of approximately $1.1 million.
Messrs. Rash and Gore purchased 399,902 shares of Brim newly-designated
common stock for notes of $179,956.
- Through a series of transactions, Brim pre-transaction shareholders who
were to remain shareholders after the recapitalization received 3,580
shares of newly-designated junior preferred stock and 795,562 shares of
Brim newly-designated common stock in exchange for their common stock of
Brim.
- GTCR purchased 6,414 shares, Mr. Rash purchased 103 shares, Mr. Gore
purchased 192 shares, two banks purchased 96 shares and Leeway & Co.
purchased 3,752 shares of newly-designated redeemable junior preferred
stock for cash of approximately $10.6 million.
- Leeway & Co. purchased 20,000 shares of newly designated redeemable
senior preferred stock and was issued a warrant to purchase 343,265 shares
of newly-designated common stock for total cash consideration of $20.0
million. A value of $139,000 was assigned to the warrant.
- Brim entered into a $100.0 million credit facility with First Union
National Bank and borrowed $35.0 million under the term loan portion of
the facility, and $37.0 million under the $65.0 million revolving credit
portion of the facility.
- The outstanding common stock of all Brim shareholders who were not to
remain as shareholders after the recapitalization was exchanged for
redeemable junior preferred stock. The preferred stock was then redeemed
for cash of approximately $42.3 million, and outstanding stock options
were settled for cash of approximately $8.0 million.
- Brim redeemed pre-existing Series A preferred stock held by General
Electric Credit Corporation for cash of approximately $29.9 million.
- Existing Brim debt of $5.4 million was paid.
- An aggregate of approximately $6.5 million was deposited into escrow
accounts for possible breaches of representations and warranties in
connection with the transactions for sale of the Senior Living
subsidiaries and the stock redemption. Escrow funds not used for
settlement of breaches within 18 months of the recapitalization will be
released to the purchasers of the Senior Living subsidiaries and the
redeemed Brim shareholders.
F-11
<PAGE> 80
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The principal elements of transactions occurring immediately after the
recapitalization included the following:
- A subsidiary of Brim was merged into PHC. In exchange for their shares in
PHC, the PHC shareholders received newly-designated redeemable junior
preferred stock and newly designated common stock as follows: GTCR
received 13,580 and 3,017,779 shares, Mr. Rash received 217 and 429,252
shares, Mr. Gore received 407 and 247,258 shares, and two banks received
199 and 44,267 shares, respectively.
- Existing PHC debt of $19.6 million was repaid.
- First Additional Investment -- An agreement was entered into granting
GTCR the right to acquire, at its sole discretion, up to 2,733 shares of
the Company's redeemable junior preferred stock at a price of $1,000 per
share, and up to 607,334 shares of the Company's common stock at a price
of $0.45 per share, at any time through December 17, 1999. The agreement
provides that Leeway & Co., Mr. Rash, Mr. Gore, and the two banks are
obligated to purchase redeemable junior preferred stock and common stock
in specified amounts at the same per share prices in the event GTCR
exercises its right to acquire junior preferred and common stock. (See
Note 17.)
- Second Additional Investment -- The agreement discussed immediately above
also granted GTCR the right to acquire up to 4,545 shares of the Company's
redeemable junior preferred stock at a price of $1,000 per share, and up
to 1,010,000 shares of the Company's common stock at a price of $0.45 per
share, at any time after the date upon which the investment discussed
above was completed and before December 17, 1998. The agreement also
granted Leeway & Co. the right to acquire senior preferred stock,
redeemable junior preferred stock, common stock, and a common stock
warrant, and granted Mr. Rash and Mr. Gore the right to acquire common
stock, in specified amounts at the same per share prices in the event GTCR
exercises its right to acquire junior preferred and common stock. (See
Note 17.)
- Brim changed its name to Principal Hospital Company.
The common stock ownership subsequent to the recapitalization and the
merger of a subsidiary of Brim into PHC consists of a 10.9% interest held by
certain of the pre-recapitalization Brim shareholders, 61.0% held by GTCR, 11.5%
held by Leeway & Co., 15.7% held by Messrs. Rash and Gore, and 0.9% held by two
banks.
Total financing fees and legal, accounting and other related costs of the
recapitalization amounted to approximately $16,850,000. Costs totaling
$11,570,000 were charged to operations at the date of the recapitalization,
consisting of cash paid to buy-out stock options of $7,995,000, severance costs
of $2,190,000, and transaction-related costs of $1,385,000. Costs of $2,321,000
associated with the sale of common and preferred stock were allocated to
retained earnings (deficit) as to the common stock, and were netted against the
proceeds as to the preferred stock. Financing costs of $2,959,000 associated
with the credit facility with First Union National Bank were recorded as
deferred loan costs.
As part of the recapitalization, the Company approved a plan in December
1996, to terminate certain employees, which included both corporate and
operating personnel. The Company accrued approximately $2,190,000 of severance
liability relating to these approved terminations as of December 31, 1996. The
majority of the terminations occurred subsequent to year-end and were paid.
F-12
<PAGE> 81
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS AND DIVESTITURES
In February 1995, the Company acquired two senior living residences for
approximately $15,800,000. In September 1995, the Company sold the real property
of the two facilities and leased them back under an operating lease agreement
for a minimum lease term of 15 years.
In May 1995, the Company sold a hospital facility for approximately
$6,000,000. Cash proceeds from the sale were approximately $5,200,000 and the
Company recorded a gain on this transaction of approximately $2,500,000.
In February 1996, the Company acquired Parkview Regional Hospital by
entering into a 15-year operating lease agreement with two five-year renewal
terms and by purchasing certain assets totaling $3,092,000 and assuming certain
liabilities totaling $1,329,000, for a purchase price of $1,763,000.
In July 1996, the Company purchased certain assets totaling $26,394,000 and
assumed certain liabilities totaling $3,211,000 of Memorial Mother Frances
Hospital for a purchase price of $23,183,000.
In October 1996, the Company acquired Starke Memorial Hospital by assuming
certain liabilities and entering into a capital lease agreement and by
purchasing certain net assets for a purchase price of $7,742,000. The allocation
of the purchase price has not been finalized.
In December 1996, the Company sold its senior living business (see Note
11).
All of the foregoing acquisitions were accounted for using the purchase
method of accounting. The allocation of the purchase price associated with the
1996 acquisitions has been determined by the Company based on available
information and is subject to further refinement. The operating results of the
acquired companies have been included in the accompanying consolidated
statements of operations from the respective dates of acquisition.
The following unaudited pro forma information related to continuing
operations reflects the operations of the entities acquired in 1995 and 1996,
and divested in 1995, as if the respective transactions had occurred as of the
first day of the fiscal year immediately preceding the year of the transactions.
The pro forma results of continuing operations do not purport to represent what
the Company's results of continuing operations would have been had such
transactions in fact occurred at the beginning of the years presented or to
project the Company's results of operations in any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994(1) 1995(2) 1996(3)
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenue............................................... $101,976 $151,215 $153,136
Income (loss) from continuing operations.................... 3,363 (704) (10,332)
</TABLE>
- ---------------
(1) Excludes the hospital divested in 1995.
(2) Includes Parkview Regional Hospital, Memorial Mother Frances Hospital and
Starke Memorial Hospital, and excludes the hospital divested in 1995.
(3) Includes Parkview Regional Hospital, Memorial Mother Frances Hospital and
Starke Memorial Hospital.
The Company has minority interests in various health care related
businesses. These investments are accounted for by the equity method. The
assets, liabilities and results of operations of these businesses are not
material to the consolidated financial statements.
F-13
<PAGE> 82
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 823 $ 1,340
Leasehold improvements...................................... 1,315 4,475
Buildings and improvements.................................. 3,300 19,121
Equipment................................................... 8,654 15,217
------- -------
14,092 40,153
Less allowances for depreciation and amortization........... (4,609) (4,818)
------- -------
9,483 35,335
Construction-in-progress (estimated cost to complete at
December 31, 1996 -- $1,427).............................. 718 530
------- -------
$10,201 $35,865
======= =======
</TABLE>
Assets under capital leases were $2,400,000 and $13,385,000 net of
accumulated amortization of $750,000 and $1,462,000 at December 31, 1995 and
1996, respectively.
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit agreement.................................. $ 400 $37,000
Term loan................................................... -- 35,000
Other debt obligations...................................... 111 87
Mortgage notes paid in full in 1996, interest ranging from
7.5% - 8.0%............................................... 3,401 --
Various notes paid in full in 1996, interest ranging from
7.0% - 10.0%.............................................. 478 --
------ -------
4,390 72,087
Obligations under capital leases (see Note 12).............. 1,968 6,035
------ -------
6,358 78,122
Less current maturities..................................... (839) (1,489)
------ -------
$5,519 $76,633
====== =======
</TABLE>
In connection with the recapitalization (see Note 3), the Company entered
into a $100 million credit facility in December 1996, consisting of a revolving
credit agreement in an amount of up to $65,000,000 and a term loan in the amount
of $35,000,000. There was $37,000,000 of borrowings outstanding under the
revolving credit agreement and $35,000,000 under the term loan at December 31,
1996. Future borrowings under the revolver are limited, in certain instances, to
acquisitions of identified businesses. At December 31, 1996, the Company had
additional borrowing capacity available under the revolver of approximately
$6,250,000.
The loans under the credit agreement bear interest, at the Company's
option, at the adjusted base rate or at the adjusted LIBOR rate. Interest ranged
from 8.09% to 9.25% during 1996. The
F-14
<PAGE> 83
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company pays a commitment fee of one-half of one percent on the unused portion
of the revolving credit agreement. The Company may prepay the principal amount
outstanding under the revolving credit agreement at any time before the maturity
date of December 16, 1999. The term loan is payable in quarterly installments
ranging from $1,250,000 commencing in the second quarter of 1998 to $2,250,000
in 2002, plus one payment of $2,000,000 in 2002.
The Company has a standby letter of credit issued and outstanding with the
bank totaling $603,000. Amounts outstanding are applied against the credit
availability under the Company's revolving credit agreement.
In certain circumstances, the Company is required to make mandatory
prepayments of the term loan and revolver to the extent of (i) 100% of net
proceeds from the issuance of equity securities in excess of $25,000,000,
provided however that in connection with a qualified initial public offering of
the Company's common stock, the Company shall only be required to make a
mandatory prepayment in an amount equal to the first $20,000,000 of net cash
proceeds; (ii) 100% of the net proceeds of any debt issued; and (iii) 100% of
net proceeds from asset sales other than sales of obsolete equipment in the
ordinary course of business or insurance proceeds.
The credit facility limits, under certain circumstances, the Company's
ability to incur additional indebtedness, including contingent obligations; sell
material assets; retire, redeem or otherwise reacquire its capital stock;
acquire the capital stock or assets of another business; or pay dividends. The
credit facility also requires the Company to maintain a specified net worth and
meet or exceed certain coverage, leverage, and indebtedness ratios. Indebtedness
under the credit facility is secured by substantially all assets of the Company.
Subsequent to year end, as required by the credit facility, the Company
entered into an interest rate swap agreement, which effectively converted for a
three-year period $35.0 million of floating-rate borrowings to fixed-rate
borrowings. This interest rate swap agreement will be used to manage the
Company's interest rate exposure. The agreement is a contract to periodically
exchange floating interest rate payments for fixed interest rate payments over
the life of the agreement.
Aggregate maturities of long-term obligations at December 31, 1996,
excluding capital leases, are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 47
1998........................................................ 3,790
1999........................................................ 42,750
2000........................................................ 6,750
2001........................................................ 7,750
Thereafter.................................................. 11,000
-------
$72,087
=======
</TABLE>
F-15
<PAGE> 84
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. MANDATORY REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of the following:
<TABLE>
<CAPTION>
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Series A redeemable senior preferred stock -- $1,000 per
share stated value, authorized no shares in 1995 and
25,000 in 1996, issued and outstanding no shares in 1995
and 20,000 in 1996, net of issuance costs of $892,000 and
a warrant of $139,000 in 1996............................. $ -- $18,969
Series B redeemable junior preferred stock -- $1,000 per
share stated value, authorized no shares in 1995 and
50,000 in 1996, issued and outstanding no shares in 1995
and 28,540 shares in 1996, net of issuance costs of
$1,282,000 in 1996........................................ -- 27,258
Redeemable Series A preferred stock, no par value,
authorized, issued and outstanding 96,000 shares in 1995
and no shares in 1996, net of issuance costs of $784,000
in 1995................................................... 8,816 --
------ -------
$8,816 $46,227
====== =======
</TABLE>
As described in Note 3, the Company redeemed all of the existing preferred
stock and issued two new categories of preferred stock as part of the
recapitalization on December 18, 1996.
The issued and outstanding shares of Series A redeemable senior preferred
stock are held by Leeway & Co., who purchased 20,000 shares and a warrant to
purchase 343,265 shares of common stock for $20.0 million in connection with the
recapitalization (see Note 3). Issuance costs totaled $892,000. Series A
redeemable preferred stock pays cumulative preferential dividends which accrue
on a daily basis at the rate of 11% and are payable in cash when and as declared
by the board of directors. The issue is senior to all other classes of equity
and has a liquidation preference equal to the purchase price plus all accrued
dividends. The issue requires mandatory redemption after nine years for par
value plus accrued but unpaid dividends. The Company may redeem part or all of
the issue at any time for a liquidation preference of 105% for years one through
five, 103% for year six, and 100% thereafter. Notwithstanding the foregoing, the
redemption price is the stated value, plus accrued but unpaid dividends, for
redemptions in connection with an initial public offering.
The issued and outstanding Series B redeemable junior preferred stock
consists of 19,994 shares issued to GTCR, 320 shares issued to Mr. Rash, 599
shares issued to Mr. Gore, and 295 shares issued to two banks for consideration
of $21,208,000; 3,752 shares purchased by Leeway & Co. for $3,752,000; and 3,580
shares issued to Brim pre-recapitalization shareholders with a value of
$3,580,000. Issuance costs totaled $1,282,000. Series B redeemable junior
preferred stock pays cumulative preferential dividends which accrue on a daily
basis at the rate of 8% and are payable in cash when and as declared by the
board of directors. The issue is senior to all other classes of equity other
than the senior preferred stock, and has a liquidation preference equal to the
purchase price plus all accrued but unpaid dividends. The issue requires
mandatory redemption after 10 years for the stated value plus accrued but unpaid
dividends.
The preferred stock does not have voting rights, and the Series A senior
preferred stock is fully transferable in whole or in part to other financial
institutions. The purchase agreements for preferred stock restrict the Company's
ability to incur additional indebtedness, and restrict payment of dividends,
redemption of securities, acquisition and merger activity, sale of a majority of
assets, and the creation of unrelated businesses.
F-16
<PAGE> 85
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
STOCK OPTIONS
In prior years, the Company had granted nonstatutory stock options to
employees under plans existing in those years. The 161,941 stock options
outstanding under these plans were cashed-out for $7,995,000 in connection with
the recapitalization (see Note 3) in December 1996. Details of stock option
activity and pro forma information related to stock options granted in prior
years have not been presented in these financial statements since such
information would not be meaningful due to the change in the capital structure
of the Company resulting from the recapitalization.
At December 31, 1996, the Company did not have a stock option plan in
place, and no stock options were outstanding. Subsequent to year-end, stock
options were granted to certain officers and employees (see Note 17).
WARRANT
In connection with the recapitalization in December 1996, the Company
issued a warrant to purchase 343,265 shares of its common stock. The warrant has
an exercise price of $0.045 per share and has a twelve-year term.
9. PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
- Medicare -- Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per diagnosis.
These rates vary according to a patient classification system that is
based on clinical, diagnostic, and other factors. Inpatient nonacute
services, certain outpatient services and medical education costs related
to Medicare beneficiaries are paid based on a cost reimbursement
methodology. The Company is reimbursed for cost reimbursable items at a
tentative rate with final settlement determined after submission of annual
cost reports by the Company and audits thereof by the Medicare fiscal
intermediary. The Company's classification of patients under the Medicare
program and the appropriateness of their admission are subject to an
independent review. The Company's Medicare cost reports have been audited
by the Medicare fiscal intermediary through December 31, 1993.
- Medicaid -- Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed either under contracted rates or
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports by the
Company and audits thereof by Medicaid. The Company's Medicaid cost
reports have been audited by the Medicaid fiscal intermediary through
December 31, 1993.
- Other -- The Company also has entered into payment agreements with
certain commercial insurance carriers, health maintenance organizations
and preferred provider organizations. The basis for payment to the Company
under these agreements includes prospectively determined rates per
discharge, discounts from established charges, and prospectively
determined daily rates.
Final determination of amounts earned under the Medicare and Medicaid
programs often occur in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Adjustments from finalization of prior year cost reports from both
F-17
<PAGE> 86
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Medicare and Medicaid resulted in an increase in patient service revenue of
$788,000 for the year ended December 31, 1996.
10. INCOME TAXES
The provision for income tax expense (benefit) attributable to income from
continuing operations consists of the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $1,519 $1,580 $ 586
State............................................... 300 334 139
------ ------ -------
1,819 1,914 725
Deferred:
Federal............................................. 238 31 (4,190)
State............................................... 40 8 (999)
------ ------ -------
278 39 (5,189)
------ ------ -------
$2,097 $1,953 $(4,464)
====== ====== =======
</TABLE>
The differences between the Company's effective income tax rate of 41.3%,
36.4% and 33.4% from continuing operations for 1994, 1995 and 1996,
respectively, and the statutory federal income tax rate of 34.0% are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal rate................................ $1,724 $1,823 $(4,545)
State income taxes, net of federal income tax
benefit............................................. 224 226 (568)
Amortization of goodwill.............................. 61 69 16
Change in valuation allowance......................... 54 (141) (1)
Nondeductible merger costs............................ -- -- 298
Other................................................. 34 (24) 336
------ ------ -------
$2,097 $1,953 $(4,464)
====== ====== =======
</TABLE>
F-18
<PAGE> 87
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets -- current:
Accounts and notes receivable........................ $ 491 $ 544 $3,305
Accrued vacation liability........................... 674 692 710
Accrued liabilities.................................. 187 121 1,924
Other................................................ -- 2 --
------ ------ ------
Net deferred tax assets--current....................... $1,352 $1,359 $5,939
====== ====== ======
Deferred tax assets--noncurrent:
Depreciation of property, plant and equipment........ $ 107 $ 232 $ 464
Net operating losses from separate return
subsidiary........................................ 421 280 278
Accrued liabilities.................................. 204 218 41
Deferred revenue..................................... -- 42 --
------ ------ ------
732 772 783
Less valuation allowance............................... (421) (280) (278)
------ ------ ------
Deferred tax assets -- noncurrent...................... 311 492 505
Deferred tax liabilities -- other...................... -- (76) (41)
------ ------ ------
Net deferred tax assets -- noncurrent.................. $ 311 $ 416 $ 464
====== ====== ======
</TABLE>
In the accompanying consolidated balance sheets, net current deferred tax
assets and net noncurrent deferred tax assets are included in prepaid expenses
and other, and other assets, respectively.
The decrease in the valuation allowance for deferred tax assets for the
years ended December 31, 1994, 1995 and 1996 was $54,000, $141,000 and $2,000,
respectively. The Company had net operating loss carryforwards (NOLs) of
approximately $714,000 at December 31, 1996 related to a subsidiary that has not
been included in the consolidated federal income tax return. These NOLs will
expire beginning in 2009. Due to restrictions on the use of the NOLs under the
Internal Revenue Code, management believes there is a risk they may expire
unused and, accordingly, has established a valuation reserve against the tax
benefit of the NOLs. Management believes it is more likely than not that the
remaining deferred tax assets will ultimately be realized through future taxable
income from operations.
The Internal Revenue Service is in the process of finalizing its
examination of the Company's federal income tax returns for the 1993 and 1994
years. The examination resulted in temporary differences with a tax effect of
approximately $2,148,000 being reclassified from deferred taxes to currently
payable liabilities in the December 31, 1996 balance sheet. Finalization of the
examination is not expected to have a significant impact on the results of
operations of the Company.
11. DISCONTINUED OPERATIONS
During May 1995, the Company adopted a plan to dispose of its business of
providing managed care administration and organization infrastructure to
physician groups taking health care payment risk. Revenue from this business
segment was $2,169,000 and $1,126,000 for the years ended December 31, 1994 and
1995, respectively. Loss from operations of this business segment was $678,000
and $146,000 for the years ended December 31, 1994 and 1995, respectively, net
of taxes. The loss on the disposal of this business segment was $670,000 net of
taxes.
F-19
<PAGE> 88
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During September 1995, the Company adopted a plan to dispose of its
stand-alone business of providing surgery on an outpatient basis. Revenue from
this business segment was $91,000 and $155,000 for the years ended December 31,
1994 and 1995, respectively. Loss from operations of this business segment was
$221,000 and $249,000 for the years ended December 31, 1994 and 1995,
respectively, net of taxes. Loss on disposal of this business was $377,000, net
of taxes.
During November 1996, the Company adopted a plan to sell its senior living
business. This business segment was sold on December 18, 1996. Revenue from this
business segment was $12,478,000, $19,422,000 and $18,598,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. Income from operations was
$742,000, $1,178,000 and $537,000, net of taxes, for the years ended December
31, 1994, 1995 and 1996, respectively. The gain on the disposal of this business
segment was $5,478,000, net of taxes.
For financial reporting purposes, the results of operations and cash flows
of the discontinued businesses are included in the consolidated financial
statements as discontinued operations. The income (loss) from discontinued
operations may be summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
(Loss) income from discontinued operations........... $(256) $ 1,284 $ 891
Applicable income taxes.............................. (99) 501 354
----- ------- ------
(157) 783 537
(Loss) gain on disposal of discontinued operations... -- (1,715) 8,961
Applicable income taxes.............................. -- (668) 3,483
----- ------- ------
- (1,047) 5,478
----- ------- ------
Total...................................... $(157) $ (264) $6,015
===== ======= ======
</TABLE>
12. LEASES
The Company leases various buildings, office space and equipment. The
leases expire at various times and have various renewal options. These leases
are classified as either capital leases or operating leases based on the terms
of the respective agreements.
Future minimum payments at December 31, 1996, by year and in the aggregate,
under capital leases and noncancellable operating leases with terms of one year
or more consist of the following:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997........................................................ $ 1,830 $ 4,043
1998........................................................ 1,819 3,371
1999........................................................ 1,531 2,666
2000........................................................ 642 2,278
2001........................................................ 663 1,784
Thereafter.................................................. 1,139 5,831
------- -------
Total minimum lease payments................................ 7,624 $19,973
=======
Amount representing interest................................ (1,589)
-------
Present value of net minimum lease payments
(including $1,442 classified as current)........ $ 6,035
=======
</TABLE>
F-20
<PAGE> 89
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONTINGENCIES
The Company is involved in litigation and regulatory investigations arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, these matters will be resolved without material
adverse effect on the Company's consolidated financial position or results of
operations.
14. RETIREMENT PLANS
The Company sponsors defined contribution employee benefit plans which
cover substantially all employees. Employees may contribute a percentage of
eligible compensation subject to Internal Revenue Service limits. The plans call
for the Company to make matching contributions, based on either a percentage of
employee contributions or a discretionary amount as determined by the Company.
Contributions by the Company to the plans totaled $355,000, $394,000 and
$497,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
In January 1995, the Company adopted a nonqualified supplemental deferred
compensation plan for selected management employees. As determined by the Board
of Directors, the Plan provides a benefit of 1% to 3% of the employee's
compensation. The participant's amount is fully vested, except in those
instances where the participant's employment terminates for any reason other
than retirement, death or disability, in which case the participant forfeits a
portion of the employer's contribution depending on length of service. Plan
expense totaled $80,000 and $99,000 for the years ended December 31, 1995 and
1996, respectively.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents:--The carrying amount reported in the balance
sheet for cash and cash equivalents approximates fair value.
Accounts Receivable and Accounts Payable:--The carrying amount reported in
the balance sheet for accounts receivable and accounts payable approximates fair
value.
Long-Term Debt:--The carrying amount reported in the balance sheet for
long-term obligations approximates fair value. The fair value of the Company's
long-term obligations is estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements.
16. STOCK SPLIT
On May 8, 1997, the Company declared a three-for-one stock split of the
outstanding common stock and common stock options and warrant to shareholders of
record on May 8, 1997. All post-recapitalization common share and per share
data, included in the accompanying consolidated financial statements and
footnotes thereto, have been restated to reflect this stock split.
17. SUBSEQUENT EVENTS
STOCK OPTIONS
In March 1997, the Company's Board of Directors approved a stock option
plan (the Plan) under which options to purchase common stock may be granted to
officers, employees, and directors. Options are granted at no less than market
price on the date of grant.
Under the Plan, 1,300,000 shares have been reserved for grant. The
Company's Board of Directors approved the issuance of options to acquire 385,765
common shares in March 1997, at an
F-21
<PAGE> 90
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercise price of $3.375 per share. The options granted vest and are exercisable
ratably over a five-year period. Shares available for grant total 914,235.
STOCK SALE
In July 1997, GTCR exercised its right, obtained in December 1996, as a
part of the recapitalization transaction (see Note 3), to make the First
Additional Investment and purchase shares of the Company's redeemable junior
preferred stock at $1,000 per share and common stock at $0.45 per share. GTCR
acquired 2,733 shares of redeemable junior preferred stock and 607,334 shares of
common stock thereunder. As discussed in Note 3, Leeway & Co., Mr. Rash, Mr.
Gore, and the two banks were obligated to purchase specified amounts of
redeemable junior preferred stock and common stock at the same per share prices
in the event GTCR exercised its right to acquire redeemable junior preferred
stock and common stock and, accordingly, purchased 1,022 shares of redeemable
junior preferred stock and 350,891 shares of common stock. Net proceeds from the
stock sale totaled $4,182,000.
In connection with the anticipated public offering of its common stock, the
rights of GTCR, Leeway & Co., Mr. Rash, and Mr. Gore, to purchase stock of the
Company pursuant to the Second Initial Investment will be terminated with no
purchases being made. (See Note 3.)
NOTES RECEIVABLE FOR COMMON STOCK
In July 1997, the Company was paid $211,200 of the notes receivable for
common stock with a balance of $391,000 at December 31, 1996.
ACQUISITIONS
Effective August 1, 1997, the Company acquired Needles Desert Community
Hospital by entering into a 15-year lease agreement with three five-year renewal
terms and by purchasing assets totaling $1,840,000 and assuming certain
liabilities totaling $583,000 for a purchase price of $1,257,000.
EXERCISE OF WARRANT
On August , 1997, Leeway & Co. exercised its warrant to purchase 343,265
shares of the Company's common stock. The warrant had an exercise price of
$0.045 per share, resulting in total proceeds to the Company of $15,447. (See
Note 8.)
REINCORPORATION
On September , 1997, the Company changed its jurisdiction of
incorporation to Delaware, changed its name to Province Healthcare Company, and
exchanged 1.35 shares of its no par common stock for each share of its $0.01 par
value common stock. All post-recapitalization common share and per share data,
included in the consolidated financial statements and footnotes thereto, have
been restated to reflect this reincorporation.
F-22
<PAGE> 91
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,016
Accounts receivable, less allowance for doubtful accounts
of $6,816.............................................. 28,292
Inventories............................................... 3,203
Prepaid expenses and other................................ 7,274
--------
Total current assets.............................. 44,785
Property, plant and equipment, net.......................... 39,066
Other assets:
Unallocated purchase price................................ 6,822
Investments in other health care-related businesses....... 544
Other..................................................... 5,636
--------
13,002
--------
$ 96,853
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 7,982
Accrued salaries and benefits............................. 5,085
Accrued expenses.......................................... 5,451
Current maturities of long-term obligations............... 1,640
--------
Total current liabilities......................... 20,158
Long-term obligations, less current maturities.............. 78,436
Third-party settlements..................................... 5,984
Other liabilities........................................... 6,243
--------
90,663
Mandatory redeemable preferred stock........................ 46,340
Common stockholders' equity (deficit):
Common stock, no par value, authorized 20,000,000; issued
and outstanding 7,280,020.............................. 3,276
Notes receivable for common stock......................... (391)
Common stock warrant...................................... 139
Retained deficit.......................................... (63,332)
--------
(60,308)
--------
$ 96,853
========
</TABLE>
See accompanying notes.
F-23
<PAGE> 92
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Net patient service revenue............................... $43,391 $69,581
Management and professional services...................... 9,630 8,398
Other..................................................... 5,269 2,882
------- -------
Net operating revenue....................................... 58,290 80,861
------- -------
Expenses:
Salaries, wages and benefits.............................. 28,784 33,802
Purchased services........................................ 8,518 10,314
Supplies.................................................. 5,256 7,832
Provision for doubtful accounts........................... 2,804 5,901
Other operating expenses.................................. 4,655 8,377
Rentals and leases........................................ 2,556 2,881
Depreciation and amortization............................. 893 2,492
Interest expense.......................................... 847 3,941
Loss (gain) on sale of assets............................. 106 (159)
------- -------
Total expenses.............................................. 54,419 75,381
------- -------
Income from continuing operations before provision for
income taxes.............................................. 3,871 5,480
Provision for income taxes.................................. 1,846 2,081
------- -------
Income from continuing operations........................... 2,025 3,399
Income from discontinued operations, less applicable income
taxes..................................................... 182 --
------- -------
Net income.................................................. $ 2,207 $ 3,399
======= =======
Preferred stock dividends and accretion..................... -- (2,384)
------- -------
Net income applicable to common and common equivalent
shares.................................................... $ 2,207 $ 1,015
======= =======
Pro forma net income per common and common equivalent share:
Income from continuing operations......................... $ 0.23 $ 0.11
Income from discontinued operations....................... .02 --
------- -------
Net income per common and common equivalent share......... $ 0.25 $ 0.11
======= =======
Pro forma number of common and common equivalent shares..... 8,843 8,843
======= =======
</TABLE>
See accompanying notes.
F-24
<PAGE> 93
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
NO PAR VALUE NOTES
COMMON STOCK RECEIVABLE FOR COMMON RETAINED
------------------ COMMON STOCK EARNINGS
SHARES AMOUNT STOCK WARRANT (DEFICIT) TOTAL
--------- ------ -------------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... 7,280,020 $3,276 $(391) $139 $(64,347) $(61,323)
Net income................ -- -- -- -- 3,399 3,399
Dividends and accretion... -- -- -- -- (2,384) (2,384)
--------- ------ ----- ---- -------- --------
Balance at June 30, 1997.... 7,280,020 $3,276 $(391) $139 $(63,332) $(60,308)
========= ====== ===== ==== ======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 94
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... $ 7,442 $(1,543)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (3,184) (5,530)
Net capital contributions and withdrawals -- investments.... (1,721) (121)
Purchase of acquired companies.............................. (1,763) --
------- -------
Net cash used in investing activities....................... (6,668) (5,651)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 622 2,833
Repayments of debt.......................................... (714) (879)
Issuance of common stock.................................... 587 --
Repurchase of common stock.................................. (166) --
------- -------
Net cash provided by financing activities................... 329 1,954
------- -------
Net increase (decrease) in cash and cash equivalents........ 1,103 (5,240)
Cash and cash equivalents at beginning of period............ 2,287 11,256
------- -------
Cash and cash equivalents at end of period.................. $ 3,390 $ 6,016
======= =======
ACQUISITIONS
Fair value of assets acquired............................... $ 3,092 $ --
Liabilities assumed......................................... (1,329) --
------- -------
Cash paid................................................... $ 1,763 $ --
======= =======
SALE OF ASSETS
Assets sold................................................. $ -- $ 399
Liabilities released........................................ -- (582)
Gain on sale of assets...................................... -- 183
------- -------
Cash paid................................................... $ -- $ --
======= =======
NONCASH TRANSACTIONS
Property, plant and equipment acquired through capital
leases.................................................... $ 322 $ --
======= =======
</TABLE>
See accompanying notes.
F-26
<PAGE> 95
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
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 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 (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included herein.
2. PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is computed using the weighted average
number of shares of common stock outstanding during the period, including
dilutive common equivalent shares from stock options and warrants (using the
treasury stock method). The 7,280,020 common shares issued in the
recapitalization and the merger in December 1996 have been included in the pro
forma calculation as if the recapitalization had occurred as of the first day of
1996. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all other common stock issued, and common stock options and warrants
granted, by the Company at prices below the initial public offering price during
the twelve-month period prior to the initial public offering have been included
in the calculation as if they were outstanding for the full fiscal year (using
the treasury stock method).
Historical net income per share has not been presented in these financial
statements for the six months ended June 30, 1996 since the historical
capitalization of the Company is not meaningful due to the change in the capital
structure of the Company resulting from the recapitalization.
3. CONTINGENCIES
Management continually evaluates contingencies based on the best available
evidence and believes that adequate provision for losses has been provided to
the extent necessary. In the opinion of management, the ultimate resolution of
the following contingencies will not have a material effect on the Company's
results of operations or financial position.
GENERAL AND PROFESSIONAL LIABILITY RISKS
The reserve for the self-insured portion of general and liability and
professional liability risks is included in "Other liabilities" and is based on
actuarially determined estimates.
LITIGATION
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business.
NET PATIENT SERVICE REVENUE
Final determination of amounts earned under the Medicare and Medicaid
programs often occurs in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
F-27
<PAGE> 96
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
FINANCIAL INSTRUMENTS
On March 10, 1997, as required by the credit facility, the Company entered
into an interest rate swap agreement, which effectively converted for a
five-year period $35 million of floating rate borrowings to fixed rate
borrowings. Interest rate swap agreements are used on a limited basis to manage
the Company's interest rate exposure. The agreements are contracts to
periodically exchange fixed and floating interest rate payments over the life of
the agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement was
consummated. For the six months ended June 30, 1997 the Company received a
weighted average rate of 5.56% and paid a weighted average rate of 6.27%.
4. STOCK OPTIONS
In March 1997, the Company's Board of Directors approved a stock option
plan (the Plan) under which options to purchase common stock may be granted to
officers, employees, and directors. Options are granted at no less than market
price on the date of grant.
Under the Plan, 1,300,000 shares have been reserved for grant. The
Company's Board of Directors approved the issuance of options to acquire 385,765
common shares in March 1997, at an exercise price of $3.375 per share. The
options granted vest and are exercisable ratably over a five-year period. Shares
available for grant total 914,235.
5. SUBSEQUENT EVENTS
STOCK SALE
In July 1997, GTCR exercised its right, obtained in December 1996, as a
part of the recapitalization transaction, to make the First Additional
Investment and purchase shares of the Company's redeemable junior preferred
stock at $1,000 per share and common stock at $0.45 per share. GTCR acquired
2,733 shares of redeemable junior preferred stock and 607,334 shares of common
stock thereunder. As discussed in Note 3, Leeway & Co., Mr. Rash, Mr. Gore, and
the two banks were obligated to purchase specified amounts of redeemable junior
preferred stock and common stock at the same per share prices in the event GTCR
exercised its right to acquire redeemable junior preferred stock and common
stock and, accordingly, purchased 1,022 shares of redeemable junior preferred
stock and 350,891 shares of common stock. Net proceeds from the stock sale
totaled $4,182,000.
In connection with the anticipated public offering of its common stock, the
rights of GTCR, Leeway & Co., Mr. Rash, and Mr. Gore, to purchase stock of the
Company pursuant to the Second Initial Investment will be terminated with no
purchases being made.
NOTES RECEIVABLE FOR COMMON STOCK
In July 1997, the Company was paid $211,200 of the notes receivable for
common stock with a balance of $391,000 at December 31, 1996.
ACQUISITIONS
Effective August 1, 1997, the Company acquired Needles Desert Community
Hospital by entering into a 15-year lease agreement with three five-year renewal
terms and by purchasing assets totaling $1,840,000 and assuming certain
liabilities totaling $583,000 for a purchase price of $1,257,000.
F-28
<PAGE> 97
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
EXERCISE OF WARRANT
On August , 1997, Leeway & Co. exercised its warrant to purchase 343,265
shares of the Company's common stock. The warrant had an exercise price of
$0.045 per share, resulting in total proceeds to the Company of $15,447.
REINCORPORATION
On September , 1997, the Company changed its jurisdiction of
incorporation to Delaware, changed its name to Province Healthcare Company, and
exchanged 1.35 shares of its no par common stock for each share of its $0.01 par
value common stock. All post-recapitalization common share and per share data,
included in the consolidated financial statements and footnotes thereto, have
been restated to reflect this reincorporation.
F-29
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Memorial Hospital Foundation -- Palestine, Inc.
We have audited the accompanying consolidated statements of operations and
cash flows for the years ended May 31, 1995 and 1996 and the period June 1, 1996
to July 25, 1996, of Memorial Hospital Foundation -- Palestine, Inc. and
subsidiaries. These consolidated financial statements are the responsibility of
the Foundation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Memorial Hospital Foundation -- Palestine, Inc. and
subsidiaries for the years ended May 31, 1995 and 1996 and the period June 1,
1996 to July 25, 1996, in conformity with generally accepted accounting
principles.
HARRELL, RADER, BONNER & BOLTON, LLP
Palestine, Texas
July 25, 1997
F-30
<PAGE> 99
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
-------------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
----------- ----------- ----------------
<S> <C> <C> <C>
Revenue:
Net patient service revenue.................. $27,964,228 $24,882,638 $3,565,113
Other........................................ 610,515 704,921 100,876
----------- ----------- ----------
Total revenue........................ 28,574,743 25,587,559 3,665,989
Expenses:
Salaries, wages and benefits................. 11,885,884 10,579,605 1,439,896
Purchased services........................... 2,351,178 2,642,919 312,960
Supplies..................................... 3,138,923 2,602,732 338,320
Professional services........................ 2,003,004 1,590,450 242,199
Rentals and leases........................... 508,653 531,669 69,252
Depreciation and amortization................ 2,615,183 3,293,552 431,964
Interest expense............................. 1,445,917 1,604,811 227,696
Provision for doubtful accounts.............. 3,677,053 3,410,640 584,387
Litigation settlements....................... 3,784,554 1,737,963 52,671
Other expense................................ 4,523,566 3,785,922 621,554
----------- ----------- ----------
Total expenses....................... 35,933,915 31,780,263 4,320,899
----------- ----------- ----------
Excess of expenses over revenue...... $(7,359,172) $(6,192,704) $ (654,910)
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 100
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
------------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
----------- ----------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Excess of expenses over revenue..................... $(7,359,172) $(6,192,704) $(654,910)
Adjustments to reconcile excess of expenses over
revenue to net cash provided (used) by operating
activities:
Depreciation and amortization..................... 2,615,183 3,293,552 431,964
Provision for doubtful accounts................... 3,677,053 3,410,640 584,387
Noncash litigation settlement..................... 1,757,157 -- --
Changes in operating assets and liabilities:
Accounts receivable............................. (3,777,174) (1,379,544) (832,103)
Inventories..................................... (20,037) 151,318 24,548
Prepaid expenses and other...................... 29,978 166,558 (178,515)
Accounts payable................................ 1,458,165 128,492 542,093
Accrued salaries and benefits................... 183,309 286,469 92,698
Third party settlements......................... (1,569,855) 1,213,444 384,578
Litigation settlements.......................... 1,975,000 (100,000) --
Other liabilities............................... 134,003 432,508 378,802
----------- ----------- ---------
Net cash provided (used) by operating activities.... (896,390) 1,410,733 773,542
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (3,542,689) (430,683) (119,084)
(Purchase) sale of marketable securities............ (323,394) 323,394 --
Increase in other assets............................ (994,300) (124,491) --
Reduction (increase) in cash invested in assets
whose use is limited.............................. 4,829,978 249,302 (216,182)
----------- ----------- ---------
Net cash provided (used) by investing activities.... (30,405) 17,522 (335,266)
FINANCING ACTIVITIES
Proceeds from long-term debt........................ 1,505,435 140,255 --
Principal payments on long-term debt................ (126,752) (388,928) (59,528)
Principal payments on capital leases................ (1,190,028) (1,025,043) (190,198)
Decrease in retainage and construction payable...... (1,544,649) -- --
----------- ----------- ---------
Net cash provided (used) by financing activities.... (1,355,994) (1,273,716) (249,726)
=========== =========== =========
Net increase (decrease) in cash and cash
equivalents....................................... (2,282,789) 154,539 188,550
Cash and cash equivalents at beginning of year...... 2,486,450 203,661 358,200
----------- ----------- ---------
Cash and cash equivalents at end of year............ $ 203,661 $ 358,200 $ 546,750
=========== =========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period................... $ 1,691,602 $ 1,718,399 $ 45,731
=========== =========== =========
NONCASH TRANSACTIONS:
Property, plant and equipment acquired through
capital leases.................................. $ 2,662,290 $ -- $ --
=========== =========== =========
Property, plant and equipment transferred to
Anderson County -- net.......................... $ 1,757,157 $ -- $ --
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 101
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1995 AND 1996 AND
THE PERIOD JUNE 1, 1996 TO JULY 25, 1996
1. ORGANIZATION
Memorial Hospital Foundation -- Palestine, Inc. (Foundation) is a
not-for-profit corporation which provides hospital and related health care
services to citizens of Anderson County and the immediate surrounding area. The
Foundation has two wholly owned for profit subsidiaries.
In September 1988, the Foundation leased from Anderson County the County's
hospital facilities. The lease term was for fifteen years and provided for the
transfer of all assets and liabilities of the County hospital for a nominal fee.
In July 1994, the Foundation moved from the County facility into a new hospital
facility.
See Note 9, Subsequent Events, for a discussion of the July 1996 sale of
all health care facilities, the return of the County hospital, and termination
of the County lease. The accompanying financial statements reflect the results
of operations and cash flows of the Foundation prior to the July 26, 1996 sale.
2. ACCOUNTING POLICIES
Basis of Consolidation. The consolidated financial statements of the
Foundation include the accounts of Memorial Hospital Foundation -- Palestine,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Foundation considers certificates of deposit having a maturity of three
months or less to be cash equivalents.
Depreciation and amortization. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, which range
from 10 to 40 years for buildings and improvements and an average of 10 years
for equipment. Amortization of equipment under capital leases is included in the
provision for depreciation and amortization.
When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation is eliminated from the respective accounts and any
related gain or loss is included in operations.
Compensated absences. In accordance with the Financial Accounting
Standards Board Statement No. 43, Accounting For Compensated Absences, the
Foundation accrues vacations, holidays, sick days and personal days when earned
by the employees.
Risk management. The Foundation is insured for professional liability and
general liability based on a claims-made policy purchased in the commercial
insurance market. The provision for professional liability and comprehensive
general liability claims includes estimates of the ultimate costs for claims
incurred but not reported, in accordance with actuarial projections based on
past experience. Management is aware of no potential liability claims whose
settlement, if any, would have a material adverse effect on the Foundation's
financial position or results of operations.
The Foundation maintains self-insured medical and dental plans for
employees. Claims are accrued under these plans as the incidents that give rise
to them occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, in accordance with an average lag time and past
F-33
<PAGE> 102
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
experience. The Foundation has entered into reinsurance agreements with
independent insurance companies to limit its losses on claims.
Patient service revenue. Patient service revenue is reported at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Estimated settlements under
third-party reimbursement agreements are accrued in the period the related
services are rendered and adjusted in future periods as final settlements are
determined.
Income taxes. The Foundation is a not-for-profit corporation as described
in Section 501(c)(3) of the Internal Revenue Code and is exempt from Federal
income taxes on related income.
East Texas Medical Management, Inc. and Benefit Solutions, Inc. are
for-profit corporations and are subject to Federal income taxes on their taxable
income.
3. THIRD-PARTY PAYOR SETTLEMENTS
The Foundation has agreements with third-party payors that provide for
payments to the Foundation at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
- Medicare -- Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per diagnosis.
These rates vary according to a patient classification system that is
based on clinical, diagnostic, and other factors. Inpatient nonacute
services and certain outpatient services are paid based on a cost
reimbursement methodology. The Foundation is reimbursed for cost
reimbursable items at a tentative rate with final settlement determined
after submission of annual cost reports and audits thereof by the
Medicare fiscal intermediary. Classification of patients under the
Medicare program and the appropriateness of their admission are subject
to an independent review. Medicare cost reports have been audited by
the Medicare fiscal intermediary through May 31, 1994.
- Medicaid -- Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed either under contracted rates or
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports and
audits thereof by Medicaid. Medicaid cost reports have been audited by
the Medicaid fiscal intermediary through May 31, 1994.
- Other -- The Foundation also has entered into payment agreements with
certain commercial insurance carriers and preferred provider
organizations. The basis for payment under these agreements includes
prospectively determined rates per discharge, discounts from
established charges, and prospectively determined daily rates.
4. RETIREMENT PLAN
The Foundation has a qualified employee retirement savings plan covering
all eligible employees. The Foundation makes "non-elective" contributions equal
to 3% of compensation for eligible participants. In addition, the Foundation
matches 100% of eligible participant contributions up to 3% of compensation.
The Foundation reserves the right to change the amount of the employer
contribution at any time.
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<PAGE> 103
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee retirement plan expense for the years ended May 31, 1995 and 1996
and the period June 1, 1996 to July 25, 1996 was $263,649, $267,482 and $32,206,
respectively.
5. LEASES
The Foundation leases medical office space and equipment under
noncancellable operating leases.
At the date of sale (see Note 9), all capital and operating leases were
either assumed by the purchaser or paid off shortly thereafter.
6. CHARITY CARE
The Foundation provides medically necessary care to all patients who meet
certain criteria under its charity care policy regardless of the patient's
ability to pay. For the years ended May 31, 1995 and 1996 and the period June 1,
1996 to July 25, 1996, the Foundation provided $1,873,991, $1,591,300 and
$298,445, respectively of uncompensated care based on charges foregone.
7. RELATED PARTY TRANSACTIONS
In 1992, ETCHS, Inc., a non-profit corporation, was created and funded by
the Foundation to provide community clinical health services. In 1996, $93,180
of the original funding was returned to the Foundation and ETCHS, Inc. was
liquidated.
In May 1995, the Foundation purchased, for its rural health clinics, the
medical practice of a retiring physician who is a member of the Foundation Board
of Trustees. The purchase price was $275,000.
8. LITIGATION AND CONTINGENCIES
Prior to the sale of the health care facilities (see Note 9), the
Foundation settled several claims as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
----------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
---------- ---------- ----------------
<S> <C> <C> <C>
Class action relating to termination of a
pension plan in 1988..................... $1,275,000 $ -- $ --
Claims relating to termination of
professional services and other
contracts................................ -- 1,240,000 --
Claim by Anderson County relating to the
lease of the former County hospital
(includes net book value of plant,
property and equipment transferred to the
County).................................. 2,257,157 -- --
Claim challenging the Foundation's tax
exempt status for property taxes......... 252,397 497,963 52,671
---------- ---------- -------
Total............................ $3,784,554 $1,737,963 $52,671
========== ========== =======
</TABLE>
The Foundation is involved in additional litigation and regulatory
investigations arising in the normal course of business. In the opinion of
management, after consultation with legal counsel,
F-35
<PAGE> 104
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these matters will be resolved without material adverse effect on the
Foundation's consolidated financial position or results of operations.
9. SUBSEQUENT EVENTS
On July 26, 1996, the Foundation completed the sale of all of its health
care facilities, (except its West Oak Plaza medical office building), equipment,
and inventories to Palestine Principal Healthcare Limited Partnership for
$23,183,000, subject to adjustment. In 1997, the final adjustment was made
resulting in a sales price of $22,957,000. In a separate but simultaneous
transaction, the Foundation sold the West Oak Plaza medical office building and
equipment to Mother Frances Regional Healthcare Center for $1,264,000. The
purchasers paid cash or assumed certain Foundation liabilities.
In related transactions, the Foundation (1) paid off all bond indebtedness
at a discount of $758,224 and (2) returned the former County hospital facility
to Anderson County and terminated the County lease.
After July 25, 1996, the Foundation ceased operations as a healthcare
provider and will use proceeds from the sale and from collection of receivables
to liquidate the Foundation's liabilities.
The Foundation has also terminated operations of its subsidiaries.
F-36
<PAGE> 105
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO BUY, OR SOLICITATION OF, ANY
PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 8
The Recapitalization and the Merger... 8
Risk Factors.......................... 10
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Pro Forma Condensed Consolidated
Financial Statements................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 39
Management............................ 54
Certain Relationships and Related
Transactions........................ 59
Principal Stockholders................ 61
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 63
Underwriting.......................... 65
Legal Matters......................... 66
Experts............................... 66
Additional Information................ 67
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
5,700,000 SHARES
[LOGO]
PROVINCE HEALTHCARE
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
GOLDMAN, SACHS & CO.
ROBERTSON, STEPHENS & COMPANY
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
======================================================
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 29,796
NASD Filing Fee............................................. 10,333
Nasdaq Original Listing Fee................................. 50,000
Blue Sky Fees and Expenses (including attorneys' fees and
expenses)................................................. 2,000
Printing and Engraving Expenses............................. 325,000
Transfer Agent's Fees and Expenses.......................... 11,500
Accounting Fees and Expenses................................ 410,000
Legal Fees and Expenses..................................... 335,000
Miscellaneous Expenses...................................... 26,371
----------
Total..................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Prior to the consummation of the offering, the Company will complete the
Reincorporation. Section 145 of the General Corporation Law of the State of
Delaware ("Section 145") provides that a Delaware corporation may indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, or are threatened to be made, a party to any threatened,
pending or completed action or suit by or in the right of the corporation by
reason of the fact that such person was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation will provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
In that regard, the Certificate of Incorporation will provide that the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, administrative or investigative (other than action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer or member of
II-1
<PAGE> 107
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of such corporation to
procure a judgment in its favor is limited to payment of expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such an action or suit except that no such indemnification may
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the indemnifying corporation unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
The Company has in effect insurance policies covering all of the Company's
directors and officers in certain instances where by law they may not be
indemnified by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the Recapitalization and the Merger, on December 17,
1996, the Company sold (i) 20,000 shares of its Series A Senior Preferred Stock,
no par value, to Leeway & Co.; (ii) an aggregate of 28,540 shares of its Series
B Junior Preferred Stock, no par value (the "Junior Preferred"), to GTCR Fund
IV, Leeway & Co., certain members of management and certain other investors; and
(iii) an aggregate of 7,280,020 shares of its Common Stock, no par value, to
GTCR Fund IV, Leeway & Co., Messrs. Rash and Gore and certain other investors.
The aggregate purchase price for all such purchases was $31,612,700.
On July 15, 1997, pursuant to the terms of a Stockholders Agreement, dated
as of December 17, 1996 among the Company and its stockholders, the Company sold
an aggregate of 3,755 shares of the Junior Preferred and 958,222 shares of the
Common Stock to GTCR Fund IV, Leeway & Co., Messrs. Rash and Gore and certain
other investors for an aggregate purchase price of $4,181,888.
In addition, on August , 1997, Leeway & Co. exercised its warrant to
purchase 343,274 shares of Common Stock for an aggregate exercise price of
$15,447.
All of the sales described above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof, as transactions not
involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<S> <C> <S>
*1.1 -- Underwriting Agreement
*2.1 -- Agreement and Plan of Merger, dated as of December 16, 1996,
between Brim, Inc. ("Brim") and Carryco, Inc.
*2.2 -- Plan and Agreement of Merger, dated as of December 17, 1996,
between Brim, Principal Hospital Company ("PHC") and
Principal Merger Company
*2.3 -- Agreement and Plan of Merger dated as of November 27, 1996
between Brim, Brim Senior Living, Inc., Encore Senior
Living, L.L.C. and Lee Zinsli
*3.1 -- Certificate of Incorporation of the registrant
*3.2 -- Restated By-laws of the registrant
*4.1 -- Form of Common Stock Certificate
</TABLE>
II-2
<PAGE> 108
*4.2 -- Securities Purchase Agreement, dated as of December 17,
1996, between Brim and Leeway & Co.
*4.3 -- Form of Series A Senior Preferred Stock Certificate
*4.4 -- Form of Series B Junior Preferred Stock Certificate
4.5 -- Credit Agreement, dated as of December 17, 1996, among Brim,
First Union National Bank of North Carolina and the other
lenders party thereto
4.6 -- First Amendment to Credit Agreement and Modification of Loan
Documents, dated March 26, 1997, among PHC, First Union
National Bank of North Carolina and the other lenders under
the Credit Agreement
*4.7 -- Second Amendment to Credit Agreement and Modification of
Loan Documents dated August , 1997, among PHC, First Union
National Bank of North Carolina and the other lenders under
the Credit Agreement.
*5.1 -- Opinion of Kirkland & Ellis with respect to validity of
Common Stock
*10.1 -- Investment Agreement, dated as of November 21, 1996, between
Brim, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR")
and PHC
*10.2 -- First Amendment to Investment Agreement, dated as of
December 17, 1996, between Brim, GTCR and PHC
10.3 -- Form of Investment Agreement Counterpart
*10.4 -- Preferred Stock Purchase Agreement, dated as of November 25,
1996, between Brim and General Electric Capital Corporation
*10.5 -- Employment Agreement, dated as of December 17, 1996, by and
between Steven P. Taylor and Brim
*10.6 -- Employment Agreement, dated as of December 17, 1996, by and
between A.E. Brim and Brim
10.7 -- Stockholders Agreement by and among Brim, GTCR, Leeway &
Co., First Union Corporation of Virginia, AmSouth
Bancorporation, Martin S. Rash ("Rash"), Richard D. Gore
("Gore"), PHC and certain other stockholders
*10.8 -- First Amendment to Stockholders Agreement dated as of July
14, 1997 by and among the Company, GTCR Fund IV, Rash, Gore
and certain other stockholders
10.9 -- Registration Agreement by and among Brim, PHC, GTCR, Leeway
& Co., First Union Corporation of America, AmSouth
Bancorporation and certain other stockholders
10.10 -- Senior Management Agreement, dated as of December 17, 1996,
between Brim, Rash, GTCR, Leeway & Co. and PHC
*10.11 -- First Amendment to Senior Management Agreement dated as of
July 14, 1997 between the Company, Rash and GTCR Fund IV
10.12 -- Senior Management Agreement, dated as of December 17, 1996,
between Brim, Gore, GTCR, Leeway & Co. and PHC
*10.13 -- First Amendment to Senior Management Agreement dated as of
July 14, 1997 between the Company, Gore and GTCR Fund IV
10.14 -- Professional Services Agreement, dated as of December 17,
1996, by and between GTCR, Brim and PHC
*10.15 -- Lease and Security Agreement dated April 11, 1994, as
amended, by and between Nationwide Health Properties, Inc.
and Brim Hospitals, Inc.
*10.16 -- Lease Agreement dated December 16, 1985, as amended, by and
between Union Labor Hospital Association and Brim Hospitals,
Inc.
10.17 -- Lease Agreement dated October 1, 1996 by and between County
of Starke, State of Indiana, and Principal Knox Company
II-3
<PAGE> 109
<TABLE>
<C> <C> <S>
*10.18 -- Lease Agreement dated December 1, 1992 by and between Palo
Verde Hospital Association and Brim Hospitals, Inc.
*10.19 -- Lease Agreement dated May 15, 1986, as amended, by and
between Fort Morgan Community Hospital Association and Brim
Hospitals, Inc.
*10.20 -- Lease Agreement dated April 24, 1996, as amended, by and
between Parkview Regional Hospital, Inc. and Brim Hospitals,
Inc.
10.21 -- Lease Agreement and Annex dated June 30, 1997 by and between
The Board of Trustees of Needles Desert Communities Hospital
and Prince-Needles, Inc.
*10.22 -- Stock Purchase and Sale Agreement dated as of November 27,
1996 between Brim, CC-Lantana, Inc. and Lee Zinsli
*10.23 -- Purchase and Sale Agreement dated as of November 25, 1996
between Brim, Brim Senior Living, Inc., Brim Pavilion, Inc.,
and Plaza Enterprises, L.L.C.
10.24 -- Amended and Restated Limited Partnership Agreement of
Aligned Business Consortium Group, L.P. dated June 1, 1997
10.25 -- Corporate Purchasing Agreement dated April 21, 1997 between
Aligned Business Consortium Group and PHC
*10.26 -- Principal Hospital Company 1997 Long-Term Equity Incentive
Plan
*10.27 -- Lease Agreement dated December 17, 1996 between Brim and
Encore Senior Living, L.L.C.
11.1 -- Computation of Earnings per Share
16.1 -- Letter of KPMG Peat Marwick, LLP regarding change in
certifying accountants.
21.1 -- Subsidiaries of the registrant
*23.1 -- Consent of Kirkland & Ellis (included in opinion filed as
Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of KPMG Peat Marwick LLP
23.4 -- Consent of Harrell, Rader, Bonner & Bolton
*23.5 -- Consent of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company
24.1 -- Power of Attorney (included on signature page)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to every purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in
II-4
<PAGE> 110
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brentwood, State of
Tennessee on August 26, 1997.
PROVINCE HEALTHCARE COMPANY
By: /s/ MARTIN S. RASH
------------------------------------
Martin S. Rash
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Martin S. Rash, Richard D. Gore and Brenda B.
Rector and each of them, his true and lawful attorneys-in-fact and agents, will
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this registration statement and any subsequent
registration statement filed by the Company pursuant to rule 462(b) of the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed on August 26,
1997, by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ MARTIN S. RASH President and Chief Executive Officer, Director
- ---------------------------------------------------
Martin S. Rash
/s/ RICHARD D. GORE Executive Vice President and Chief Financial
- --------------------------------------------------- Officer
Richard D. Gore
/s/ BRENDA B. RECTOR Vice President and Controller (Chief Accounting
- --------------------------------------------------- Officer)
Brenda B. Rector
/s/ BRUCE V. RAUNER Director
- ---------------------------------------------------
Bruce V. Rauner
/s/ JOSEPH P. NOLAN Director
- ---------------------------------------------------
Joseph P. Nolan
/s/ A. E. BRIM Director
- ---------------------------------------------------
A. E. Brim
/s/ MICHAEL T. WILLIS Director
- ---------------------------------------------------
Michael T. Willis
/s/ DAVID L. STEFFY Director
- ---------------------------------------------------
David L. Steffy
</TABLE>
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<PAGE> 112
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Province Healthcare Company
We have audited the consolidated financial statements of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until September , 1997) and
subsidiaries as of December 31, 1996, and for the year then ended, and have
issued our report thereon dated April 30, 1997, except for Note 16, and Notes 1
and 17, as to which the dates are May 8, 1997 and September , 1997,
respectively (included elsewhere in this Registration Statement). Our audit also
included the financial statement schedule as of December 31, 1996 and for the
year then ended, listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Nashville, Tennessee
April 30, 1997, except for Note 16, and Notes 1
and 17, as to which the dates are
May 8, 1997 and September , 1997,
respectively
The foregoing report is in the form that will be signed upon the completion
of the reincorporation described in Note 17 to the consolidated financial
statements.
Ernst & Young LLP
Nashville, Tennessee
August 26, 1997
S-1
<PAGE> 113
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Province Healthcare Company
Under the date of March 8, 1996, we reported on the consolidated balance
sheet as of December 31, 1995 and the consolidated statements of operations,
common stockholders equity (deficit), and cash flows of Province Healthcare
Company (formerly Brim, Inc.) and subsidiaries, as of December 31, 1995, and for
the years ended December 31, 1994 and 1995, which are included in the
prospectus. In connection with our audit of the aforementioned financial
statements, we also audited the related financial statement schedule for the
years ended December 31, 1994 and 1995, listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Portland, Oregon
March 8, 1996
S-2
<PAGE> 114
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------- ---------- ------------------------------ ------------- ----------
ADDITIONS
------------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December
31, 1994:
Allowance for
doubtful
accounts......... $1,679 $5,056 -- $4,507(1) $2,228
Year ended December
31, 1995:
Allowance for
doubtful
accounts......... 2,228 4,601 -- 4,751(1) 2,078
Year ended December
31, 1996:
Allowance for
doubtful
accounts......... 2,078 9,578 98(2) 7,277(1) 4,477
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowances as a result of facility acquisitions.
S-3
<PAGE> 1
EXHIBIT 4.5
CREDIT AGREEMENT
among
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
as Agent
VARIOUS LENDERS
and
BRIM, INC.
as Borrower
$35,000,000 Term Loan Facility
$65,000,000 Revolving Credit Facility
December 17, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS -1-
ARTICLE I
DEFINITIONS -2-
1.1. Defined Terms -2-
1.2. Accounting Terms -27-
1.3. Singular/Plural -28-
1.4. Other Terms -28-
ARTICLE II
AMOUNT AND TERMS OF THE LOANS;LETTERS OF CREDIT -28-
2.1. The Loans -28-
2.2. Borrowings -29-
2.3. Notes -33-
2.4. Termination and Reduction of Commitments and Swingline Commitment -33-
2.5. Payments; Voluntary, Mandatory -34-
2.6. Interest -37-
2.7. Fees -38-
2.8. Interest Periods -39-
2.9. Conversions and Continuations -40-
2.10. Method of Payments; Computations -41-
2.11. Increased Costs, Change in Circumstances, Etc. -42-
2.12. Taxes. -44-
2.13. Compensation -46-
2.14. Use of Proceeds -47-
2.15. Recovery of Payments -47-
2.16. Pro Rata Treatment -47-
2.17. Letters of Credit -48-
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND BORROWING -54-
3.1. Closing -54-
3.2. Conditions of Loans and Advances -54-
3.2.1. Executed Loan Documents -54-
3.2.2. Closing Certificates; Etc. -55-
3.2.3. Consents; No Adverse Change -57-
3.2.4. Financial Matters -57-
3.2.5. Certain Transactions -58-
3.2.6. Principal Loan Termination -59-
3.2.7. Miscellaneous -59-
3.3. Conditions to All Loans and Advances -59-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
3.4. Waiver of Conditions Precedent -60-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES -60-
4.1. Corporate Organization and Power; Capital Structure -60-
4.2. Subsidiaries -61-
4.3. Enforceability of Loan Documents; Compliance with Other Instruments -61-
4.4. Use of Proceeds -61-
4.5. Governmental Authorization -62-
4.6. Financial Statements -62-
4.7. Solvency -63-
4.8. Places of Business -63-
4.9. Leased Properties -63-
4.10. Realty -64-
4.11. Assets for Conduct of Business -64-
4.12. Insurance -64-
4.13. Ownership of Properties -64-
4.14. First Priority -64-
4.15. Litigation; Government Regulation -65-
4.16. Taxes -65-
4.17. ERISA; Employee Benefits -65-
4.18. Compliance with Laws -66-
4.19. Environmental Matters -66-
4.20. Margin Securities -67-
4.21. Full Disclosure -68-
4.22. Contracts; Labor Disputes -68-
4.23. Reimbursement from Third Party Payors -68-
4.24. Fraud and Abuse -68-
4.25. Certain Agreements -69-
4.26. Event of Default -69-
4.27. Ownership of Stock of Borrower -69-
4.28. Single Business Enterprise -69-
4.29. Updates to Schedules -69-
ARTICLE V
AFFIRMATIVE COVENANTS -70-
5.1. Financial and Business Information about the Borrower -70-
5.2. Notice of Certain Events -72-
5.3. Corporate Existence and Maintenance of Properties -73-
5.4. Maintenance of Insurance -74-
5.5. Maintenance of Books and Records; Inspection -75-
5.6. Compliance with ERISA -75-
5.7. Payment of Taxes -75-
5.8. Compliance with Laws -75-
5.9. Name Change -76-
5.10. Disbursement of Proceeds by the Borrower -76-
5.11. Creation or Acquisition of New Subsidiaries -76-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
5.12. Certain Permitted Acquisitions; Asset Purchases -77-
5.13. Swap Agreement -78-
5.14. Acquisition of Realty -78-
5.15. Further Assurances -79-
5.16. Cash Deposits -79-
5.17. Purchase of Ojai Valley Community Hospital -79-
ARTICLE VI
NEGATIVE COVENANTS -79-
6.1. Merger, Consolidation -79-
6.2. Debt -80-
6.3. Contingent Obligations -81-
6.4. Liens and Encumbrances -82-
6.5. Disposition of Assets -82-
6.6. Transactions with Related Persons -82-
6.7. Restricted Investments -82-
6.8. Restricted Payments; Certain Distributions -83-
6.9. Consolidated Adjusted Debt to Annualized Consolidated EBITDAR -84-
6.10. Consolidated Adjusted Senior Debt to Annualized Consolidated EBITDAR -84-
6.11. Minimum Consolidated EBITDAR -84-
6.12. Minimum Net Worth -85-
6.13. Annualized Consolidated EBITDAR to Annualized Interest Expense and Annualized Lease
Expense -85-
6.14. Fixed Charge Coverage -85-
6.15. Capital Expenditures -85-
6.16. Sale and Leaseback -85-
6.17. New Business -86-
6.18. Subsidiaries or Partnerships -86-
6.19. Management Contracts -86-
6.20. Limitation on Certain Restrictions -86-
6.21. No Other Negative Pledges -86-
6.22. Hazardous Wastes -86-
6.23. Fiscal Year -87-
6.24. Amendments; Prepayments of Debt, Etc. -87-
6.25. Location of Assets; Places of Business -87-
6.26. Account Documents -87-
6.27. No Inconsistent Transactions or Agreements -88-
6.28. Fraud and Abuse. -88-
6.29. Parkview Regional Hospital/EBITDAR to Facility Rent Expense. -88-
ARTICLE VII
EVENTS OF DEFAULT -88-
7.1. Events of Default -88-
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VIII
RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT -91-
8.1. Remedies; Termination of Commitments, Acceleration, Etc. -91-
8.2. Right of Setoff -92-
8.3. Rights and Remedies Cumulative; Non-Waiver; Etc. -92-
ARTICLE IX
THE AGENT -92-
9.1. Appointment -92-
9.2. Nature of Duties -93-
9.3. Exculpatory Provisions -93-
9.4. Reliance by the Agent -93-
9.5. Non-Reliance on Agent and Other Lenders -94-
9.6. Notice of Default -94-
9.7. Indemnification -94-
9.8. The Agent in its Individual Capacity -95-
9.9. Successor Agent -95-
9.10. Collateral Matters -96-
9.11. Issuing Bank and Swingline Lender -96-
---------------------------------
ARTICLE X
MISCELLANEOUS -96-
10.1. Survival -96-
10.2. Governing Law; Consent to Jurisdiction -97-
10.3. Arbitration; Remedies -97-
10.4. Notice -98-
10.5. Assignments, Participations -100-
10.6. Fees and Expenses -102-
10.7. Indemnification -103-
10.8. Amendments, Waivers, Etc. -104-
10.9. Rights and Remedies Cumulative, Non-Waiver, Etc. -104-
10.10. Binding Effect, Assignment -105-
10.11. Severability -105-
10.12. Entire Agreement -105-
10.13. Interpretation -105-
10.14. Counterparts; Effectiveness -105-
10.15. Conflict of Terms -105-
10.16. Injunctive Relief -106-
10.17. Confidentiality -106-
10.18. Post-Closing Matters -106-
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
A-1 Form of Term Note
A-2 Form of Revolving Credit Note
A-3 Form of Swingline Note
B-1 Notice of Borrowing
B-2 Notice of Conversion/Continuation
B-3 Notice of Swingline Borrowing
B-4 Letter of Credit Request
C Compliance Certificate
Attachment A: Covenant Compliance Worksheet
Attachment B: Interest Rate Calculation Worksheet
D Assignment and Acceptance Agreement
E Financial Condition Certificate
F Revolving Credit Borrowing Availability Certificate
SCHEDULES
1.1(a) Existing Liens
4.1 Foreign Jurisdiction; Names
4.1(b) Convertible and Other Securities
4.2 Subsidiaries
4.3 Compliance with Other Instruments
4.8 Principal Places of Business
4.9 Leased Properties
4.10 Realty
4.12 Insurance
4.13 Title to Assets
4.15 Litigation; Government Regulation
4.16 Taxes
4.17 ERISA Matters
4.19 Environmental Matters
4.27 Ownership of Stock of Borrower
6.2 Existing Debt
6.3 Contingent Obligations
6.6 Transactions with Related Persons
6.7(e) Restricted Investments
6.8 Distributions
6.19 Intercompany Note
</TABLE>
-v-
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of the 17th day of December, 1996 (the
"Credit Agreement" or "Agreement"), is made among BRIM, INC., an Oregon
corporation with its principal offices in Nashville, Tennessee, which will
change its name after the Closing Date to "Principal Hospital Company" (the
"Borrower"); the banks and other financial institutions from time to time
parties hereto (each, a "Lender," and collectively, the "Lenders"); and FIRST
UNION NATIONAL BANK OF NORTH CAROLINA, as Agent (the "Agent") and as Issuing
Bank.
RECITALS
A. The Borrower has applied to the Lenders for (i) a term loan in the
principal amount of $35,000,000, and (ii) a revolving credit loan in the
aggregate principal amount of up to $65,000,000, to be advanced by the Lenders
in accordance with the terms hereof.
B. The Subsidiaries of the Borrower will jointly and severally
guarantee all of the obligations of the Borrower hereunder and under the other
Loan Documents (as hereinafter defined). The Borrower and all guarantors will
each pledge their respective assets to secure its obligations hereunder and
under the other Loan Documents.
C. Immediately prior to the date hereof, certain officers and
shareholders of the Borrower formed Carryco, Inc., an Oregon corporation, and
contributed to the capital of Carryco, Inc. their shares of the Borrower valued
at approximately $4,000,000. Carryco, Inc. then merged with and into the
Borrower, with the Borrower as the surviving entity. Under the terms of such
merger, the shareholders of Carryco, Inc. received common stock of the Borrower
in exchange for their shares in Carryco, Inc., the remaining shareholders of
the Borrower received or continued to hold certain preferred and redeemable
preferred stock, and the treasury shares (formerly held by Carryco, Inc.) were
cancelled.
D. Immediately prior to the date hereof, pursuant to a plan of merger,
the Borrower merged its wholly-owned subsidiary, Brim Senior Living, Inc. with
and into Encore Senior Living, LLC and sold to Encore Senior Living, LLC certain
assets of the Borrower used in connection with the operation of the senior
living business for cash in the aggregate approximate amount of $15,000,000.
E. Prior to the date hereof, the Borrower also sold certain other
assets, as identified in the Investment Agreement (as hereafter defined) for
aggregate consideration of approximately $3,400,000 plus assumed liabilities.
F. As of the date hereof, and simultaneously with the closing of the
transactions under this Agreement, Golder, Thoma, Cressey, Rauner Fund IV, L.P.
and certain other investors shall purchase junior preferred and common stock of
the Borrower for approximately $7,500,000 in cash, Leeway & Co. shall purchase
senior and junior preferred stock, common stock and warrants to purchase common
stock of the Borrower for approximately $24,100,000 in cash and the Borrower
shall use the proceeds of such stock issuance, together with a portion of the
proceeds of the loans to be provided hereunder, to redeem all of the previously
outstanding shares of redeemable preferred stock and preferred stock for
approximately $74,000,000 in cash.
G. As of the date hereof and immediately following the closing of the
transactions under this Agreement, Principal Hospital Company will merge with
Principal Merger Company, a subsidiary of the
-1-
<PAGE> 8
Borrower, and Principal, which will change its name subsequent to the Closing,
as the surviving corporation, will also become a Guarantor (as hereinafter
defined) of the Borrower's obligations hereunder.
H. The parties acknowledge that this Credit Agreement and each of the
other Loan Documents (as hereinafter defined) have been negotiated and delivered
in Charlotte, North Carolina.
I. The Lenders are willing to make the Loans described herein based
on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Lenders, the
Issuing Bank and the Agent hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. For purposes of this Credit Agreement,
in addition to the terms defined elsewhere in this Credit Agreement, the
following terms shall have the meanings set forth below:
"Account Designation Letter" shall mean a letter from the Borrower to
the Agent, duly completed and signed by an Authorized Officer of the Borrower,
listing any one or more accounts to which the Borrower may from time to time
request the Agent to forward the proceeds of any Loans made hereunder.
"Accounts" shall mean all "accounts," within the meaning of the Uniform
Commercial Code, of the Borrower and each of its Subsidiaries, including,
without limitation, (to the extent permitted by law) any existing and future
Medicare, Medicaid, MediCal and other similar accounts receivable.
"Acquisition" shall mean any acquisition, whether in a single
transaction or series of related transactions, by the Borrower or any one or
more of its Subsidiaries, or any combination thereof, of (i) all or a
substantial part of the assets, equity or a going business or division, of any
Person, whether through purchase of assets or securities, by merger or
otherwise, (ii) control of at least a majority of the outstanding securities of
an existing corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors or (iii)
control of a greater than 50% ownership interest in any existing partnership,
joint venture or other Person.
"Acquisition Amount" shall mean, with respect to any Permitted
Acquisition, the sum (without duplication) of (i) the amount of cash paid by the
Borrower and its Subsidiaries in connection with such Permitted Acquisition,
(ii) the Fair Market Value of all capital stock or other ownership interests of
the Borrower or any of its Subsidiaries issued or given in connection with such
Permitted Acquisition, (iii) the amount (determined by using the face amount or
the amount payable at maturity, whichever is greater) of all Debt incurred,
assumed or acquired in connection with such Permitted Acquisition, (iv) all
additional purchase price amounts in the form of earnouts and other contingent
obligations, (v) all amounts paid in respect of covenants not to compete,
consulting agreements and other affiliated contracts in connection with such
Permitted Acquisition other than bona fide employment and similar agreements not
a part of the allocation of the purchase price, and (vi) the aggregate fair
market value of all other consideration given by the Borrower and its
Subsidiaries in connection with such Permitted Acquisition. All Capital
Expenditures made or projected to be incurred by the Borrower or its
Subsidiaries within ninety (90) days and in connection with any Permitted
Acquisition shall be included in the
-2-
<PAGE> 9
Acquisition Amount attributable to such Permitted Acquisition and shall not be
included in the calculation of Capital Expenditures for purposes of SECTION
6.15.
"Adjusted Base Rate" shall mean, at any time with respect to any Base
Rate Loan, a rate per annum equal to the Base Rate plus the Applicable Margin
for Base Rate Loans, each as in effect at such time.
"Adjusted LIBOR Rate" shall mean, at any time with respect to any LIBOR
Loan, a rate per annum equal to the LIBOR Rate plus the Applicable Margin for
LIBOR Loans, each as in effect at such time.
"Affiliate" shall mean, as to any Person, each of the Persons that
directly or indirectly, through one or more intermediaries, owns or controls, or
is controlled by or under common control with, such Person. For the purpose of
this definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" shall mean First Union, in its capacity as agent as appointed
in ARTICLE IX hereof, and its permitted successors and assigns.
"Agreement" or "this Agreement" or "Credit Agreement" shall mean this
Credit Agreement and any amendments, modifications and supplements hereto, any
replacements, renewals, extensions and restatements hereof, and any substitutes
herefor, in whole or in part, and all schedules and exhibits hereto, and shall
refer to this Agreement as the same may be in effect at the time such reference
becomes operative.
"Annualized Capital Expenditures" shall mean (i) as of March 31, 1997,
Capital Expenditures for the fiscal quarter ending on such date, multiplied by
four (4), and (ii) as of June 30, 1997 and as of the last day of any fiscal
quarter thereafter, Capital Expenditures for the two (2) consecutive fiscal
quarters ending on such date, multiplied by two (2).
"Annualized Cash Taxes" shall mean (i) as of March 31, 1997, Cash Taxes
for the fiscal quarter ending on such date, multiplied by four (4), and (ii) as
of June 30, 1997 and as of the last day of any fiscal quarter thereafter, Cash
Taxes for the two (2) consecutive fiscal quarters ending on such date,
multiplied by two (2).
"Annualized Consolidated EBITDAR" shall mean (i) as of March 31, 1997,
Consolidated EBITDAR for the fiscal quarter ending on such date, multiplied by
four (4), and (ii) as of June 30, 1997 and as of the last day of any fiscal
quarter thereafter, Consolidated EBITDAR for the two (2) consecutive fiscal
quarters ending on such date, multiplied by two (2).
"Annualized Facility Rent Expense" shall mean (i) as of March 31, 1997,
Facility Rent Expense for the fiscal quarter ending on such date, multiplied by
four (4), and (ii) as of June 30, 1997 and as of the last day of any fiscal
quarter thereafter, Facility Rent Expense for the two (2) consecutive fiscal
quarters ending on such date, multiplied by two (2).
"Annualized Interest Expense" shall mean (i) as of March 31, 1997,
Interest Expense for the fiscal quarter ending on such date, multiplied by four
(4), and (ii) as of June 30, 1997 and as of the last day of any fiscal quarter
thereafter, Interest Expense for the two (2) consecutive fiscal quarters ending
on such date, multiplied by two (2).
-3-
<PAGE> 10
"Annualized Lease Expense" shall mean (i) as of March 31, 1997, Lease
Expense for the fiscal quarter ending on such date, multiplied by four (4), and
(ii) as of June 30, 1997 and as of the last day of any fiscal quarter
thereafter, Lease Expense for the two (2) consecutive fiscal quarters ending on
such date, multiplied by two (2).
"Applicable Margin" shall mean, at any time with respect to any Loan,
the applicable percentage points as determined under the following matrix with
reference to the ratio of Consolidated Adjusted Debt to Annualized Consolidated
EBITDAR calculated as provided below:
<TABLE>
<CAPTION>
Ratio of Consolidated Adjusted
Debt to Annualized Applicable Margin Applicable Margin
Consolidated EBITDAR (Base Rate) (LIBOR Rate)
- -------------------- ------------------ -----------------
<S> <C> <C>
Equal or greater than
3.75 to 1.0 1.00% 2.50%
Less than 3.75 to 1.0
but greater than or equal
3.25 to 1.0 0.75% 2.25%
Less than 3.25 to 1.0
but greater than or equal
2.75 to 1.0 0.50% 2.00%
Less than 2.75 to 1.0
but greater than or equal
2.0 to 1.0 0.25% 1.75%
Less than 2.0 to 1.0 0.00% 1.50%
</TABLE>
From the Closing Date until the fifth (5th) Business Day after receipt by the
Agent of the financial statements for the fiscal quarter ended June 30, 1997
pursuant to SECTION 5.1(A) below, the Applicable Margin shall be 2.50% for LIBOR
Loans and 1.00% for Base Rate Loans. The Applicable Margins shall be reset from
time to time in accordance with the above matrix on the fifth (5th) Business Day
after receipt by the Agent in accordance with SECTIONS 5.1(A) or (B) of
financial statements together with a Compliance Certificate attaching an
Interest Rate Calculation Worksheet (reflecting the computation of the ratio of
Consolidated Adjusted Debt to Annualized Consolidated EBITDAR as of the last day
of the preceding fiscal quarter or fiscal year, as appropriate) that provides
for different Applicable Margins than those then in effect.
"Assignment and Acceptance" shall mean an Assignment and Acceptance
Agreement entered into between a Lender and an Eligible Assignee, and accepted
by the Agent, in substantially the form of EXHIBIT D.
"Assignment Restrictions" shall mean (i) with respect to any contracts
or agreements assigned to the Agent, on behalf of the Lenders, as Collateral by
the Borrower or any of its Subsidiaries, any restriction or prohibition on
assignment that has not been waived or consented to by the Person for whose
benefit such restriction or prohibition exists; provided that such restriction
or prohibition will not be permitted if the Agent has required such waiver or
consent, such requirement of waiver or consent not to unreasonably interfere
with the ordinary course of business of the Borrower and its Subsidiaries and
may only be required with respect to a
-4-
<PAGE> 11
material contract, and (ii) with respect to Medicare, Medicaid and MediCal
accounts receivable, assignment restrictions as provided in the Medicare
Regulations, the Medicaid Regulations and the MediCal Regulations.
"Authorized Officer" shall mean any of (i) the President, Chief
Financial Officer, Vice President-Controller or Treasurer, and (ii) any other
officer of the Borrower authorized by resolution of the board of directors of
the Borrower to take the action specified herein with respect to such officer
and whose signature and incumbency shall have been certified to the Agent by the
secretary or an assistant secretary of the Borrower.
"Bankruptcy Code" shall mean 11 U.S.C. ss. 101 et seq., as amended,
and any successor statute or statute having substantially the same function.
"Base Rate" shall mean the higher of (i) the Prime Rate, or (ii)
one-half percentage point (0.5%) in excess of the Federal Funds Rate, as
adjusted to conform to changes as of the opening of business on the date of any
such change in the Federal Funds Rate.
"Base Rate Loan" shall mean, at any time, any Loan that bears interest
at such time at the Adjusted Base Rate.
"Bloodborne Pathogens Standard" shall mean the Final Standard for
Occupational Exposure to Bloodborne Pathogens promulgated by OSHA at 56 Federal
Register 64004 et seq. (December 6, 1991) and codified at 29 C.F.R. ss.
1910.1030, or any similar regulation promulgated by any Governmental Authority.
"Borrower" shall mean Brim, Inc., an Oregon corporation, and its
successors and assigns which will change its name after the Closing Date to
"Principal Hospital Company."
"Borrowing" shall mean the incurrence by the Borrower on a given date
(including as a result of conversions of outstanding Loans pursuant to SECTION
2.9) of one Type of Loan (or a Swingline Loan made by the Swingline Lender)
under a single Credit Facility, having in the case of LIBOR Loans the same
Interest Period, provided that Base Rate Loans incurred pursuant to SECTION
2.11(C) shall be considered part of the related Borrowing of LIBOR Loans.
"Borrowing Date" shall have the meaning assigned to such term in
SECTION 2.2(B).
"Business Day" shall mean (i) any day other than a Saturday or Sunday,
a legal holiday or a day on which commercial banks in Charlotte, North Carolina
are required by law to be closed and (ii) in respect of any determination
relevant to a LIBOR Loan or any Swap Agreement, any such day that is also a day
on which tradings are conducted in the London interbank Eurodollar market.
"Capital Asset" shall mean any asset that would, in accordance with
Generally Accepted Accounting Principles, be required to be classified and
accounted for as a capital asset.
"Capital Expenditures" shall mean the aggregate amount of all
expenditures and liabilities (including, without limitation, Capital Lease
Obligations) made and incurred in respect of the acquisition by any Borrower or
any of its Subsidiaries of Capital Assets, but excluding Capital Assets acquired
in the form of a Permitted Acquisition.
-5-
<PAGE> 12
"Capital Lease" shall mean any lease of any property that would, in
accordance with Generally Accepted Accounting Principles, be required to be
classified and accounted for as a capital lease on the balance sheet of the
lessee.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder that would, in
accordance with Generally Accepted Accounting Principles, appear on a balance
sheet as a liability of such lessee in respect of such Capital Lease.
"Capitalized Costs" shall mean the aggregate amount of all cash
expenditures that would, in accordance with Generally Accepted Accounting
Principles, be required to be classified and accounted for on a capitalized
basis, except those cash expenditures that are included in plant, property and
equipment on the balance sheet.
"Cash Collateral Account" shall have the meaning assigned to such term
in SECTION 2.17(I).
"Cash Investments" shall mean (i) marketable direct obligations (x)
issued or unconditionally guaranteed by the United States of America or (y)
issued by any agency thereof having a rating of A or higher by Standard & Poor's
or A-2 or higher by Moody's Investors Service, Inc., in each case maturing
within one year from the date of acquisition thereof; (ii) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Rating Services or Moody's Investors Service, Inc.; (iii) marketable commercial
paper maturing no more than one year from the date of creation thereof and, at
the time of acquisition, having a rating of at least A-1 or the equivalent
thereof by Standard & Poor's Rating Services or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc.; (iv) demand deposits, time deposits
and certificates of deposit maturing within one (1) year from the date of
issuance thereof and issued by a Lender or a bank or trust company organized
under the laws of the United States of America or any state thereof and having a
long term debt rating by Standard & Poor's Rating Services of A or higher; (v)
repurchase agreements with a term not exceeding seven days with respect to
underlying securities of the types described in clause (I) above entered into
with a bank or trust company meeting the qualifications specified in clause (IV)
above; and (vi) mutual funds that invest solely in any of the items described
above.
"Cash Taxes" shall mean, for any fiscal quarter, the aggregate amount
of cash payments made by or on behalf of the Borrower or any Subsidiaries to
Governmental Authorities for taxes, levies, charges or withholdings during such
fiscal quarter.
"Change of Control" shall mean (i) GTCR shall cease to be the
"beneficial owner" (within the meanings of Rules 13d-3 and 13d-5 under the
Exchange Act) of securities of the Borrower representing twenty percent (20%) or
more of the combined voting power of the then outstanding securities of the
Borrower ordinarily (and apart from rights accruing under special circumstances)
having the right to vote in the election of directors, assuming the conversion,
exchange or exercise into or for voting stock of all outstanding shares so
convertible, or (ii) any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act), shall, directly or indirectly, as a result of a
tender or exchange offer, open market purchases, privately negotiated purchases
or otherwise, other than GTCR, have become, after the Closing Date, the
"beneficial owner" of securities of the Borrower representing 30% or more of the
combined voting power of the then outstanding securities of the Borrower
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors, assuming the conversion,
exchange or exercise into or for voting stock of all outstanding shares so
convertible, or (iii) the members of the Board of Directors of the Borrower
shall cease to consist of a majority of the individuals (y) who constituted the
Board of Directors as of the date hereof or (z) who shall have become members
thereof subsequent to the date hereof after having been nominated, or otherwise
approved in
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writing, by at least a majority of individuals who constituted the Board of
Directors of the Borrower as of the date hereof. For purposes of this
definition, "voting power" shall be determined with reference to the then
outstanding securities of the Borrower ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors, assuming the conversion, exchange or exercise into or for voting
stock of all outstanding securities of the Borrower other than voting stock.
"Closing" shall have the meaning assigned to such term in SECTION 3.1.
"Closing Date" shall mean the date referred to in SECTION 3.1 hereof.
"Collateral" shall mean all assets, property and interests in property
of the Borrower and its Subsidiaries, whether now owned or hereafter acquired,
that shall, from time to time, directly or indirectly secure the Credit
Obligations or the Guaranty Obligations, including, without limitation, the
assets, property or interests in property described in the Security and Pledge
Agreement.
"Commitment" shall mean, for any Lender, such Lender's Term Loan
Commitment plus its Revolving Credit Commitment.
"Commitment Letter" shall mean the commitment letter to Principal from
First Union National Bank of North Carolina dated September 13, 1996, confirming
its commitment to provide the Revolving Credit Facility and the Term Loan
Facility pursuant to this Agreement.
"Compliance Certificate" shall mean a fully completed certificate in
the form of EXHIBIT C.
"Consolidated Adjusted Debt" shall mean the sum of (a) Consolidated
Debt, and (b) the product of (i) Annualized Facility Rent Expense, multiplied by
(ii) eight (8).
"Consolidated Adjusted Senior Debt" shall mean, at any time,
Consolidated Adjusted Debt less Subordinated Debt.
"Consolidated Debt" shall mean, at any date, the aggregate (without
duplication) of all Debt of the Borrower and its Subsidiaries as of such date,
determined on a consolidated basis.
"Consolidated EBITDAR" shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis as of the last day of any period, EBITDAR
for the period ending on such date determined in accordance with Generally
Accepted Accounting Principles. Consolidated EBITDAR shall be deemed to include,
without duplication, historical Consolidated EBITDAR, of any business acquired
and operated by the Borrower or any Subsidiary after the commencement of the
relevant measurement period, as if such business had been acquired by the
Borrower or such Subsidiary as of the first day of such measurement period,
subject to pro forma expense adjustments as set forth below; provided that such
Consolidated EBITDAR is supported by financial statements, tax returns or other
financial data acceptable to the Agent in its sole discretion. Calculations of
Consolidated EBITDAR shall exclude the results of operations of any entity
disposed of by the Borrower or any Subsidiary at any time after the first day of
the relevant measurement period. Consolidated EBITDAR shall be adjusted for pro
forma expense adjustments in connection with newly acquired entities, if and
only to the extent approved in writing by the Required Lenders.
"Consolidated Net Income" shall mean, for any fiscal quarter, the net
income (or loss) of the Borrower and its Subsidiaries, on a consolidated basis
and excluding intercompany items, for such quarter, determined in accordance
with Generally Accepted Accounting Principles, but excluding the effect of: (a)
gains on the sale,
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<PAGE> 14
conversion or other disposition of Capital Assets, (b) gains on the acquisition,
retirement, sale or other disposition of stock of the Borrower or any of its
Subsidiaries, (c) gains on the collection of life insurance proceeds, (d) any
write-up of any asset, (e) any other gain or credit of an extraordinary nature,
(f) transaction fees and expenses not to exceed $5,000,000 in connection with
the transactions contemplated by this Agreement, the Investment Agreement, the
Securities Purchase Agreement and the Principal Merger Transaction, and (g)
noncash losses approved in writing by the Agent.
"Consolidated Net Revenues" shall mean, for any fiscal quarter, the net
revenues of the Borrower and its Subsidiaries, on a consolidated basis and
excluding intercompany items, for such quarter, determined in accordance with
Generally Accepted Accounting Principles.
"Consolidated Net Worth" shall mean, as of the last day of any fiscal
year, the net worth of the Borrower and its Subsidiaries as of such date,
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles.
"Contingent Obligation" shall mean, with respect to any Person, any
direct or indirect liability of such Person with respect to any Debt, lease,
dividend, guaranty, letter of credit (other than a standby letter of credit with
no reasonable likelihood of draw, in the reasonable opinion of the Agent) or
other obligation (the "primary obligation") of another Person (the "primary
obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise
acquire such primary obligations, (b) to advance or provide funds (i) for the
payment or discharge of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor in respect thereof to make
payment of such primary obligation, or (d) otherwise to assure or hold harmless
the owner of any such primary obligation against loss or failure or inability of
the primary obligor to perform in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith.
"Corporate Overhead" shall mean all costs and expenses of the Borrower
and its Subsidiaries of an overhead, or general and administrative, nature (but
specifically excluding the overhead, or general and administrative, costs and
expenses of the hospitals and facilities operated by the Borrower and its
Subsidiaries).
"Covenant Compliance Worksheet" shall mean a fully completed
certificate in the form of Attachment A to EXHIBIT C.
"Credit Facility" shall mean the Term Loan Facility or the Revolving
Credit Facility, as the context may require.
"Credit Obligations" shall mean and include (i) the Loans, any
Reimbursement Obligations and all other loans, advances, indebtedness,
liabilities and obligations owing, arising, due or payable from the Borrower to
the Agent, the Issuing Bank or any Lender of any kind or nature, present or
future, howsoever evidenced, created, incurred, acquired or owing, that arise
under this Agreement, the Notes or the other Loan Documents, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising
and however acquired, and (ii) all interest (including, to the extent permitted
by law, all post-petition interest), charges, expenses, fees, attorneys' fees
and any other sums payable by the Borrower to the Agent, the Issuing Bank or any
Lender under this Agreement or any of the other Loan Documents.
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<PAGE> 15
"Debt" shall mean, with respect to any Person or group of Persons,
without duplication, (i) all indebtedness of such Person for money borrowed,
(ii) all reimbursement obligations of such Person with respect to surety bonds,
letters of credit and bankers' acceptances (in each case, whether or not
matured), (iii) all obligations of such Person evidenced by notes, bonds,
debentures or similar instruments, (iv) all obligations of such Person to pay
the deferred purchase price of property or services (including earnouts and
other similar contingent obligations, calculated in accordance with Generally
Accepted Accounting Principles), other than trade payables, (v) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (vi) all Capital Lease
Obligations of such Person, (vii) all obligations under any Swap Agreement or
other interest rate protection or hedging arrangement, (viii) all obligations of
such Person to purchase, redeem, retire, defease or otherwise make any payment
in respect of any capital stock or other equity securities that, by their stated
terms (or by the terms of any equity securities issuable upon conversion thereof
or in exchange therefor), or upon the occurrence of any event, mature or are
mandatorily redeemable, or are redeemable at the option of the holder thereof,
in whole or in part, (ix) all indebtedness referred to in clauses (I) through
(VIII) above secured by any lien on any property or asset owned or held by such
Person regardless of whether the indebtedness secured thereby shall have been
assumed by such Person or is nonrecourse to the credit of such Person, and (x)
any Contingent Obligation of such Person to the extent that such Contingent
Obligation that in accordance with Generally Accepted Accounting Principles
would be set forth in a specific dollar amount on the liability side of a
balance sheet, and excluding any guaranty of Debt related to an operating lease,
provided that such guaranty will be included as a Contingent Obligation if the
guaranty is called and there is not a corresponding forgiveness of lease
payments in like amounts commencing in the order due.
"Default" shall mean any event that, with the passage of time or giving
of notice, or both, would constitute an Event of Default.
"Dollars" or "$" shall mean dollars of the United States of America.
"EBITDAR" shall mean, for any Person for any fiscal quarter, (i)
Consolidated Net Income, plus (ii) the sum of Interest Expense, taxes,
depreciation, amortization, and Facility Rent Expense.
"Eligible Assignee" shall mean (i) a commercial bank organized under
the laws of the United States or any state thereof and having total assets in
excess of $1,000,000,000, (ii) a commercial bank organized under the laws of any
other country that is a member of the OECD or a political subdivision of any
such country and having total assets in excess of $1,000,000,000, provided that
such bank is acting through a branch or agency located in the United States, in
the country under the laws of which it is organized or in another country that
is also a member of the OECD, (iii) the central bank of any country that is a
member of the OECD, (iv) a finance company, mutual fund, insurance company or
other financial institution that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and having
total assets in excess of $250,000,000, (v) any Affiliate of an existing Lender
or (vi) any other Person (other than an Affiliate of any Borrower) approved by
the Agent and the Borrower, which approval shall not be unreasonably withheld.
"Employee Plan" shall mean any "employee benefit plan" within the
meaning of Section 3(3) of ERISA maintained by the Borrower or any of its
Subsidiaries.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations (other than internal
reports prepared by the Borrower or any of its Subsidiaries solely in the
ordinary course of its business and not in response to any third party action or
request of any kind) or proceedings relating in any way to any
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<PAGE> 16
Environmental Law or any permit issued, or any approval given, under any such
Environmental Law (hereinafter, "Claims"), including, without limitation, (i)
any and all Claims by Governmental Authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Substances or arising from alleged
injury or threat of injury to human safety, health or the environment, (iii) any
violation or alleged violation of any Environmental Law or other legal
requirement by Borrower or its Subsidiaries with respect to any property owned,
leased or operated by Borrower or its Subsidiaries (in the past, currently or in
the future), and/or (iv) any presence, suspected presence, generation,
treatment, storage, disposal, transport, movement, release, suspected release or
threatened release of any Hazardous Material in, on, to or from any property (or
any part thereof including without limitation the soil and groundwater thereon
and thereunder) owned, leased or operated by Borrower or its Subsidiaries (in
the past, currently or in the future).
"Environmental Laws" shall mean any and all applicable laws, subsequent
enactments, amendments and modifications, including, without limitation,
federal, state and local laws, statutes, ordinances, rules, regulations,
permits, licenses, approvals, and orders of courts or Governmental Authorities,
relating to the protection of human health or the environment, including, but
not limited to, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Substances. Environmental Laws include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 et
seq.) ("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C. ss. 1801
et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et
seq.) ("RCRA"), the Federal Water Pollution Control Act (33 U.S.C. ss. 1251 et
seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. ss. 2601 et seq.), the Safe Drinking Water Act (42 U.S.C.
ss. 300f, et seq.), the Environmental Protection Agency's regulations relating
to underground storage tanks (40 C.F.R. Parts 280 and 281), and the Occupational
Safety and Health Act (29 U.S.C. ss. 651 et seq.), to the extent that it
regulates exposure to Hazardous Substances, ("OSHA"), as such laws have been
amended or supplemented, and any analogous future federal or state, or present
or future applicable local, statutes and the rules and regulations promulgated
thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules and regulations from time to time
promulgated thereunder.
"ERISA Event" means (a) a Reportable Event with respect to a Qualified
Plan (as defined in SECTION 4.17); (b) a withdrawal by the Borrower or any of
its Subsidiaries from a Qualified Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA); (c) a complete or partial withdrawal by the Borrower or
any of its Subsidiaries from a Multiemployer Plan; (d) the filing of a notice of
intent to terminate, the treatment of a plan amendment as a termination under
Section 4041 or 4041A of ERISA or the commencement of proceedings by the Pension
Benefit Guaranty Corporation to terminate a Qualified Plan or Multiemployer Plan
subject to Title IV of ERISA; (e) a failure to make required contributions to a
Qualified Plan or Multiemployer Plan; (f) an event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Qualified
Plan or Multiemployer Plan; (g) the imposition of any liability under Title IV
of ERISA, other than Pension Benefit Guaranty Corporation premiums due but not
delinquent under Section 4007 of ERISA, upon the Borrower or any of its
Subsidiaries; (h) an application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Internal Revenue Code with
respect to any Qualified Plan; (i) the Borrower or any of its Subsidiaries
engages in or otherwise becomes liable for a nonexempt prohibited transaction;
or (j) a violation of the applicable requirements of Section 404 or 405 of ERISA
or the exclusive benefit rule under Section 401(a) of the Internal Revenue Code
by any fiduciary with respect to any Qualified Plan for which the Borrower or
any of its Subsidiaries may be directly or indirectly liable.
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<PAGE> 17
"Event of Default" shall have the meaning specified in ARTICLE VII
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and all rules and regulations from time to time
promulgated thereunder.
"Facility" shall mean a hospital or other health care facility,
together with other ancillary businesses, all buildings and improvements
associated therewith, that are owned or leased in whole or in part, by the
Borrower or any of its Subsidiaries.
"Facility Rent Expense" shall mean, for any fiscal quarter, all amounts
paid, payable or accrued during such fiscal quarter by the Borrower and its
Subsidiaries on a consolidated basis with respect to all operating leases of
hospitals and the operating lease of any other facility with a Lease Expense in
excess of $200,000 annually.
"Fair Market Value" shall mean, with respect to any capital stock or
other ownership interests issued or given by the Borrower or any of its
Subsidiaries in connection with a Permitted Acquisition, (i) in the case of
common stock of the Borrower that is then designated as a national market system
security by the National Association of Securities Dealers, Inc. ("NASDAQ") or
is listed on a national securities exchange, the average of the last reported
bid and ask quotations or prices reported thereon for such common stock or (ii)
in all other cases, the determination of the fair market value thereof in good
faith by a majority of members of the board of directors of the Borrower or such
Subsidiary with no direct or indirect (other than by virtue of being a director)
economic interest in such Permitted Acquisition, in each case effective as of
the close of business on the Business Day immediately preceding the closing date
of such Permitted Acquisition.
"Federal Funds Rate" shall mean, for any day, an interest rate per
annum equal to 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 for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of Richmond, or
if such rate is not so published on the relevant Business Day, the average of
the quotations for such day on such transactions received by the Agent from
three federal funds brokers of recognized standing selected by the Agent.
"Fee Letter" shall mean the letter, dated September 13, 1996, as
amended, from First Union to Principal, relating to the fees payable to First
Union as of the Closing Date for its own account and the administrative fee
payable to the Agent from time to time for its own account, the obligations
under which have been assumed by the Borrower.
"Financial Condition Certificate" shall mean a fully completed
certificate, with the attachments required thereby, in the form of EXHIBIT E.
"Financials" or "Financial Statements" shall mean the audited
consolidated balance sheet of the Borrower and its Subsidiaries as of December
31, 1994 and December 31, 1995, and related statements of operations,
stockholders' equity and cash flows for the fiscal year then ended; the reviewed
consolidated balance sheet of the Borrower and its Subsidiaries (excluding the
Excluded Assets and the Senior Living Transaction (as both such terms are
defined in the Investment Agreement) as of June 30, 1996, and related statements
of operations, stockholders' equity and cash flows for the six months then
ended; and the unaudited consolidated financial statements dated as of September
30, 1996 statements for the Borrower for the nine-month period then ended, and,
upon consummation of the Principal Merger Transaction, the unaudited
consolidated financial statements of Principal and its Subsidiaries for the 8
months ended October 31, 1996, the unaudited Financial Statement for
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<PAGE> 18
Principal Knox Company for the 1 month ending October 31, 1996 and the unaudited
Financial Statements of Memorial Hospital for the 3 months ending October 31,
1996.
"Financing Statements" shall mean financing statements approved for
filing in accordance with the applicable adopted version of the Uniform
Commercial Code and all other titles, documents and certificates that the Agent
may reasonably require from the Borrower or any Guarantor to describe and
perfect the security interests created hereunder or under the other Loan
Documents, and all assignments thereof and amendments thereto, in form and
substance satisfactory to the Agent.
"First Union" shall mean First Union National Bank of North Carolina, a
national banking association, and its successors and assigns.
"Fixed Charges" shall mean, as of the last day of any fiscal quarter,
(a) Scheduled Principal Payments, plus (b) the sum of the following as of the
fiscal quarter then ending: (i) Annualized Interest Expense payable in cash,
(ii) Annualized Lease Expense, (iii) Annualized Capital Expenditures and (iv)
Annualized Cash Taxes.
"GTCR" shall mean Golder, Thoma, Cressey, Rauner Fund, IV, L.P., an
Illinois limited partnership.
"Generally Accepted Accounting Principles" shall mean generally
accepted accounting principles, as recognized by the American Institute of
Certified Public Accountants, consistently applied and maintained on a
consistent basis for the Borrower and its Subsidiaries on a consolidated basis
throughout the period indicated and consistent with the financial practice of
the Borrower and its Subsidiaries after the date hereof.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any central bank thereof, any municipal,
local, city or county government, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantors" shall mean any Subsidiary of the Borrower that jointly and
severally guarantees the Credit Obligations of the Borrower. As of the Closing
and after giving effect to the Principal Merger Transaction, the Guarantors
shall include, without limitation, Brim Fifth Avenue, Inc., Brim Healthcare,
Inc., Brim Hospitals, Inc., Brim Outpatient Services, Inc., Brim Pavilion, Inc.,
Care Health Company, Inc., Palestine Limited Partnership, Palestine-Principal,
Inc., Principal and Principal Knox Company.
"Guaranty Agreement" shall mean the Guaranty Agreement dated as of the
date hereof, executed by each Guarantor in favor of the Agent, whereby each
Guarantor guarantees to the Lenders the payment and performance of the Credit
Obligations, together with any amendments, accessions, modifications and
supplements thereto, any replacements, renewals, extensions and restatements
thereof, and any substitutes therefor, in whole or in part.
"Guaranty Documents" shall mean the Guaranty Agreement and the security
agreements, pledge agreements, collateral assignments of agreements and any
other documents or agreements between the Agent and any of the Guarantors,
whereby the Guarantors have pledged Collateral to the Agent as security for the
obliga tions of the Guarantors under the Guaranty Agreement, including, without
limitation, the Security and Pledge Agreement and the Mortgages, together with
any amendments, modifications, accessions and supplements thereto, any
replacements, renewals, extensions and restatements thereof, and any substitutes
therefor, in whole or in part.
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<PAGE> 19
"Guaranty Obligations" shall mean the obligations of the Guarantors
pursuant to the Guaranty Agreement and the Guaranty Documents.
"HCFA" shall mean the United States Health Care Financing
Administration and any successor agency.
"Hazardous Substances" means any substances or materials (i) that are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law; (ii) that are
toxic, explosive, corrosive, flammable, infectious, radioactive, mutagenic or
otherwise hazardous and are or become regulated by any Governmental Authority;
(iii) the presence of which requires investigation or remediation under any
Environmental Law or common law; or (iv) that contain, without limitation,
asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation,
petroleum hydrocarbons, petroleum derived substances or waste, crude oil,
nuclear fuel, natural gas or synthetic gas.
"IRS" shall mean the Internal Revenue Service and any successor
thereto.
"Indemnified Costs" shall have the meaning assigned to such term in
SECTION 10.7.
"Indemnified Person" shall have the meaning assigned to such term in
SECTION 10.7.
"Intercompany Management Agreements" shall mean and include any and all
management agreement now or hereafter existing between the Borrower and any of
its Subsidiaries or between such Subsidiaries under which the Borrower or a
Subsidiary receives management, consulting or other similar fees for services
rendered thereunder, and includes without limitation those management agreements
described on SCHEDULE 6.19 attached hereto, together with all amendments,
supplements and restatements thereof.
"Interest Expense" shall mean, for any fiscal quarter, total interest
expense of the Borrower and its Subsidiaries on a consolidated basis for such
fiscal quarter (including, without limitation, interest expense attributable to
Capital Lease Obligations), determined in accordance with Generally Accepted
Accounting Principles.
"Interest Period" shall have the meaning assigned to such term in
SECTION 2.8.
"Interest Rate Calculation Worksheet" shall mean a fully completed
worksheet in the form of Attachment B to EXHIBIT C.
"Interests" shall mean all ownership or profit-sharing interests
(howsoever designated) in any general or limited partnership, limited liability
company or joint venture, and all agreements, instruments and documents
convertible, in whole or in part, into any one or more or all of the foregoing.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
"Investment Agreement" shall mean the Investment Agreement dated as of
November 21, 1996, between the Borrower and GTCR pursuant to which GTCR shall
invest in and purchase Stock of the Borrower.
"Issuing Bank" shall mean First Union, in its capacity as issuer of the
Letters of Credit, and its successors and assigns in such capacity.
"L/C Participant" shall have the meaning assigned to such term in
SECTION 2.17(C).
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"LIBOR Loan" shall mean, at any time, any Loan that bears interest at
such time at the Adjusted LIBOR Rate.
"LIBOR Rate" shall mean, for any Interest Period, an interest rate per
annum (rounded upwards, if necessary, to the next higher 1/100 of one percentage
point) obtained by dividing (a) the rate of interest determined by Agent to be
the rate for deposits in U.S. dollars for the applicable Interest Period which
appears on the Telerate Page 3750 or successor page or successor service at
approximately 11:00 a.m. London time, two (2) Business Days prior to the first
date of the applicable Interest Period, or if such rate is not available, the
rate per annum at which, in the reasonable opinion of Agent, U.S. dollars
substantially in the amount of the corresponding Borrowing are being offered to
leading reference banks in the London interbank market for settlement at
approximately 11:00 a.m. London time, two (2) Business Days prior to the first
date of the applicable Interest Period, by (b) the percentage equal to one
hundred percent (expressed as a decimal fraction) minus the Reserve Requirement
for such Interest Period. Each calculation by the Agent of the applicable LIBOR
Rate shall be conclusive and binding for all purposes, absent bad faith or
manifest error.
"Landlord Consents" shall mean (i) a waiver and consent from each
landlord with respect to the hospital Leased Properties of the Borrower and its
Subsidiaries listed on SCHEDULE 4.9 and (ii) all other landlord consents that
the Agent or the Required Lenders may reasonably require of the Borrower or any
of its Subsidiaries from time to time in respect of amendments, modifications or
renewals of the leases referred to in clause (i) above or in respect of any
other leases to which the Borrower or any of its Subsidiaries is now or
hereafter a party, in each case in form and substance reasonably satisfactory to
the Agent, together with any amendments, modifications and supplements thereto
and restatements thereof, in whole or in part.
"Lease Expense" shall mean, for any fiscal quarter, all amounts paid,
payable or accrued during such fiscal quarter by the Borrower and its
Subsidiaries on a consolidated basis with respect to all leases and rental
agreements, including, without limitation, all amounts paid as Facility Rent
Expense, of the Borrower and its Subsidiaries, other than Capital Leases,
determined in accordance with Generally Accepted Accounting Principles.
"Leased Properties" shall mean the real properties leased and occupied
by the Borrower and its Subsidiaries, as of the date hereof and at any time
hereafter and consisting, as of the date hereof, of the properties set forth in
SCHEDULE 4.9 hereof.
"Leeway & Co." shall mean Leeway & Co., a Massachusetts general
partnership.
"Lender" shall mean each financial institution signatory hereto and
each other financial institution that becomes a "Lender" hereto pursuant to
SECTION 10.5, and their permitted successors and assigns.
"Lending Office" shall mean, with respect to any Lender, the branch or
branches (or Affiliates) from which any of such Lender's Loans are made or
maintained.
"Letter of Credit Outstandings" shall mean, at any time, the sum of (i)
the aggregate Stated Amount of all outstanding Letters of Credit at such time
and (ii) the aggregate amount of all Reimbursement Obligations at such time.
"Letter of Credit Request" shall have the meaning assigned to such term
in SECTION 2.17(B).
"Letters of Credit" shall have the meaning assigned to such term in
SECTION 2.17(A).
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<PAGE> 21
"Line of Business" shall mean the business of owning or operating
nonurban hospitals and managing hospitals and engaging in businesses ancillary
to the aforesaid line of business that enhance or support it and that are not
materially different from the foregoing.
"Loan Documents" shall mean and collectively refer to this Agreement,
the Notes, the Security and Pledge Agreement, the Guaranty Documents, the
Financing Statements, the Mortgages, the Landlord Consents, the Letters of
Credit, the Fee Letter, Swap Agreements (if any) between the Borrower and any
Lender, and any and all other agreements, and instruments including, without
limitation, notes, guaranties, mortgages, deeds to secure debt, deeds of trust,
chattel mortgages, pledges, powers of attorney, consents, assignments,
contracts, security agreements, trust account agreements, heretofore, now or
hereafter executed by or on behalf of the Borrower or any of its Subsidiaries
and heretofore, now or hereafter delivered to the Agent or any Lender with
respect to this Agreement, and in each case, together with any amendments,
modifications and supplements thereto, any replacements, renewals, extensions
and restatements thereof, and any substitutes therefor, in whole or in part.
"Loans" shall mean and collectively refer to the Term Loans, the
Revolving Credit Loans, and the Swingline Loans.
"Material Adverse Effect" or "Material Adverse Change" shall mean,
subject to any applicable cure or grace periods, a material adverse effect upon,
or a material adverse change in, any of (a) the financial condition, operations,
business, properties of the Borrower and its Subsidiaries, taken as a whole; (b)
the ability of the Borrower or any of its Subsidiaries to perform under any Loan
Document; (c) the legality, validity or enforceability of any Loan Document; (d)
the perfection or priority of the liens of the Agent granted under the Loan
Documents or the rights and remedies of the Agent or the Lenders under the Loan
Documents; or (e) the condition or value of any material portion of the
Collateral (other than market fluctuations in the values of such Collateral).
"Medicaid Certification" shall mean, with respect to any health care
facility, certification by HCFA or another Governmental Authority, or any Person
under contract with HCFA, that such health care facility is in compliance with
all conditions of participation set forth in the Medicaid Regulations, except
where the failure to so comply would not have a Material Adverse Effect.
"Medicaid Provider Agreement" shall mean an agreement entered into
between any Person administering the Medicaid program and a health care facility
under which the health care facility agrees to provide services for Medicaid
patients in accordance with the terms of the agreement and Medicaid Regulations.
"Medicaid Regulations" shall mean, collectively, (i) all federal
statutes (whether set forth in Title XIX of the Social Security Act, 42 USC
ss.ss. 1396 et seq., or elsewhere) affecting the medical assistance program
established by Title XIX of the Social Security Act, and any statutes succeeding
thereto; (ii) all applicable provisions of all federal rules, regulations,
manuals and orders of all Governmental Authorities promulgated pursuant to or in
connection with the statutes described in clause (i) above and all federal
administrative, reimbursement and other guidelines of all Governmental
Authorities having the force of law promulgated pursuant to or in connection
with the statutes described in clause (i) above; (iii) all state statutes and
plans for medical assistance enacted in connection with the statutes and
provisions described in clauses (i) and (ii) above; and (iv) all applicable
provisions of all rules, regulations, manuals and orders of all Governmental
Authorities promulgated pursuant to or in connection with the statutes described
in clause (iii) above and all state administrative, reimbursement and other
guidelines of all Governmental Authorities having the force of law promulgated
pursuant to or in connection with the statutes described in clause (iii) above,
in each case as may be amended, supplemented or otherwise modified from time to
time.
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<PAGE> 22
"MediCal Regulations" shall mean collectively, all California state
statutes (whether set forth in Cal. Welf. & Inst. Code ss.ss. 14000 et seq., or
elsewhere) affecting the health insurance program for the aged and disabled
established in connection with Title XIX of the Social Security Act, and any
statutes succeeding thereto; together with all applicable provisions of all
rules, regulations, manuals and orders and administrative, reimbursement and
other guidelines having the force of law of all Governmental Authorities
(including without limitation, the California Department of Health Services)
promulgated pursuant to or in connection with any of the foregoing having the
force of law, in each case as may be amended, supplemented or otherwise modified
from time to time.
"Medicare Certification" shall mean, with respect to any health care
facility, certification by HCFA or any other Governmental Authority, or any
Person under contract with HCFA, that such health care facility is in compliance
with all the conditions of participation set forth in the Medicare Regulations,
except where the failure to so comply would not have a Material Adverse Effect.
"Medicare Provider Agreement" shall mean an agreement entered into
between any Person administering the Medicare program and a health care facility
under which the health care facility agrees to provide services for Medicare
patients in accordance with the terms of the agreement and Medicare Regulations.
"Medicare Regulations" shall mean, collectively, all federal statutes
(whether set forth in Title XVIII of the Social Security Act, 42 USC ss.ss. 1396
et seq., or elsewhere) affecting the health insurance program for the aged and
disabled established by Title XVIII of the Social Security Act and any statutes
succeeding thereto; together with all applicable provisions of all rules,
regulations, manuals and orders and administrative, reimbursement and other
guidelines having the force of law of all Governmental Authorities (including
without limitation, Health and Human Services ("HHS"), HCFA, the Office of the
Inspector General for HHS, or any Person succeeding to the functions of any of
the foregoing) promulgated pursuant to or in connection with any of the
foregoing having the force of law, in each case as may be amended, supplemented
or otherwise modified from time to time.
"Mortgages" shall mean all fee and leasehold mortgages, deeds of trust
and similar instruments pursuant to which the Borrower or any Guarantor grants
to the Agent, for the benefit of the Lenders, a mortgage lien, or an assignment
of any mortgage lien obtain by such Person from another Person, to secure any or
all of the Credit Obligations or the Guaranty Obligations, and shall include,
without limitation, the deeds of trust and security agreements dated as of the
date hereof, executed by the Borrower and its Subsidiaries with respect to the
parcels of Realty located at (i) General Hospital, Eureka, Humboldt County,
California; (ii) Palo Verde Community Hospital, Blythe, Riverside County,
California; (iii) Parkview Regional Hospital, Mexia, Limestone County, Texas;
(iv) Colorado Plains Medical Center, Fort Morgan, Morgan County, Colorado; (v)
Memorial Hospital, Palestine, Anderson, Leon and Houston Counties, Texas; (vi)
Starke Memorial Hospital, Knox, Starke County, Indiana and (vii) Headquarters
Building, Portland, Multnomah County, Oregon, in all cases together with any
amendments, modifications and supplements thereto, any replacements, renewals,
extensions and restatements thereof, and any substitutes therefor, in whole or
in part.
"Multiemployer Plan" shall mean any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA to which the Borrower or any of its
Subsidiaries is required to make contributions.
"Notes" shall mean the Term Notes, the Revolving Credit Notes and the
Swingline Note.
"Notice of Borrowing" shall have the meaning assigned to such term in
SECTION 2.2(B).
"Notice of Conversion/Continuation" shall have the meaning assigned
to such term in SECTION 2.9(B).
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<PAGE> 23
"Notice of Swingline Borrowing" shall have the meaning given to such
term in SECTION 2.2(F).
"OSHA" shall mean the Occupational Safety and Health Act, as amended
from time to time, and all rules and regulations from time to time promulgated
thereunder.
"Palestine Limited Partnership" shall mean Palestine Principal
Healthcare Limited Partnership, a Texas limited partnership and a Subsidiary of
Principal.
"Palestine Limited Partnership Agreement" shall mean the Agreement of
Limited Partnership of the Palestine Limited Partnership dated as of July 17,
1996, between Principal, as general partner, and Palestine- Principal, Inc., a
Tennessee corporation and a subsidiary of Principal, and Mother Frances Hospital
Regional Health Care Center, as limited partners.
"Palestine Limited Partnership Note" shall mean the promissory note of
the Palestine Limited Partnership dated July 26, 1996, in the principal amount
of $13,700,000, payable to Principal, together with any supplements, amendments,
restatements or modifications thereof to the extent approved in writing by the
Required Lenders.
"Participant" shall mean any Person, now or at any time hereafter,
participating with any Lender in the Loans pursuant to this Agreement, and its
permitted successors and assigns.
"Pension Plan" shall mean any "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA maintained by the Borrower or any of its
Subsidiaries (other than any Multiemployer Plan that is subject to the
provisions of Title IV of ERISA).
"Percentage" shall mean, with respect to any Lender at any time, such
Lender's Term Loan Percentage or Revolving Credit Percentage at such time, as
the context may require.
"Permitted Acquisition" shall mean an Acquisition approved in writing
by the Required Lenders pursuant to SECTION 6.7; provided however, that the
approval of the Required Lenders shall not be required for any Acquisition for
which the Acquisition Amount is $1,000,000 or less, subject to an aggregate
Acquisition Amount of $3,000,000 for all Acquisitions consummated without the
approval of the Required Lenders. Notwithstanding anything to the contrary
contained in the immediately preceding sentence, an Acquisition shall be a
Permitted Acquisition only if all requirements of SECTIONS 5.11 (if any new
Subsidiaries are acquired or created in connection with such Acquisition) and
5.12 are met with respect thereto.
"Permitted Liens" shall mean any of the following liens, restrictions
or encumbrances securing any liability or indebtedness of the Borrower or any of
its Subsidiaries on, or otherwise affecting, any of the Borrower's or such
Subsidiary's property, real or personal, whether now owned or hereafter
acquired:
(a) Liens granted to the Agent, for the benefit of the Lenders;
(b) Liens for taxes, assessments or other governmental charges that are
not delinquent or remain payable without any penalty or that are being contested
in good faith and with due diligence by appropriate proceedings, provided that
if reasonably requested by the Agent, the Borrower or such Subsidiary has
established reserves with respect thereto in accordance with Generally Accepted
Accounting Principles;
(c) Liens upon property leased under a Capital Lease (including
sale/leaseback transactions permitted by SECTION 6.16) and placed upon such
property at the time of, or within sixty (60) days after, the commencement of
the lease thereof to secure the lease payments under such Capital Lease,
provided that any such
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<PAGE> 24
lien (i) shall not encumber any other property of the Borrower or any of its
Subsidiaries, and (ii) shall not exceed the total of such lease payments;
(d) Liens set forth on SCHEDULE 1.1(A) attached hereto (as modified
from time to time in accordance with SECTION 4.29 in connection with
Acquisitions or otherwise), provided that the Debt related to such liens is not
increased above the amount then outstanding;
(e) Purchase money liens incurred or assumed in the purchase of
equipment permitted under SECTION 6.15 hereof, provided that any such lien (i)
attaches to such asset concurrently with or within ten (10) days after the
acquisition thereof, (ii) shall not encumber any other property of the Borrower
or any of its Subsidiaries and (iii) shall not exceed the purchase price of such
asset;
(f) Assignment Restrictions;
(g) Easements, rights of way, restrictive covenants, conditions, zoning
restrictions and other similar title, survey or other encumbrances on real
estate that do not materially impair the current use and value of the property
to which they relate;
(h) Carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlord's or other like non-consensual liens arising in the ordinary course of
business that are not overdue for a period of more than thirty (30) days, or, if
overdue for more than thirty (30) days, (i) which are being contested in good
faith and by appropriate proceedings; and (ii) for which adequate reserves in
accordance with Generally Accepted Accounting Principles have been established
on the books of the Borrower or appropriate Subsidiary; provided however, that
any such landlord liens shall be subject to the Landlord Consents to the extent
applicable;
(i) Pledges or deposits in connection with workers' compensation
insurance, unemployment insurance and like matters;
(j) Deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(k) Liens in respect of any writ of execution, attachment, garnishment,
judgment or award in an amount less than $500,000, the time for appeal or
petition for rehearing of which shall not have expired, or in respect of which
an appeal or appropriate proceeding for review is being prosecuted in good faith
and a stay of execution pending such appeal or proceeding for review has been
secured;
(l) Liens of a lessor with respect to an operating lease of equipment
or machinery; and
(m) Any other liens or encumbrances as the Required Lenders may
approve in writing from time to time.
"Person" shall mean a corporation, an association, a joint venture, a
partnership, limited liability company, an organization, a business, an
individual, a trust or a government or political subdivision thereof or any
government agency or any other legal entity.
"Prime Rate" shall mean the per annum interest rate publicly announced
from time to time by First Union from its principal office in Charlotte, North
Carolina, to be its Prime Rate, which may not necessarily be its best lending
rate, as adjusted to conform to changes as of the opening of business on the
date of any such change in
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<PAGE> 25
the Prime Rate. In the event First Union shall abolish or abandon the practice
of announcing its Prime Rate or should the same be unascertainable, the Agent
shall designate a comparable reference rate that, upon the Borrower's consent
(which shall not be unreasonably withheld), shall be deemed to be the Prime Rate
under this Credit Agreement and the other Loan Documents.
"Principal" shall mean Principal Hospital Company, a Delaware
corporation, together with its successors and assigns, which will change its
name following the Closing Date.
"Principal Merger Agreement" shall mean the merger and purchase
agreement, dated as of December 17, 1996, between Principal Merger Company and
Principal, which document sets forth the terms of the Principal Merger
Transaction.
"Principal Merger Transaction" shall mean the merger, on the Closing
Date, of Principal with Principal Merger Company, a wholly-owned Subsidiary of
the Borrower.
"Pro Rata Share" of any amount shall mean, with respect to any Lender
at any time, the product of (i) such amount, multiplied by (ii) such Lender's
Percentage at such time under the Credit Facility or Credit Facilities under
which such amount is being paid or advanced or to which such amount relates.
"Professional Services Agreement" shall mean the Professional Services
Agreement dated as of December 17, 1996, between the Borrower and GTCR.
"Prohibited Transaction" shall mean any transaction described in (i)
Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or
(ii) Section 4975(c) of the Internal Revenue Code that is not exempt by reason
of Section 4975(c) or 4975(d).
"Projections" shall mean the financial projections delivered to the
Agent by the Borrower pursuant to SECTION 4.6(B) hereof.
"Realty" shall mean all of the right, title and interest of the
Borrower or any of its Subsidiaries in and to land, improvements and fixtures,
including any leasehold interests (whether as lessor or lessee).
"Refunded Swingline Loans" shall have the meaning given to such term in
SECTION 2.2(G).
"Regulation G" shall mean Regulation G of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 207, or any successor or other regulation
hereafter promulgated by said Board to replace the prior Regulation G and having
substantially the same function.
"Regulation U" shall mean Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any successor or
other regulation hereafter promulgated by said Board to replace the prior
Regulation U and having substantially the same function.
"Regulation X" shall mean Regulation X promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 224, or any successor or
other regulation hereafter promulgated by said Board to replace the prior
Regulation X and having substantially the same function.
"Reimbursement Obligation" shall have the meaning assigned to such
term in SECTION 2.17(D).
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<PAGE> 26
"Reportable Event" shall mean a reportable event as defined in Section
4043(b) of ERISA (other than an event for which notice is waived under the ERISA
regulations).
"Required Lenders" shall mean, at any time, the Lenders owning or
holding 66 2/3% or more of the sum of the then aggregate principal amount of the
Term Loans and the Revolving Credit Commitments then outstanding; or, if no
Loans or Letters of Credit are then outstanding, the Lenders with 66-2/3% or
more of the aggregate of all Commitments at such time. For purposes of this
definition, the Letter of Credit Outstandings shall be considered to be owed to
the Lenders according to their Revolving Credit Percentages.
"Requirement of Law" means, as to any Person, the charter, articles or
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any statute, law, treaty, rule, regulation, order,
decree, writ, injunction or determination of any 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.
"Reserve Requirement" shall mean, with respect to any Interest Period,
the reserve percentage (expressed as a decimal) applicable two (2) Business Days
before the first day of such Interest Period determined by the Agent to be in
effect on such day, as provided by the Board of Governors of the Federal Reserve
System (or any successor governmental body), applied for determining the maximum
reserve requirements (including, without limitation, basic, supplemental,
marginal and emergency reserves) applicable to the Lenders under Regulation D
with respect to "Eurocurrency liabilities" within the meaning of Regulation D,
or under any similar or successor regulation with respect to Eurocurrency
liabilities or Eurocurrency funding.
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<PAGE> 27
"Revolving Credit Borrowing Availability" shall have the following
meaning, for the periods indicated:
<TABLE>
<CAPTION>
Calculation of Revolving
Time Period Credit Borrowing Availability
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Closing Date to and including the date
of of documents required by SECTION 5.1(B), A. The sum of (i) 1996 annualized pro forma delivery
(C) and (E) for the fiscal quarter ending EBITDAR for the Borrower of $20,814,000,
March 31, 1997 and fiscal year ending less corporate overhead of $2,867,000,
December 31, 1996 multiplied by 4.25 = $76,275,000, (ii) the
lesser of annualized pro forma EBITDAR of
Palestine Limited Partnership of $3,263,000,
multiplied by 4.25 = $13,863,000, or the maximum
amount of Credit Obligations guaranteed by
Palestine Limited Partnership (on the
Closing Date $13,700,000) and (iii) annualized
pro forma EBITDAR of Principal Knox Company of
$1,630,000, multiplied by 4.25 = $6,928,000, less
B.* The sum of (i) Debt outstanding under the
Credit Agreement on Borrowing Date,
(ii) Contingent Obligations on the Borrowing
Date, (iii) Capital Leases outstanding on the
Borrowing Date and (iv) other Debt on the
Borrowing Date; provided that such amounts
in (i), (ii) and (iii) may not exceed
$75,900,000, less
----
C. Pro forma Annualized Facility Rent of
$1,835,000, multiplied by 8 = $14,680,000,
less
D.* Outstanding working capital advances of up to
$5,000,000.
* The sum of B and D shall not exceed
$80,900,000
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
Date after delivery of documents required by A. The sum of (i) 1996 annualized pro forma EBITDAR
SECTION 5.1(B) and (E) for the fiscal quarter for the Borrower of $20,814,000, less corporate
ending March 31, 1997 to June 30, 1997. overhead of $2,867,000, multiplied by 4.25 = $76,275,000,
(ii) the lesser of actual annualized EBITDAR for Palestine
Limited Partnership, multiplied by 4.25, or the maximum of
the Credit Obligations guaranteed by Palestine Limited
Partnership = $13,700,000 and (iii) actual annualized
EBITDAR for Principal Knox Company, multiplied by 4.25, less
B. The sum of (i) Debt outstanding under the Credit Agreement
on Borrowing Date, (ii) Contingent Obligations on the
Borrowing Date, (iii) Capital Leases outstanding on the
Borrowing Date and (iv) other Debt on the Borrowing Date,
less
C. Annualized Facility Rent, multiplied by 8.
July 1, 1997 to date of delivery of the A. The sum of (i) 1996 annualized pro forma documents required
SECTION 5.1(B) and (E) for the fiscal quarter by EBITDAR for the Borrower of $76,275, (ii) the lesser of
ending June 30, 1997. actual annualized EBITDAR for Palestine Limited Partnership,
multiplied by 4.25, or the maximum of the Credit Obligations
guaranteed by Palestine Limited Partnership and (iii) actual
annualized EBITDAR for Principal Knox Company, multiplied by
4.25, less
B. The sum of (i) Debt outstanding under the Credit Agreement on
Borrowing Date, (ii) Contingent Obligations on the Borrowing
Date, (iii) Capital Leases outstanding on the Borrowing Date
and (iv) other Debt on the Borrowing Date, less
C. Annualized Facility Rent, multiplied by 8.
</TABLE>
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<PAGE> 29
<TABLE>
<S> <C>
Date after delivery of documents required by A. The actual annualized EBITDAR for the
SECTION 5.1(B) and (E) for the fiscal quarter Borrower and its Subsidiaries multiplied by
ending June 30, 1997 and thereafter the relevant covenant in SECTION 6.9; provided
that the annualized EBITDAR attributable to
Palestine Limited Partnership shall not exceed
the maximum amount of the Credit Obligations
guaranteed by Palestine Limited Partnership, less
B. The sum of (i) Debt outstanding under the Credit
Agreement on Borrowing Date, (ii) Contingent Obligations
on the Borrowing Date, (iii) Capital Leases outstanding
on the Borrowing Date and (iv) other Debt on the Borrowing
Date, less
C. Annualized Facility Rent, multiplied by 8.
</TABLE>
"Revolving Credit Borrowing Availability Certificate" shall mean a
certificate in the form of EXHIBIT F attached hereto.
"Revolving Credit Commitment" shall mean, with respect to any Lender at
any time, the amount set forth under such Lender's name on its signature page
hereto under the caption "Revolving Credit Commitment" or, if such Lender has
entered into one or more Assignment and Acceptances, the amount set forth for
such Lender at such time in the Register maintained by the Agent pursuant to
SECTION 10.5(C) as such Lender's "Revolving Credit Commitment," as such amount
may be reduced at or prior to such time pursuant to the terms hereof.
"Revolving Credit Facility" shall mean the revolving line of credit
established by the Lenders under SECTION 2.1(B).
"Revolving Credit Facility Maturity Date" shall mean December 16, 1999.
"Revolving Credit Facility Termination Date" shall mean such earlier
date of December 16, 1999, or termination of the Total Revolving Credit
Commitment in accordance with SECTION 2.4(D) or SECTION 8.1.
"Revolving Credit Loans" shall have the meaning assigned to such term
in SECTION 2.1(B).
"Revolving Credit Notes" shall mean the promissory notes of the
Borrower in substantially the form of EXHIBIT A-2, executed and delivered to the
Lenders with Revolving Credit Commitments pursuant to SECTION 2.3(C) or, in
connection with an Assignment and Acceptance, pursuant to SECTION 10.5(D),
together with any amendments, modifications and supplements thereto and
restatements thereof, in whole or in part.
"Revolving Credit Percentage" shall mean, with respect to any Lender at
any time, a fraction (expressed as a percentage) the numerator of which is the
Revolving Credit Commitment of such Lender at such time and
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<PAGE> 30
the denominator of which is the Total Revolving Credit Commitment at such time;
provided that if the Revolving Credit Percentage of any Lender is to be
determined after the Revolving Credit Commitments have been terminated, then
such Revolving Credit Percentage shall be determined immediately prior (and
without giving effect) to such termination.
"Scheduled Principal Payments" shall mean all scheduled principal
payments on long-term Debt due and payable in the subsequent twelve-month
period.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement, dated as of December 17, 1996, between the Borrower and Leeway & Co.
pursuant to which Leeway & Co. shall invest in and purchase Stock of the
Borrower.
"Security and Pledge Agreement" shall mean the Security and Pledge
Agreement, dated as of the date hereof, between the Borrower, the Guarantors and
the Agent, whereby the Borrower and the Guarantors have granted to the Agent a
security interest in certain Collateral described therein as security for the
Credit Obligations of the Borrower and the Guaranty Obligations of the
Guarantors, together with any amendments, accessions, modifications and
supplements thereto, any replacements, renewals, extensions and restatements
thereof, and any substitutes therefor, in whole or in part.
"Solvent" shall mean, as to any Person on any particular date, that
such Person (i) has capital reasonably sufficient to carry on its business as
presently conducted and all business in which it is about to engage, (ii) is
able to pay its debts as they mature, (iii) owns property having a fair saleable
value on a going concern basis that is greater than the amount required to pay
its probable liability on existing debts as they mature (including known
reasonable contingencies and contingencies that should be included in notes of
the financial statements of such Person pursuant to Generally Accepted
Accounting Principles considering all financing alternatives and potential asset
sales reasonably available to such Person), and (iv) does not intend to, and
does not believe that it will, incur debts or probable liabilities beyond its
ability to pay such debts or liabilities as they mature.
"Stated Amount" shall mean, with respect to any Letter of Credit at any
time, the maximum amount available to be drawn thereunder at such time
(regardless of whether any conditions for drawing could then be met).
"Stock" shall mean all shares, options, interests or other equivalents
(howsoever designated) of or in a corporation, whether voting or nonvoting,
including, without limitation, common stock, warrants, preferred stock,
convertible debentures and all agreements, instruments and documents
convertible, in whole or in part, into any one or more or all of the foregoing.
"Subordinated Debt" shall mean unsecured Debt of the Borrower or any of
its Subsidiaries that is expressly subordinated and made junior to the payment
and performance of the Credit Obligations and the Guaranty Obligations on terms
(including, without limitation, covenants, terms of subordination and payment
terms) approved in writing by the Required Lenders, including without limitation
the Professional Services Agreement, the Intercompany Management Agreements and
notes issued to shareholders of the Borrower in compliance with SECTION 6.8.
"Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors, or other entity of which more than 50% of
the Interests or voting power, is at the time, directly or indirectly, owned by
any Person or one or more of its Subsidiaries (irrespective of whether, at the
time, the ownership interests or Stock of any other class or classes of such
entity or corporation shall have or might have voting power by reason of the
happening of any
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<PAGE> 31
contingency). When used without reference to a parent, the term "Subsidiary"
shall be deemed to refer to a Subsidiary of the Borrower.
"Swap Agreement" shall mean any and all interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance or other hedging arrangements and all other similar agreements or
arrangements between the Borrower and any Lender designed to protect against
fluctuations in interest rates.
"Swingline Commitment" shall mean $5,000,000 or, if less, the aggregate
Revolving Credit Commitments at the time of determination, as such amount may be
reduced at or prior to such time pursuant to the terms hereof.
"Swingline Lender" shall mean First Union in its capacity as maker of
Swingline Loans, and its successors in such capacity.
"Swingline Loans" shall have the meaning given to such term in SECTION
2.1(C).
"Swingline Maturity Date" shall mean the date that is five (5) Business
Days prior to the Revolving Credit Facility Maturity Date.
"Swingline Note" shall mean the promissory note of the Borrower in
substantially the form of EXHIBIT A- 3, together with any amendments,
modifications and supplements thereto, substitutions therefor and restatements
thereof.
"Syndication Completion Date" shall have the meaning assigned to such
term in SECTION 2.2(A).
"Target" shall have the meaning assigned to such term in SECTION
5.12(C)(I).
"Taxes" shall have the meaning assigned to such term in SECTION
2.12(A).
"Term Loan Commitment" shall mean, with respect to any Lender at any
time, the amount set forth under such Lender's name on its signature page hereto
under the caption "Term Loan Commitment" or, if such Lender has entered into one
or more Assignment and Acceptances, the amount set forth for such Lender at such
time in the Register maintained by the Agent pursuant to SECTION 10.5(C) as such
Lender's "Term Loan Commitment," as such amount may be reduced at or prior to
such time pursuant to the terms hereof.
"Term Loan Facility" shall mean the Term Loans extended by the Lenders
under SECTION 2.1(A).
"Term Loan Facility Maturity Date" shall mean December 16, 2002.
"Term Loan Percentage" shall mean, with respect to any Lender at any
time, a fraction (expressed as a percentage) the numerator of which is the Term
Loan Commitment of such Lender at such time and the denominator of which is the
Total Term Loan Commitment at such time; provided that if the Term Loan
Percentage of any Lender is to be determined after the Term Loan Commitments
have been terminated, then such Term Loan Percentage shall be determined
immediately prior (and without giving effect) to such termination.
"Term Loans" shall have the meaning assigned to such term in SECTION
2.1(A).
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"Term Notes" shall mean the promissory notes of the Borrower in
substantially the form of EXHIBIT A-1, executed and delivered to the Lenders
with Term Loan Commitments pursuant to SECTION 2.3(B) or, in connection with an
Assignment and Acceptance, pursuant to SECTION 10.5(D), together with any
amendments, modifications and supplements thereto and restatements thereof, in
whole or in part.
"Total Commitment" shall mean, at any time, the sum of all Commitments
at such time.
"Total Revolving Credit Commitment" shall mean, at any time, the sum of
the Revolving Credit Commitments of all Lenders at such time.
"Total Term Loan Commitment" shall mean, at any time, the sum of the
Term Loan Commitments of all Lenders at such time.
"Total Unutilized Revolving Credit Commitment" shall mean, at any time,
the sum of the Unutilized Revolving Credit Commitments of all Lenders at such
time.
"Type" shall have the meaning assigned to such term in SECTION 2.2(A).
"Uniform Commercial Code" shall mean the Uniform Commercial Code of the
State of North Carolina, as amended from time to time, unless in any particular
instance the Uniform Commercial Code of another state is applicable, in which
case it shall mean the Uniform Commercial Code of such state.
"Unutilized Revolving Credit Commitment" shall mean, with respect to
any Lender at any time, such Lender's Revolving Credit Commitment at such time
less the sum of (i) the aggregate principal amount of all Revolving Credit Loans
made by such Lender that are outstanding at such time and (ii) such Lender's Pro
Rata Share (calculated based on its Revolving Credit Percentage) of all Letter
of Credit Outstandings at such time. The Unutilized Revolving Credit Commitment
of the Swingline Lender shall not be reduced by the amount of any Swingline
Loans outstanding at any time.
"Unutilized Swingline Commitment" shall mean, with respect to the
Swingline Lender at any time, the Swingline Commitment at such time less the
aggregate principal amount of all Swingline Loans that are outstanding at such
time.
1.2. Accounting Terms. Any accounting terms used in this Agreement
that are not specifically defined shall have the meanings customarily given them
in accordance with Generally Accepted Accounting Principles; provided, however,
that, in the event that changes in Generally Accepted Accounting Principles
shall be mandated by the Financial Accounting Standards Board, or any similar
accounting body of comparable standing, or shall be recommended by the
Borrower's certified public accountants, to the extent that such changes would
modify or could modify such accounting terms or the interpretation or
computation thereof, such changes shall be followed in defining such accounting
terms only from and after the date this Agreement shall have been amended to the
extent necessary to reflect any such changes in the financial covenants and
other terms and conditions of this Agreement. In the event of any such changes,
the Borrower, the Agent and the Required Lenders shall endeavor in good faith to
promptly agree to appropriate amendments hereto.
1.3. Singular/Plural. Unless the context otherwise requires, words
in the singular include the plural and words in the plural include the singular.
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1.4. Other Terms. All other terms contained in this Agreement shall,
when the context so indicates, have the meanings provided for by the Uniform
Commercial Code of the State of North Carolina to the extent the same are used
or defined therein.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS;
LETTERS OF CREDIT
2.1. The Loans.
(a) Each Lender having a Term Loan Commitment severally agrees, subject
to and on the terms and conditions of this Agreement, to make a loan (each, a
"Term Loan" and collectively the "Term Loans") to the Borrower on the Closing
Date in the principal amount not to exceed its Term Loan Commitment. No Term
Loans shall be made at any time after the Closing Date. To the extent repaid,
Term Loans may not be reborrowed.
(b) Each Lender having a Revolving Credit Commitment severally agrees,
subject to and on the terms and conditions of this Agreement, to make loans
(each, a "Revolving Credit Loan" and collectively, the "Revolving Credit Loans")
to the Borrower, from time to time on any Business Day during the period from
the date hereof to the Revolving Credit Facility Termination Date, provided that
(i) the aggregate principal amount of Revolving Credit Loans at any time
outstanding for any Lender shall not exceed the difference between (1) such
Lender's Revolving Credit Commitment at such time less (2) such Lender's Pro
Rata Share (calculated based on its Revolving Credit Percentage) of the
aggregate Letter of Credit Outstandings at such time (exclusive of Reimbursement
Obligations that are repaid with the proceeds of, and simultaneously with the
incurrence of, Revolving Credit Loans) and (ii) no Borrowing of Revolving Credit
Loans shall be made if, immediately after giving effect thereto, the aggregate
principal amount of Revolving Credit Loans, Letter of Credit Outstandings
(exclusive of Reimbursement Obligations that are repaid with the proceeds of,
and simultaneously with, the incurrence of Revolving Credit Loans) and Swingline
Loans (excluding the aggregate amount of any Swingline Loans to be repaid with
proceeds of Revolving Credit Loans made pursuant to such Borrowing) outstanding
at such time would exceed the lesser of the Total Revolving Credit Commitment or
the Revolving Credit Borrowing Availability, and (iii) no advance of any
Borrowing of Revolving Credit Loans shall be required if, immediately after
giving effect thereto, a Default or Event of Default exists. Subject to and on
the terms and conditions of this Agreement, the Borrower may borrow, repay and
reborrow Revolving Credit Loans until the Revolving Credit Facility Termination
Date.
(c) The Swingline Lender agrees, subject to and on the terms and
conditions of this Agreement, to make loans (each, a "Swingline Loan," and
collectively, the "Swingline Loans") to the Borrower, from time to time on any
Business Day during the period from the Closing Date to but not including the
Swingline Maturity Date (or, if earlier, the Revolving Credit Facility
Termination Date), in an aggregate principal amount not exceeding the Swingline
Commitment, notwithstanding that the aggregate principal amount of Swingline
Loans outstanding at any time, when added to the aggregate principal amount of
the Revolving Credit Loans made by the Swingline Lender in its capacity as a
Lender outstanding at such time and its Letter of Credit Outstandings at such
time, may exceed its Revolving Credit Commitment at such time; provided,
however, that no Borrowing of Swingline Loans shall be made if, immediately
after giving effect thereto, the sum of the aggregate principal amount of
Revolving Credit Loans, Letter of Credit Outstandings (exclusive of
Reimbursement Obligations that are repaid with the proceeds of, and
simultaneously with, the incurrence of Revolving Credit Loans), and Swingline
Loans (excluding the aggregate amount of any Swingline Loans to be repaid with
proceeds of
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Revolving Credit Loans made pursuant to such Borrowing) outstanding at such time
would exceed the lesser of the Total Revolving Credit Commitment or the
Revolving Credit Borrowing Availability. Subject to and on the terms and
conditions of this Agreement, the Borrower may borrow, repay (including by means
of a Borrowing of Revolving Credit Loans pursuant to SECTION 2.2(B)) and
reborrow Swingline Loans.
2.2. Borrowings.
(a) The Loans (other than the Swingline Loans) shall, at the option of
the Borrower and subject to the terms and conditions of this Agreement, be
either Base Rate Loans or LIBOR Loans (each such type of Loan, a "Type"),
provided that (i) all Loans comprising the same Borrowing shall, unless
otherwise specifically provided herein, be of the same Type and (ii)
notwithstanding any other provision of this Agreement, no LIBOR Loans having an
Interest Period of longer than one (1) month may be borrowed at any time prior
to the earlier of the 30th day after the Closing Date and the date upon which
the Agent determines in its sole discretion, and notifies the Borrower, that the
primary syndication of the Credit Facility provided for hereunder has been
completed (the earlier of such dates, the "Syndication Completion Date"). The
Swingline Loans shall be made and maintained as Base Rate Loans at all times.
(b) In order to make a Borrowing (other than continuations of
outstanding Loans which shall be made pursuant to SECTION 2.9, mandatory
Borrowings of Revolving Credit Loans pursuant to SECTION 2.17(E), Borrowings of
Swingline Loans pursuant to SECTION 2.2(F), and Borrowings for the purpose of
repaying Refunded Swingline Loans, which shall be made pursuant to SECTION
2.2(G)), the Borrower will give the Agent written notice (by telecopier or
otherwise), not later than 12:00 noon, Charlotte, North Carolina local time, at
least three (3) Business Days prior to each Borrowing to be comprised of LIBOR
Loans and at least one (1) Business Day prior to each Borrowing to be comprised
of Base Rate Loans; provided, however, that requests for the Borrowing of the
Term Loans and any Revolving Credit Loans to be made on the Closing Date may, at
the discretion of the Agent, be given later than the times specified
hereinabove. Each such notice (each, a "Notice of Borrowing") shall be
irrevocable, shall be given in the form of EXHIBIT B-1 and shall be
appropriately completed to specify (i) the Credit Facility under which such
Borrowing is to be made, (ii) the aggregate principal amount and Type of the
Loans to be made pursuant to such Borrowing (and, in the case of a Borrowing of
LIBOR Loans, the initial Interest Period to be applicable thereto), (iii) the
purpose and proposed use of the proceeds of the Borrowing, and (iv) the
requested date of the Borrowing (the "Borrowing Date"), which shall be a
Business Day.
Notwithstanding anything to the contrary contained herein:
(i) the aggregate principal amount of each Borrowing
hereunder (x) in the case of Borrowings of Revolving Credit Loans and
Term Loans comprised of Base Rate Loans (excluding Borrowings for the
purpose of repaying Refunded Swingline Loans, and mandatory Borrowings
of Revolving Credit Loans pursuant to SECTION 2.17(E)), shall not be
less than $1,000,000 and, if greater, shall be in an integral multiple
of $500,000 in excess thereof, (y) in the case of Borrowings of
Swingline Loans, shall not be less than $250,000 and, if greater, shall
be in an integral multiple of $100,000 in excess thereof, and (z) in
the case of Borrowings comprised of LIBOR Loans, shall not be less than
$3,000,000 and, if greater, shall be in an integral multiple of
$1,000,000 in excess thereof (or, in all cases of a Borrowing of
Revolving Credit Loans, if less, in the amount of the Total Unutilized
Revolving Credit Commitment);
(ii) if the Borrower shall have failed to designate
the Type of Loans comprising a Borrowing, the Borrower shall be deemed
to have requested a Borrowing comprised of Base Rate Loans;
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(iii) if the Borrower shall have failed to select the
duration of the Interest Period to be applicable to any Borrowing of
LIBOR Loans, then the Borrower shall be deemed to have selected an
Interest Period with a duration of one month; and
(iv) LIBOR Loans under the Revolving Credit Facility
may not be outstanding under more than five (5) separate Interest
Periods at any one time and LIBOR Loans under the Term Loan Facility
may not be outstanding under more than three (3) separate Interest
Periods at any one time.
(c) Upon its receipt of a Notice of Borrowing, the Agent will promptly
notify each Lender with a Commitment under the relevant Credit Facility of the
proposed Borrowing. Not later than 2:00 p.m., Charlotte time, on the requested
Borrowing Date, each such Lender will make available to the Agent at its office
referred to in SECTION 10.4 (or at such other location as the Agent may
designate) an amount, in Dollars and in immediately available funds, equal to
the amount of the Loan to be made by such Lender. To the extent the relevant
Lenders have made such amounts available to the Agent as provided hereinabove,
the Agent will make the aggregate of such amounts available to the Borrower in
accordance with subsection (D) below and in like funds as received by the Agent.
Each Lender may, at its option, make and maintain any LIBOR Loan by causing any
domestic or foreign branch or Affiliate of such Lender to make or maintain such
LIBOR Loan, provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement; provided, further, that the Borrower shall not be responsible
for costs arising under SECTIONS 2.11, 2.12, 2.13 or otherwise payable hereunder
resulting from any such transfer of its Loans to the extent such costs would not
otherwise be applicable to such Lender in the absence of such transfer.
(d) The Borrower hereby authorizes the Agent to disburse the proceeds
of each Borrowing in accordance with the terms of any written instructions from
any of the Authorized Officers, provided that the Agent shall not be obligated
under any circumstances to forward amounts to any account not listed in an
Account Designation Letter. The Borrower may at any time deliver to the Agent an
Account Designation Letter listing any additional accounts or deleting any
accounts listed in a previous Account Designation Letter.
(e) Unless the Agent has received, prior to 12:00 noon, Charlotte time,
on the relevant Borrowing Date, written notice from a Lender that such Lender
will not make available to the Agent such Lender's ratable portion, if any, of
the relevant Borrowing, the Agent may assume that such Lender has made such
portion available to the Agent in immediately available funds on such Borrowing
Date in accordance with subsection (C) above, and the Agent may, in reliance
upon such assumption, make a corresponding amount available to the Borrower on
such Borrowing Date. If and to the extent that such Lender shall not have made
such portion available to the Agent, and the Agent shall have made such
corresponding amount available to the Borrower, such Lender, on the one hand,
and the Borrower, on the other, severally (but without duplication of payments
made by the applicable Lender) agree to pay to the Agent forthwith on demand
such corresponding amount, together with interest thereon for each day from the
date such amount is made available to the Borrower until the date such amount is
repaid to the Agent, (i) in the case of such Lender, at the Federal Funds Rate,
and (ii) in the case of the Borrower, at the rate of interest applicable at such
time to Loans comprising such Borrowing, as determined under the provisions of
SECTION 2.6. If such Lender shall repay to the Agent such corresponding amount,
such amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement and the Borrower shall have no further obligation to
make any repayment of such Borrowing pursuant to this SECTION 2.2(E). The
failure of any Lender to make any Loan required to be made by it as part of any
Borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan as part of such Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Loan to be made by
such other Lender as part of any Borrowing.
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(f) In order to make a Borrowing of a Swingline Loan, the Borrower will
give the Agent and the Swingline Lender written notice (or oral notice promptly
confirmed in writing) not later than 12:00 noon, Charlotte time, on the Business
Day of such Borrowing. Each such notice (each, a "Notice of Swingline
Borrowing") shall be irrevocable, shall be given in the form of EXHIBIT B-3 and
shall specify (i) the principal amount of the Swingline Loan to be made pursuant
to such Borrowing (which shall not be less than $250,000 and, if greater, shall
be in an integral multiple of $100,000 in excess thereof (or, if less, in the
amount of the Unutilized Swingline Commitment)) and (ii) the requested Borrowing
Date, which shall be a Business Day. Not later than 2:00 p.m., Charlotte time,
on the requested Borrowing Date, the Swingline Lender will make available to the
Agent at its office referred to in SECTION 10.4 (or at such other location as
the Agent may designate) an amount, in Dollars and in immediately available
funds, equal to the amount of the requested Swingline Loan. The Agent will make
such amount available to the Borrower in accordance with SECTION 2.2(C).
(g) With respect to any outstanding Swingline Loans, the Swingline
Lender may at any time (whether or not an Event of Default has occurred and is
continuing) in its sole and absolute discretion, and is hereby authorized and
empowered by the Borrower to, cause a Borrowing of Revolving Credit Loans to be
made for the purpose of repaying such Swingline Loans by delivering to the Agent
(if the Agent is different from the Swingline Lender) and each other Lender (on
behalf of, and with a copy to, the Borrower), not later than 12:00 noon,
Charlotte time, one (1) Business Day prior to the proposed Borrowing Date
therefor, a notice (which shall be deemed to be a Notice of Borrowing given by
the Borrower but not a new representation) requesting the Lenders to make
Revolving Credit Loans (which shall be made initially as Base Rate Loans) on
such Borrowing Date in an aggregate amount equal to the amount of such Swingline
Loans (the "Refunded Swingline Loans") outstanding on the date such notice is
given that the Swingline Lender requests to be repaid. Not later than 2:00 p.m.,
Charlotte time, on the requested Borrowing Date, each Lender (other than the
Swingline Lender) will make available to the Agent at its office referred to in
SECTION 10.4 (or at such other location as the Agent may designate) an amount,
in Dollars and in immediately available funds, equal to the amount of the
Revolving Loan to be made by such Lender. To the extent the Lenders have made
such amounts available to the Agent as provided hereinabove, the Agent will make
the aggregate of such amounts available to the Swingline Lender in like funds as
received by the Agent, which shall apply such amounts in repayment of the
Refunded Swingline Loans. Notwithstanding any provision of this Agreement to the
contrary, on the relevant Borrowing Date, the Refunded Swingline Loans
(including the Swingline Lender's ratable share thereof, in its capacity as a
Lender) shall be deemed to be repaid with the proceeds of the Revolving Credit
Loans made as provided above (including a Revolving Loan deemed to have been
made by the Swingline Lender), and such Refunded Swingline Loans deemed to be so
repaid shall no longer be outstanding as Swingline Loans but shall be
outstanding as Revolving Credit Loans. If any portion of any such amount repaid
(or deemed to be repaid) to the Swingline Lender shall be recovered by or on
behalf of the Borrower from the Swingline Lender in any bankruptcy, insolvency
or similar proceeding or otherwise, the loss of the amount so recovered shall be
shared ratably among all the Lenders in the manner contemplated by SECTION
2.2(H).
(h) If, as a result of any bankruptcy, insolvency or similar proceeding
with respect to the Borrower, Revolving Credit Loans are not made pursuant to
subsection (G) above in an amount sufficient to repay any amounts owed to the
Swingline Lender in respect of any outstanding Swingline Loans, or if the
Swingline Lender is otherwise precluded for any reason from giving a notice on
behalf of the Borrower as provided for hereinabove, the Swingline Lender shall
be deemed to have sold without recourse, representation or warranty, and each
Lender shall be deemed to have purchased and hereby agrees to purchase, a
participation in such outstanding Swingline Loans in an amount equal to its
ratable share (based on the proportion that its Revolving Credit Commitment
bears to the Total Revolving Credit Commitments at such time) of the unpaid
amount thereof together with accrued interest thereon. Upon one (1) Business
Day's prior notice from the Swingline Lender, each Lender (other than the
Swingline Lender) will make available to the Agent at its office referred to in
SECTION 10.4 (or at such other location as the Agent may designate) an amount,
in Dollars and in immediately available funds,
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equal to its participation. To the extent the Lenders have made such amounts
available to the Agent as provided hereinabove, the Agent will make the
aggregate of such amounts available to the Swingline Lender in like funds as
received by the Agent. In the event any such Lender fails to make available to
the Agent the amount of such Lender's participation as provided in this
subsection (H), the Swingline Lender shall be entitled to recover such amount on
demand from such Lender, together with interest thereon for each day from the
date such amount is required to be made available for the account of the
Swingline Lender until the date such amount is made available to the Swingline
Lender at the Federal Funds Rate. Promptly following its receipt of any payment
by or on behalf of the Borrower in respect of a Swingline Loan, the Swingline
Lender will pay to each Lender that has acquired a participation therein such
Lender's ratable share of such payment.
(i) Notwithstanding any provision of this Agreement to the contrary,
the obligation of each Lender (other than the Swingline Lender) to make
Revolving Credit Loans for the purpose of repaying any Refunded Swingline Loans
pursuant to subsection (G) above and each such Lender's obligation to purchase a
participation in any unpaid Swingline Loans pursuant to subsection (H) above
shall be absolute and unconditional and shall not be affected by any
circumstance or event whatsoever, including, without limitation, (i) any
set-off, counterclaim, recoupment, defense or other right that such Lender may
have against the Swingline Lender, the Agent, the Borrower or any other Person
for any reason whatsoever, (ii) the occurrence or continuance of any Default or
Event of Default, (iii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of the
Borrower or any of its Subsidiaries, or (iv) any breach of this Agreement by any
party hereto.
2.3. Notes.
(a) The Loans made by each Lender shall be evidenced (i) if Term Loans,
by a Term Note appropriately completed in substantially the form of EXHIBIT A-1,
(ii) if Revolving Credit Loans, by a Revolving Credit Note appropriately
completed in substantially the form of EXHIBIT A-2, and (iii) if Swingline
Loans, by a Swingline Note appropriately completed in substantially the form of
EXHIBIT A-3.
(b) The Term Note issued to each Lender with a Term Loan Commitment
shall (i) be executed by the Borrower, (ii) be payable to the order of such
Lender, (iii) be dated as of the Closing Date (or, in the case of Term Notes
issued pursuant to an Assignment and Acceptance, as of the date thereof), (iv)
be in a stated principal amount equal to such Lender's Term Loan Commitment, (v)
bear interest in accordance with the provisions of SECTION 2.6, as the same may
be applicable to the Term Loans made by such Lender from time to time, and (vi)
be entitled to all of the benefits of this Agreement and the other Loan
Documents and subject to the provisions hereof and thereof.
(c) The Revolving Credit Note issued to each Lender with a Revolving
Credit Commitment shall (i) be executed by the Borrower, (ii) be payable to the
order of such Lender, (iii) be dated as of the Closing Date (or, in the case of
Revolving Credit Notes issued pursuant to an Assignment and Acceptance, as of
the date thereof), (iv) be in a stated principal amount equal to such Lender's
Revolving Credit Commitment, (v) bear interest in accordance with the provisions
of SECTION 2.6, as the same may be applicable to the Revolving Credit Loans made
by such Lender from time to time, and (vi) be entitled to all of the benefits of
this Agreement and the other Loan Documents and subject to the provisions hereof
and thereof.
(d) The Swingline Note issued to the Swingline Lender shall (i) be
executed by the Borrower, (ii) be payable to the order of the Swingline Lender,
(iii) be dated as of the Closing Date, (iv) be in a stated principal amount
equal to the Swingline Commitment, (v) bear interest in accordance with the
provisions of SECTION 2.6, as the same may be applicable to the Swingline Loans
made by the Swingline Lender from time to
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time, and (vi) be entitled to all of the benefits of this Agreement and the
other Loan Documents and subject to the provisions hereof and thereof.
(e) Each Lender will record on its internal records the amount of each
Loan made by it and each payment received by it in respect thereof and will, in
the event of any transfer of any of its Notes, either endorse on the reverse
side thereof or on a schedule attached thereto (or any continuation thereof) the
outstanding principal amount of the Loans evidenced thereby as of the date of
transfer or provide such information on Annex I to the Assignment and Acceptance
relating to such transfer; provided, however, that the failure of any Lender to
make any such recordation or provide any such information, or any error in such
recordation or information, shall not affect the Borrower's obligations in
respect of such Loans. The register maintained by the Agent shall be deemed
correct absent manifest error.
2.4. Termination and Reduction of Commitments and Swingline
Commitment.
(a) The Lenders' obligation to advance Term Loans shall be
automatically and permanently terminated at 5:00 p.m., Charlotte time, on the
Closing Date.
(b) The Lenders' obligation to advance Revolving Credit Loans shall be
automatically and permanently terminated on the Revolving Credit Facility
Termination Date.
(c) The Swingline Lender's obligation to advance Swingline Loans shall
be automatically and permanently terminated on the Swingline Maturity Date.
(d) At any time and from time to time, upon at least five (5) Business
Days' prior written notice to the Agent (and, in the case of a termination or
reduction of the Unutilized Swingline Commitment, the Swingline Lender), the
Borrower may, without premium or penalty, terminate in whole or reduce in part
the Total Unutilized Revolving Credit Commitment or the Unutilized Swingline
Commitment, provided that any such partial reduction shall be in an aggregate
amount of not less than $5,000,000 ($1,000,000 in the case of the Unutilized
Swingline Commitment) or, if greater, in multiples of $1,000,000 in excess
thereof. The amount of any termination or reduction made under this subsection
(D) may not thereafter be reinstated.
(e) Each reduction of the Total Revolving Credit Commitment under this
SECTION 2.4 shall be applied ratably among the Lenders according to their
relative Revolving Credit Commitments. After any such reduction, the fee
provided in SECTIONS 2.7(B) shall be calculated with respect to the reduced
Commitments. Notwithstanding any provision of this Agreement to the contrary,
any reduction of the Total Revolving Credit Commitments pursuant to this SECTION
2.4 that has the effect of reducing the Total Revolving Credit Commitments to an
amount less than the amount of the Swingline Commitment at such time shall
result in an automatic corresponding reduction of the Swingline Commitment to
the amount of the Total Revolving Credit Commitments (as so reduced), without
any further action on the part of the Borrower or the Swingline Lender.
2.5. Payments; Voluntary, Mandatory.
(a) At any time and from time to time, the Borrower shall have the
right to voluntarily prepay the Loans, in whole or in part, without premium or
penalty (except as provided in clause (III) below), upon written notice to the
Agent given not later than 12:00 noon, Charlotte time, (x) at least three (3)
Business Days prior to each intended prepayment of any loans that are LIBOR
Loans and (y) at least one (1) Business Day prior to each intended prepayment of
any Loans that are Base Rate Loans; provided that Swingline Loans may be prepaid
on a same day basis; provided further that (i) each partial voluntary prepayment
of Revolving Credit Loans and Term Loans shall be in an aggregate principal
amount of not less than $500,000 or, if greater, an integral multiple
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<PAGE> 39
of $500,000 in excess thereof, and each partial voluntary prepayment of
Swingline Loans shall be in an aggregate principal amount of not less than
$100,000, or if greater, an integral multiple thereof, (ii) no partial voluntary
prepayment of LIBOR Loans made pursuant to any single Borrowing shall reduce the
aggregate outstanding principal amount of the remaining LIBOR Loans under such
Borrowing to less than $3,000,000 or to any greater amount not an integral
multiple of $1,000,000 in excess thereof, and (iii) unless made together with
all amounts required under SECTION 2.13 to be paid as a consequence of such
prepayment, a prepayment of a LIBOR Loan may be made only on the last day of the
Interest Period applicable thereto. Each such notice shall specify the proposed
date of such prepayment and the aggregate principal amount and the Types of the
Loans to be prepaid (and, in the case of LIBOR Loans, the Interest Period of the
Borrowing pursuant to which made), and shall be irrevocable and shall bind the
Borrower to make such prepayment on the terms specified therein. During the
continuance of any Event of Default, all prepayments pursuant to this subsection
(A) shall be applied, first, to the Term Loans, second, upon payment in full of
the Term Loans, to the Swingline Loans, and third, after payment in full of the
Swingline Loans, to the Revolving Credit Loans, all as more particularly set
forth in subsection (B) below. In the absence of an Event of Default, voluntary
prepayments pursuant to this subsection (A) shall be applied as the Borrower
determines. Revolving Credit Loans and Swingline Loans (but not Term Loans)
prepaid pursuant to this subsection (A) may be reborrowed, subject to the terms
and conditions of this Agreement.
(b) Each prepayment of the Term Loans made pursuant to subsection (A)
above shall be applied to reduce the aggregate outstanding principal amount of
the Term Loans, ratably among the Lenders holding Term Loans in proportion to
the principal amount held by each, with each such reduction to be applied to
each scheduled principal payment to reduce the scheduled payment on the Term
Loans due under SECTION 2.5(C) on a pro rata basis across maturities. Each
prepayment of the Revolving Credit Loans made pursuant to subsection (A) above
shall be applied to reduce the aggregate outstanding principal amount of the
Revolving Credit Loans, ratably among the Lenders holding Revolving Credit Loans
in proportion to the principal amount held by each.
(c) Except to the extent due or made sooner pursuant to the provisions
of this Agreement, the Borrower will repay the aggregate outstanding principal
of the Term Loans in the amounts (as such amount may be reduced as provided in
this Agreement) and on the dates set forth below:
<TABLE>
<CAPTION>
Date Quarterly Payment
---- -----------------
<S> <C>
April 1, 1998 $1,250,000
July 1, 1998 $1,250,000
October 1, 1998 $1,250,000
January 1, 1999 $1,250,000
April 1, 1999 $1,500,000
July 1, 1999 $1,500,000
October 1, 1999 $1,500,000
January 1, 2000 $1,500,000
April 1, 2000 $1,750,000
July 1, 2000 $1,750,000
October 1, 2000 $1,750,000
January 1, 2001 $1,750,000
April 1, 2001 $2,000,000
July 1, 2001 $2,000,000
October 1, 2001 $2,000,000
January 1, 2002 $2,000,000
April 1, 2002 $2,250,000
July 1, 2002 $2,250,000
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C>
October 1, 2002 $2,250,000
December 16, 2002 $2,250,000
</TABLE>
To the extent not previously paid, the aggregate outstanding principal of the
Term Loans shall be due and payable on the Term Loan Facility Maturity Date.
(d) Except to the extent due or made sooner pursuant to the provisions
of this Agreement, the Borrower will repay the aggregate outstanding principal
amount of the Revolving Credit Loans in full on the Revolving Credit Facility
Maturity Date. Except to the extent due or made sooner pursuant to the
provisions of this Agreement, the Borrower will repay the aggregate outstanding
principal amount of the Swingline Loans in full on the Swingline Maturity Date.
(e) In the event that, at any time, the sum of (i) the aggregate
principal amount of the Revolving Credit Loans outstanding on any date (after
giving effect to all repayments thereof on such date), (ii) the aggregate Letter
of Credit Outstandings (after giving effect to all repayments thereof on such
date), and (iii) the aggregate Swingline Loans outstanding at such time
(excluding the aggregate amount of any Swingline Loans to be repaid with
proceeds of Revolving Credit Loans made on the date of determination after
giving effect to all repayments on such date) at such time exceeds the lesser of
the Total Revolving Credit Commitment at such time (after giving effect to any
termination or reduction thereof as of such date) or the Revolving Credit
Borrowing Availability, the Borrower will immediately repay the principal amount
of the Swingline Loans in the amount of such excess and, to the extent of any
excess remaining after prepayment in full of outstanding Swingline Loans, the
Borrower will immediately prepay the outstanding principal amount of the
Revolving Credit Loans in the amount of such excess; provided, however, such
payment shall be accompanied by all amounts required under SECTION 2.13 if
applied to a LIBOR Loan and such payment is not made on the last day of the
Interest Period applicable thereto, and (B) to the extent such excess amount
required to be repaid is greater than the aggregate principal amount of the
Swingline Loans and Revolving Credit Loans outstanding immediately prior to the
application of such repayment, the amount so repaid shall be retained by the
Agent and held in the Cash Collateral Account as security for the Borrower's
Credit Obligations, as more particularly described in SECTION 2.17(I), and
thereupon such cash shall be deemed to reduce the aggregate Reimbursement
Obligations by an equivalent amount.
(f) On the date of receipt by the Borrower or any of its Subsidiaries
of any net cash proceeds from (i) any issuance of equity securities in excess of
$25,000,000 per individual issuance or series of related issuances (other than
an issuance of equity securities to the investors under the Investment Agreement
and the Shareholders Agreements and to Leeway & Co. under the Securities
Purchase Agreement) or (ii) debt securities (other than Debt expressly permitted
by SECTION 6.2 hereof and not requiring consent of the Required Lenders); the
Borrower shall make a mandatory repayment of principal of the Term Loans and
Revolving Credit Loans (as set forth in subsection (I) below) in an amount equal
to one hundred percent (100%) of such net cash proceeds (net of any underwriting
discounts and commissions and other reasonable costs associated with such
issuance); provided, however, in connection with a qualified initial public
offering of the Borrower's common stock with an underwriter of national
reputation, the Borrower shall only be required to make a mandatory prepayment
of principal on the Term Loans and Revolving Credit Loans (as set forth in
subsection (I) below) in an amount equal to the first $20,000,000 of net cash
proceeds thereof.
(g) On the date of receipt by the Borrower or any of its Subsidiaries
of any net cash proceeds from any sale or disposition of assets, other than
sales or dispositions permitted under clauses (I), (II), (IV) AND (V) of SECTION
6.5, the sale of permitted temporary overnight investments or the sale of
certain assets as contemplated by the Investment Agreement, the Borrower shall
make a mandatory repayment of principal of the
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<PAGE> 41
Term Loans and Revolving Credit Loans (as set forth in subsection (I) below) in
an amount equal to one-hundred percent (100%) of such net cash proceeds.
(h) On the date of receipt by the Borrower or any of its Subsidiaries
of any cash prepayment received in reduction of the principal balance of the
Palestine Limited Partnership Note, the Borrower shall make a mandatory
repayment of principal of the Term Loans and Revolving Credit Loans (as set
forth in subsection (I) below) in an amount equal one hundred percent (100%) of
such payment; provided, however, that the provisions of this clause (h) shall
not be effective until consummation of the Principal Merger Transaction.
(i) Each prepayment of the Loans made pursuant to subsections (F), (G)
and (H) above shall be applied, first, to reduce the aggregate outstanding
principal amount of the Term Loans, ratably among the Lenders holding Term Loans
in proportion to the principal amount held by each, with such reduction to be
applied to each scheduled principal payment on the Term Loans due under
subsection (C) above, on a pro rata basis across maturities, and upon payment in
full of the Term Loans, to reduce the aggregate outstanding principal amount of
the Revolving Credit Loans, ratably among the Lenders holding Revolving Credit
Loans in proportion to the principal amount held by each. Each payment or
prepayment of a LIBOR Loan made pursuant to the provisions of this SECTION 2.5
on a day other than the last day of the Interest Period applicable thereto shall
be made together with all amounts required under SECTION 2.13 to be paid as a
consequence thereof.
2.6. Interest.
(a) The Borrower will pay interest in respect of the unpaid principal
amount of each Loan, from the date of Borrowing thereof until such principal
amount shall be paid in full, (i) at the Adjusted Base Rate, as in effect from
time to time, during such periods as such Loan is a Base Rate Loan, or (ii) at
the Adjusted LIBOR Rate, as in effect from time to time, during such periods as
such Loan is a LIBOR Loan.
(b) Any principal amounts of the Loans not paid when due and, to the
greatest extent permitted by law, all interest accrued on the Loans and all
other fees and amounts hereunder not paid when due (whether at maturity,
pursuant to acceleration or otherwise), shall bear interest at a rate per annum
equal to the rate otherwise applicable to such Loan plus two percentage points
(2.0%), and such default interest shall be payable on demand. Further, but
without duplication of the foregoing, during the existence of any Event of
Default in response to which the Lenders do not elect to declare the outstanding
principal amounts of the Loans immediately due and payable, if required by the
Required Lenders, the Borrower will pay interest on the dates provided pursuant
to subsection (C), below, in respect of the unpaid principal amount of each
Loan, from the date the Event of Default first exists until it is cured or
waived, at a rate per annum equal to the rate otherwise applicable to such Loan
plus two percentage points (2.0%) and such interest shall be payable on demand.
To the greatest extent permitted by law, interest shall continue to accrue after
the filing by or against the Borrower of any petition seeking any relief in
bankruptcy or under any act or law pertaining to insolvency or debtor relief,
whether state, federal or foreign.
(c) Accrued (and theretofore unpaid) interest shall be payable as
follows:
(i) in respect of each Base Rate Loan (including any
Base Rate Loan or portion thereof paid or prepaid pursuant to the
provisions of SECTION 2.5, except as provided hereinbelow), in arrears
on the first Business Day of each successive January, April, July and
October, beginning with the first such day to occur after the Closing
Date; provided, that in the event the Loans are repaid or prepaid in
full and the Total Commitment has been terminated, then accrued
interest in respect of all Base Rate Loans shall be payable together
with such repayment or prepayment on the date thereof;
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<PAGE> 42
(ii) in respect of each LIBOR Loan (including any
LIBOR Loan or portion thereof paid or prepaid pursuant to the
provisions of SECTION 2.5, except as provided hereinbelow), in arrears,
on the last Business Day of the Interest Period applicable thereto
(subject to the provisions of clause (IV) in SECTION 2.8); provided,
that in the event all LIBOR Loans made pursuant to a single Borrowing
are repaid or prepaid in full, then accrued interest in respect of such
LIBOR Loans shall be payable together with such repayment or prepayment
on the date thereof; and
(iii) in respect of any Loan, at maturity (whether
pursuant to acceleration or otherwise) and, after maturity, on demand.
(d) Nothing contained in this Agreement or in any other Loan Document
shall be deemed to establish or require the payment of interest to any Lender in
an amount in excess of the maximum amount permitted by applicable law. If the
amount of interest or other charges payable for the account of any Lender on any
payment date would exceed the maximum amounts permitted by applicable law to be
charged by such Lender, the amount of interest payable for its account on such
payment date shall be automatically reduced to such maximum permissible amounts.
In the event of any such reduction affecting any Lender, if from time to time
thereafter the amount of interest payable for the account of such Lender on any
interest payment date would be less than the maximum amounts permitted by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent payment date shall be automatically increased
to such maximum permissible amount, provided that at no time shall the aggregate
amount by which interest paid for the account of any Lender has been increased
pursuant to this sentence exceed the aggregate amount by which interest paid for
its account has theretofore been reduced pursuant to the previous sentence. The
parties hereto understand and believe that if Tennessee or Oregon law were to
apply, this lending transaction complies with the usury laws of the State of
Tennessee or Oregon. If at any time, any amount of interest or other charges
actually paid by the Borrower on or with respect to any Loan is determined to be
in excess of the maximum amount permitted by applicable law, such excess amount
shall be credited as a prepayment of the outstanding principal balance of the
applicable Loan as of the date paid or, if such Loan has been paid in full,
refunded to the Borrower.
(e) The Agent shall promptly notify the Borrower and the Lenders upon
determining the interest rate for each Borrowing of LIBOR Loans after its
receipt of the relevant Notice of Borrowing or Notice of
Conversion/Continuation; provided, however, that the failure of the Agent to
provide the Borrower or the Lenders with any such notice shall neither affect
any obligations of the Borrower or the Lenders hereunder nor result in any
liability on the part of the Agent to the Borrower or any Lender. Each such
determination (including each determination of the Reserve Requirement in
connection with a Borrowing of LIBOR Loans) shall, absent manifest error, be
final, conclusive and binding on all parties hereto.
2.7. Fees. The Borrower agrees to pay:
(a) To First Union, for its own account, on the date of this Agreement,
the fees described in the Fee Letter, in the amounts set forth therein as due
and payable on the date of this Agreement and to the extent not theretofore paid
to First Union;
(b) To the Agent, for the account of each Lender with a Revolving
Credit Commitment, a commitment fee per annum for the period from the date of
this Agreement to the Revolving Credit Facility Termination Date at the rate per
annum as determined under the following matrix with reference to the ratio of
Consolidated Adjusted Debt to Annualized Consolidated EBITDAR, applied to the
average daily Unutilized Revolving Credit Commitment of such Lender, payable in
arrears (i) on the first Business Day of each successive January, April, July
and October, beginning with the first such day to occur after the Closing Date,
and (ii) on the Revolving Credit Facility Termination Date:
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<PAGE> 43
<TABLE>
<CAPTION>
Ratio of Consolidated Adjusted
Debt to Annualized Consolidated EBITDAR Fee Percentage
--------------------------------------- --------------
<S> <C>
Greater than or equal to
2.75 to 1.0 0.500%
Less than 2.75 to 1.0 0.375%
</TABLE>
From the Closing Date until the fifth (5) Business Day after receipt by
the Agent of the financial statement for the fiscal quarter ended June 30, 1997
pursuant to SECTION 5.1(A) below, the fee percentage shall be 0.5%. The fee
percentage shall be reset from time to time as the calculation of Applicable
Margin changes as set forth herein.
(c) To the Agent, for the account of each L/C Participant, a letter of
credit fee in respect of each Letter of Credit for the period from the date of
its issuance to the date of its termination, at a rate per annum equal to the
Applicable Margin for LIBOR Loans in effect from time to time during such
period, on the daily average Stated Amount thereof, payable in arrears (i) on
the first Business Day of each successive January, April, July and October,
beginning with the first such day to occur after the Closing Date, and (ii) on
the later of the Revolving Credit Facility Termination Date or the date of
termination of the last outstanding Letter of Credit;
(d) To the Issuing Bank, for its own account, such commissions,
issuance fees, transfer fees and other fees and charges incurred in connection
with the issuance and administration of each Letter of Credit as are customarily
charged from time to time by the Issuing Bank for the performance of such
services in connection with similar letters of credit, or as may be otherwise
agreed to by the Borrower; and
(e) To the Agent, for its own account, the annual administrative fees
provided in the Fee Letter, on the terms, in the amounts and at the times set
forth therein.
2.8. Interest Periods. Concurrently with the giving of any Notice of
Borrowing or Notice of Conversion/Continuation in respect of any Borrowing
comprised of LIBOR Loans, the Borrower shall have the right to elect, pursuant
to such notice, the interest period (each, an "Interest Period") to be
applicable to such LIBOR Loans, which Interest Period shall, at the option of
the Borrower, be a one, two, or three month period (subject to SECTION 2.11);
provided, however, that:
(i) all LIBOR Loans comprising a single Borrowing
shall at all times have the same Interest Period;
(ii) the initial Interest Period for any LIBOR Loan
shall commence on the date of the Borrowing of such Loan (including the
date of any continuation of, or conversion into, such LIBOR Loan), and
each successive Interest Period applicable to such LIBOR Loan shall
commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) the Borrower may not select any Interest Period
that begins prior to the Closing Date or that expires after (y) the
Revolving Credit Facility Maturity Date, with respect to Revolving
Credit Loans that are to be maintained as LIBOR Loans, or (z) Term Loan
Facility Maturity Date, with respect to Term Loans that are to be
maintained as LIBOR Loans;
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<PAGE> 44
(iv) if any Interest Period otherwise would expire on
a day that is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day unless such next succeeding Business
Day falls in another calendar month, in which case such Interest Period
shall expire on the next preceding Business Day;
(v) no Interest Period with respect to Term Loans
that are to be maintained as LIBOR Loans may be selected that would end
after a scheduled date for repayment of principal of the Term Loans
occurring on or after the first day of such Interest Period unless,
immediately after giving effect to such selection, the aggregate
principal amount of Term Loans that are Base Rate Loans or that have
Interest Periods expiring on or before such principal repayment date
equals or exceeds the principal amount required to be paid on such
principal repayment date;
(vi) if any Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month during
which such Interest Period would otherwise expire, such Interest Period
shall expire on the last Business Day of such calendar month; and
(vii) if, upon the expiration of any Interest Period
applicable to a Borrowing of LIBOR Loans, the Borrower shall have
failed to elect a new Interest Period to be applicable to such LIBOR
Loans, then the Borrower shall be deemed to have elected to convert
such LIBOR Loans into Base Rate Loans as of the expiration of the then
current Interest Period applicable thereto.
2.9. Conversions and Continuations.
(a) The Borrower shall have the right, on any Business Day to elect (i)
to convert all or a portion of the outstanding principal amount of any Base Rate
Loans under either Credit Facility into LIBOR Loans under the same Credit
Facility, or to convert any LIBOR Loans under either Credit Facility the
Interest Periods for which end on the same day into Base Rate Loans under the
same Credit Facility, or (ii) to continue all or a portion of the outstanding
principal amount of any LIBOR Loans under either Credit Facility the Interest
Periods for which end on the same day for an additional Interest Period,
provided that (i) any such conversion of LIBOR Loans into Base Rate Loans shall
involve an aggregate principal amount of not less than $1,000,000 or, if
greater, an integral multiple of $500,000 in excess thereof; (ii) any such
conversion of Base Rate Loans into, or continuation of, LIBOR Loans shall
involve an aggregate principal amount of not less than $3,000,000 or, if
greater, an integral multiple of $1,000,000 in excess thereof; (iii) no partial
conversion of LIBOR Loans made pursuant to a single Borrowing shall reduce the
outstanding principal amount of such LIBOR Loans to less than $3,000,000 or to
any greater amount not an integral multiple of $1,000,000 in excess thereof,
(iv) no such conversion or continuation shall be permitted with regard to any
Base Rate Loans that are Swingline Loans, and (v) no conversion of Base Rate
Loans into LIBOR Loans or continuation of LIBOR Loans into a new Interest Period
shall be permitted during the continuance of a Default or Event of Default. If a
LIBOR Loan is converted into a Base Rate Loan on any day other than the last day
of the Interest Period applicable thereto, the Borrower will pay, upon such
conversion, all amounts required under SECTION 2.13 to be paid as a consequence
thereof.
(b) The Borrower shall make each such election by giving the Agent
written notice not later than 12:00 noon, Charlotte time, three (3) Business
Days prior to the effective date of any conversion of Base Rate Loans into, or
continuation of, LIBOR Loans and one (1) Business Day prior to the effective
date of any conversion of LIBOR Loans into Base Rate Loans. Each such notice
(each, a "Notice of Conversion/Continuation") shall be irrevocable, shall be
given in the form of EXHIBIT B-2 and shall specify (x) the date of such
conversion or continuation (which shall be a Business Day), (y) in the case of a
conversion into, or a continuation of, LIBOR Loans, the Interest Period to be
applicable thereto, and (z) the aggregate amount and Type of the Loans being
converted or continued and the Credit Facility under which such Loans were
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<PAGE> 45
made. Upon the receipt of a Notice of Conversion/Continuation, the Agent will
promptly notify each Lender having a Commitment under the relevant Credit
Facility of the proposed conversion or continuation. In the event that the
Borrower shall fail to deliver a Notice of Conversion/ Continuation as provided
herein with respect to any outstanding LIBOR Loans, such LIBOR Loans shall
automatically be converted to Base Rate Loans upon the expiration of the then
current Interest Period applicable thereto (unless repaid pursuant to the terms
hereof).
2.10. Method of Payments; Computations.
(a) All payments by the Borrower hereunder shall be made without
setoff, counterclaim or other defense, in Dollars and in immediately available
funds to the Agent, for the account of the Lenders or the Swingline Lender, as
the case may be (except as otherwise expressly provided herein as to payments
required to be made directly to the Issuing Bank and the Lenders) at its office
referred to in SECTION 10.4, prior to 12:00 noon, Charlotte time, on the date
payment is due. Any payment made as required hereinabove, but after 12:00 noon,
Charlotte time, shall be deemed to have been made on the next succeeding
Business Day. If any payment falls due on a day that is not a Business Day, then
such due date shall be extended to the next succeeding Business Day (except that
in the case of LIBOR Loans to which the provisions of clause (IV) in SECTION 2.8
are applicable, such due date shall be the next preceding Business Day), and
such extension of time shall then be included in the computation of payment of
interest, fees or other applicable amounts at the applicable rate in effect
immediately prior to such extension.
(b) The Agent will distribute to the Lenders like amounts relating to
payments made to the Agent for the account of the Lenders as follows: (i) if the
payment is received by 12:00 noon, Charlotte time, in immediately available
funds, the Agent will make available to each relevant Lender on the same date,
by wire transfer of immediately available funds, such Lender's ratable share of
such payment (based on the percentage that the amount of the relevant payment
owing to such Lender bears to the total amount of such payment owing to all of
the relevant Lenders), and (ii) if such payment is received after 12:00 noon,
Charlotte time, or in other than immediately available funds, the Agent will
make available to each such Lender its ratable share of such payment by wire
transfer of immediately available funds on the next succeeding Business Day (or
in the case of uncollected funds, as soon as practicable after collected). If
the Agent shall not have made a required distribution to the appropriate Lenders
as required hereinabove after receiving a payment for the account of such
Lenders, the Agent will pay to each such Lender, on demand, its ratable share of
such payment with interest thereon at the Federal Funds Rate for each day from
the date such amount was required to be disbursed by the Agent until the date
repaid to such Lender. The Agent will distribute to the Issuing Bank like
amounts relating to payments made to the Agent for the account of the Issuing
Bank in the same manner, and subject to the same terms and conditions, as set
forth hereinabove with respect to distributions of amounts to the Lenders.
(c) Unless the Agent shall have received written notice from the
Borrower prior to the date on which any payment of principal, interest or fees
under SECTION 2.7 is due to any Lender hereunder that such payment will not be
made in full, the Agent may assume that the Borrower has made such payment in
full to the Agent on such date, and the Agent may, in reliance on such
assumption, but shall not be obligated to, cause to be distributed to such
Lender on such due date an amount equal to the amount then due to such Lender.
If and to the extent the Borrower shall not have so made such payment in full to
the Agent, and without limiting the obligation of the Borrower to make such
payment in accordance with the terms hereof, such Lender shall repay to the
Agent forthwith on demand such amount so distributed to such Lender, together
with interest thereon for each day from the date such amount is so distributed
to such Lender until the date repaid to the Agent, at the Federal Funds Rate.
(d) With respect to each payment hereunder, except as specifically
provided otherwise herein or in any of the other Loan Documents, the Borrower
may designate by written notice to the Agent prior to or
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<PAGE> 46
concurrently with such payment the Types of Loans that are to be paid, repaid or
prepaid, provided that (i) unless made together with all amounts required under
SECTION 2.13 to be paid as a consequence thereof, a prepayment of a LIBOR Loan
may be made only on the last day of the Interest Period applicable thereto, and
(ii) each payment on account of any Credit Obligations to or for the account of
any one or more Lenders shall be apportioned ratably among such Lenders in
proportion to the amounts of such Credit Obligations owed to them. In the
absence of any such designation by the Borrower, or if an Event of Default has
occurred and is continuing, the Agent shall make such designation as the
Required Lenders may direct, subject to the foregoing and to the other
provisions of this Agreement.
(e) All computations of interest and fees hereunder (including
computations of the Reserve Requirement) shall be made on the basis of a year
consisting of 360 days and the actual number of days (including the first day,
but excluding the last day) elapsed; provided, however, that interest calculated
with respect to the Base Rate shall be computed on the basis of a 365/366-day
year and the actual days elapsed.
2.11. Increased Costs, Change in Circumstances, Etc.
(a) If, at any time after the Closing Date and from time to time, the
adoption or modification of any applicable law, rule or regulation, or any
interpretation or administration thereof by any Governmental Authority or
central bank (whether or not having the force of law) charged with the
interpretation, administration or compliance of the Lenders with any of such
requirements, shall, subject to the provisions of SECTION 2.12 which shall be
controlling as to the matters covered thereby:
(i) subject any Lender to, or increase the net amount
of, any tax, impost, duty, charge or withholding with respect to any
amount received or to be received hereunder in connection with LIBOR
Loans (other than taxes imposed on net income or profits of, or any
branch or franchise tax applicable to, such Lender or a Lending Office
of such Lender);
(ii) change the basis of taxation of payments to any
Lender in connection with LIBOR Loans (other than changes in taxes on
the net income or profits of, or any branch or franchise tax applicable
to, such Lender or a Lending Office of such Lender);
(iii) impose, increase or render applicable any reserve
(other than the Reserve Requirement), capital adequacy, special deposit
or similar requirement against assets of, deposits with or for the
account of, or loans, credit or commitments extended by, any Lender or
a Lending Office of such Lender; or
(iv) impose on any Lender or in the London interbank
Eurodollar market any other condition or requirement (other than taxes
imposed on net income or profits of, or any branch or franchise tax
applicable to, such Lender or a Lending Office of such Lender, and
other than the Reserve Requirement to the extent otherwise taken into
account in the determination of LIBOR Rates) affecting this Agreement
or LIBOR Loans;
and the result of any of the foregoing is to increase the costs to any Lender of
agreeing to make, making, funding or maintaining any LIBOR Loans or to reduce
the yield or rate of return of such Lender on any LIBOR Loans to a level below
that which such Lender could have achieved but for the adoption or modification
of any such requirements, the Borrower will, within fifteen (15) days after
delivery to the Borrower by such Lender of written demand therefor (with a copy
thereof to the Agent), pay to such Lender such additional amounts relating or
directly corresponding to the Loans as shall compensate such Lender for such
increase in costs or reduction in return.
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(b) If, at any time after the Closing Date and from time to time, the
adoption or modification of any applicable federal, state or local law, rule or
regulation regarding any Lender's required level of capital (including any
allocation of capital requirements or conditions, but excluding federal, state
or local income tax liability), or the implementation of any such requirements
previously adopted but not implemented prior to the Closing Date, or any
interpretation or administration thereof by any Governmental Authority (whether
or not having the force of law) charged with the interpretation, administration
or compliance of such Lender with any of such requirements, has or would have
the effect of reducing the rate of return on such Lender's capital as a
consequence of its Commitments, Loans or participations in Letters of Credit
hereunder to a level below that which such Lender could have achieved but for
such adoption, modification, implementation or interpretation (taking into
account such Lender's policies with respect to capital adequacy), the Borrower
will, within fifteen (15) days after delivery to the Borrower by such Lender of
written demand therefor (with a copy thereof to the Agent), pay to such Lender
such additional amounts as will compensate such Lender for such reduction in
return.
(c) If, on or prior to the first day of any Interest Period, by reason
of changes arising after the date of this Agreement affecting the London
interbank Eurodollar market, (i) the Agent shall have determined that Dollar
deposits in the amount of any Lender's required LIBOR Loan pursuant to such
Borrowing are not generally available in the London interbank Eurodollar market
or that the rate at which such Dollar deposits are being offered will not
adequately and fairly reflect the cost to such Lender of making or maintaining
its LIBOR Loan during such Interest Period or (ii) the Agent shall have
determined that adequate and reasonable means do not exist for ascertaining the
applicable LIBOR Rate for such Interest Period, the Agent will forthwith so
notify the Borrower and the Lenders, whereupon the obligation of (y) in the case
of clause (I) above, each such affected Lender, and (z) in the case of clause
(II) above, all Lenders, in each case to make, to convert Base Rate Loans into,
or to continue, LIBOR Loans shall be suspended (including pursuant to the
Borrowing to which such Interest Period applies), and any Notice of Borrowing or
Notice of Conversion/Continuation given at any time thereafter with respect to
LIBOR Loans shall be deemed to be a request for Base Rate Loans (but in the case
of clause (I) above, only to the extent of such affected Lender's Pro Rata Share
thereof) until the Agent or the affected Lender, as the case may be, shall have
determined that the circumstances giving rise to such suspension no longer exist
(and the affected Lender, if making such determination, shall have so notified
the Agent), and the Agent shall have so notified the Borrower and the Lenders.
(d) Notwithstanding any other provision in this Agreement, if, at any
time after the Closing Date and from time to time, the adoption or modification
of any applicable law, rule or regulation, or any interpretation or
administration thereof by any Governmental Authority or central bank (whether or
not having the force of law) charged with the interpretation, administration or
compliance of any Lender with any of such requirements, has or would have the
effect of making it unlawful for such Lender to honor its obligation to make
LIBOR Loans or to continue to make or maintain LIBOR Loans, such Lender will
forthwith so notify the Agent and the Borrower, whereupon (i) each of such
Lender's outstanding LIBOR Loans shall automatically, on the expiration date of
the Interest Period applicable thereto or, to the extent any such LIBOR Loan may
not lawfully be maintained as a LIBOR Loan until such expiration date (subject
to payment as may be required by SECTION 2.13), upon such notice, be converted
into a Base Rate Loan and (ii) the obligation of such Lender to make, to convert
Base Rate Loans into, or to continue, LIBOR Loans shall be suspended, and any
Notice of Borrowing or Notice of Conversion/Continuation given at any time
thereafter with respect to LIBOR Loans shall, as to such Lender, be deemed to be
a request for Base Rate Loans, until such Lender shall have determined that the
circumstances giving rise to such suspension no longer exist and shall have so
notified the Agent, and the Agent shall have so notified the Borrower.
(e) Determinations by the Agent or any Lender for purposes of this
Section of any increased costs, reduction in return, market contingencies,
illegality or any other matter shall, absent manifest error, be conclusive,
provided that such determinations are made in good faith. Each Lender agrees
that, upon the
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occurrence of any event giving rise to the operation of this Section with
respect to such Lender, it will, if requested by the Borrower and to the extent
permitted by law, endeavor in good faith to designate another Lending Office for
its LIBOR Loans, but only if such designation would make it lawful for such
Lender to continue to make or maintain LIBOR Loans hereunder; provided that such
designation is made on such terms that such Lender, in its good faith
determination, suffers no increased cost or economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of this Section.
(f) Each demand for payment under this Section shall be preceded by a
notice to the Borrower of such anticipated demand, which notice shall specify in
reasonable detail the basis for such demand, but the failure to provide such
advance notice shall not relieve the Borrower of any of its obligations
hereunder. Nothing in this Section shall be construed or so operate as to
require the Borrower to pay any interest, fees, costs or charges in excess of
that permitted by applicable law. Notwithstanding the foregoing, all demands for
payment under this SECTION 2.11 must be made on the Borrower within one hundred
twenty (120) days after the relevant Lender obtains actual knowledge that such
Lender is entitled to such payment.
2.12. Taxes.
(a) So long as the applicable Lender shall have complied with the
provisions of SECTION 2.12(C) hereof, any and all payments by the Borrower
hereunder or under any Note shall be made, in accordance with the terms hereof
and thereof, free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto (other than taxes imposed on net income or
profits of, or any branch or franchise taxes applicable to, the Agent, the
Issuing Bank or any Lender) (y) by the jurisdiction under the laws of which the
Agent, the Issuing Bank or such Lender, as the case may be, is organized or any
political subdivision thereof and (z) in the case of each Lender, by the
jurisdiction in which any Lending Office of such Lender is located or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to the Agent, the
Issuing Bank or any Lender, so long as the applicable Lender shall have complied
with the provisions of SECTION 2.12(C) hereof, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section),
the Agent, the Issuing Bank or such Lender, as the case may be, receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower will make such deductions, and (iii) the Borrower will pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law. If and to the extent that any Lender
subsequently shall be refunded or otherwise recover all or any part of such
deduction, it shall refund to the Borrower the amount so recovered.
(b) So long as the applicable Lender shall have complied with the
provisions of SECTION 2.12(C), the Borrower will indemnify the Agent, the
Issuing Bank and each Lender for the full amount of Taxes (including, without
limitation, any Taxes imposed by any jurisdiction on amounts payable under this
Section) paid by the Agent, the Issuing Bank or such Lender, as the case may be,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto. This indemnification shall be made within 30 days from
the date the Agent, the Issuing Bank or any Lender, as the case may be, makes
written demand therefor and delivers to the Borrower the original receipt of
Taxes paid by it or an invoice from the relevant taxing authority regarding such
Taxes. Within thirty (30) days after the date of any payment of Taxes pursuant
to this Section, the Borrower will furnish to the Agent, the Issuing Bank or the
relevant Lender, as the case may be, the original or a certified copy of a
receipt or other relevant documentation evidencing payment thereof; provided
that demand therefor must be made on the Borrower within one hundred twenty
(120) days after the Issuing Bank's or relevant Lender's actual knowledge that
such Lender is entitled to such payment. If and to the extent that any Lender
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subsequently shall be refunded or otherwise recover all or any part of such
payment of taxes, it shall refund to the Borrower the amount so recovered.
(c) If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Internal Revenue Code, and such Lender is eligible to
claim exemption from United States withholding tax under Section 1441 or 1442 of
the Internal Revenue Code, such Lender will deliver to the Agent and the
Borrower:
(i) if such Lender is eligible to claim an exemption
from, or a reduction of, withholding tax under a United States tax
treaty, properly completed IRS Forms 1001 and W-8 before the payment of
any interest in the first calendar year, and before the payment of any
interest in each third succeeding calendar year, during which interest
may be paid to such Lender under this Agreement;
(ii) if such Lender is eligible to claim that interest
paid under this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade or
business of such Lender, two properly completed and executed copies of
IRS Form 4224 before the payment of any interest is due in the first
taxable year of such Lender, and in each succeeding taxable year of
such Lender, during which interest may be paid to such Lender under
this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under
the Internal Revenue Code or other laws of the United States as a
condition to exemption from, or reduction of, United States withholding
tax.
Each Lender as of the Closing Date, and each assignee under any
Assignment and Acceptance (as of the date thereof), that is a "foreign
corporation, partnership or trust" as described herein must be eligible to claim
a complete exemption and must provide applicable forms to the Borrower as
required by this SECTION 2.12. Each such Lender will promptly notify the Agent
and the Borrower of any changes in circumstances that would modify or render
invalid any claimed exemption or reduction.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required under subsection
(C) above are not delivered to the Agent, then the Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax. For purposes of this
Section, a distribution hereunder by the Agent to or for the account of any
Lender shall be deemed a payment by the Borrower.
(e) If the IRS or any other Governmental Authority, domestic or
foreign, asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (whether because the
appropriate form was not delivered or was not properly executed, because such
Lender failed to notify the Agent of a change in circumstances that rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason), such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this subsection (E), together with all costs,
expenses and reasonable attorneys' fees incurred or paid in connection
therewith.
(f) If at any time the Borrower requests any Lender to deliver any
forms other than documentation pursuant to subsection (C) above, then the
Borrower shall, upon demand of such Lender, reimburse
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such Lender for any reasonable costs or expenses incurred by such Lender in the
preparation or delivery of such forms or other documentation.
(g) Each Lender agrees that, if the Borrower is required to pay
additional amounts to or for the account of any Lender pursuant to subsection
(A) or (B) above, then such Lender will, to the extent permitted by law,
endeavor in good faith to designate another Lending Office for its LIBOR Loans,
but only if such designation would make it lawful for such Lender to continue to
make or maintain LIBOR Loans hereunder; provided that such designation is made
on such terms that such Lender, in its good faith determination, suffers no
increased cost or economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of this
Section.
2.13. Compensation. The Borrower will compensate each Lender upon
demand for all losses, expenses and liabilities (including, without limitation,
any loss, expense or liability incurred by reason of the liquidation or
reemployment of deposits or other funds required by such Lender to fund or
maintain LIBOR Loans, but excluding loss of anticipated profit with respect to
any Loans) that such Lender may sustain (i) if for any reason (other than a
default by Agent or such Lender) a Borrowing of, or conversion of or into, LIBOR
Loans does not occur on a date specified therefor in a Notice of Borrowing or
Notice of Conversion/Continuation, (ii) if any repayment, prepayment or
conversion of any LIBOR Loan occurs on a date other than the last day of an
Interest Period applicable thereto (including as a consequence of conversion of
LIBOR Loans pursuant to SECTION 2.11(D) or acceleration of the maturity of such
Loans pursuant to SECTION 8.1), (iii) if any prepayment of any of its LIBOR
Loans is not made on any date specified in a notice of prepayment given by the
Borrower, or (iv) as a consequence of any other failure by the Borrower to make
any payments with respect to LIBOR Loans when due hereunder; provided, however,
such Lender must make such demand for payment on the Borrower within one hundred
twenty (120) days after such Lender obtains actual knowledge that such Lender is
entitled to such payment. Calculation of all amounts payable to a Lender under
this Section shall be made as though such Lender had actually funded its
relevant LIBOR Loan through the purchase of a Eurodollar deposit bearing
interest at the LIBOR Rate in an amount equal to the amount of such LIBOR Loan,
having a maturity comparable to the relevant Interest Period and through the
transfer of such Eurodollar deposit from an offshore Lending Office of such
Lender to a Lending Office of such Lender in the United States; provided,
however, that each Lender may fund each of its LIBOR Loans in any manner it sees
fit and the foregoing assumption shall be utilized only for the calculation of
amounts payable under this Section. Determinations by any Lender for purposes of
this Section of any such losses, expenses or liabilities shall, absent manifest
error, be conclusive, provided that such determinations are made in good faith.
2.14. Use of Proceeds. The proceeds of the Loans shall be used by the
Borrower (i) to finance the redemption of certain preferred stock and redeemable
preferred stock pursuant to the terms of, and simultaneously with the closing of
the transactions contemplated by, the Investment Agreement, (ii) to refinance
certain existing Debt, including the payment in full of the obligations of
Principal and its Subsidiaries pursuant to the Loan Agreement dated as of July
26, 1996, between Principal, its Subsidiaries, AmSouth Bank of Alabama and First
Union and lenders and agents, as such parties are identified therein, (iii) to
pay reasonable fees and expenses in connection herewith and the Investment
Agreement and the Securities Purchase Agreement, (iv) to finance Permitted
Acquisitions pursuant to this Agreement; (v) to provide working capital for the
Borrower and its Subsidiaries; and (vi) for general corporate purposes.
2.15. Recovery of Payments.
(a) The Borrower agrees that to the extent the Borrower makes a payment
or payments to or for the account of the Agent, the Lenders or the Issuing Bank,
which payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee,
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receiver or any other party under any bankruptcy, insolvency or similar state or
federal law, common law or equitable cause, then, to the extent of such payment
or repayment, the Credit Obligation intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been received.
(b) If any amounts distributed by the Agent to a Lender are
subsequently returned or repaid by the Agent to the Borrower or its
representative or successor in interest, whether by court order or by settlement
approved by the Lender in question, such Lender will, promptly upon receipt of
notice thereof from the Agent, pay the Agent such amount. If any such amounts
are recovered by the Agent from the Borrower or its representative or successor
in interest, the Agent shall redistribute such amounts to the Lenders on the
same basis as such amounts were originally distributed.
2.16. Pro Rata Treatment.
(a) Except for Swingline Loans, all funding of Borrowings,
continuations and conversions of Loans shall be made by the Lenders pro rata on
the basis of their relative Commitments (in the case of the funding of the Term
Loans and the initial funding of Revolving Credit Loans) or Loans (in the case
of continuations and conversions of Loans), as applicable from time to time.
(b) Each Lender agrees that if it shall receive any amount hereunder
(whether by voluntary payment, realization upon security, exercise of the right
of setoff or banker's lien, counterclaim or cross action, or otherwise,
applicable to the payment of any of the Credit Obligations that exceeds its
ratable share (according to the proportion of (i) the amount of such Credit
Obligations due and payable to such Lender at such time to (ii) the aggregate
amount of such Credit Obligations due and payable to all Lenders at such time)
of payments on account of such Credit Obligations then or therewith obtained by
all the Lenders to which such payments are required to have been made, such
Lender shall forthwith purchase from the other Lenders such participations in
such Credit Obligations as shall be necessary to cause such purchasing Lender to
share the excess payment or other recovery ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each such other Lender
shall be rescinded and each such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery, together with an
amount equal to such other Lender's ratable share (according to the proportion
of (i) the amount of such other Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to the provisions of this subsection may, to the
fullest extent permitted by law, exercise any and all rights of payment
(including, without limitation, setoff, banker's lien or counterclaim) with
respect to such participation as fully as if such participant were a direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or similar law, any Lender receives a secured
claim in lieu of a setoff to which this subsection applies, such Lender shall,
to the extent practicable, exercise its rights in respect of such secured claim
in a manner consistent with the rights of the Lenders entitled under this
subsection to share in the benefits of any recovery on such secured claim.
2.17. Letters of Credit.
(a) Subject to and upon the terms and conditions herein set forth, so
long as no Default or Event of Default has occurred and is continuing, the
Issuing Bank will, at any time and from time to time on and after the Closing
Date and prior to the Revolving Credit Facility Termination Date, and upon
request by the Borrower in accordance with the provisions of SECTION 2.17(B),
issue for the account of the Borrower one or more irrevocable standby letters of
credit denominated in Dollars and in a form customarily used or otherwise
approved
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by the Issuing Bank (together with all amendments, modifications and supplements
thereto, substitutions therefor and renewals and restatements thereof,
collectively, the "Letters of Credit"). Notwithstanding the foregoing:
(i) No Letter of Credit shall be issued the Stated
Amount upon issuance of which (i) when added to all other Letter of
Credit Outstandings at such time, would exceed $5,000,000 or (ii) when
added to all other Letter of Credit Outstandings at such time
(exclusive of Reimbursement Obligations that are repaid with the
proceeds of, and simultaneously with the incurrence of, Revolving
Credit Loans) and the aggregate principal amount of all Revolving
Credit Loans and Swingline Loans then outstanding, would exceed the
lesser of the Total Revolving Credit Commitment at such time or the
Revolving Credit Borrowing Availability;
(ii) No Letter of Credit shall be issued that by its
terms expires more than one (1) year after its date of issuance or the
Revolving Credit Facility Maturity Date, whichever is earliest;
provided, however, that a Letter of Credit may, if requested by the
Borrower and approved by the Issuing Bank, provide by its terms, and on
terms acceptable to the Issuing Bank, for renewal for successive
periods of one year or less, unless and until the Issuing Bank shall
have delivered a notice of nonrenewal to the beneficiary of such Letter
of Credit; and
(iii) The Issuing Bank shall be under no obligation to
issue any Letter of Credit if, at the time of such proposed issuance,
(A) any order, judgment or decree of any Governmental Authority or
arbitrator shall purport by its terms to enjoin or restrain the Issuing
Bank from issuing such Letter of Credit, or any Requirement of Law
applicable to the Issuing Bank or any request or directive (whether or
not having the force of law) from any Governmental Authority with
jurisdiction over the Issuing Bank shall prohibit, or request that the
Issuing Bank refrain from, the issuance of letters of credit generally
or such Letter of Credit in particular or shall impose upon the Issuing
Bank with respect to such Letter of Credit any restriction or reserve
or capital requirement (for which the Issuing Bank is not otherwise
compensated) not in effect on the Closing Date, or any unreimbursed
loss, cost or expense that was not applicable, in effect or known to
the Issuing Bank as of the Closing Date and that the Issuing Bank in
good faith deems material to it, or (B) the Issuing Bank shall have
actual knowledge, or shall have received notice from any Lender, prior
to the issuance of such Letter of Credit that one or more of the
conditions specified in SECTION 3.3 are not then satisfied or that the
issuance of such Letter of Credit would violate the provisions of
subsection (I) above unless the Required Lenders otherwise authorize
the Issuing Bank to issue such Letter of Credit.
(b) Whenever the Borrower desires the issuance of a Letter of Credit,
the Borrower will notify the Issuing Bank (with copies to the Agent) in writing,
by 12:00 noon, Charlotte, North Carolina local time, at least three (3) Business
Days (or such shorter period as is acceptable to the Issuing Bank in any given
case) prior to the requested date of issuance thereof. Each such request (each,
a "Letter of Credit Request") may not be revoked at any time after the Issuing
Bank has completed processing and issued the Letter of Credit, shall be given in
the form of EXHIBIT B-4 and shall be appropriately completed to specify (i) the
proposed date of issuance (which shall be a Business Day), (ii) the proposed
Stated Amount and expiry date of the Letter of Credit, and (iii) the name and
address of the proposed beneficiary or beneficiaries of the Letter of Credit.
The Borrower will also complete any application procedures and documents
reasonably required by the Issuing Bank in connection with the issuance of any
Letter of Credit, it being understood that in the event of any conflict between
such documents and the Loan Documents, the Loan Documents shall control. The
Agent will, promptly upon its receipt thereof, notify each Lender of the Letter
of Credit Request. Upon its issuance of any Letter of Credit, the Issuing Bank
will promptly notify each Lender of such issuance and will notify each Lender
with a Revolving Credit Commitment of the amount of its participation therein
under SECTION 2.17(C).
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(c) Immediately upon the issuance of any Letter of Credit, the Issuing
Bank shall be deemed to have sold and transferred to each Lender with a
Revolving Credit Commitment, and each such Lender (each, in such capacity, an
"L/C Participant") shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Bank, without recourse or warranty, an
undivided interest and participation, pro rata to the extent of its Revolving
Credit Percentage at such time, in such Letter of Credit, each drawing made
thereunder, and the obligations of the Borrower under this Agreement with
respect thereto and any security therefor (including the Collateral) or guaranty
pertaining thereto; provided, however, that the fees and other charges relating
to Letters of Credit described in SECTIONS 2.7(D) and (E) shall be payable
directly to the Issuing Bank as provided therein, and the L/C Participants shall
have no right to receive any portion thereof. Upon any change in the Revolving
Credit Commitments of any of the Lenders pursuant to SECTION 10.5, with respect
to all outstanding Letters of Credit and Reimbursement Obligations there shall
be an automatic adjustment to the participations pursuant to this Section to
reflect the new Revolving Credit Percentages of the assigning Lender and the
Eligible Assignee.
(d) The Borrower hereby agrees to reimburse the Issuing Bank by making
payment to the Agent, for the account of the Issuing Bank, in immediately
available funds, for any payment made by the Issuing Bank under any Letter of
Credit (each such amount so paid until reimbursed, together with interest
thereon payable as provided hereinbelow, a "Reimbursement Obligation")
immediately after, and in any event on the date of, such payment, together with
interest on the amount so paid by the Issuing Bank, to the extent not reimbursed
prior to 2:00 p.m., Charlotte, North Carolina local time, on the date of such
payment or disbursement, (i) for the period from the date of the payment to the
date of receipt by the Borrower from the Issuing Bank of notice of such payment,
at the Adjusted Base Rate as in effect from time to time during such period, and
(ii) for the period from the date of receipt by the Borrower from the Issuing
Bank of notice of such payment to the date the Reimbursement Obligation created
thereby is satisfied, at the Adjusted Base Rate as in effect from time to time
during such period plus two percentage points (2.0%), such interest also to be
payable on demand. The Borrower hereby authorizes and directs the Agent to, and
the Agent shall, pay the Issuing Bank all Reimbursement Obligations payable
hereunder by applying any funds then held in the Cash Collateral Account
established pursuant to SECTION 2.17(I), and if such funds shall be insufficient
to satisfy such Reimbursement Obligation in full, by drawing such amounts under
the Revolving Credit Facility (to the extent of availability thereunder) as of
the due dates of such Reimbursement Obligations, but the failure of the Agent to
so pay the Issuing Bank by drawing under the Revolving Credit Facility will not
affect the Borrower's obligations to pay the Reimbursement Obligations.
Notwithstanding any such draw against the Revolving Credit Facility, the Agent
shall provide the notices to the Borrower required by this SECTION 2.17(D). The
Issuing Bank will provide the Agent and the Borrower with prompt notice of any
payment or disbursement made under any Letter of Credit, although the failure to
give, or any delay in giving, any such notice shall not release, diminish or
otherwise affect the Borrower's obligations under this Section or any other
provision of this Agreement.
(e) In the event that the Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have satisfied in a timely manner in
full its Reimbursement Obligation to the Issuing Bank pursuant to SECTION
2.17(D), and to the extent that any amounts then held in the Cash Collateral
Account established pursuant to SECTION 2.17(I) shall be insufficient to satisfy
such Reimbursement Obligation in full, the Issuing Bank will promptly notify the
Agent, and the Agent will promptly notify each L/C Participant, of such failure.
If the Agent gives such notice prior to 11:00 a.m., Charlotte, North Carolina
local time, on any Business Day to any L/C Participant, such L/C Participant
will make available to the Agent, for the account of the Issuing Bank, its Pro
Rata Share (calculated with respect to its Revolving Credit Percentage) of the
amount of such payment on such Business Day in immediately available funds. If
the Agent gives such notice after 11:00 a.m., Charlotte, North Carolina local
time, on any Business Day to any such L/C Participant, such L/C Participant
shall make its Pro Rata Share of such amount available to the Agent on the next
succeeding Business Day. If and to the extent such L/C Participant shall not
have so made its Pro Rata Share of the amount of such payment
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available to the Agent, such L/C Participant agrees to pay to the Agent, for the
account of the Issuing Bank, forthwith on demand such amount, together with
interest thereon, for each day from such date until the date such amount is paid
to the Agent, at the Federal Funds Rate. The failure of any L/C Participant to
make available to the Agent its Pro Rata Share of any payment under any Letter
of Credit shall not relieve any other L/C Participant of its obligation
hereunder to make available to the Agent its Pro Rata Share of any payment under
any Letter of Credit on the date required, as specified above, but no L/C
Participant shall be responsible for the failure of any other L/C Participant to
make available to the Agent such other L/C Participant's Pro Rata Share of any
such payment. Each such payment by an L/C Participant under this SECTION 2.17(E)
of its Pro Rata Share of an amount paid by the Issuing Bank shall constitute a
Revolving Credit Loan by such Lender (the Borrower being deemed to have given a
timely Notice of Borrowing therefor) and shall be treated as such for all
purposes of this Agreement; provided that for purposes of determining the
available unused portion of the Total Revolving Credit Commitment immediately
prior to giving effect to the application of the proceeds of such Revolving
Credit Loans, the Reimbursement Obligation being satisfied thereby shall be
deemed not to be outstanding at such time.
(f) Whenever the Issuing Bank receives a payment in respect of a
Reimbursement Obligation as to which the Agent has received, for the account of
the Issuing Bank, any payments from the L/C Participants pursuant to SECTION
2.17(E), the Issuing Bank will promptly pay to the Agent, and the Agent will
promptly pay to each L/C Participant that has paid its Pro Rata Share thereof,
in immediately available funds, an amount equal to such L/C Participant's
ratable share (based on the proportionate amount funded by such L/C Participant
to the aggregate amount funded by all L/C Participants) of such Reimbursement
Obligation.
(g) The Reimbursement Obligations of the Borrower, and the obligations
of the L/C Participants to make payments to the Agent, for the account of the
Issuing Bank, with respect to Letters of Credit, shall be irrevocable, shall
remain in effect until the Issuing Bank shall have no further obligations to
make any payments or disbursements under any circumstances with respect to any
Letter of Credit, and, except to the extent resulting from any gross negligence
or willful misconduct on the part of the Issuing Bank as finally determined by a
court of competent jurisdiction and not subject to any appeal (or pursuant to
arbitration as set forth in SECTION 10.3(B)), shall not be subject to
counterclaim, setoff or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) Any lack of validity or enforceability of this
Agreement, any of the other Loan Documents or any documents or
instruments relating to any Letter of Credit;
(ii) Any change in the time, manner or place of
payment of, or in any other term of, all or any of the Credit
Obligations in respect of any Letter of Credit, whether or not the
Borrower has notice or knowledge thereof;
(iii) The existence of any claim, setoff, defense or
other right that the Borrower may have at any time against a
beneficiary named in a Letter of Credit, any transferee of any Letter
of Credit (or any Person for whom any such transferee may be acting),
the Agent, the Issuing Bank, any Lender or other Person, whether in
connection with this Agreement, any Letter of Credit, the transactions
contemplated hereby or any unrelated transactions (including any
underlying transaction between the Borrower and the beneficiary named
in any such Letter of Credit);
(iv) Any draft, certificate or any other document
presented under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect, any errors, omissions,
interruptions or delays in transmission or delivery of any messages, by
mail, telecopier or otherwise, or any errors in translation or in
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interpretation of technical terms, other than due to the Issuing
Bank's gross negligence or willful misconduct;
(v) Any defense based upon the failure of any drawing
under a Letter of Credit to conform to the terms of the Letter of
Credit (the Issuing Bank's sole obligation, in determining whether to
pay under any Letter of Credit, being to examine documents required to
be delivered under such Letter of Credit in good faith and without
gross negligence to ascertain that such documents appear on their face
to comply with the terms of such Letter of Credit), any non-
application or misapplication by the beneficiary or any transferee of
the proceeds of such drawing or any other act or omission of such
beneficiary or transferee in connection with such Letter of Credit;
(vi) The exchange, release, surrender or impairment
of any Collateral or other security for the Credit Obligations;
(vii) The occurrence of any Default or Event of
Default; or
(viii) Subject to the Issuing Bank's obligation set
forth in the parenthetical in clause (V) above, any other circumstance
or event whatsoever, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, the Borrower or a guarantor.
None of the foregoing shall impair, prevent or otherwise affect any of the
rights and powers granted to the Issuing Bank hereunder. Any action taken or
omitted to be taken by the Issuing Bank under or in connection with any Letter
of Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall be binding upon the Borrower and each L/C Participant and
shall not create or result in any liability of the Issuing Bank to the Borrower
or any L/C Participant. It is expressly understood and agreed that, for purposes
of determining whether a wrongful payment under a Letter of Credit resulted from
the Issuing Bank's gross negligence or willful misconduct, (i) the Issuing
Bank's acceptance of documents that appear on their face to comply with the
terms of such Letter of Credit, without responsibility for further
investigation, regardless of any notice or information to the contrary, (ii) the
Issuing Bank's exclusive reliance on the documents presented to it under such
Letter of Credit as to any and all matters set forth therein, including the
amount of any draft presented under such Letter of Credit, whether or not the
amount due to the beneficiary thereunder equals the amount of such draft and
whether or not any document presented pursuant to such Letter of Credit proves
to be insufficient in any respect (so long as such document appears on its face
to comply with the terms of such Letter of Credit), and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be inaccurate
or untrue in any respect whatsoever, and (iii) any noncompliance in any
immaterial respect of the documents presented under such Letter of Credit with
the terms thereof shall, in each case, be deemed not to constitute gross
negligence or willful misconduct of the Issuing Bank.
(h) If at any time after the Closing Date the Issuing Bank or any L/C
Participant determines that the introduction of or any change in any applicable
law, rule, regulation, order, guideline or request or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by the Issuing Bank or
any L/C Participant with any request or directive by any such authority (whether
or not having the force of law) shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement against
Letters of Credit issued by the Issuing Bank or participated in by any L/C
Participant or (ii) impose on the Issuing Bank or any L/C Participant any other
conditions relating, directly or indirectly, to this Agreement or any Letter of
Credit, and the result of any of the foregoing is to increase the cost to the
Issuing Bank or L/C Participant of issuing, maintaining or participating in any
Letter of Credit, or to reduce the amount of any sum received or receivable by
the Issuing Bank or such
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L/C Participant hereunder or reduce the rate of return on its capital with
respect to Letters of Credit, then the Borrower will, within fifteen (15) days
after delivery to the Borrower by the Issuing Bank or such L/C Participant of
written demand therefor (with a copy thereof to the Agent), pay to the Issuing
Bank or such L/C Participant such additional amounts as shall compensate the
Issuing Bank or such L/C Participant for such increase in costs or reduction in
return; provided that such demand must be made on the Borrower within one
hundred twenty (120) days after the Issuing Bank or relevant L/C Participant
obtains actual knowledge that such Issuing Bank or L/C Participant is entitled
to such payment. A certificate submitted to the Borrower by the Issuing Bank or
such L/C Participant, as the case may be (a copy of which certificate shall be
sent by the Issuing Bank or such L/C Participant to the Agent), setting forth
the basis for the determination of such additional amount or amounts necessary
to compensate the Issuing Bank or such L/C Participant as aforesaid, shall be
conclusive and binding on the Borrower absent manifest error provided it is made
in good faith.
(i) At any time and from time to time (i) during the continuance of an
Event of Default, the Agent, at the direction, or with the consent, of the
Required Lenders, may require the Borrower to deliver to the Agent such
additional amount of cash as is equal to the difference between the aggregate
Stated Amount of all Letters of Credit at any time outstanding (whether or not
any beneficiary under any Letter of Credit shall have drawn or be entitled at
such time to draw thereunder) and the amount then on deposit in the Cash
Collateral Account (as hereinafter defined) and (ii) in the event of a repayment
under SECTION 2.5(E), the Agent will retain such amount as may then be required
to be retained under the proviso in SECTION 2.5(E), such amount in each case
under clauses (I) and (II) above to be held by the Agent in a cash collateral
account (the "Cash Collateral Account") as security for, and for application to,
the Borrower's Reimbursement Obligations. The Borrower hereby grants to the
Agent, for the benefit of the Issuing Lender and the Lenders, a lien upon and
security interest in the Cash Collateral Account and all amounts held therein
from time to time as security for Letter of Credit Outstandings, and for
application to the Borrower's Reimbursement Obligations as and when the same
shall arise. The Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest on the
investment of such amounts in Cash Investments, which investments shall be made
at the direction of the Borrower (unless a Default or Event of Default shall
have occurred and be continuing, in which case the determination as to
investments shall be made at the option and in the discretion of the Agent),
amounts in the Cash Collateral Account shall not bear interest. Interest and
profits, if any, on such investments shall accumulate in such account. In the
event of a drawing, and subsequent payment by the Issuing Bank, under any Letter
of Credit at any time during which any amounts are held in the Cash Collateral
Account, the Agent will deliver to the Issuing Bank an amount equal to the
Reimbursement Obligation created as a result of such payment (or, if the amounts
so held are less than such Reimbursement Obligation, all of such amounts) to
reimburse the Issuing Bank therefor. Any amounts remaining in the Cash
Collateral Account after the expiration of all Letters of Credit and
reimbursement in full of the Issuing Bank for all of its obligations thereunder
shall be held by the Agent, for the benefit of the Borrower, with such amounts
to be applied against the Credit Obligations in such order and manner (x) as the
Borrower may direct in the absence of a Default or an Event of Default and (y)
otherwise, as the Agent may direct. If the Borrower is required to provide cash
collateral pursuant to SECTION 2.5(E), such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower on demand, provided that after
giving effect to such return (i) the sum of (x) the aggregate principal amount
of all Revolving Credit Loans, Letter of Credit Outstandings and Swingline Loans
outstanding at such time would not exceed the lesser of the Total Revolving
Credit Commitments at such time or the Revolving Credit Borrowing Availability
and (ii) no Default or Event of Default shall have occurred and be continuing at
such time. If the Borrower is required to provide cash collateral as a result of
an Event of Default, such amount (to the extent not applied as aforesaid) shall
be returned to the Borrower promptly after all Events of Default have been
waived. Notwithstanding anything to the contrary contained herein, Agent may,
without notice to the Borrower, sell or liquidate any of the foregoing
investments at any time if the proceeds thereof are required for any release of
funds permitted or required hereunder, and Agent shall not be liable or
responsible for any loss, cost or penalty resulting from any such sale or
liquidation. With respect to any funds received by Agent for deposit into the
Cash
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Collateral Account after 10:00 a.m., Charlotte, North Carolina, time, the Agent
shall not be required to invest such funds or to effect such investment
instruction until the following Business Day.
(j) Notwithstanding any termination of the Commitments or repayment of
the Loans, or both, the obligations of the Borrower under this SECTION 2.17
shall remain in full force and effect until the Issuing Bank and the L/C
Participants shall have no further obligations to make any payments or
disbursements under any circumstances with respect to any Letter of Credit.
ARTICLE III
CLOSING; CONDITIONS OF CLOSING AND BORROWING
3.1. Closing. The closing of the transactions contemplated by
this Credit Agreement (the "Closing") shall take place at the offices of
Kirkland & Ellis, at 10:00 a.m. on December 17, 1996, or at such other place or
time as the parties hereto shall mutually agree.
3.2. Conditions of Loans and Advances. The obligations of the
Lenders to enter into this financing and to make the initial Loans under this
Agreement on the Closing Date are subject to the satisfaction or express written
waiver of the following conditions:
3.2.1. Executed Loan Documents.
(a) Loan Documents. The Notes and all other Loan Documents to be
executed on or prior to the Closing Date shall have been duly authorized,
executed and delivered to the appropriate Lenders and the Swingline Lender by
the Borrower, in form and substance satisfactory to the Lenders, shall be in
full force and effect and no Default shall exist thereunder, each Lender and the
Swingline Lender shall have received its original Notes and a copy of each other
Note, and the Agent shall have received a copy of each Note.
(b) Security and Pledge Agreement. The Security and Pledge Agreement
shall have been duly authorized, executed and delivered to the Agent and each
Lender by the Borrower and the Guarantors, together with all certificates for
the Stock being pledged thereunder and duly executed undated stock powers for
each such certificate, and together with all promissory notes, (duly endorsed in
blank), initial transaction statements and other documents requested by the
Agent and the Lenders to perfect the security interests granted therein. The
Security and Pledge Agreement shall be in full force and effect and no Default
shall exist thereunder, and the Agent and each Lender shall have received a
fully executed original thereof.
(c) Guaranty Documents. Each Subsidiary of the Borrower (other than
The Woodrum Group, Inc. and InProNet, Inc.) existing as of the Closing Date
shall have duly authorized, executed and delivered to the Agent and each Lender
a Guaranty Agreement and the other Guaranty Documents in form and substance
satisfactory to the Lenders, each such document shall be in full force and
effect and no Default shall exist thereunder, and the Agent and each Lender
shall have received a fully executed original thereof.
(d) Financing Statements. Financing Statements and all other filings or
recordations necessary to perfect the security interest of the Agent, on behalf
of the Lenders, in the Collateral shall have been filed, and the Agent shall
have received confirmation in a form acceptable to the Lenders that such
security interest constitutes a valid and perfected first priority security
interest therein to the extent such security interest can be perfected by filing
a financing statement, subject only to Permitted Liens.
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(e) Mortgages; Title Insurance. The Mortgages shall have been duly
authorized, executed and delivered by the Borrower and the Guarantors (as
applicable), shall have been recorded, registered and filed in a manner
acceptable to the Agent, shall be in full force and effect and no default shall
exist thereunder, and the Agent shall have received fully executed copies
thereof, and each Lender shall have received a photocopy thereof. The Agent, for
the benefit of the Lenders, shall have received policies of title insurance or
title insurance binders in form and substance satisfactory to the Agent, from
title insurance companies duly licensed to do business in the states where the
Realty is located, selected by the Borrower and acceptable to the Agent, in
amounts satisfactory to the Agent but not to exceed the fair market value of the
Realty, on standard ALTA (1992) Loan Policy forms, with respect to each tract of
Realty being encumbered by the liens of the Mortgages, all premiums thereon
shall have been paid, and the policy shall insure that the Mortgages constitute
valid, enforceable first priority liens on the Realty, free and clear from all
title defects and encumbrances whatsoever except for and subject to Permitted
Liens, and with such exceptions as are acceptable to the Agent, and shall
include revolving credit endorsements, variable rate endorsements and such other
endorsements as the Agent may request, to the extent available in the applicable
jurisdictions. The title insurance policies (or binders, as the case may be)
with respect to the Realty may not contain general survey exceptions except with
the Agent's prior written consent.
(f) Surveys. The Agent shall have received a metes-and-bounds survey of
each tract or parcel of the Realty being encumbered by the lien of the
Mortgages, in form and substance satisfactory to the Agent.
(g) Environmental Assessments. The Agent shall have received an
environmental assessment with respect to each tract or parcel of the Realty, in
form and substance satisfactory to the Agent.
(h) Landlord Consents. A Landlord Consent with respect to each of the
hospital Leased Properties shall have been duly authorized, executed and
delivered to the Agent by the tenant and the landlord with respect thereto,
shall be in full force and effect and no Default shall exist thereunder, shall
be recorded, registered and filed in the appropriate real estate records in a
manner acceptable to the Agent within five (5) days following the Closing Date,
and the Agent shall have received a fully executed copy thereof.
(i) Certain Subordinated Debt. The obligations of the Borrower and its
Subsidiaries under the Professional Services Agreement and the Intercompany
Management Agreements existing as of the Closing Date shall be subordinated to
the Credit Obligations and the Guaranty Obligations on terms acceptable to the
Lenders in their sole discretion.
3.2.2. Closing Certificates; Etc.
(a) Certificate of the Borrower. The Agent and each Lender shall have
received a certificate dated as of the Closing Date from the Chief Executive
Officer or Chief Financial Officer of the Borrower, in form and substance
satisfactory to the Lenders, to the effect that, to their knowledge, (i) all
representations and warranties of the Borrower contained in this Agreement and
the other Loan Documents are true, correct and complete in all materials
respects as of the Closing Date, (ii) neither the Borrower nor any of its
Subsidiaries is in violation of any of the covenants contained in this Agreement
and the other Loan Documents, (iii) after giving effect to the transactions
contemplated by this Agreement, no Default or Event of Default has occurred and
is continuing, and (iv) the Borrower has satisfied each of the conditions set
forth in this Section to be satisfied by the Borrower.
(b) Secretaries' Certificates. The Agent and each Lender shall have
received a certificate dated as of the Closing Date from the Secretary or an
Assistant Secretary of the Borrower and each Guarantor, in form and substance
satisfactory to the Lenders, certifying: (i) that attached thereto is a true and
complete copy of the bylaws of such corporation as in effect on the date of such
certification; (ii) that attached thereto is a true and
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complete copy of resolutions adopted by the Board of Directors and stockholders
(if necessary) of such corporation, authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents, as applicable; and
(iii) as to the incumbency and genuineness of the signature of each officer of
such corporation executing this Agreement or any of the other Loan Documents and
authorized to request any Borrowing, as applicable.
(c) Articles of Incorporation. The Agent and each Lender shall have
received copies of the articles or certificate of incorporation of the Borrower
and each Guarantor and all amendments thereto, each certi fied as of a recent
date by the Secretary of State (or other equivalent officer) of its state of
incorporation, together with a certification by the Secretary or an Assistant
Secretary of the Borrower and each Guarantor that such articles of incorporation
have not been amended since such date.
(d) Certificates of Existence or Good Standing. The Agent and each
Lender shall have received (i) long-form certificates as of a recent date of the
good standing or existence of the Borrower and each Guarantor under the laws of
its state of incorporation and each state where the Borrower and each Guarantor
is qualified to transact business, and (ii) where reasonably available,
certificates as of a recent date from the department of revenue or other
appropriate Governmental Authority of each such state indicating that the
Borrower or such Guarantor, as appropriate, has filed all required tax returns
and owes no delinquent taxes.
(e) Opinion of Counsel to the Borrower and the Guarantors. The Agent
and each Lender shall have received the favorable opinions of Tonkon, Torp,
Galen, Marmaduke & Booth, Oregon counsel to the Borrower, Kirkland & Ellis,
Waller Lansden, Dortch & Davis, Tennessee counsel to the Borrower and the
Guarantors, Carrington, Coleman, Sloman & Blumenthal, Texas counsel to the
Borrower and the Guarantors, each such opinion to be addressed to the Agent, for
the benefit of the Lenders, the Issuing Bank and each Lender, and in form and
substance satisfactory to the Agent and each Lender.
(f) Investment Agreement and Securities Purchase Agreement Opinions.
The Agent and each Lender shall have received a letter from each counsel that is
required to deliver an opinion to the Borrower in connection with the Investment
Agreement and Securities Purchase Agreement, stating that the Agent and the
Lenders are entitled to rely on each such opinion as if it were addressed to
them.
(g) UCC Search. The Agent and each Lender shall have received the
results of a search of all filings made against the Borrower and each Guarantor
under the Uniform Commercial Code as in effect in any state in which any assets
of any Borrower or any Guarantor are located, indicating that the Collateral is
free and clear of any liens or encumbrances except for Permitted Liens or for
which UCC-3 termination statements are being delivered.
(h) Insurance. The Agent shall have received certificates, and
certified copies of policies, of insurance, in form and substance satisfactory
to the Agent, upon the Collateral and the business of the Borrower and each
Guarantor, with the additional insured, mortgagee and loss payable clauses and
endorsements required by SECTION 5.4.
3.2.3. Consents; No Adverse Change.
(a) Consents and Approvals. All necessary approvals, authorizations and
consents, if any be required, of any Person (including without limitation the
Landlord Consent and the consent of Mother Frances Hospital Regional Health Care
Center) and all Governmental Authorities having jurisdiction with respect to the
Collateral and the transactions contemplated by this Agreement, the Investment
Agreement and Securities Purchase Agreement shall have been obtained.
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(b) No Injunction, Etc. No action, proceeding, investigation, claim,
regulation or legislation shall have been instituted, threatened or proposed
before any court or other Governmental Authority to enjoin, restrain or
prohibit, or to obtain substantial damages in respect of, or that is related to
or arises out of this Agreement or the consummation of the transactions
contemplated hereby or that, in the Required Lenders' discretion, would make
inadvisable the consummation of the transactions contemplated by this Agreement.
(c) No Material Adverse Change. Since the date of the most recent
audited Financial Statements of the Borrower and each Guarantor, there shall not
have occurred any Material Adverse Change or any event, condition or state of
facts that could reasonably be expected to have a Material Adverse Effect, other
than as specifically contemplated by this Agreement, the Investment Agreement
and the Principal Merger Transaction.
(d) Event of Default. No Default or Event of Default shall have
occurred and be continuing.
3.2.4. Financial Matters.
(a) Financial Statements. The Lenders shall have received the
Financial Statements from the Borrower, in form and substance satisfactory to
the Lenders.
(b) Projections. The Lenders shall have received the Projections from
the Borrower, together with a certificate of the chief financial officer of the
Borrower as to the assumptions used in preparing the Projections, all in form
and substance satisfactory to the Lenders.
(c) Financial Condition Certificate. The Agent and each Lender shall
have received a Financial Condition Certificate together with the attachments
required thereby, all in substantially the form of EXHIBIT E.
(d) Taxes. All taxes, fees and other charges then due in connection
with the execution, delivery, recording, filing and registration of any of the
Loan Documents shall have been paid by the Borrower.
(e) Compliance Certificates. The Lenders shall have received a
Compliance Certificate, calculated on a pro forma basis as of the Closing Date
and such pro forma calculations shall reflect a minimum Annualized Consolidated
EBITDAR of $22,839,000 as of the Closing Date, calculated in a manner and in
substance satisfactory to the Agent, in its sole discretion.
3.2.5. Certain Transactions.
(a) Immediately prior to the date hereof, certain officers and
shareholders of the Borrower shall have formed Carryco, Inc., an Oregon
corporation, and shall have contributed to the capital of Carryco, Inc. shares
of the Borrower valued at approximately $4,000,000. Carryco, Inc. shall have
then merged with and into the Borrower. Under the terms of such merger, the
shareholders of Carryco, Inc. shall have received common stock of the Borrower
in exchange for their shares in Carryco, Inc., the remaining shareholders of the
Borrower shall have received or shall continue to hold certain preferred and
redeemable preferred stock, and the treasury shares (formerly held by Carryco,
Inc.) shall have been cancelled. The Agent and the Lenders shall have received
copies of the articles of merger, together with satisfactory evidence of the
filing thereof with the Oregon Secretary of State, and all other documents
evidencing this transaction, together with such certifications and written
assurances as the Agent and the Lenders shall request, and all such documents,
certifications and assurances shall be in form and substance satisfactory to the
Agent and the Lenders in their sole discretion.
(b) Immediately prior to the date hereof, the Borrower shall have
sold the assets related to its senior living businesses for cash in the
aggregate approximate amount of $18,400,000. The Agent and the
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Lenders shall have received copies of relevant articles of merger (as certified
as filed with Secretaries of State), asset purchase agreements, bills of sales,
and all other documents evidencing this transaction, together with such
certifications and written assurances as the Agent and the Lenders shall
reasonably request, and all such documents, certifications and assurances shall
be in form and substance reasonably satisfactory to the Agent and the Lenders.
(c) Each of the Investment Agreement and the Securities Purchase
Agreement shall be in full force and effect and in form and substance reasonably
satisfactory to the Agent and the Lenders, the transactions contemplated
thereby, including the equity investments by GTCR, Leeway & Co. and the other
investors, shall be consummated simultaneously with the Closing hereunder, and
no default or event which, with the passage of time or giving of notice or both,
would constitute a default shall have occurred thereunder. The Agent and the
Lenders shall have received copies of the Investment Agreement and the
Securities Purchase Agreement and all other documents evidencing this
transaction, together with such certifications and written assurances as the
Agent and the Lenders shall reasonably request, and all such documents,
certifications and assurances shall be in form and substance reasonably
satisfactory to the Agent and the Lenders.
(d) Simultaneously with the closing of the transactions under this
Agreement, the Borrower shall have used the proceeds of the investment pursuant
to the Investment Agreement and the Securities Purchase Agreement and certain
proceeds of the Loans made hereunder to redeem all of the outstanding shares of
redeemable preferred stock and preferred stock for approximately $74,000,000 in
cash. The Agent and the Lenders shall have received copies of the documents
evidencing this transaction, together with such certifications and written
assurances as the Agent and the Lenders shall reasonably request, and all such
documents, certifications and assurances shall be in form and substance
reasonably satisfactory to the Agent and the Lenders.
(f) The total equity investment (including the rollover equity) in the
Borrower and its Subsidiaries since inception shall be no less than $45,600,000
and the Borrower shall have delivered to the Agent and the Lenders written
certification thereof.
3.2.6. Principal Loan Termination. Principal and its Subsidiaries
shall have paid in full its obligations under the Credit Agreement dated as of
July 26, 1996, between Principal and its Subsidiaries, the lenders thereunder
and the agents named therein, all letters of credit issued thereunder shall be
terminated, and the lenders' obligations to advance money and to issue letters
of credit thereunder shall have terminated.
3.2.7. Miscellaneous.
(a) Disbursement Instructions; Account Designation Letter. The Agent
shall have received an Account Designation Letter, together with written
instructions from an Authorized Officer of the Borrower, including wire transfer
information, directing the payment of the proceeds of the initial Loans to be
made hereunder. If any Debt is being refinanced or otherwise paid off with the
proceeds of the Loans, the funds required for such payoff shall be earmarked by
the Agent for the benefit of the refinanced lender and shall be paid directly
from the Agent to the refinanced lender pursuant to a payoff letter under which
the refinanced lender agrees to releases any and all liens on the assets of the
Borrower and its Subsidiaries upon payment in full.
(b) Proceedings and Documents. The Agent and the Lenders shall have
received copies of all other documents, certificates, opinions, instruments and
other evidence as each may reasonably request, in form and substance reasonably
satisfactory to the Agent and the Lenders, with respect to the transactions
contemplated by this Agreement and the taking of all actions in connection
therewith.
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3.3 Conditions to All Loans and Advances. The obligation of the
Lenders to make any Loan hereunder (including any Loans made on the Closing
Date, but excluding Revolving Loans made for the purpose of repaying Refunded
Swingline Loans or to fund Reimbursement Obligations) and the obligation of the
Issuing Bank to issue any Letters of Credit are subject to the continued
validity of all Loan Documents and the satisfaction of the following conditions
precedent on the relevant Borrowing Date:
(a) Each of the representations and warranties made by the Borrower
contained in ARTICLE IV shall be true and correct on and as of such Borrowing
Date with the same effect as if made on and as of the Borrowing Date, except to
the extent the facts upon which such representation and warranty are based may
be changed as a result of transactions or occurrences permitted or contemplated
hereby or such representation or warranty relates solely to a prior date;
(b) No Default or Event of Default shall have occurred on the Borrowing
Date or after giving effect to the Loans to be made or Letters of Credit to be
issued on such Borrowing Date; and
(c) Since the date of the most recent audited financial statements of
the Borrower and each Guarantor, to the knowledge of the Borrower, there shall
not have occurred any Material Adverse Change or a Material Adverse Effect,
other than as specifically contemplated by this Agreement, the Investment
Agreement and the Principal Merger Transaction.
3.4 Waiver of Conditions Precedent. If any Lender makes any Loan
hereunder, or if the Issuing Bank issues any Letter of Credit, prior to the
fulfillment of any of the conditions precedent set forth in this ARTICLE III,
the making of such Loan or the issuance of such Letter of Credit shall
constitute only an extension of time for the fulfillment of such condition and
not a waiver thereof, and unless the Required Lenders indicate otherwise in
writing, the Borrower shall thereafter use its best efforts to fulfill each such
condition promptly.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Credit Agreement, to
make the Loans and to continue to make the Loans, and to induce the Issuing Bank
to issue, and the Lenders to participate in, the Letters of Credit, the Borrower
makes the following warranties and representations to the Agent, the Issuing
Bank and each Lender on the date hereof and on the date of each Borrowing
(except to the extent any such representation or warranty relates solely to a
prior date and except to the extent that the facts upon which such
representation or warranty is based have changed as a result of a transaction or
occurrence permitted or contemplated by this Agreement), after giving effect to
the transactions contemplated hereby and by the Investment Agreement and the
Securities Purchase Agreement except as specifically provided otherwise:
4.1. Corporate Organization and Power; Capital Structure. (a) The
Borrower and each of its Subsidiaries (a) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) is qualified to do business and is in good standing in every
other jurisdiction where the nature of its business or the ownership of its
properties requires it to be so qualified and where the failure to be so
qualified would have a Material Adverse Effect, which jurisdictions as of the
Closing Date are set forth on SCHEDULE 4.1; (c) except as set forth on SCHEDULE
4.2 and except for Subsidiaries acquired or created after the Closing Date in
compliance with SECTIONS 5.12 and 6.7, has no Subsidiaries or Affiliates (other
than its officers, directors and shareholders) and, except for investments made
in compliance with SECTION 6.7, is not a partner or joint venturer in any
partnerships or joint ventures; (d) has the corporate power to own and give a
lien
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on and security interest in its Collateral and to engage in the transactions
contemplated hereby; and (e) has the full corporate power, authority and legal
right to execute and deliver this Agreement and the other Loan Documents to
which it is a party and to perform and observe the terms and provisions thereof.
Neither the Borrower nor any of its Subsidiaries has, during the preceding five
(5) years, been known as or used any other corporate, fictitious or trade names
in the United States other than as set forth on SCHEDULE 4.1.
(b) The authorized capital stock of the Borrower consists of
twenty-five thousand (25,000) shares of the no par value Series A Senior
Preferred Stock, of which twenty thousand (20,000) shares are issued and
outstanding, fifty thousand (50,000) shares of no par value Series B Junior
Preferred Stock, of which twenty-eight thousand five hundred forty (28,540)
shares are issued and outstanding, ninety-six thousand (96,000) shares of no par
value Series A Preferred Stock, no par value, of which zero (0) shares are
issued and outstanding, seven hundred fifty thousand (750,000) shares of no par
value Junior Redeemable Preferred Stock of which zero (0) shares are issued and
outstanding and twenty million (20,000,000) shares of no par value Common Stock
of which three million two hundred seventy-six thousand and five (3,276,005)
shares are issued and outstanding. All of the outstanding capital stock of the
Borrower is duly and validly issued, fully paid and non-assessable and was
offered, issued and sold in compliance with all applicable federal and state
securities laws. None of the outstanding capital stock of the Borrower has been
issued in violation of any preemptive or other rights of its shareholders. The
Borrower does not have outstanding any securities or other rights which are
either by their terms or by contract convertible or exchangeable into capital
stock of or other equity interest in the Borrower, as the case may be nor any
preemptive or similar rights to subscribe for or to purchase, or any options or
warrants or agreements for the purchase or issuance (contingent or otherwise)
of, or any calls, commitments or claims of any character relating to, its
capital stock or other equity interest or securities convertible into its
capital stock or other equity interest, except, as set forth on SCHEDULE 4.1(B).
4.2. Subsidiaries. SCHEDULE 4.2 contains a complete and accurate list
of the Subsidiaries of the Borrower as of the Closing Date and as of the date of
consummation of the Principal Merger Transaction, showing, as to each
Subsidiary, the number of shares of Stock or other Interests and the owner of
each class of Stock or other Interests authorized and outstanding. Except as set
forth on SCHEDULE 4.2, all of such issued and outstanding shares of Stock or
other Interests of all of such of Borrower's Subsidiaries that are owned by the
Borrower or its Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned by the Borrower or its Subsidiaries,
free and clear of any liens, charges, encumbrances, security interests, claims
or restrictions of any nature whatsoever, except for liens in favor of the
Agent, for the benefit of the Lenders, granted under the Loan Documents, and
there are no other equity securities of any such Subsidiaries issued and
outstanding or reserved for any purpose.
4.3. Enforceability of Loan Documents; Compliance with Other
Instruments. Except as set forth on SCHEDULE 4.3, each of the Loan Documents to
which the Borrower or any Guarantor is a party, as the case may be, has been
duly authorized by all necessary corporate action on the part of the Borrower or
such Guarantor, has been validly executed and delivered by the Borrower or such
Guarantor and is the legal, valid and binding obligation of the Borrower or such
Guarantor, enforceable against the Borrower or such Guarantor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general principles of equity. Neither the Borrower nor
any of its Subsidiaries is in default with respect to any indenture, loan
agreement, mortgage, lease, deed or similar agreement to which it is a party or
by which it, or any of its property, is bound which default could reasonably be
expected to have a Material Adverse Effect. Neither the execution, delivery or
performance of the Loan Documents by the Borrower and the Guarantors, nor
compliance by the Borrower and the Guarantors therewith: (a) conflicts or will
conflict with or results or will result in any breach of, or constitutes or will
constitute with the passage of time or the giving of notice or both, a default
under, (i) any Requirement of Law or (ii) any material agreement or instrument
to which the Borrower or any Guarantor is a
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party or by which it, or any of its property, is bound or (b) results or will
result in the creation or imposition of any lien, charge or encumbrance upon the
properties of the Borrower or any of its Subsidiaries pursuant to any such
agreement or instrument, except for Permitted Liens.
4.4. Use of Proceeds. The Borrower's use of the proceeds of any Loans
made by the Lenders to the Borrower pursuant to this Agreement are and will be
legal and proper corporate uses, duly authorized by the Board of Directors of
the Borrower, and such uses are and will be consistent with all applicable laws
and statutes, as in effect from time to time.
4.5. Governmental Authorization.
(a) No authorization, consent or approval of, or declaration or filing
with, any Governmental Authority is required for the valid execution and
delivery by the Borrower and its Subsidiaries of the Loan Documents to which
they are a party or the consummation by the Borrower and its Subsidiaries of the
loan transactions contemplated hereby and thereby, including repayment of the
Credit Obligations and pledging the Collateral, except for the filing and
recording of the Financing Statements, the Mortgages, the Landlord Consents and
collateral assignments of registered trademarks, patents and copyrights which
constitute Collateral, and except for filings and notices unrelated to
perfection of security interests and liens in Collateral and required to be made
or given by the Borrower and its Subsidiaries after the Closing Date in the
ordinary conduct of their business operations. The Borrower and its Subsidiaries
have, and are in good standing with respect to, all material governmental
approvals, permits, certificates, inspections, consents and franchises necessary
to continue to conduct business as heretofore conducted and to own or lease and
operate its properties as now owned or leased by it where the failure to have
and maintain the same could reasonably be expected to have a Material Adverse
Effect.
(b) The Borrower and each of its Subsidiaries has, to the extent
applicable, (i) obtained (or been duly assigned) all required certificates of
need or determinations of need, as required by the relevant state Governmental
Authority, for the ownership and operation of their businesses as currently
operated; (ii) obtained and maintains in good standing all required material
licenses; (iii) obtained and maintains accreditation from all generally
recognized accrediting agencies for the Borrower and its Subsidiaries; (iv) if
required, obtained and maintains Medicaid Certification and Medicare
Certification; (v) if required, entered into and maintains in good standing its
Medicare Provider Agreement and its Medicaid Provider Agreement.
(c) Each professional employee, officer and director of the Borrower
and its Subsidiaries providing professional services to patients of the Borrower
or any such Subsidiary is duly licensed (where license is required) by each
state or state agency or commission, or any other governmental agency having
jurisdiction over the provisions of such services by such employee, officer or
director, in which the Borrower or any of its Subsidiaries is located, required
to enable such employee, officer or director to provide the professional
services necessary to enable the Borrower or such Subsidiary to operate as
currently operated and as presently contemplated to be operated except to the
extent the failure to have such a license would not have a Material Adverse
Effect. All such required material licenses are in full force and effect on the
date hereof and have not been revoked or suspended or otherwise limited. Each
physician retained or otherwise engaged as an independent contractor by the
Borrower or any of its Subsidiaries possesses a valid narcotics number issued by
the United States Drug Enforcement Administration and a valid state narcotics
registration.
4.6. Financial Statements.
(a) The Borrower has heretofore furnished to each Lender copies of the
Financial Statements. The Financial Statements have been prepared in accordance
with Generally Accepted Accounting Principles
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(subject, with respect to the unaudited Financial Statements, to the absence of
notes required by Generally Accepted Accounting Principles and to normal
year-end audit adjustments) and present fairly in all material respects the
financial position of the Persons covered thereby on a consolidated basis as of
the dates thereof and the consolidated results of operations of the Persons
covered thereby for the periods then ended. Except as fully reflected in the
most recent Financial Statements and the notes thereto, as of the Closing Date,
and taking into account the Loans to be made on the Closing Date and the other
transactions contemplated by the Loan Documents, the Investment Agreement, the
Securities Purchase Agreement and the Principal Merger Transaction, there will
be no material liabilities or obligations with respect to the Borrower or any of
its Subsidiaries of any nature whatsoever (whether absolute, contingent or
otherwise and whether or not due). Since the date of the most recent Financial
Statements, there has been no Material Adverse Change. Neither the Borrower nor
any of its Subsidiaries has directly or indirectly declared, ordered, paid, made
or set apart any amounts or property for any dividend, share acquisition or
other distribution, or agreed to do so, except as permitted by SECTION 6.8.
(b) The Borrower has prepared, and has heretofore furnished to each
Lender copies of, annual projected balance sheets and statements of income and
cash flows of the Borrower and its Subsidiaries (assuming the consummation of
the Principal Merger Transaction on the first day occurring after the Closing
Date) for the five-year period commencing on the date set forth therein (the
"Projections"). In the opinion of the Borrower's management, the assumptions
used in preparation of the Projections were reasonable when made and are
reasonable as of the Closing Date. The Projections have been prepared in good
faith by the executive and financial personnel of the Borrower in light of the
historical financial performance of the Borrower and its Subsidiaries prior to
Closing and of Principal and its Subsidiaries and the financial and operating
condition of the Borrower and its Subsidiaries prior to Closing and of Principal
and its Subsidiaries at the time prepared, give effect to the transactions
contemplated by the Loan Documents and, in the opinion of the Borrower's
management, represent, as of the Closing Date, a reasonable estimate of the
future performance and financial condition of the Borrower and its Subsidiaries
(assuming the consummation of the Principal Merger Transaction on the first day
occurring after the Closing Date, subject to the uncertainties and
approximations inherent in any projections and without representation or
warranty that such projected performance and financial condition will actually
be achieved, it being acknowledged by the Lenders and the Agent that the actual
results may differ from the projected results and the differences may be
material.
4.7. Solvency. (i) On the Closing Date, prior to the transactions
contemplated by this Agreement, the Investment Agreement, the Securities
Purchase Agreement and the Principal Merger Transaction, the Borrower and each
of its Subsidiaries (taking into account rights of contribution) is, and the
Borrower and its Subsidiaries, on a consolidated basis are, Solvent, and (ii)
after giving effect to the transactions contemplated hereby, the Investment
Agreement, the Securities Purchase Agreement and the Principal Merger
Transaction, the Borrower and each of its Subsidiaries (taking into account
rights of contribution) will be Solvent, and the Borrower and its Subsidiaries
on a consolidated basis will be Solvent.
4.8. Places of Business. SCHEDULE 4.8 lists, as of the Closing Date,
(i) the chief executive office and places of business (including county or town
designation), as provided in the Uniform Commercial Code, of the Borrower and
each of its Subsidiaries, (ii) the locations at which the Borrower and each of
its Subsidiaries maintains, or presently intends to maintain, billing and
related records relating to Accounts Receivable, and (iii) all locations where
personal property valued at $100,000 or more in the aggregate of the Borrower
and each of its Subsidiaries is presently maintained.
4.9. Leased Properties. SCHEDULE 4.9 lists, as of the Closing Date,
(i) all material real property leased by the Borrower or any of its
Subsidiaries, and (ii) all personal property leased by the Borrower or any of
its Subsidiaries requiring lease payments in excess of $100,000 per year,
including in each case the name of the lessors and a description of the
locations of such property. The Borrower and each of its Subsidiaries enjoys
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peaceful and undisturbed possession under all of its real property leases, and
all such leases are valid and in full force and effect. The Borrower has
delivered complete and accurate copies of all such leases to the Agent and the
Lenders.
4.10. Realty. SCHEDULE 4.10 lists all real property owned as of the
Closing Date and as of the date of the consummation of the Principal Merger
Transaction by the Borrower or any of its Subsidiaries.
4.11. Assets for Conduct of Business. The Borrower and each of its
Subsidiaries possesses adequate assets, licenses, patents, copyrights,
trademarks and trade names necessary to continue to conduct its business
substantially as heretofore conducted without any material conflict with the
rights of other Persons.
4.12. Insurance. SCHEDULE 4.12 accurately summarizes all insurance
policies or programs of the Borrower and its Subsidiaries in effect as of the
Closing Date and as of the date of the consummation of the Principal Merger
Transaction, and indicates the insurer's name, policy number, expiration date,
amount of coverage, type of coverage, exclusions and deductibles, and also
indicates any self-insurance program that is in effect.
4.13. Ownership of Properties. Except as set forth on SCHEDULE 4.13,
(a) each of the Borrower and its Subsidiaries has good and marketable title to
all real property owned by it, holds interests as lessee under valid leases in
full force and effect with respect to all leased real and material personal
property used in connection with its business, and has good title to all of its
other properties and assets, including, without limitation, the assets reflected
in the most recent Financial Statements (except as sold or otherwise disposed of
since the date thereof in the ordinary course of business), in each case free
and clear of all liens, claims or encumbrances other than Permitted Liens; and
(b) other than the Financing Statements in favor of the Agent and protective
filings with respect to operating leases that may be filed after the Closing
Date or with respect to Permitted Liens, no financing statement that names the
Borrower or any of its Subsidiaries as debtor has been filed and is still in
effect, and neither the Borrower nor any of its Subsidiaries has signed any
other financing statement or any security agreement authorizing any secured
party thereunder to file any such financing statement.
4.14. First Priority. The provisions of the Loan Documents (whether
executed and delivered prior to or on the Closing Date or thereafter), are and
will be effective to create in favor of the Agent, for the benefit of the
Lenders, upon the initial extension of credit hereunder and the proper filing of
all Financing Statements and other recordations contemplated thereunder in the
jurisdictions and locations contemplated thereby (or, in the case of the Pledge
Agreement, the possession by the Agent of certificates evidencing the securities
pledged thereby without notice of an adverse claim or, in the case of motor
vehicles, the endorsement of certificates of title), a valid and enforceable
first priority perfected security interest in and lien upon all right, title and
interest of the Borrower and its Subsidiaries in the Collateral described
therein, subject only to Permitted Liens, and except as and to the extent the
Agent's liens cannot be perfected by filing under the Uniform Commercial Code.
Upon (i) delivery and continued possession by the Agent, without notice of
adverse claim, of certificates evidencing the securities pledged pursuant to the
Security and Pledge Agreement, (ii) endorsement and delivery to the Agent of
certificates of title for motor vehicles, and (iii) the filing of collateral
assignments of patents and trademarks with the U.S. Patent and Trademark Office,
the Agent shall have a valid and enforceable first priority security interest in
and lien upon all right, title and interest of the Borrower and its Subsidiaries
in such Collateral, subject only to Permitted Liens.
4.15. Litigation; Government Regulation. Except as set forth in
SCHEDULE 4.15, (a) there are no judgments, injunctions or similar orders or
decrees and no actions, suits, investigations or proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
of its Subsidiaries or its business except to the extent that the same could
not reasonably be expected to have a Material Adverse
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Effect, or that question the validity of this Agreement or any of the Loan
Documents, at law or in equity before any court, arbitrator or Governmental
Authority, and (b) neither the Borrower nor any of its Subsidiaries is in
violation of or in default under any Requirement of Law where such violation
could have a Material Adverse Effect.
4.16. Taxes. Except as set forth in SCHEDULE 4.16, neither the
Borrower nor any of its Subsidiaries is delinquent in the payment of any taxes
that have been levied or assessed by any Governmental Authority against it or
its assets where such delinquency could reasonably be expected to have a
Material Adverse Effect. Except as set forth in SCHEDULE 4.16, as of the Closing
Date, each of the Borrower and its Subsidiaries (a) has timely filed all
material tax returns that are required by law to be filed prior to the date
hereof, and has paid all taxes shown on said returns and all other assessments
or fees levied upon it or upon its properties to the extent that such taxes,
assessments or fees have become due, and if not due, such taxes have been
adequately provided for and sufficient reserves therefor established on its
books of account, and (b) is current with respect to payment of all federal and
state withholding taxes, social security taxes and other payroll taxes, in each
case where the failure to do so could reasonably be expected to have a Material
Adverse Effect.
4.17. ERISA; Employee Benefits.
(a) SCHEDULE 4.17 lists, as of the Closing Date, all Employee Plans and
Pension Plans ("Plans") maintained or sponsored by the Borrower and its
Subsidiaries or to which the Borrower or any of its Subsidiaries is obligated to
contribute and separately identifies all Qualified Plans (as defined below) and
all Multiemployer Plans. The Borrower has delivered true and correct copies of
all such Plans to the Agent.
(b) Each such Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Internal Revenue Code and other federal or
state law, including all requirements under the Internal Revenue Code or ERISA
for filing reports (which are true and correct in all material respects as of
the date filed), and benefits have been paid in accordance with the provisions
of each such Plan.
(c) The form of each Plan intended to be qualified under Section 401 of
the Internal Revenue Code ("Qualified Plan") to the knowledge of the Borrower
qualifies under Section 401 of the Internal Revenue Code, and the trusts created
thereunder are, to the knowledge of the Borrower, exempt from tax under the
provisions of Section 501 of the Internal Revenue Code, and to the knowledge of
the Borrower nothing has occurred that would cause the loss of such
qualification or tax-exempt status.
(d) There is no material outstanding liability under Title IV of ERISA
with respect to any Plan maintained or sponsored by the Borrower and its
Subsidiaries (as to which the Borrower or any of its Subsidiaries is or may be
liable), nor with respect to any Plan to which any of the Borrower or its
Subsidiaries (wherein the Borrower or any of its Subsidiaries is or may be
liable) contributes or is obligated to contribute.
(e) None of the Qualified Plans subject to Title IV of ERISA has any
material unfunded benefit liability as defined in Section 4001(a)(18) of ERISA
(as to which the Borrower or any of its Subsidiaries is or may be liable).
(f) No Plan maintained or sponsored by the Borrower or any of its
Subsidiaries provides medical or other welfare benefits or extends coverage
relating to such benefits beyond the date of a participant's termination of
employment with the Borrower or such Subsidiary, except to the extent required
by Section 4980B of the Internal Revenue Code and at the sole expense of the
participant or the beneficiary of the participant to the fullest extent
permissible under such Section of the Internal Revenue Code. The Borrower and
its Subsidiaries
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have complied in all material respects with the notice and continuation coverage
requirements of Section 4980B of the Internal Revenue Code.
(g) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan maintained or sponsored by the Borrower or any of its
Subsidiaries or to which the Borrower or any of its Subsidiaries is obligated to
contribute.
(h) As of the Closing Date, there are no pending or, to the knowledge
of the Borrower, threatened claims, actions or lawsuits, other than routine
claims for benefits in the usual and ordinary course, asserted or instituted
against (i) any Plan maintained or sponsored by the Borrower and its
Subsidiaries or their assets, or (ii) any fiduciary with respect to any Plan for
which the Borrower or any of its Subsidiaries may be directly or indirectly
liable, through indemnification obligations or otherwise.
(i) Neither the Borrower nor any of its Subsidiaries has incurred or,
to the knowledge of the Borrower, reasonably expects to incur (i) any liability
(and no event has occurred that, with the giving of notice under Section 4219 of
ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with
respect to a Multiemployer Plan or (ii) any liability under Title IV of ERISA
(other than premiums due and not delinquent under Section 4007 of ERISA) with
respect to a Plan.
(j) Neither the Borrower nor any of its Subsidiaries has engaged,
directly or indirectly, in a nonexempt prohibited transaction (as defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA) in connection
with any Plan that has a Material Adverse Effect.
4.18. Compliance with Laws. The Borrower and each of its Subsidiaries
has duly complied with, and the Collateral and their business operations and
leaseholds are in compliance with, all Requirements of Law, including, without
limitation, all federal and state securities laws, OSHA, and Titles XVIII and
XIX of the Social Security Act (42 U.S.C. ss.ss. 1395 et seq. and ss.ss. 1396 et
seq., respectively, as amended from time to time), the Bloodborne Pathogens
Standard, the Medicare Regulations, the Medicaid Regulations and the MediCal
Regulations, except to the extent that noncompliance will not have a Material
Adverse Effect.
4.19. Environmental Matters. Except as would not result in a Material
Adverse Effect:
(a) Except as reflected in SCHEDULE 4.19 (i) no Hazardous Material is
or has been generated, used, released, treated, disposed of or stored, or
otherwise located, in, on or under the Realty (or any portion thereof), and no
part of the Realty or other property owned, leased or operated by the Borrower
or its Subsidiaries (now or in the past), including without limitation the soil
and groundwater located thereon and thereunder, has been contaminated by any
Hazardous Material; (ii) no improvements on the Realty contain any asbestos or
substances containing asbestos; (iii) none of the Realty has been the subject of
a remedial action; and (iv) to the best of the Borrower's knowledge, the
foregoing statements are true and correct with respect to all of the real
property adjoining any of the Realty.
(b) To the best of the Borrower's knowledge, no portion of the Realty
has been used as or for a mine, a landfill, a dump or other disposal facility, a
gasoline service station, or a petroleum products storage facility, and none of
the Realty or other property owned, leased or operated by the Borrower or its
Subsidiaries (now or in the past) has, pursuant to any Environmental Law, been
placed on the "National Priorities List" or "CERCLIS List" (or any similar
federal, state or local list) of sites subject to possible environmental
problems.
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(c) Except as set forth in SCHEDULE 4.19, there are no underground
storage tanks situated on the Realty and, to the best of the knowledge of the
Borrower, no underground storage tanks have ever been situated on the Realty.
(d) Except as set forth in SCHEDULE 4.19, all activities and operations
of the Borrower and its Subsidiaries meet the requirements of all applicable
Environmental Laws, Borrower and its Subsidiaries have not violated any
Environmental Law in the past, and the Realty has never been the site of a
violation of any Environmental Law.
(e) Except as set forth on SCHEDULE 4.19, neither the Borrower nor its
Subsidiary has sent a Hazardous Material to a site which, pursuant to any
Environmental Law, (1) has been placed on the "National Priorities List" or
"CERCLIS List" (or any similar federal, state or local list) of sites subject to
possible environmental problems, or (2) is subject to or the source of a claim,
an administrative order or other request to take "response," "removal,"
"corrective" or "remedial" action, as defined in any Environmental Law, or to
pay for or contribute to the costs of cleaning up the site.
(f) Neither the Borrower nor any of its Subsidiaries is involved in any
suit or proceeding and or has received any notice from any Governmental
Authority or other third party, with respect to a release or threat of release
of any Hazardous Material, or violation or alleged violation of any
Environmental Law, and neither the Borrower nor any of its Subsidiaries has
received notice of any claim from any person or entity relating to property
damage or to personal injuries from exposure to any Hazardous Material.
(g) The Borrower and its Subsidiaries have timely filed all reports
required to be filed, has acquired all necessary certificates, approvals and
permits, and have generated and maintained in all material respects all required
data, documentation and records required under all Environmental Laws.
4.20. Margin Securities.
(a) Neither the Borrower nor any of its Subsidiaries owns any "margin
stock" within the meaning of Regulation U. None of the proceeds of the Loans
will be used, directly or indirectly, for the purpose of purchasing or carrying
any margin stock, maintaining, reducing or retiring any Debt that was originally
incurred to purchase or carry margin stock or for any other purpose that would
violate Regulation G, Regulation U, Regulation T or Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System, as the same
may be in effect from time to time, or for any purpose that would violate the
Exchange Act.
(b) None of the transactions contemplated by this Agreement (including,
without limitation, the use of the proceeds of the Loans) will violate or result
in a violation of Section 7 of the Exchange Act. Neither the Borrower nor any of
its Subsidiaries owns or intends to carry or purchase directly or indirectly any
"margin security" within the meaning of the Exchange Act.
4.21. Full Disclosure. None of the Loan Documents or any other written
statements furnished to the Agent or any Lender by or on behalf of the Borrower
or any of its Subsidiaries in connection with the Loan Documents contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein or herein, in light of the
circumstances under which they were made, not misleading.
4.22. Contracts; Labor Disputes. Neither the Borrower nor any of its
Subsidiaries is a party to any contract or agreement, or subject to any charge,
corporate restriction, judgment, injunction, decree, rule, regulation or order
of any court or other Governmental Authority, that has or could reasonably be
expected to
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have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries
is a party to, and there is not pending or, to the Borrower's knowledge,
threatened, any labor dispute, strikes, lock-out, grievance, work stoppage or
walkouts relating to any labor contract to which the Borrower or any of its
Subsidiaries is a party that has or could reasonably be expected to have a
Material Adverse Effect.
4.23. Reimbursement from Third Party Payors. The accounts receivable
of the Borrower and its Subsidiaries have been and will continue to be adjusted
to reflect reimbursement policies of third party payors such as Medicare,
Medicaid, MediCal, Blue Cross/Blue Shield, private insurance companies, health
maintenance organizations, preferred provider organizations, alternative
delivery systems, managed care systems and other third party payors. In
particular, the accounts receivable relating to such third party payors do not
and shall not exceed amounts the Borrower and its Subsidiaries are entitled to
receive under any capitation arrangement, fee schedule, discount formula,
cost-based reimbursement or other adjustment or limitation to the usual charges
of such Person.
4.24. Fraud and Abuse. Neither the Borrower nor any Subsidiary, nor
any of its stockholders, officers or directors have engaged on behalf of
Borrower or any Subsidiary in any of the following: (i) knowingly and willfully
making or causing to be made a false statement or representation of a material
fact in any applications for any benefit or payment under the Medicare or
Medicaid program; (ii) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment under the Medicare or Medicaid program; (iii)
failing to disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment under the
Medicare or Medicaid program on its own behalf or on behalf of another, with
intent to secure such benefit or payment fraudulently; (iv) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or offering to pay such remuneration (a) in return for referring an
individual to a Person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (b) in return for purchasing, leasing or ordering or arranging for
or recommending the purchasing, leasing or ordering of any good, facility,
service, or item for which payment may be made in whole or in part by Medicare
or Medicaid. With respect to this Section, knowledge by a senior officer of the
Borrower or a Subsidiary of any of the events described in this Section shall
not be imputed to the Borrower or such Subsidiary unless such knowledge was
obtained or learned by a senior officer in his or her official capacity as a
senior officer of the Borrower or such Subsidiary. No activity of the Borrower
or any Subsidiary shall be considered to be a breach of this Section, except in
the case of a knowing and willful violation thereof, until the Borrower or such
Subsidiary has received notification, written or oral, by a Governmental
Authority of competent jurisdiction as to any such violation.
4.25. Certain Agreements. As of the Closing Date, each of the
Investment Agreement and the Securities Purchase Agreement is in full force and
effect, the transactions contemplated thereby have been consummated, the
Borrower has delivered full and complete copies thereof, together with all
material related documents, to the Agent and the Lenders, and no default or
event which, with the passage of time or giving of notice or both, would
constitute a default has occurred thereunder. All representations and warranties
made by the Borrower set forth in or made in connection with the Investment
Agreement and the Securities Purchase Agreement are, as of the Closing Date,
true and complete in all material respects. Immediately after the Closing
hereunder, the Principal Merger Agreement shall be executed and delivered by all
parties thereto and shall be in full force and effect, the transactions
contemplated thereby shall be consummated, the Borrower shall deliver a full and
complete copy thereof, together with all material related documents, to the
Agent and the Lenders, and no default or event which, with the passage of time
or giving of notice or both, would constitute a default shall have occurred
thereunder. All representations and warranties made by the Borrower and
Principal set forth in
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or made in connection with the Principal Merger Agreement are, as of the date
thereof, true and complete in all material respects.
4.26. Event of Default. No Default or Event of Default has occurred
and is continuing.
4.27. Ownership of Stock of Borrower. As of the Closing Date, after
giving effect to the consummation of the transactions contemplated by the
Investment Agreement and the Securities Purchase Agreement and the consummation
of the Principal Merger Transaction, the Stock of the Borrower will be owned as
set forth on SCHEDULE 4.27.
4.28. Single Business Enterprise. The Borrower and the Guarantors
operate, and intend to operate, as a single business enterprise. Although
separate entities, the Borrower and the Guarantors operate under a common
business plan. Each of the Borrower and the Guarantors will accordingly benefit
from the financing arrangement established by this Agreement. The Borrower
acknowledges that the Agent and the Lenders are relying on the agreement by each
Guarantor to execute and deliver the Guaranty Documents in committing to the
Facilities.
4.29. Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules attached hereto (other than
Schedules relating solely to representations and warranties made solely as of
the Closing Date) become outdated or incorrect in any material respect or in the
event additional disclosure is required in connection with any Acquisition, the
Borrower shall promptly provide the Agent in writing with such revisions or
updates to such Schedule as may be necessary or appropriate to update or correct
the same; provided, however, that no Schedule shall be deemed to have been
amended, modified or superseded by any such correction or update that would
disclose the occurrence of an event or condition which constitutes a Default or
Event of Default, nor shall any breach of warranty or representation resulting
from the inaccuracy or incompleteness of any such Schedule be deemed to have
been cured thereby, unless such inaccuracy or incompleteness is the result of
transactions or events expressly permitted hereunder (including Permitted
Acquisitions) or unless the Required Lenders, in their sole and absolute
discretion, shall have accepted in writing such revisions or updates to such
Schedule.
ARTICLE V
AFFIRMATIVE COVENANTS
Until payment in full of all Credit Obligations and the termination of
the Lenders' obligation to make Loans and the Issuing Bank's obligation, on
behalf of the Lenders, to issue Letters of Credit, the Borrower covenants and
agrees that:
5.1. Financial and Business Information about the Borrower. The
Borrower shall deliver to the Agent and the Lenders:
(a) Within forty-five (45) days after the close of the first two (2)
calendar months of each fiscal quarter, to and including the month ending May
31, 1997, an unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as of the close of such month, and unaudited consolidated and
consolidating statements of income and consolidated retained earnings and cash
flows for the Borrower and its Subsidiaries for the month then ended and for
that portion of the fiscal year then ended, in each case setting forth
comparable budgeted figures for the fiscal quarter then ended, together with a
breakdown of such income statements per hospital, all prepared in accordance
with Generally Accepted Accounting Principles (subject to the absence of
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notes required by Generally Accepted Accounting Principles and subject to normal
and reasonable year-end audit adjustments) applied on a basis consistent with
that of the preceding month or containing disclosure of the effect on the
financial position or results of operation of any change in the application of
accounting principles and practices during the month;
(b) Within forty-five (45) days after the close of each of the first
three fiscal quarters of each fiscal year of the Borrower, beginning with the
current fiscal quarter, an unaudited consolidated and (if requested)
consolidating balance sheet of the Borrower and its Subsidiaries as of the close
of such fiscal quarter, and unaudited consolidated and consolidating statements
of income, and consolidated retained earnings and cash flows for the Borrower
and its Subsidiaries for the fiscal quarter then ended and for that portion of
the fiscal year then ended, in each case beginning with the fiscal quarter
ending March 31, 1998 setting forth comparative figures for the corresponding
fiscal quarter in the preceding fiscal year, and in each case setting forth
comparable budgeted figures for the fiscal quarter then ended, together with a
breakdown of such income statements per hospital, all prepared in accordance
with Generally Accepted Accounting Principles (subject to the absence of notes
required by Generally Accepted Accounting Principles and subject to normal and
reasonable year-end audit adjustments) applied on a basis consistent with that
of the preceding quarter or containing disclosure of the effect on the financial
position or results of operation of any change in the application of accounting
principles and practices during the quarter, and certified by the Chief
Executive Officer, Chief Financial Officer or Vice President-Controller of the
Borrower to be true and accurate in all material respects (subject to normal and
reasonable year-end audit adjustments);
(c) As soon as practicable and in any event within one hundred twenty
(120) days after the close of the 1996 fiscal year of the Borrower, and one
hundred (100) days after the close of any fiscal year of the Borrower
thereafter, beginning with the close of the current fiscal year, an audited
consolidated balance sheet and unaudited consolidating balance sheet of the
Borrower and its Subsidiaries as of the close of such fiscal year, audited
consolidated and unaudited consolidating statements of income and audited
consolidated retained earnings and cash flows for the Borrower and its
Subsidiaries for the fiscal year then ended, in each case beginning with the
fiscal year ending December 31, 1998 setting forth unaudited comparative figures
for the preceding fiscal year and in each case, setting forth comparable
budgeted figures for the fiscal year then ended, including the notes to each,
audited (except as previously noted) by a nationally recognized, "Big Six"
independent certified public accountant or other independent certified public
accountant reasonably acceptable to the Required Lenders, and together with a
breakdown of such income statements per hospital, all such audited statements
prepared in accordance with Generally Accepted Accounting Principles applied on
a basis consistent with those of the preceding year or containing disclosure of
the effect on the financial position or results of operations of any change in
the application of accounting principles and practices during the year,
certified by the Chief Executive Officer, Chief Financial Officer or Vice
President - Controller of the Borrower to be true and accurate in all material
respects, and, with respect to audited statements, accompanied by a report
thereon by such certified public accountants, containing an opinion that is not
qualified in any materially negative respect, including as to going concern or
scope of audit;
(d) Concurrently with the delivery of the financial statements
described in subsection (C) above, a letter from the independent certified
public accountants that, based on the independent certified public accountant's
examination of the financial statements of the Borrower and its Subsidiaries,
the accountants did not obtain knowledge of the occurrence or existence of any
Default or Event of Default, or a statement specifying the nature and period of
existence of any such condition or event disclosed by their examination;
provided, however, that such accountants shall not be liable to anyone by reason
of their failure to obtain knowledge of any Event of Default or Default that
would not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards;
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(e) Concurrently with the delivery of the financial statements
described in subsections (B) and (C) above, a Compliance Certificate with
respect to the period covered by the financial statements then being delivered,
together with an Interest Rate Calculation Worksheet and a Covenant Compliance
Worksheet reflecting the computation of the financial covenants set forth in
ARTICLE VI as of the last day of the period covered by such financial
statements;
(f) As soon as practicable and in any event within sixty (60) days
after the close of the 1996 fiscal year of the Borrower, and thirty (30) days
after the close of each fiscal year of the Borrower thereafter, beginning with
the current fiscal year, an annual operating budget and capital budget prepared
on a quarterly basis for the Borrower and its Subsidiaries on a consolidated
basis, in form and detail reasonably acceptable to the Agent, including, without
limitation, a breakdown per hospital;
(g) Promptly upon their becoming available, copies of (i) all financial
statements, material reports and proxy statements that the Borrower or any of
its Subsidiaries shall send or make available generally to its stockholders,
(ii) all registration statements and prospectuses that the Borrower or any of
its Subsidiaries shall render to or file with the Securities and Exchange
Commission, the National Association of Securities Dealers or any national
securities exchange, (iii) all material reports and other statements (other than
routine reports prepared in the ordinary course of business that would not
result in any adverse action) that the Borrower or any of its Subsidiaries may
render to or file with any other Governmental Authority, including, without
limitation, the Environmental Protection Agency, OSHA and state environmental
and health authorities and agencies, and (iv) all press releases and other
statements that the Borrower or any of its Subsidiaries shall make available
generally to the public concerning developments in the business of the Borrower
or any of its Subsidiaries, other than press releases or statements issued in
the ordinary course of business;
(h) Promptly after review by the Borrower's Board of Directors, but in
any event within thirty (30) days after the Borrower's receipt thereof, copies
of any management letters from certified public accountants;
(i) Upon request by the Agent, concurrently with each delivery of the
financial statements described in subsections (B) and (C), an aging of the
Accounts of the Borrower and its Subsidiaries as of the end of such fiscal
quarter;
(j) Concurrently with each delivery of the financial statements
described in subsection (A) and (B), a statistical summary of management
contracts between the Borrower or any of its Subsidiaries and hospitals and
other healthcare facilities;
(k) Promptly upon the reasonable request therefor, copies of any annual
report required to be filed under ERISA in connection with any Employee Plan and
such other additional information about any Employee Plan as may be reasonably
requested;
(l) A Revolving Credit Borrowing Availability Certificate (i) from the
Closing Date through the date of delivery of the Borrower's June 30, 1997
financial statements, in connection with and on the date of each Borrowing, and
(ii) thereafter, within forty-five (45) days following the end of each fiscal
quarter;
(m) Promptly after receipt, copies of any environmental assessments or
audits on properties owned, operated or leased by the Borrower or its
Subsidiaries; and
(n) Upon the Agent's or any Lender's request, such other information
about the Collateral or the financial condition and operations of the Borrower
and its Subsidiaries as the Agent or any Lender may from time to time reasonably
request.
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5.2. Notice of Certain Events. The Borrower shall promptly, but in no
event later than five (5) Business Days after a senior officer of the Borrower
obtains knowledge thereof, give written notice to the Agent and the Lenders of:
(a) Any litigation or proceeding brought against the Borrower or any of
its Subsidiaries that could reasonably be expected to have a Material Adverse
Effect;
(b) Any written notice of a violation of a Requirement of Law received
by the Borrower or any of its Subsidiaries from any Governmental Authority that,
if such violation were established and not promptly corrected, could reasonably
be expected to have a Material Adverse Effect;
(c) Any attachment, judgment, lien, levy or order in excess of $500,000
that may be placed on or assessed against the Borrower or any of its
Subsidiaries or any of the Collateral, except for Permitted Liens;
(d) Any Default or Event of Default; provided that the notice period
provided above shall not be deemed to be a cure period or extension for any
Default or Event of Default;
(e) Receipt by any Borrower or any of it Subsidiaries of (i) any notice
of loss of Joint Commission on Accreditation of Healthcare Organizations
accreditation, loss of participation under any material reimbursement program or
loss of applicable health care licenses at any facility owned or lease or
managed by the Borrower or any of its Subsidiaries; and (ii) any other material
deficiency notice, compliance order or adverse report issued by any Governmental
Authority or accreditation commission having jurisdiction over licensing,
accreditation or operation of any such facility or by any Governmental Authority
or private insurance company pursuant to a provider agreement, which, if not
promptly complied with or cured, could result in the suspension or forfeiture of
any license, certification, or accreditation necessary for any such facility to
carry on its business as then conducted or the suspension or termination of any
insurance or reimbursement program available to the facility;
(f) Receipt or delivery by the Borrower or any of its Subsidiaries of
any material notice (including without limitation any first refusal, put or call
notice) pursuant to the Investor Agreement, the Palestine Limited Partnership
Agreement, or any other shareholder, partnership, operating or similar
agreement;
(g) Any default or event of default under any lease relating to the
Leased Properties under which the Borrower or any Subsidiary is lessee which
could reasonably be expected to have a Material Adverse Effect; or
(h) Any default or event of default under any agreement or instrument
to which the Borrower or any of its Subsidiaries is a party or by which the
Borrower or any of its Subsidiaries, or any of their property, is bound, the
termination of which could reasonably be expected to have a Material Adverse
Effect.
5.3. Corporate Existence and Maintenance of Properties. The Borrower
shall, and shall cause each of its Subsidiaries to:
(a) Maintain and preserve in full force and effect its corporate
existence, except as otherwise permitted by SECTION 6.1, and all material
rights, privileges and franchises; provided, however, that the Borrower may
permit the liquidation or dissolution of any of its Subsidiaries (and any such
Subsidiary may suffer such liquidation or dissolution) if, at the time of such
liquidation or dissolution, such Subsidiary has no assets, engages in no
business and otherwise has no activities other than activities related to the
maintenance of its corporate existence and good standing;
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(b) Conduct its business in an orderly and efficient manner, keep its
properties in good working order and condition (normal wear and tear excepted)
and from time to time make all needed repairs to, renewals of or replacements of
its properties (except to the extent that any of such properties are obsolete or
are being replaced) so that the efficiency of its business operations shall be
maintained and preserved; and
(c) File or cause to be filed in a timely manner all reports,
applications, estimates and licenses required by any Governmental Authority
that, if not timely filed, could reasonably be expected to have a Material
Adverse Effect.
5.4. Maintenance of Insurance.
(a) The Borrower will, and will cause each of its Subsidiaries to,
maintain and pay for insurance upon all of its assets and properties, including
the Collateral, wherever located, and all real property owned or leased by it,
in such amounts and against such risks as is customarily maintained by similar
businesses in similar locations, and will, at the Closing, deliver certificates
of such insurance to the Agent with satisfactory loss payable endorsements
naming the Agent as an additional loss payee, additional insured and/or
mortgagee thereunder, as its interests may appear, as appropriate. Within thirty
(30) days after the Closing, the Borrower shall deliver to the Agent certified
copies of the original policies of all insurance on the Collateral.
(b) Each such policy of insurance shall contain a clause requiring the
insurer to give not less than thirty (30) days (or ten (10) days for nonpayment)
prior written notice to the Agent before any cancellation of the policies for
any reason whatsoever. The Borrower hereby directs, and will cause each of its
Subsidiaries to direct, all insurers under policies of property and casualty
insurance on the Collateral to pay all proceeds payable thereunder directly to
the Agent when such proceeds, on an aggregate basis for any claim or series of
related claims, exceed $1,000,000. The Agent, on behalf of the Lenders, shall
hold all such proceeds for the account of the Borrower and its Subsidiaries. So
long as no Default or Event of Default has occurred and its continuing, the
Agent shall immediately deliver to the Borrower any insurance proceeds received
by the Agent in the amount of $1,000,000 or less, in the aggregate, for any
claim or series of related claims. So long as no Default or Event of Default has
occurred and is continuing, the Agent shall, at the Borrower's request, disburse
proceeds in excess of $1,000,000 for the purpose of replacing or repairing
destroyed or damaged assets, as and when required to be paid and upon
presentation of evidence satisfactory to the Agent of such repair estimates and
other documents as the Agent may reasonably request, or, if the Borrower has not
requested any such disbursement for one hundred twenty (120) consecutive days,
shall apply such proceeds in whole or in part as a prepayment of the Loans in
accordance with SECTIONS 2.5(A-B). If an Event of Default has occurred and is
continuing, the Borrower hereby irrevocably makes, constitutes and appoints the
Agent (and all officers, employees or agents designated by the Agent) as its
true and lawful agent (and attorney-in-fact) for the purpose of making, settling
and adjusting claims under such policies of insurance, endorsing its name or the
name of any Subsidiary on any check, draft, instrument or other item or payment
for the proceeds of such policies of insurance and for making all determinations
and decisions with respect to such policies of insurance.
(c) If the Borrower or any of its Subsidiaries fails to obtain and
maintain any of the policies of insurance required to be maintained hereunder or
to pay any premium in whole or in part, then the Agent may, at the Borrower's
expense, without waiving or releasing any obligation or Default by the Borrower
hereunder, procure the same, but shall not be required to do so. All sums so
disbursed by the Agent, including reasonable attorneys' fees, court costs,
expenses and other charges related thereto, shall be payable on demand by the
Borrower to the Lenders and shall be additional Credit Obligations hereunder,
secured by the Collateral.
(d) Upon the reasonable request of the Agent from time to time, the
Borrower shall deliver to the Agent evidence that the insurance required to be
maintained pursuant to this Agreement is in effect.
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5.5. Maintenance of Books and Records; Inspection.
(a) The Borrower shall, and shall cause each of its Subsidiaries to,
maintain adequate books, accounts and records, and prepare all financial
statements required under this Agreement in accordance with Generally Accepted
Accounting Principles and in material compliance with all Requirements of Law.
(b) The Borrower shall, and shall cause each of its Subsidiaries to,
permit employees or agents of the Agent (or any Lender, at the Lenders'
expense), during normal business hours upon reasonable notice to inspect its
properties and to examine or audit its books, records, reports, accounts and
other papers and make copies and memoranda of them, and to discuss its affairs,
finances and accounts with its officers and employees and, with advance written
approval of the Chief Financial Officer or Vice President - Controller of the
Borrower (which approval shall not be unreasonably withheld), the independent
public accountants of the Borrower and its Subsidiaries (and by this provision
the Borrower and each of its Subsidiaries authorizes said accountants to discuss
the finances and affairs of the Borrower or such Subsidiary), all at such
reasonable times and as often as may be reasonably requested without undue
interference in the business and operations of the Borrower and its
Subsidiaries.
5.6. Compliance with ERISA. The Borrower shall, and shall cause each
of its Subsidiaries to: (i) make timely payment of contributions required to
meet the minimum funding standards set forth in ERISA with respect to any
Employee Plan and (ii) not take any action or fail to take action, the result of
which action or inaction could be a material liability of the Borrower or any of
its Subsidiaries to the Pension Benefit Guaranty Corporation or to a
Multiemployer Plan. Borrower shall not, nor shall it permit any of its
Subsidiaries to, participate in any Prohibited Transaction that could subject
the Borrower or any of its Subsidiaries to any material civil penalty under
ERISA or material tax under the Internal Revenue Code. The Employee Plans of the
Borrower and each of its Subsidiaries shall be operated in such a manner that
neither the Borrower nor any Subsidiary will incur any material tax liability
under Section 4980B of the Internal Revenue Code or any material liability to
any qualified beneficiary as defined in Section 4980B.
5.7. Payment of Taxes. The Borrower shall, and shall cause each of its
Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties would attach
thereto, and all lawful claims that, if unpaid, might become a material lien or
charge upon any of its properties; provided, however, that the Borrower or any
of its Subsidiaries may in good faith by appropriate proceedings and with due
diligence contest any such tax, assessment, charge, levy or claim if the
Borrower or such Subsidiary establishes reserves therefor in accordance with
Generally Accepted Accounting Principles.
5.8. Compliance with Laws. The Borrower shall, and shall cause each of
its Subsidiaries to, (i) have all material licenses, permits, certifications
approvals and authorizations required by Governmental Authorities necessary to
the ownership, occupation or use of its properties or the conduct of its
business, and maintain the same at all times in full force and effect, except to
the extent that a failure to have or maintain the same would not have a Material
Adverse Effect, and (ii) comply with all Requirements of Law in respect of the
conduct of its business, the ownership of its property and the Collateral,
including, without limitation, Titles XVIII and XIX of the Social Security Act,
Medicare Regulations, Medicaid Regulations, MediCal Regulations, ERISA, OSHA and
the Bloodborne Pathogens Standard, other than those the failure to comply with
which would not have a Material Adverse Effect.
5.9. Name Change. The Borrower may change the name of the Borrower to
"Principal Hospital Company" and may change the name of its Subsidiary,
Principal Hospital Company, a Delaware corporation, in each case at any time
within one hundred twenty (120) days after the Closing Date. Except as
provided in the
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preceding sentence, the Borrower shall notify the Agent and the Lenders at least
fifteen (15) days prior to the effective date of any change of the name of the
Borrower or any of its Subsidiaries, and prior to such effective date the
Borrower or such Subsidiary shall execute any amended or new Financing
Statements and other Loan Documents necessary to maintain and continue the
perfected security interest of the Agent in all of the Collateral and shall take
such other actions and execute such documents as the Agent shall reasonably
request.
5.10. Disbursement of Proceeds by the Borrower.
(a) At the request of the Agent, the Borrower shall obtain an
intercompany promissory note with respect to advances of any portion of the
Loans to any Subsidiary of the Borrower and any other amounts owing from any
Subsidiary of the Borrower to the Borrower from time to time, and shall promptly
thereafter grant to the Agent a first priority perfected security interest in
such promissory note as security for the Credit Obligations.
(b) If any Subsidiary becomes a debtor under the Bankruptcy Code, the
Agent, on behalf of the Lenders, is authorized, but not required, to file proofs
of claim with respect to such intercompany Debt on behalf of the Borrower and
vote the rights of the Borrower in any plan of reorganization with regard to any
Debt owed by such Subsidiary to the Borrower. The Agent, on behalf of the
Lenders, is further empowered to demand, sue for, collect and receive every
payment and distribution on such Debt owing to the Borrower in such Subsidiary's
bankruptcy proceeding.
5.11. Creation or Acquisition of New Subsidiaries. The Borrower and
its Subsidiaries may from time to time create or acquire new Subsidiaries
subject to the terms of this Agreement, provided that (i) each new Subsidiary
having assets with a gross value (determined in accordance with Generally
Accepted Accounting Principles) in excess of $100,000 (or upon obtaining assets,
including but not limited to the proceeds of Investments, loans, or other
distributions from the Borrower or another Subsidiary, in excess of $100,000 in
the case of an existing Subsidiary which previously had assets with a gross
value less than $100,000) will execute and deliver to the Agent (with sufficient
copies for each Lender) an amendment or accession to the Guaranty Agreement
(pursuant to which such new Subsidiary shall become a party thereto), an
amendment or accession to the Security and Pledge Agreement, Financing
Statements, certificates of title, stock certificates and other documents
reasonably required by the Agent, all in form and substance satisfactory to the
Agent, pursuant to which such new Subsidiary shall secure its obligations under
the Guaranty Agreement by first priority, perfected security interests in all of
its assets, subject only to Permitted Liens, (ii) the Borrower and/or the other
Guarantors will execute and deliver to the Agent (with sufficient copies for
each Lender) an amendment or supplement to the Pledge Agreement, in form and
substance satisfactory to the Agent, pursuant to which all of the capital stock
or other ownership interests of such new Subsidiary that is directly or
indirectly owned by the Borrower shall be pledged to the Agent under the
Security and Pledge Agreement, together with the certificates representing such
capital stock or other ownership interests and stock powers duly executed in
blank, and (iii) the Borrower will cause each such new Subsidiary to execute and
deliver, and will cause to be delivered, all documentation of the type described
in SECTIONS 3.2.2(B) through (D) and SECTION 3.2.2(H), and upon request of the
Agent, SECTIONS 3.2.2(E) and 3.2.2(G) as such new Subsidiary would have had to
deliver were it a Subsidiary on the Closing Date.
5.12. Certain Permitted Acquisitions; Asset Purchases.
(a) Subject to the remaining provisions of this SECTION 5.12 applicable
thereto and subject to the definition of "Permitted Acquisitions" herein, the
Borrower and its Subsidiaries may from time to time after the Closing Date
effect Permitted Acquisitions, so long as with respect to each Permitted
Acquisition, no Default or Event of Default is in existence at the time of the
consummation of such Permitted Acquisition or would exist after giving effect
thereto.
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(b) At the time of each Permitted Acquisition involving the creation or
acquisition of a Subsidiary or the acquisition of Stock or other Interest of any
Person, the Borrower and the Guarantors shall have complied with SECTION 5.11.
(c) Not less than ten (10) Business Days prior to the consummation of
any Permitted Acquisition of $1,000,000 or greater or requiring approval of the
Required Lenders, the Borrower shall deliver to the Agent and each Lender the
following items, each in form and substance reasonably satisfactory to the
Agent:
(i) a description of the material terms of such
Permitted Acquisition (including, without limitation a description of
the acquisition, a description of the acquiror, the Acquisition Amount
and method and structure of payment), of each facility, Person,
business or asset that is the subject of such Acquisition, (each, a
"Target"), together with the most current draft of the acquisition or
other purchase or lease agreement;
(ii) historical financial statements of each Target
(if applicable) for the two (2) most recent fiscal years available and
for any interim periods since the most recent fiscal year-end for which
such interim statements are available; and
(iii) projected revenue and EBITDAR contribution levels
for the Target for a three-year period following the consummation of
such Permitted Acquisition or such asset purchase or lease, together
with any appropriate statement of assumptions and pro forma adjustments
and including a detailed report of expense adjustments requested by the
Borrower.
(d) The Borrower will deliver to the Agent and each Lender (i) copies
of any material modifications or supplements to the draft agreements submitted
pursuant to CLAUSE (C)(I) above prior to the closing of the Acquisition and (ii)
a copy of the fully executed acquisition or other purchase or lease agreement
(including schedules and exhibits thereto) within sixty (60) days after the
closing thereof, except as set forth in subsection (E) below.
(e) Within thirty (30) days after the end of each fiscal quarter, the
Borrower will deliver to the Agent and each Lender the documents required by
subsections (C) and (D) above for each Permitted Acquisition of less than
$1,000,000 that does not require the consent of the Required Lenders.
(f) No Acquisition may be effected unless:
(i) calculations are made by the Borrower of compliance
with the covenants contained in SECTIONS 6.9 through 6.15, inclusive,
for the most recent calculation period ended immediately prior to the
date of such Acquisition, on a pro forma basis as if the Acquisition
has occurred on the first day of such period, and shall show that all
such covenants will be complied with, giving effect to the pro forma
consolidation of the business acquired, and if such Acquisition is
$750,000 or greater or requires approval of the Required Lenders, such
calculations shall be reasonably satisfactory to the Agent;
(ii) the Borrower in good faith believes that the
financial covenants contained in such SECTIONS 6.9 through 6.15,
inclusive, will continue to be met on a quarterly basis for the one
year period following the date of the consummation of the Acquisition
on a quarterly basis;
(iii) prior to the consummation of the Acquisition of
$1,000,000 or greater or that requires consent of the Required Lenders,
the Borrower shall furnish the Agent and the Lenders with an
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officer's certificate executed by a senior officer of the Borrower,
certifying to the best of his knowledge as to compliance with the
requirements of preceding clauses (I) and (II) and SECTION 5.12(C), and
containing the pro forma calculations required by the preceding clause
(I); and
(iv) except for Acquisitions for which the Acquisition
Amounts are within the dollar limits set forth in the definition of
"Permitted Acquisitions" herein, the Required Lenders shall have
consented thereto in writing.
(g) The consummation of each Permitted Acquisition, shall be deemed to
be a representation and warranty by the Borrower that all conditions to be
satisfied by the Borrower hereon have been satisfied, that the same is permitted
in accordance with the terms of this Agreement and that the information
submitted by the Borrower pursuant to subsections (C) through (F) above, as
appropriate, is true and correct in all material respects as of the date such
certificate is given, which representation and warranty shall be deemed to be a
representation and warranty for all purposes hereunder, including, without
limitation, for purposes of SECTIONS 3.3 and 7.1.
5.13. Swap Agreement. Within ninety (90) days after the Closing, the
Borrower shall enter into, or obtain, and maintain in full force and effect,
interest rate swap agreements, interest rate cap agreements or other instruments
or agreements on such terms as may be reasonably acceptable to the Agent,
pursuant to which the Borrower shall obtain protection against increases in the
interest rates applicable hereunder as to all outstanding Term Loans for not
less than three (3) years, it being understood that any such agreement may be
for a term of less than three (3) years so long as an agreement or agreements
satisfying the terms of this SECTION 5.13 shall be in effect continuously
throughout the 3-year period and so long as the term of any single agreement
shall not be less than one (1) year. The Borrower shall promptly deliver
evidence satisfactory to the Agent of compliance with this Section.
5.14. Acquisition of Realty. Promptly, and in any event within ten
(10) days after any permitted acquisition or lease of any Realty by the Borrower
or any Subsidiary, the Borrower will deliver an update to SCHEDULE 4.9 (for
Leased Properties) or 4.10 (for owned Realty). Promptly thereafter, and in any
event within sixty (60) days after the request of the Agent, the Borrower shall,
and shall cause each of its Subsidiaries to, as applicable, deliver to the Agent
each of the items described in SECTION 3.2 that would have been required had
such Realty been owned or leased on the Closing Date, and such other documents
relating to such Realty (including without limitation appraisals and opinions of
counsel) as the Required Lenders shall reasonably request.
5.15. Further Assurances. The Borrower shall, and shall cause each of
its Subsidiaries to, make, execute, endorse, acknowledge and deliver to the
Agent and the Lenders any amendments, restatements, modifications or supplements
hereto and any other agreements, instruments or documents, and take any and all
such other actions, as may from time to time be reasonably requested by the
Agent or the Lenders to effect, confirm or further assure or protect and
preserve the interests, rights and remedies of the Lenders and the Agent under
this Agreement and the other Loan Documents.
5.16. Cash Deposits. Commencing ninety (90) days after the Closing
Date, all cash in excess of ten percent (10%) of the aggregate amount of all
cash of the Borrower and its Subsidiaries (excluding deposits in transit) shall
be consolidated no less frequently than once a week in an account or accounts
maintained with one or more Lenders.
5.17. Purchase of Ojai Valley Community Hospital. Unless the Required
Lenders do not approve the Acquisition, the Borrower shall purchase Ojai Valley
Community Hospital, pursuant to its purchase option therefor, on terms and
conditions reasonably acceptable to the Agent, on or before June 30, 1997,
provided, however, that the Borrower's obligation to so purchase shall be tolled
if (i) an Event of Default under SECTIONS
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6.9, 6.10, 6.11, 6.12, 6.13, 6.14 OR 6.29 exists and is continuing or (ii) after
giving effect to the purchase, the Borrower will not have cash and borrowing
capacity reasonably sufficient to enable the Borrower to transact business in
the ordinary course. In connection therewith, the Borrower shall provide a first
priority Mortgage in favor of the Lenders, together with title insurance and
other customary real estate documentation, in form and substance reasonably
satisfactory to the Agent.
ARTICLE VI
NEGATIVE COVENANTS
Until payment in full of the Credit Obligations and termination of the
Lenders' obligation to make Loans and the Issuing Bank's obligation, on behalf
of the Lenders, to issue Letters of Credit, the Borrower covenants and agrees
that it will not, and will not permit any of its Subsidiaries to, individually
or in the aggregate:
6.1. Merger, Consolidation. Except as permitted by SECTION 5.3,
liquidate, wind up or dissolve, or enter into any consolidation, merger or
other combination, or agree to do any of the foregoing; provided, however, that:
(i) the Borrower may merge or consolidate with
another Person so long as (x) the Borrower is the surviving
corporation, (y) if such merger or consolidation is in connection with
a Permitted Acquisition, the applicable conditions of SECTIONS 5.11 and
5.12 shall be satisfied, and (z) immediately after giving effect
thereto, no Default or Event of Default would exist;
(ii) any Subsidiary may merge or consolidate with
another Person so long as (w) the Person surviving such merger or
consolidation is the Borrower or a Guarantor, (y) if such merger or
consolidation is in connection with a Permitted Acquisition, the
applicable conditions of SECTIONS 5.11 and 5.12 shall be satisfied, and
(z) immediately after giving effect thereto, no Default or Event of
Default would exist; and
(iii) the Borrower may consummate the Principal
Merger Transaction.
6.2. Debt. Create, incur, assume or suffer to exist any Debt other
than:
(i) Debt incurred pursuant to this Agreement and the
other Loan Documents;
(ii) Debt existing on the date hereof as set forth in
SCHEDULE 6.2 attached hereto; provided that the Debt is not increased
above the amount then outstanding;
(iii) accrued expenses, current trade payables and
other current liabilities arising in the ordinary course of business
and not incurred through the borrowing of money;
(iv) unsecured intercompany Debt (x) of any Subsidiary
to the Borrower, (y) of any Subsidiary to a Guarantor, and (z) of the
Borrower to any Guarantor, provided that any such Debt under this
clause (IV) is incurred in the ordinary course of business and, if
requested by the Agent, is evidenced by one or more promissory notes
pledged to the Agent pursuant to the Pledge Agreement, is payable on
demand and, is fully subordinated in right of payment to the Credit
Obligations and the Guaranty Obligations, as applicable; and provided
further, that intercompany Debt for money borrowed by the Palestine
Limited Partnership shall not exceed those obligations evidenced by the
Palestine Limited
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Partnership Note and that all other intercompany Debt owed by Palestine
Limited Partnership shall not exceed amounts currently payable pursuant
to the Hospital Management Agreement dated in or about June, 1996,
between Palestine-Principal, Inc., a Tennessee corporation, and the
Palestine Limited Partnership, as such agreement may be amended,
supplemented or renewed from time to time in compliance with SECTION
6.25 hereof.
(v) Contingent Obligations permitted by SECTION 6.3;
(vi) Debt of the Borrower under any Swap Agreement
relating to the Debt incurred under this Agreement; provided that the
notional amount of all such agreements at any time shall not exceed the
aggregate amount of the Commitments at such time;
(vii) Debt assumed or incurred in connection with a
Permitted Acquisition to the extent such Debt is approved by and, if
required by the Required Lenders, subordinated on terms acceptable to
the Required Lenders;
(viii) Debt with respect to financed insurance
premiums not past due;
(ix) unsecured Subordinated Debt; and
(x) other Debt (including, without limitation, Debt
secured by purchase money liens described in clause (E) of the
definition of Permitted Liens and Capital Lease Obligations) in an
aggregate principal amount at any time outstanding not to exceed
$3,000,000 for the Borrower and its Subsidiaries.
6.3. Contingent Obligations. Create, incur, assume or suffer to
exist any Contingent Obligation other than:
(i) endorsements of instruments or items of payment
for deposit or collection in the ordinary course of business;
(ii) Contingent Obligations incurred pursuant to the
Loan Documents;
(iii) Contingent Obligations consisting of the
indemnification by the Borrower or any of its Subsidiaries of (x) the
officers, directors, employees and agents of the Borrower or such
Subsidiary, to the extent permissible under the corporation law of the
jurisdiction in which the Borrower or such Subsidiary is organized, (y)
commercial banks, investment bankers and other independent consultants
or professional advisors pursuant to agreements relating to the
underwriting of the Borrower's or such Subsidiary's securities or the
rendering of banking or professional services to the Borrower or such
Subsidiary and (z) landlords, licensors, licensees and other parties
pursuant to agreements entered into in the ordinary course of business
by the Borrower or such Subsidiary;
(iv) customary indemnification obligations of the
Borrower and its Subsidiaries incurred in connection with Permitted
Acquisitions made in compliance with SECTION 5.13;
(v) unsecured amounts payable under earnouts,
approved by and subordinated on terms acceptable to the Required
Lenders, and other contingent obligations, in each case incurred by any
Borrower or any Subsidiary in connection with a Permitted Acquisition,
whether or not earned or matured;
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(vi) performance, appeal and bid bonds and pledges and
deposits pursuant to workers' compensation and similar requirements, in
each case to the extent permitted under the definition of "Permitted
Liens" contained herein;
(vii) obligations under Letters of Credit issued
under SECTION 2.17;
(viii) Contingent Obligations described on SCHEDULE 6.3
attached hereto, without giving effect to any increases thereof without
the written consent of the Required Lenders;
(ix) guarantees by the Borrower or any of its
Subsidiaries of obligations of the Borrower or its Subsidiaries under
leases permitted hereunder;
(x) guarantees by the Borrower or any of its
Subsidiaries of any other Debt permitted under SECTION 6.2 and
guaranties permitted by SECTION 6.7;
(xi) guarantees by the Borrower or any of its
Subsidiaries of physician compensation to the extent such guarantees
under Generally Accepted Accounting Principles would not be reflected
as a specific dollar amount on the liability side of such Person's
balance sheet;
(xii) other Contingent Obligations not to exceed
$1,000,000 at any time.
6.4. Liens and Encumbrances. Create, assume or suffer to exist any deed
of trust, mortgage or encumbrance, lien (including a lien of attachment,
judgment or execution) or security interest (including the interest of a
conditional seller of goods) securing a charge or obligation, in or on any of
its property, real or personal, whether now owned or hereafter acquired, except
for Permitted Liens.
6.5. Disposition of Assets. Sell, lease, transfer, convey or otherwise
dispose of any of its assets or property, including, without limitation, the
Collateral, except for (i) sales of inventory in the ordinary course of
business; (ii) the sale of worn out or obsolete equipment for fair market value
or the exchange of used or obsolete equipment for replacement equipment; (iii)
the sale of permitted temporary or overnight investments; (iv) dispositions not
otherwise permitted by this SECTION 6.5, not exceeding $1,000,000 in the
aggregate, for the Borrower and its Subsidiaries, for any fiscal year; (v) any
sale, lease, transfer or conveyance from one Subsidiary to another Subsidiary or
to the Borrower, or from the Borrower to any Subsidiary, in accordance with
SECTION 6.6, provided that, immediately after giving effect thereto, no Default
or Event of Default would exist and (vi) asset sales made in connection with the
transactions contemplated by the Investment Agreement.
6.6. Transactions with Related Persons. Except for Subordinated Debt
and except as set forth on SCHEDULE 6.6 or as expressly permitted by SECTIONS
5.12, 6.1, 6.2, 6.3(II, III, VII, VIII and IX), 6.5, 6.7, 6.8, 6.16 and 6.19 or
otherwise contemplated by this Agreement, directly or indirectly make any loan
or advance to, or purchase, assume or guarantee any Debt to or from, any of its
officers, directors, stockholders or Affiliates, or subcontract any operations
to any Affiliate, or enter into any other transaction with any Affiliate, except
(a) in the ordinary course of and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and (b) upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate and except
for the Professional Services Agreement.
6.7. Restricted Investments. Except as otherwise permitted in SECTIONS
6.2, 6.3, 6.5 and 6.8, directly or indirectly, purchase, own, invest in or
otherwise acquire any capital stock, evidence of indebtedness or other
obligation or security or any interest whatsoever in any other Person, or make
or permit to exist any
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loans, advances or extensions of credit to, or any investment in cash or by
delivery of property in, any other Person, or become a partner or joint venturer
in any partnership or joint venture, or consummate an Acquisition, or make a
commitment or otherwise agree to do any of the foregoing, other than:
(a) Cash Investments;
(b) loans and advances to employees for reasonable travel,
moving and business expenses incurred in the ordinary
course of business;
(c) Accounts owing to the Borrower or any of its
Subsidiaries created in the ordinary course of business
and payable in accordance with customary terms
prevailing in the industry;
(d) prepaid expenses incurred in the ordinary course of
business;
(e) loans, advances, or extensions of credit to, guaranties of
and investments existing as of the Closing Date in
corporations, partnerships and other Persons as of the
Closing Date as set forth on SCHEDULE 6.7;
(f) investments in Subsidiaries and Permitted Acquisitions
made in accordance with terms of this Agreement,
including SECTIONS 5.11 and 5.12;
(g) investments by the Borrower under any Swap Agreement
relating to the Debt incurred under this Agreement;
provided that the notional amount of all such Swap
Agreements at any time shall not exceed the aggregate
amount of the Commitments at such time;
(h) physician loans, guaranties and similar obligations
incurred in connection with the recruitment of physicians
in the ordinary course of business and customary for
hospitals similar to those operated by the Borrower and
its Subsidiaries;
(i) loans or advances from a Subsidiary to the Borrower or to
another Subsidiary that is a Guarantor or from the
Borrower to a Subsidiary that is a Guarantor so long as
the requirements of SECTION 6.2(IV) are satisfied;
(j) loans, advances and extensions of credit acquired in
connection with a disposition of assets permitted by
SECTION 6.5 hereof;
(k) notes and other investments received in connection with
bankruptcy in settlement of claims; and
(l) any other investments which are not described in clauses
(A) through (K) above, not to exceed during the term of
the Loans, $1,000,000 in the aggregate at any one time
outstanding.
6.8. Restricted Payments; Certain Distributions.
(a) Declare or pay any dividends or distributions upon any of its Stock
or Interest (other than dividends paid in Stock of the Borrower and dividends or
distributions paid or payable by a Subsidiary to the Borrower or another
Subsidiary), except as set forth on SCHEDULE 6.8; or
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(b) purchase, redeem, retire or otherwise acquire, directly or
indirectly, any shares of its Stock or other Interests, any shares of Stock or
other Interests of any Affiliate or any option, warrant or other right to
acquire shares of its Stock or Stock or other Interests of any Affiliate (other
than purchases, redemptions, retirements and other acquisitions by a Subsidiary
of shares, Interests, options, warrants or other rights issued thereby held by
the Borrower or another Subsidiary), except as follows:
(i) the Palestine Limited Partnership may purchase
the partnership interests (or a portion thereof) of Mother Frances
Hospital Regional Health Care Center under the Palestine Limited
Partnership Agreement so long as no Default or Event of Default then
exists or would result immediately after giving effect thereto;
(ii) the Borrower may consummate the redemption
transaction contemplated by the Investment Agreement;
(iii) the Borrower may purchase and redeem its Stock
held by an employee or by the Brim, Inc. carryover stockholders upon
the death, disability or termination of employment of such stockholder
that is an employee, so long as the purchase price thereof is paid
solely by delivery of a promissory note which constitutes Subordinated
Debt hereunder; provided; however, the Borrower may purchase and redeem
such Stock with up to $500,000 in cash in the aggregate; and
(iv) redeem Series A Senior Preferred Stock from
Leeway & Co. or its successors and assigns with the proceeds of a
qualified initial public offering of the Borrower's common stock by an
underwriter of national reputation to the extent not required to be
applied in accordance with SECTION 2.5(F) hereof; provided there is no
Default or Event of Default hereunder and the Borrower is in pro forma
covenant compliance with the covenants contained herein upon
consummation of such redemption.
(c) make any distribution of cash, property or assets other than Stock
among the holders of shares of its Stock (other than distributions made by
Subsidiaries to the Borrower or another Subsidiary); or
(d) enter into or amend any agreement relating to any of the foregoing
(excluding agreements relating only to Subsidiaries with the Borrower or another
Subsidiary) including without limitation any agreement restricting or imposing
requirements regarding the payment of dividends and distributions.
6.9. Consolidated Adjusted Debt to Annualized Consolidated EBITDAR.
Permit the ratio of Consolidated Adjusted Debt to Annualized Consolidated
EBITDAR as of the end of any fiscal quarter beginning with the fiscal quarter
ending March 31, 1997 to and including the fiscal quarter ending June 30, 1997,
to be greater than or equal to 4.25 to 1.0; and as of the end of any fiscal
quarter thereafter, to be greater than or equal to 4.0 to 1.0.
6.10. Consolidated Adjusted Senior Debt to Annualized Consolidated
EBITDAR. Permit the ratio of Consolidated Adjusted Senior Debt to Annualized
Consolidated EBITDAR to be greater than or equal to 4.25 to 1.0 for any fiscal
quarter beginning with the fiscal quarter ending March 31, 1997 to and including
the fiscal quarter ending June 30, 1997; 4.00 to 1.0 thereafter to and including
the fiscal quarter ending September 30, 1997; 3.75 to 1.0 thereafter to and
including the fiscal quarter ending March 31, 1998; 3.50 to 1.0 thereafter to
and including the fiscal quarter ending September 30, 1998; and 3.00 to 1.0 for
any fiscal quarter thereafter.
6.11. Minimum Consolidated EBITDAR. Permit Consolidated EBITDAR to be
less than $2,500,000.00 for the fiscal month ending January 31, 1997;
$3,900,000.00 for the two fiscal months ending
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February 28, 1997; $5,500,000 for the fiscal quarter ending March 31, 1997;
$7,200,000.00 for the four fiscal months ending April 30, 1997; and
$8,800,000.00 for the five fiscal months ending May 31, 1997.
6.12. Minimum Net Worth. Permit Consolidated Net Worth to be less than
negative $15,000,000 as of the end of any fiscal quarter beginning with the
fiscal quarter end on December 31, 1996; plus ninety percent (90%) of
Consolidated Net Income (but excluding any net loss) for all periods from and
after January 1, 1997; plus one hundred percent (100%) of the aggregate amount
of all increases in the stated capital and additional paid in capital accounts
of the Borrower resulting from the issuance of equity securities or other
capital investments after the Closing Date.
6.13. Annualized Consolidated EBITDAR to Annualized Interest Expense
and Annualized Lease Expense. Permit the ratio of Annualized Consolidated
EBITDAR to the sum of Annualized Interest Expense and Annualized Lease Expense
to be less than or equal to 2.0 to 1.0 for any fiscal quarter beginning with the
fiscal quarter ending March 31, 1997 to and including the fiscal quarter ending
September 30, 1997; 2.5 to 1.0 thereafter to and including the fiscal quarter
ending September 30, 1998; and 3.0 to 1.0 for any fiscal quarter thereafter.
6.14. Fixed Charge Coverage. Permit the ratio of Annualized
Consolidated EBITDAR to Fixed Charges to be less than or equal to 1.1 to 1.0 for
any fiscal quarter beginning with the fiscal quarter ending March 31, 1997 to
and including the fiscal quarter ending December 31, 1997; and 1.0 to 1.0 for
any fiscal quarter thereafter.
6.15. Capital Expenditures. Permit Capital Expenditures (i) for the
fiscal year ending December 31,1997 to exceed $7,300,000 and (ii) for any fiscal
year, beginning with the fiscal year beginning January 1, 1998 to exceed five
percent (5%) of Consolidated Net Revenues for the four (4) fiscal quarters
ending on the last day of the previous fiscal year, adjusted for inflation based
on the consumer price index as determined by the Agent, plus proceeds of
insurance with respect to any loss of Collateral (to the extent used to replace
or replace such Collateral), plus proceeds of the disposition of assets
permitted by SECTION 6.5.
6.16. Sale and Leaseback. Enter into any arrangement with any Person
providing for the leasing by the Borrower or any of its Subsidiaries of any
asset that has been sold or transferred by the Borrower or such Subsidiary to
such Person, except that (a) the Borrower or any of its Subsidiaries between
themselves may enter any sale and leaseback so long as the provisions of SECTION
6.6 are satisfied and (b) the Borrower or any of its Subsidiaries may enter into
a sale and leaseback transaction regarding the purchase and subsequent sale and
leaseback of new equipment and machinery so long as the Borrower complies with
the covenants set forth in SECTIONS 6.2(X), 6.6, 6.9, 6.10, 6.11, 6.12, 6.13,
6.14 and 6.15 and there is otherwise no Default or Event of Default.
6.17. New Business. Engage in any business other than businesses
primarily within the Line of Business or make any material change in any of its
business objectives, purposes and operations that would be reasonably likely to
result in a material adverse effect.
6.18. Subsidiaries or Partnerships. Except as otherwise permitted by
the terms of this Agreement (including but not limited to SECTIONS 5.11, 5.12
and 6.7 hereof), (a) become a partner or joint venturer in any partnership or
joint venture, or (b) create or acquire any new Subsidiary.
6.19. Management Contracts. Enter into any agreements whereby the
management or control of its business as a whole or the business of any
Facility as a whole shall be delegated to or placed in any persons other than
its governing body and officers, the Borrower or one of the Borrower's
Subsidiaries, other than the
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Professional Services Agreement and the Intercompany Management Agreements. All
Intercompany Management Agreements existing as of the Closing Date are described
on SCHEDULE 6.19.
6.20. Limitation on Certain Restrictions. Directly or indirectly create
or otherwise cause or suffer to exist or become effective any restriction or
encumbrance on (a) the ability of the Borrower and its Subsidiaries to perform
and comply with their obligations under the Loan Documents or (b) the ability of
any Subsidiary of the Borrower to make any dividend payments or other
distributions in respect of its capital stock, to repay Debt owed to the
Borrower or any other Subsidiary, to make loans or advances to the Borrower or
any other Subsidiary, or to transfer any of its assets or properties to the
Borrower or any other Subsidiary, in each case other than such restrictions or
encumbrances existing under or by reason of (i) the Loan Documents, (ii)
applicable Requirements of Law and (iii) customary non-assignment and no-sale
provisions in any lease governing a leasehold interest or any installment
purchase agreement governing purchase money Debt.
6.21. No Other Negative Pledges. Directly or indirectly permit, enter
into or suffer to exist any agreement or restriction that prohibits or
conditions the creation, incurrence or assumption of any lien, security interest
or other encumbrance upon or with respect to any part of its property or assets,
whether now owned or hereafter acquired, or agree to do any of the foregoing,
other than as set forth in this Credit Agreement and the other Loan Documents.
6.22. Hazardous Wastes. Violate any Environmental Law or permit any
Hazardous Material to be brought onto any of the Realty or any other property
owned, leased or operated by the Borrower or its Subsidiaries, if the results
thereof would have a Material Adverse Effect. If any material Hazardous Material
is brought or found thereon or therein, except as may be permitted above (and
then only in strict compliance with all applicable Environmental Laws),
Borrower, at its expense, shall immediately remove it, with proper disposal, and
perform all required environmental response, removal, corrective and remedial
actions in a diligent manner and in accordance with all Environmental Laws, the
Borrower's obligations hereunder to survive any foreclosure of any Mortgage or
other deed of trust or mortgage. The Borrower shall promptly, after any officer
of either of the Borrower learns or obtains knowledge of the occurrence thereof,
give written notice to the Agent of receipt of any written notice of any
material violation or noncompliance, order or request for information from any
Governmental Agency with respect to any Environmental Law, and shall promptly
remedy any breach of any Environmental Law by the Borrower or its Subsidiaries.
Agent shall have the right, at the expense of the Borrower, to enter upon the
Realty or other property owned, leased or operated by the Borrower or its
Subsidiaries, or any part thereof (through its employees and/or agents), to
verify compliance by the Borrower and its Subsidiaries with the terms of this
Agreement and to conduct such environmental assessments and audits as Agent
shall deem advisable to facilitate such verification; provided, however,
BORROWER AND ITS SUBSIDIARIES HEREBY ACKNOWLEDGE THAT ALL HAZARDOUS MATERIAL
HANDLING PRACTICES AND ENVIRONMENTAL PRACTICES AND PROCEDURES ARE THE SOLE
RESPONSIBILITY OF THE BORROWER AND ITS SUBSIDIARIES, AND THE BORROWER AND ITS
SUBSIDIARIES HAVE FULL DECISION-MAKING POWER WITH RESPECT THERETO. BORROWER AND
ITS SUBSIDIARIES FURTHER ACKNOWLEDGE THAT NEITHER THE AGENT NOR ANY LENDER IS AN
ENVIRONMENTAL CONSULTANT, ENGINEER, INVESTIGATOR OR INSPECTOR OF ANY TYPE
WHATSOEVER. NO ACT (OR DECISION NOT TO ACT) OF THE AGENT OR ANY LENDER RELATED
TO THIS AGREEMENT OR ANY LOAN DOCUMENT SHALL GIVE RISE TO ANY OBLIGATION OR
LIABILITY ON THE PART OF THE AGENT OR ANY LENDER WITH RESPECT TO ENVIRONMENTAL
MATTERS. IN NO EVENT SHALL ANY INFORMATION OBTAINED FROM THE AGENT OR ANY LENDER
OR THEIR RESPECTIVE AGENTS PURSUANT TO THIS AGREEMENT OR ANY LOAN DOCUMENT
CONCERNING THE ENVIRONMENTAL CONDITION OF THE REALTY OR OTHER PROPERTY BE
CONSIDERED BY THE BORROWER OR ANY SUBSIDIARY (OR ANY OTHER RECIPIENT OF SAID
INFORMATION) AS CONSTITUTING LEGAL OR ENVIRONMENTAL
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CONSULTING, ENGINEERING, INVESTIGATING OR INSPECTING ADVICE, AND NEITHER THE
BORROWER NOR ANY OF ITS SUBSIDIARIES (NOR ANY OTHER RECIPIENT OF SAID
INFORMATION) SHALL RELY ON SAID INFORMATION. THE RESPONSIBILITY FOR COMPLIANCE
WITH ENVIRONMENTAL LAWS RESTS SOLELY WITH THE BORROWER AND ITS SUBSIDIARIES.
6.23. Fiscal Year. Change its fiscal year from a calendar year
ending December 31.
6.24. Amendments; Prepayments of Debt, Etc. (a) Amend in any respect
the certificate or articles of incorporation, bylaws, partnership agreement,
operating agreement or similar governing document of the Borrower or any of its
Subsidiaries (other than to permit a name change or other immaterial amendment
not inconsistent with this Agreement), any Intercompany Management Agreement,
any shareholder agreement (to the extent such amendment would impose any
obligation on the Borrower or any of its Subsidiaries inconsistent with this
Agreement), the Investment Agreement or the Securities Purchase Agreement; or
(b) except with respect to the Debt created under the Loan Documents, customary
trade discounts, purchase money Debt, Capital Leases, financed insurance
premiums and Swap Agreements, permitted intercompany Debt, make any voluntary or
optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with any trustee with
respect thereto money or securities before due for the purpose of paying when
due), or exchange, any Debt.
6.25. Location of Assets; Places of Business. Without thirty (30) days'
prior written notice to the Agent and the execution and delivery of Financing
Statements reasonably satisfactory to the Agent, (i) maintain any Inventory or
Equipment at any location other than the locations set forth on SCHEDULE 4.8 or
(ii) change its principal place of business to a location other than that set
forth on SCHEDULE 4.8.
6.26. Account Documents. Without thirty (30) days' prior written
notice to the Agent and the execution and delivery of Financing Statements
reasonably satisfactory to the Agent, remove the billing and related records
relating to Accounts from the locations set forth on SCHEDULE 4.8.
6.27. No Inconsistent Transactions or Agreements. Enter into any
transaction or agreement, or enter into any amendment or other modification to
any currently existing agreement, that by its terms prohibits or materially
restricts the ability of the Borrower to pay the principal of or interest on
the Loans.
6.28. Fraud and Abuse. Neither the Borrower nor any Subsidiary, nor any
of their officers or directors, shall engage on behalf of Borrower or any
Subsidiary in any of the following: (i) knowingly and willfully making or
causing to be made a false statement or representation of a material fact in any
applications for any benefit or payment under Medicare or Medicaid programs;
(ii) knowingly and willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment under Medicare or Medicaid programs; (iii) failing to disclose
knowledge by a claimant of the occurrence of any event affecting the initial or
continued right to any benefit or payment under Medicare or Medicaid programs on
its own behalf or on behalf of another, with intent to secure such benefit or
payment fraudulently; (iv) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay such remuneration (a)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (b) in return for
purchasing, leasing or ordering or arranging for or recommending the purchasing,
leasing or order of any good, facility, service, or item for which payment may
be made in whole or in part by Medicare or Medicaid. With respect to this
Section, knowledge by a senior officer of the Borrower or a Subsidiary of any of
the event described in this Section shall not be imputed to the Borrower or such
Subsidiary unless such knowledge was obtained or learned by such senior officer
in his or her official capacity as a officer of the Borrower or such Subsidiary.
Neither the Borrower nor
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any Subsidiary shall be considered to have breached this Section, except in the
case of a knowing and willful violation thereof, until the Borrower or such
Subsidiary has received notification, written or oral, by a Governmental
Authority of competent jurisdiction as to any such violation.
6.29. Parkview Regional Hospital/EBITDAR to Facility Rent Expense.
Permit the ratio of EBITDAR of Parkview Regional Hospital to Facility Rent
Expense of Parkview Regional Hospital to be less than 1.75 to 1.0 at any time.
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) The Borrower (i) fails to pay any principal amount of the Credit
Obligations when due, or (ii) fails to pay any interest and fees on the Credit
Obligations within two (2) Business Days after the due date thereof;
(b) The Borrower or any of its Subsidiaries fails or neglects to
observe, perform or comply with any term, provision, condition or covenant
contained in SECTION 5.3(A), 5.12, 5.13 or ARTICLE VI;
(c) The Borrower or any of its Subsidiaries fails or neglects to
observe, perform or comply with any term, provision, condition or covenant
contained in SECTION 5.1, 5.2(C), 5.2(E), 5.2(F) or 2.13, and the same is not
cured to the Required Lenders' satisfaction within fifteen (15) days after the
earlier of (i) written notice to the Borrower by the Agent of the existence of
such Default, or (ii) the date on which the Borrower or such Subsidiary acquires
knowledge thereof;
(d) The Borrower or any of its Subsidiaries fails or neglects to
observe, perform or comply with any term, provision, condition or covenant
contained herein except those specified in subsections (A), (B) and (C) above,
and the same is not cured to the Required Lenders' satisfaction within thirty
(30) days after the earlier of (i) written notice to the Borrower by the Agent
of the existence of such Default, or (ii) the date on which the Borrower or such
Subsidiary acquires knowledge thereof;
(e) If any representation or warranty made in writing by or on behalf
of the Borrower or any of its Subsidiaries in this Agreement, in the other Loan
Documents or in any other agreement now existing or hereafter executed between
the Borrower or any of its Subsidiaries and the Agent or any Lender shall prove
to have been false or misleading in any material respect when made;
(f) The occurrence of any default or event of default on the part of
the Borrower or any of its Subsidiaries (including specifically, but without
limitation, defaults due to nonpayment) under the terms of any agreement,
document or instrument (including without limitation any Swap Agreement or any
other similar agreement with any other Person) pursuant to which the Borrower or
such Subsidiary has incurred any Debt (other than the Credit Obligations) in
excess of $700,000, which default or event of default would permit acceleration
of such Debt and which is not cured within any applicable grace or cure period;
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(g) (i) The termination of any hospital lease agreement; or (ii) the
termination of any other agreement, contract or instrument to which the Borrower
or any of its Subsidiaries is a party or by which it or any of its properties
are bound where such termination is reasonably likely to result in a Material
Adverse Effect;
(h) The occurrence of an event of default under any of the Loan
Documents or in any other agreement now existing or hereafter executed
evidencing or securing any of the Credit Obligations, taking into account any
applicable grace or cure provisions thereof;
(i) The occurrence of any uninsured damage to or loss, theft or
destruction of the Collateral or other assets of the Borrower or any of its
Subsidiaries that could reasonably be expected to have a Material Adverse Effect
on their financial condition;
(j) The filing by the Borrower or any of its Subsidiaries (with assets
having a value of $250,000 or more) of any voluntary petition seeking
liquidation, reorganization, arrangement, readjustment of debts or for any other
relief under the Bankruptcy Code or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign, now or hereafter
existing;
(k) The filing against the Borrower or any of its Subsidiaries (with
assets having a value of $250,000 or more) of any involuntary petition seeking
liquidation, reorganization, arrangement, readjustment of debts or for any other
relief under the Bankruptcy Code or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign, now or hereafter
existing, which petition is not dismissed discharged, stayed or bonded within
sixty (60) days after the date of filing;
(l) A custodian, trustee, receiver or assignee for the benefit of
creditors is appointed or takes possession of the Collateral or any other assets
of the Borrower or any of its Subsidiaries (with assets having a value of
$250,000 or more) which appointment continues undischarged, undismissed,
unstayed or unbonded for 60 days or more;
(m) The Borrower or any of its Subsidiaries (with assets having a value
of $250,000 or more) ceases, or the Borrower and its Subsidiaries, on a
consolidated basis, cease, to be Solvent (taking into account any rights of
contribution);
(n) A notice of lien, levy or assessment is filed of record against any
portion of the assets of the Borrower or any of its Subsidiaries by the United
States, or any department, agency or instrumentality thereof, or by any other
Governmental Authority or any other Person, including, without limitation, the
Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any time
or times hereafter to any one of them becomes a lien or encumbrance (other than
a Permitted Lien) upon the Collateral or any other asset of the Borrower or any
of its Subsidiaries, and the same is not dismissed, released, bonded or
discharged within five (5) days after the same becomes a lien or encumbrance or,
in the case of ad valorem taxes, prior to the last day when payment may be made
without penalty and, if bonded, such bond (or a replacement bond) shall not
continue in effect at all times until such judgment is dismissed or discharged,
and any such event could reasonably be expected to have a Material Adverse
Effect;
(o) The entry of judgments or the issuance of warrants of attachment,
execution or similar process against the Borrower or any of its Subsidiaries or
any of their assets of $500,000 or more in the aggregate in excess of the
proceeds of insurance available therefor, which shall not be paid, dismissed,
discharged, stayed pending appeal or bonded within fifteen (15) days after entry
and, if bonded, such bond (or a replacement bond) shall not continue in effect
at all times until such judgment is dismissed or discharged;
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(p) The occurrence of any of the following events: (i) the happening of
a Reportable Event that could give rise to liability (that is not waived by the
Pension Benefit Guaranty Corporation or by the Required Lenders, or if such
liability can be avoided by any corrective action of the Borrower, such
corrective action is not completed within ninety (90) days after the occurrence
of such Reportable Event) with respect to any Pension Plan; (ii) the termination
of any Pension Plan in a "distress termination" under the provisions of Section
4041 of ERISA; (iii) the appointment of a trustee by an appropriate United
States District Court to administer any Pension Plan; (iv) the institution of
any proceedings by the Pension Benefit Guaranty Corporation to terminate any
Pension Plan or to appoint a trustee to administer any such plan; and (v) the
failure of the Borrower to notify the Lenders promptly upon receipt by the
Borrower of any notice of the institution of any proceeding or any other actions
that may result in the termination of any such plan;
(q) (i) The guaranty given by any Guarantor of the Borrower under the
Guaranty Agreement shall, for any reason other than the satisfaction in full of
all Credit Obligations and termination of this Agreement or the release of such
Subsidiary from its Guaranty Obligations under the Guaranty Agreement in
accordance with the terms thereof, cease to be in full force and effect at any
time or is declared to be null and void or (ii) any such Subsidiary denies that
it has any further liability under the Guaranty Agreement or gives notice to
such effect, and such denial or notice is not revoked within one Business Day
after the earlier of (A) receipt by the Borrower of notice from the Agent or any
Lender of such denial or notice or (B) the Borrower becomes aware of such denial
or notice being made or given, as the case may be;
(r) The occurrence of a Change of Control;
(s) Martin S. Rash and Richard D. Gore shall cease to be the Chief
Executive Officer and Chief Financial Officer, respectively, of the Borrower or
involved in the day-to-day operations of the Borrower and its Subsidiaries, and
within 120 days following the cessation of their respective involvement, the
relevant executive is not succeeded by a chief executive officer or chief
financial officer, as applicable, reasonably acceptable to the Required Lenders;
or
(t) The Borrower or any Subsidiary, to the extent, if any, presently
participating or required by law to participate, in Medicaid or Medicare
programs shall fail to be eligible for any reason to participate in Medicaid,
Medicare or MediCal programs or to accept assignments or rights to reimbursement
under Medicaid Regulations, Medicare Regulations or MediCal Regulations, such
failure shall have a Material Adverse Effect, and such failure shall also
continue beyond the completion of any appeal process diligently pursued by the
Borrower or such Subsidiary in good faith.
ARTICLE VIII
RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT
8.1. Remedies; Termination of Commitments, Acceleration, Etc. Upon
and at any time after the occurrence and during the continuance of any Event of
Default, the Agent shall at the direction, or may with the consent, of the
Required Lenders, take any or all of the following actions at the same or
different times:
(a) Declare the Commitments of each Lender, the Swingline Commitment of
the Swingline Lender, and the Issuing Bank's obligation to issue Letters of
Credit, to be terminated, whereupon the same shall terminate (provided that,
upon the occurrence of an Event of Default with respect to the Borrower pursuant
to SECTIONS 7.1(J), (K) or (L), all of the Commitments and the Swingline
Commitment, together with the Issuing Bank's obligation to issue Letters of
Credit, shall automatically be terminated);
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(b) Declare all or any part of the outstanding principal amount of the
Loans, all unpaid interest accrued thereon, and all other amounts payable under
this Agreement, the Notes and the other Loan Documents to be immediately due and
payable, whereupon such outstanding principal amounts, accrued interest and
other such amounts shall become immediately due and payable without presentment,
demand, protest, notice of intent to accelerate or other notice or legal process
of any kind, all of which are hereby knowingly and expressly waived by the
Borrower (provided that, upon the occurrence of an Event of Default with respect
to the Borrower pursuant to SECTIONS 7.1(J), (K) or (L), all such outstanding
principal amounts, accrued interest and other such amounts shall automatically
become immediately due and payable);
(c) Direct the Borrower to deliver (and the Borrower hereby agrees,
upon receipt of notice of such direction from the Agent, to deliver) to the
Agent from time to time such additional amount of cash as is equal to the
difference between the aggregate Stated Amount of all Letters of Credit then
outstanding (whether or not any beneficiary under any Letter of Credit shall
have drawn or be entitled at such time to draw thereunder) and the amount then
on deposit in the Cash Collateral Account, such amount to be held by the Agent
in the Cash Collateral Account as security for the Borrower's Reimbursement
Obligations as described in SECTION 2.17(I); and
(d) Exercise all rights and remedies available to it under this
Agreement, the other Loan Documents and applicable law.
8.2. Right of Setoff. Upon the occurrence and during the continuance
of, and prior to any express written waiver by the Required Lenders of, an Event
of Default, the Agent and each Lender may, and are hereby authorized by the
Borrower, at any time and from time to time, to the fullest extent permitted by
applicable law, without advance notice to the Borrower (any such notice being
expressly waived by the Borrower) and irrespective of demand for payment, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held in other than a fiduciary account and any
other indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower against any or all of the Credit Obligations now or
hereafter existing, whether or not such Credit Obligations have matured. The
Agent agrees to notify the Borrower after any such setoff or application,
provided that the failure to give such notice shall not affect the validity of
such setoff and application.
8.3. Rights and Remedies Cumulative; Non-Waiver; Etc. The enumeration
of the Agent's and the Lenders' rights and remedies set forth in this Agreement
is not intended to be exhaustive, and the exercise by the Agent or any Lender of
any right or remedy shall not preclude the exercise of any other rights or
remedies, all of which shall be cumulative, and shall be in addition to any
other right or remedy given hereunder, under the Loan Documents or under any
other agreement between the Borrower or any of its Subsidiaries and the Agent or
the Lenders or that may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of the Agent or any
Lender in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between the Borrower or any of its
Subsidiaries and the Agent or the Lenders or their agents or employees shall be
effective to change, modify or discharge any provision of this Agreement or any
of the other Loan Documents or to constitute a waiver of any Event of Default.
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ARTICLE IX
THE AGENT
9.1. Appointment. Each Lender hereby irrevocably appoints and
authorizes First Union to act as Agent hereunder and under the other Loan
Documents and to take such actions as agent on its behalf hereunder and under
the other Loan Documents, and to exercise such powers and to perform such
duties, as are specifically delegated to the Agent by the terms hereof or
thereof, together with such other powers and duties as are reasonably incidental
thereto.
9.2. Nature of Duties. The Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement and the
other Loan Documents. The Agent shall not have, by reason of this Agreement or
any other Loan Document, a fiduciary relationship in respect of any Lender; and
nothing in this Agreement or any other Loan Document, express or implied, is
intended to or shall be so construed as to impose upon the Agent any obligations
or liabilities in respect of this Agreement or any other Loan Document except as
expressly set forth herein or therein. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents or
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact that it selects with reasonable care. The
Agent shall be entitled to consult with legal counsel, independent public
accountants and other experts selected by it with respect to all matters
pertaining to this Agreement and the other Loan Documents and its duties
hereunder and thereunder and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts. The Lenders hereby acknowledge that the Agent shall not
be under any duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Loan Document unless
it shall be requested in writing to do so by the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such Lenders).
9.3. Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action taken or omitted to be taken by it or such Person
under or in connection with the Loan Documents, except for its or such Person's
own gross negligence or willful misconduct, (ii) responsible in any manner to
any Lender for any recitals, statements, information, representations or
warranties herein or in any other Loan Document or in any document, instrument,
certificate, report or other writing delivered in connection herewith or
therewith, for the execution, effectiveness, genuineness, validity,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for the financial condition of the Borrower, its Subsidiaries or any other
Person, or (iii) required to ascertain or make any inquiry concerning the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Loan Document or the existence or possible existence of
any Default or Event of Default, or to inspect the properties, books or records
of the Borrower or any of its Subsidiaries.
9.4. Reliance by the Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any notice, statement, consent or
other communication (including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it in good faith to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons. The Agent may deem and treat each Lender as the owner of its interest
hereunder for all purposes hereof unless and until a written notice of the
assignment, negotiation or transfer thereof shall have been given to the Agent
in accordance with the provisions of this Agreement. The Agent shall be entitled
to refrain from taking or omitting to take any action in connection with this
Agreement or any other Loan Document (i) if such action or omission would, in
the reasonable opinion of the Agent, violate any applicable law or any provision
of this Agreement or any other Loan Document or (ii) unless and until it shall
have received such advice or concurrence of the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first
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have been indemnified to its satisfaction by the Lenders against any and all
liability and expense that may be incurred by it by reason of taking, continuing
to take or omitting to take any such action. Without limiting the foregoing, no
Lender shall have any right of action whatsoever against the Agent as a result
of the Agent's acting or refraining from acting hereunder or under any other
Loan Document in accordance with the instructions of the Required Lenders (or,
where a higher percentage of the Lenders is expressly required hereunder, such
Lenders), and such instructions and any action taken or failure to act pursuant
thereto shall be binding upon all of the Lenders (including all subsequent
Lenders).
9.5. Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representation
or warranty to it and that no act by the Agent or any such Person hereafter
taken, including any review of the affairs of the Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that (i) it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries
and made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder, and (ii) it will, independently and without reliance upon
the Agent or any other Lender 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 hereunder and under the
other Loan Documents and to make such investigation as it deems necessary to
inform itself as to the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries.
Except as expressly provided in this Agreement and the other Loan Documents, the
Agent shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information concerning the
business, prospects, operations, properties, financial or other condition or
creditworthiness of the Borrower, its Subsidiaries or any other Person that may
at any time come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
9.6. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent shall have received written notice from the Borrower or a Lender
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 will give notice thereof to the Lenders as
soon as reasonably practicable; provided, however, that if any such notice has
also been furnished to the Lenders, the Agent shall have no obligation to notify
the Lenders with respect thereto. The Agent shall (subject to SECTIONS 9.4 and
10.8) take such action with respect to such Default or Event of Default as shall
reasonably be directed by the Required Lenders; provided that, unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action (except for
those actions specified in SECTION 8.1(A), (B), (C) or (D), with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Lenders. Each Lender shall promptly give the Agent such a notice upon its
actual knowledge of a Default or an Event of Default; provided, however, that
the failure of any Lender to deliver such notice shall not, in the absence of
gross negligence or willful misconduct, affect its rights hereunder or under the
other Loan Documents. Each Lender agrees that the rights and remedies granted
under this Agreement and the other Loan Documents shall be exercised solely by
the Agent, at the direction or with the consent of the Required Lenders, and
that no Lender shall have any right individually to exercise any such right or
remedy except to the extent, if any, expressly provided herein or therein.
9.7. Indemnification. To the extent the Agent is not reimbursed by or
on behalf of the Borrower, and without limiting the obligation of the Borrower
to do so, the Lenders agree (i) to indemnify the Agent and its officers,
directors, employees, agents, attorneys-in-fact and Affiliates, ratably in
proportion to their
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percentages as used in determining the Required Lenders as of the date of
determination, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, reasonable expenses
(including, without limitation, reasonable attorneys' fees and expenses) or
disbursements of any kind or nature whatsoever that may at any time (including
at any time following the repayment in full of the Loans and the termination of
the Commitments) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement or any other Loan Document or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing, and (ii) to reimburse the Agent upon
demand, ratably in proportion to their percentages as used in determining the
Required Lenders as of the date of determination, for any reasonable expenses
incurred by the Agent for the benefit of the Lenders (including, without
limitation, reasonable attorneys' fees and expenses and compensation of agents
and employees paid for services rendered on behalf of the Lenders); provided,
however, that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
reasonable expenses or disbursements to the extent resulting from the gross
negligence or willful misconduct of the party to be indemnified.
9.8. The Agent in its Individual Capacity. With respect to its
Commitments, the Loans made by it, the Letters of Credit issued by it and the
Notes issued to it, the Agent in its individual capacity and not as Agent shall
have the same rights and powers under the Loan Documents as any other Lender and
may exercise the same as though it were not performing the agency duties
specified herein; and the terms "Lenders," "Required Lenders," "holders of
Notes" and any similar terms shall, unless the context clearly otherwise
indicates, include the Agent in its individual capacity. The Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust, financial advisory or other business with the Borrower,
any of its Subsidiaries or any of their Affiliates as if it were not performing
the agency duties specified herein, and may accept fees and other consideration
from any of them for services in connection with this Agreement and otherwise
without having to account for the same to the Lenders.
9.9. Successor Agent. Subject to the appointment and acceptance of a
successor as provided below, the Agent may resign at any time by giving ten (10)
Business Days' prior written notice to the Borrower and the Lenders. Upon any
such notice of resignation and with the prior consent of the Borrower, which
consent shall not be unreasonably withheld, the Required Lenders will appoint
from among the Lenders a successor to the Agent. If no successor to the Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within such ten-Business Day period, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent with the prior consent
of the Borrower, which consent shall not be unreasonably withheld, which shall
be a commercial bank or trust company organized under the laws of the United
States of America or any state thereof and having a combined capital and surplus
of at least $1,000,000,000. Upon the acceptance of any appointment as Agent by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents. After any retiring Agent's
resignation as Agent, the provisions of this Article shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent.
9.10. Collateral Matters.
(a) The Agent is hereby authorized on behalf of the Lenders, without
the necessity of any notice to or further consent from the Lenders, from time to
time (but without any obligation) to take any action with respect to the
Collateral and the Security Documents that may be necessary to perfect and
maintain perfected the Liens upon the Collateral granted pursuant to the
Security Documents.
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(b) The Lenders hereby authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all of
the Credit Obligations, (ii) constituting property sold or to be sold or
disposed of as part of or in connection with any disposition expressly permitted
hereunder or under any other Loan Document or to which the Required Lenders have
consented or (iii) otherwise pursuant to and in accordance with the provisions
of any applicable Loan Document. Upon request by the Agent at any time, the
Lenders will confirm in writing the Agent's authority to release Collateral
pursuant to this subsection (B).
9.11. Issuing Bank and Swingline Lender. The provisions of this
ARTICLE IX (other than SECTION 9.9) shall apply to the Issuing Bank and the
Swingline Lender mutatis mutandis to the same extent as such provisions apply
to the Agent
@@ ARTICLE X
MISCELLANEOUS
10.1. Survival.
(a) The representations and warranties made by or on behalf of the
Borrower or any of its Subsidiaries in this Agreement and in each other Loan
Document shall survive the execution and delivery of this Agreement and each
such other Loan Document. Notwithstanding any other provision herein or anything
provided or implied by law to the contrary, no termination or cancellation
(regardless of cause or procedure) of the Commitments, this Agreement or any of
the other Loan Documents shall in any way affect or impair the rights and
obligations of the parties hereto with respect to any of the provisions of (i)
SECTION 10.3, (ii) SECTION 2.15 or (iii) this Agreement and the other Loan
Documents relating to indemnification or payment of costs and expenses,
including, without limitation, all of the provisions of SECTIONS 2.11(A),
2.11(B), 2.12, 2.13, 2.17(H), 9.7, 10.6 and 10.7, and, in each case, such
provisions shall survive any such termination or cancellation and the making and
repayment of the Loans.
(b) The Borrower, the Agent and the Lenders agree that: (i) ARTICLES IV
and V and the other applicable provisions of this Credit Agreement are intended
as the Agent's (on behalf of the Lenders) written request for information (and
the Borrower's response) concerning the environmental condition of the real
property; and (ii) each provision in this Credit Agreement (together with any
indemnity applicable to a breach of any such provision) with respect to the
environmental condition of the Realty is intended to be an "environmental
provision" and as such it is expressly understood that the Borrower's duty to
indemnify the Agent and the Lenders as specified hereunder shall survive the
termination or cancellation of the Commitments or this Agreement and the making
and repayment of the Loans.
10.2. Governing Law; Consent to Jurisdiction. THIS AGREEMENT SHALL BE
DEEMED TO HAVE BEEN EXECUTED, DELIVERED AND ACCEPTED IN NORTH CAROLINA AND SHALL
BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED,
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS)
OF THE STATE OF NORTH CAROLINA; PROVIDED THAT EACH LETTER OF CREDIT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OR
RULES DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO SUCH LAWS OR RULES ARE
DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM
CUSTOMS") AND, AS TO
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MATTERS NOT GOVERNED THEREBY, THE INTERNAL LAWS OF THE STATE OF THE DOMICILE OF
THE ISSUING BANK. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED,
THE BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE COURT WITHIN
MECKLENBURG COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE
WESTERN DISTRICT OF THE STATE OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED
HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, OR ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
PROCEEDING TO WHICH THE AGENT, THE ISSUING BANK, ANY LENDER OR THE BORROWER IS A
PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE AGENT, THE ISSUING BANK, ANY LENDER OR THE BORROWER. THE BORROWER
IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY
JUDGMENT RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION
THAT IT MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON
CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING. THE BORROWER CONSENTS THAT ALL
SERVICE OF PROCESS BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO BORROWER
(ATTENTION: GENERAL COUNSEL) AT ITS ADDRESS SET FORTH HEREINBELOW, AND SERVICE
SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT
THEREOF OR FIFTEEN (15) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER
POSTAGE PREPAID AND PROPERLY ADDRESSED. NOTHING IN THIS SECTION SHALL AFFECT THE
RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION.
10.3. Arbitration; Remedies.
(a) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement or any of the Loan
Documents ("Disputes") between or among parties hereto or thereto shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction contemplated
by this Agreement or any of the Loan Documents. Arbitration shall be conducted
under and governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") and
Title 9 of the U.S. Code. All arbitration hearings shall be conducted in
Charlotte, North Carolina. The expedited procedures set forth in Rule 51 et seq.
of the Arbitration Rules shall be applicable to claims of less than $1,000,000.
All applicable statutes of limitation shall apply to any Dispute. A judgment
upon the award may be entered in any court having jurisdiction. The panel from
which all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted, or if such person is not available, the single
arbitrator may be a licensed attorney. Notwithstanding the foregoing, this
arbitration provision does not apply to disputes under or related to any
interest rate protection agreements.
(b) Notwithstanding the preceding binding arbitration proceedings, the
Borrower and the Agent, on behalf of the Lenders, agree to preserve, without
diminution, certain remedies, more particularly described below, that any party
hereto may employ or exercise freely, independently or in connection with an
arbitration
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proceeding or after an arbitration action is brought. The Agent, on behalf of
the Lenders, and the Borrower shall have the right to proceed in any court of
proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale granted under
any Loan Documents or under applicable law or by judicial foreclosure and sale,
including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, setoff,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of any arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
The Borrower and the Agent, on behalf of the Lenders, agree that they
shall not have a remedy of punitive or exemplary damages against the other in
any Dispute and hereby waive any right or claim to punitive or exemplary damages
they have now or which may arise in the future in connection with any Dispute
whether the Dispute is resolved by arbitration or judicially.
10.4. Notice. All notices and other communications provided for
hereunder shall be in writing (including facsimile transmission) and mailed,
telecopied or delivered to the party to be notified at the following addresses
(provided, however, that Syndication Agency Services of First Union National
Bank of North Carolina will not receive copies of regular financial reports and
the attorneys listed below will receive neither regular financial reports nor
the business information submitted to the Agent and the Lenders):
If to Borrower: Brim, Inc. (changing name to Principal
Hospital Company)
5123 Paddock Village Court
Suite A-12
Brentwood, Tennessee 37027
Attention: Chief Financial Officer
Telephone: (615) 370-1377
Telecopy: (615) 370-9539
with a copy to: Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Kevin Evanich
Telephone: (312) 861-2076
Telecopy: (312) 861-2200
If to the Agent
or the Issuing Bank: First Union National Bank of
North Carolina
One First Union Center, TW-10
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Telephone: (704) 388-0281
Telecopy: (704) 383-0288
with a copy to: First Union National Bank of
North Carolina
150 Fourth Avenue North
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<PAGE> 98
2nd Floor
Nashville, Tennessee 37219
Attention: Carolyn Hannon
Telephone: (615) 251-9374
Telecopy: (615) 251-9247
with a copy to: First Union National Bank of
North Carolina
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: David Grams
Telephone: (704) 383-6249
Telecopy: (704) 383-9144
with a copy to: Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street
Suite 1900
Charlotte, North Carolina 28246
Attention: Stokely G. Caldwell, Jr.
Telephone: (704) 377-8332
Telecopy: (704) 378-4000
If to any Lender: At the address set forth on its
signature page hereto.
or to such other address as any party may designate for itself by like notice to
all other parties hereto. All such notices and communications shall be deemed to
have been given (i) if mailed as provided above by any method other than
overnight delivery service, on the third Business Day after deposit in the
mails, postage prepaid, (ii) if transmitted by overnight delivery service or
telecopied, when delivered for overnight delivery or transmitted by telecopier,
respectively, with appropriate confirmation of delivery, or (iii) if delivered
by hand, upon delivery; provided that notices and communications to the Agent
shall not be effective until received by the Agent.
All wire transfers to the Agent shall be sent to First Union National
Bank of North Carolina, ABA Routing #053000219, to the credit of First Union
National Bank of North Carolina, Charlotte, North Carolina, Attention:
Syndication Agency Services, G/L #465906, RC #5007, RE: Principal Hospital
Company, unless otherwise instructed by the Agent.
10.5. Assignments, Participations.
(a) With the prior consent of the Agent and the Borrower, which consent
shall not be unreasonably withheld (except in the case of a Default or Event of
Default in which case no consent of the Borrower shall be required), each Lender
may assign to one or more other Persons all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitments, the outstanding Loans made by it and the Note or
Notes held by it); provided, however, that (i) each such assignment shall be of
an equal, pro rata percentage of such Lender's rights and obligations (including
its Commitments) under each Credit Facility, (ii) except in the case of an
assignment to an Affiliate of such Lender or a Person that, immediately prior to
such assignment, was a Lender, (1) the amount of the Commitments of such
assigning Lender being assigned pursuant to each such assignment (determined as
of the date of the Assignment and Acceptance with respect to each such
assignment) shall in no event be less than the lesser of (y) the aggregate
Commitments of such Lender immediately prior to such assignment or (z)
$5,000,000, and (2) the amount of the
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Swingline Commitment being assigned pursuant to any such assignment (determined
as of the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than Swingline Commitment, (iii) each such assignment
shall be to an Eligible Assignee, (iv) the parties to each such assignment will
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Note or Notes subject
to such assignment, and will pay a processing fee of $3,000 to the Agent for its
own account, and (v) the assignee shall prepare and deliver to the Agent (for
delivery to the Borrower) any forms and other documents required by SECTION
2.12(C). Upon such execution, delivery, acceptance and recording of the
Assignment and Acceptance, from and after the effective date specified therein
(a) the assignee thereunder shall be deemed a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of such Lender
hereunder with respect thereto, and (b) the assigning Lender shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of such assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
assigning Lender and the assignee thereunder confirm to and agree with each
other, and with the other parties hereto, as follows: (i) other than as may be
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document or any other instrument or document furnished hereto or pursuant
thereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower or any of its Subsidiaries of any of their obligations under this
Agreement or any other Loan Document or any other instrument or document
furnished pursuant hereto or thereto; (iii) such assignee has received a copy of
this Agreement, together with copies of the Financial Statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Agreement; (iv) such assignee will,
independently and without reliance upon the Agent, the assigning Lender or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
this Agreement and the other Loan Documents and any other instruments and
agreements referred to herein or therein, and to exercise such powers and to
perform such duties hereunder and thereunder, as are specifically delegated to
or required of the Agent by the terms hereof or thereof and such other powers as
are reasonably incidental thereto; and (vii) such assignee will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.
(c) The Agent will maintain a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitments of, and principal amount of the
Loans owing to, each Lender from time to time (the "Register"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Agent, the Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower, the Issuing Bank or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, together with any Note or Notes subject to
such assignment, the Agent will, if such Assignment and Acceptance has been
completed and is in substantially the form of EXHIBIT D, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give notice thereof to the
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Borrower. Within five (5) Business Days after its receipt of such notice, the
Borrower, at its own expense, will execute and deliver to the Agent in exchange
for the surrendered Note or Notes a new Note or Notes to the order of such
assignee in an amount equal to the Commitment or Commitments assumed by it
pursuant to such Assignment and Acceptance and, to the extent the assigning
Lender has retained its Commitments hereunder, a new Note or Notes to the order
of the assigning Lender in an amount equal to the Commitment or Commitments
retained by it hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note or Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the forms of EXHIBITS A-1 and
A-2, as appropriate.
(e) Each Lender may sell to one or more other Persons participations in
any portion comprising less than all of its rights and obligations under this
Agreement (including, without limitation, a portion of its Commitments, the
outstanding Loans made by it and the Note or Notes held by it); provided,
however, that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible for the performance
of such obligations, (iii) the Borrower, the Issuing Bank, the Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, (iv)
any such participation shall be in an amount of not less than $5,000,000, (v) no
Lender shall sell any participation that, when taken together with all other
participations, if any, sold by such Lender, covers all of such Lender's rights
and obligations under this Agreement (including, without limitation, all of its
Commitments, the outstanding Loans made by it and the Note or Notes held by it),
(vi) each such participation shall be of an equal, pro rata percentage of such
Lender's rights and obligations (including its Commitments) under each Credit
Facility, (vii) no Lender shall permit any participant to have any voting rights
or any right to control the vote of such Lender with respect to any amendment,
modification, waiver, consent or other action hereunder or under any other Loan
Document except as to actions of the type described in SECTION 10.8(A), and
(viii) the parties to each such participation shall pay a processing fee of
$3,000 to the Agent for its own account. In the case of a participation, the
participant shall not have any rights under this Agreement or any of the other
Loan Documents, the participant's rights against the granting Lender in respect
of such participation to be those set forth in the participation agreement, and
all amounts payable by the Borrower hereunder shall be determined as if such
Lender had not sold such participation; provided, however, that each such
participant shall have the rights of a Lender for purposes of SECTIONS 2.11(A),
2.11(B), 2.12, 2.13 and 8.2, and shall be entitled to the benefits thereof, to
the extent that the Lender selling such participation would be entitled to such
benefits if the participation had not been sold.
(f) With the prior consent of the Required Lenders and the Borrower,
which consent shall not be unreasonably withheld, the Issuing Bank may assign
all, but not less than all, of its rights and obligations as Issuing Bank under
this Agreement, including, without limitation, its commitment to issue Letters
of Credit, to any Eligible Assignee, and upon acceptance of such assignment, the
successor Issuing Bank shall succeed to such rights and obligations and the
assigning Issuing Bank shall be discharged therefrom.
(g) The Agent, the Issuing Bank and each Lender may, in connection with
any assignment or participation or proposed assignment or participation pursuant
to this Section, disclose to the assignee or participant, or proposed assignee
or participant, any information relating to the Borrower and its Subsidiaries
furnished to it by or on behalf of any other party hereto, provided that such
assignee or participant or proposed assignee or participant agrees in writing to
the Agent, the Issuing Bank or such Lender, as the case may be, to keep such
information confidential to the same extent required of the Lenders under
SECTION 10.17.
(h) Nothing in this Agreement or the other Loan Documents shall
prohibit any Lender or participant from pledging or assigning its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitments, the outstanding Loans made by it and the Note or
Notes held by it, including Collateral therefor) to any Federal Reserve Bank in
accordance with applicable law.
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10.6. Fees and Expenses. Whether or not the transactions contemplated
by this Agreement shall be consummated, the Borrower shall be obligated:
(a) to pay or reimburse the Agent upon demand and after notice in
accordance with SECTION 10.4 for all reasonable expenses (including, without
limitation, reasonable attorneys' fees, but excluding salaries of the Agent's
regularly employed personnel and overhead) incurred or paid by the Agent in
connection with: (i) the preparation, execution, delivery, interpretation,
modification, amendment or termination of this Agreement or the other Loan
Documents or any consent or waiver requested by the Borrower hereunder or
thereunder; (ii) upon the occurrence and during the continuance of any Event of
Default, charges for appraisers, examiners, environmental consultants, auditors
or similar Persons whom the Agent may engage with respect to rendering opinions
concerning the financial condition of the Borrower and its Subsidiaries; and
(iii) upon the occurrence and during the continuance of any Event of Default,
any commercially reasonable attempt to inspect, verify, protect, preserve,
collect, sell, liquidate or otherwise dispose of the Collateral or any other
assets of the Borrower or any Guarantor;
(b) to pay or reimburse the Agent and each Lender upon demand and after
notice in accordance with SECTION 10.4 for all reasonable expenses (including,
without limitation, reasonable attorneys' fees, but excluding salaries of the
Agent's or such Lender's regularly employed personnel and overhead) incurred or
paid by the Agent or such Lender in connection with: (i) any litigation,
contest, dispute, suit or proceeding or action (whether instituted by the Agent,
the Lenders, or any of them, the Borrower or any other Person) in any way
relating to this Agreement or the other Loan Documents (other than a dispute
solely between or among the Lenders or the Lenders and the Agent); (ii) any
attempt by the Agent or such Lender to enforce any of its rights against the
Borrower or any other Person that may be obligated to the Agent or such Lender
by virtue of this Agreement or the other Loan Documents; and (iii) any
refinancing or restructuring of the credit arrangement provided under this
Agreement in the nature of a "work-out" or in any insolvency or bankruptcy
proceeding;
(c) to pay and hold the Agent and each Lender harmless from and against
any and all liability and loss with respect to or resulting from the nonpayment
or delayed payment of any and all intangibles, documentary stamp and other
similar taxes, fees and excises, if any, including any interest and penalties,
that may be, or be determined to be, payable in connection with the transactions
contemplated by this Agreement and the other Loan Documents or in any
modification hereof or thereof; and
(d) to pay and hold the Agent and each Lender harmless from and against
any and all finder's or brokerage fees and commissions that may be payable in
connection with the transactions contemplated by this Agreement and the other
Loan Documents, other than any fees or commissions of finders or brokers engaged
by the Agent or any Lender.
10.7. Indemnification. From and at all times after the date of this
Agreement, and in addition to the costs and expenses payable under SECTION 10.6
and all of the Agent's and the Lenders' other rights and remedies against the
Borrower, the Borrower agrees to indemnify and hold harmless the Agent, the
Issuing Bank and each Lender and each of their directors, officers, employees,
agents and their Affiliates (each, an "Indemnified Person") against any and all
claims, losses, damages, liabilities, costs and expenses of any kind or nature
whatsoever, including, without limitation, reasonable attorneys' fees,
reasonable costs and expenses (collectively, "Indemnified Costs") incurred by or
asserted against any such Indemnified Person from and after the date hereof,
whether direct or indirect, as a result of or arising from or in any way
relating to any suit, action or proceeding (including any inquiry or
investigation) by any Person, whether threatened or initiated, asserting a claim
for any legal or equitable remedy under any statute or regulation, including,
without limitation, any federal or state securities laws, or under any common
law or equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or enforcement of this
Agreement or the other Loan Documents or any of the transactions contemplated
herein or therein, and including, without limitation, Environmental Claims,
whether or not such Indemnified Person is a party to any such action, proceeding
or suit or the target of
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any such inquiry or investigation; provided, however, that no Indemnified Person
shall have the right to be indemnified hereunder for any Indemnified Costs
resulting from the gross negligence or willful misconduct of such Indemnified
Person (as finally determined by a court of competent jurisdiction or pursuant
to arbitration as set forth in SECTION 10.3) or resulting from any dispute
solely between or among the Lenders or the Lenders and the Agent. Without
limiting the generality of the foregoing, the Indemnified Costs with respect to
Environmental Claims shall include, without limitation, amounts paid in
settlement of claims, all consultant and expert fees and expenses of any
Indemnified Person incurred in connection with any investigation of site
conditions, any abatement, cleanup, remediation, removal or restoration work, or
liability for any damages or injuries of any Person or to land, air, water or
other natural resources. All of the foregoing losses, damages, costs and
expenses of any Indemnified Person shall be payable by the Borrower within
thirty (30) days after demand, and shall be additional Credit Obligations
hereunder. In the event that the foregoing indemnity is unavailable or
insufficient to hold each Indemnified Person harmless, then the Borrower will
contribute to amounts paid or payable by such Indemnified Persons in respect of
their losses, claims, damages or liabilities in such proportions as
appropriately reflect the relative benefits received by and fault of the
Borrower and such Indemnified Persons in connection with the matters as to which
such losses, claims, damages or liabilities relate and other equitable
considerations.
Any Indemnified Party may submit a claim for indemnification hereunder
by delivering written notice of such claim to the Borrower and, unless the
claimant is the Agent, to the Agent, and such notice shall describe in
reasonable detail the basis for the claim, the amount or estimated amount of the
claim, and such other information as the Borrower or the Agent shall reasonable
request.
10.8. Amendments, Waivers, Etc. Except as may be otherwise
specifically set forth in this Agreement or the other Loan Documents, neither
this Agreement nor any other Loan Document nor any provision hereof or thereof
may be amended, modified, waived, discharged or terminated, and no consent to
any departure by the Borrower from any provision hereof or thereof may be given,
except in a writing signed by the Required Lenders; provided, however, that:
(a) no such amendment, modification, waiver, discharge, termination or
consent shall, without the consent of each Lender holding Credit Obligations
directly affected thereby, (i) reduce the principal amount of, or rate of
interest on, any Loan, or reduce any fees or other Credit Obligations (other
than fees payable to the Agent for its own account) or any obligations of any
Person now or hereafter primarily or contingently liable with respect to the
Credit Obligations or (ii) postpone any date fixed for any payment of principal,
interest (other than additional interest payable under SECTION 2.6(B) during the
continuance of an Event of Default), fees (other than fees payable to the Agent
for its own account) or any other Credit Obligations;
(b) no such amendment, modification, waiver, discharge, termination or
consent shall, without the consent of all Lenders, (i) increase the Commitments
of any Lender (it being understood that a waiver of any Default or Event of
Default or of any mandatory reduction in either Total Commitment shall not
constitute such an increase), (ii) change the definition of "Required Lenders"
or otherwise change the number or percentage of Lenders that shall be required
for the Lenders or any of them to take or approve, or direct the Agent to take,
any action hereunder, (iii) amend, modify or waive any of the provisions for
extending, or take action to extend, the term of the Revolving Credit Facility
or Term Loan Facility, (iv) affect the obligation of the Lenders having
Revolving Credit Commitments to become L/C Participants, (v) amend any provision
of this SECTION 10.8, (vi) release all or substantially all of the Collateral or
(vii) consent to the assignment or transfer by the Borrower, or by any other
Person now or hereafter primarily or contingently liable with respect to the
Credit Obligations, of any of its rights and obligations under this Agreement or
any of the other Loan Documents;
(c) no provision relating to the rights or obligations of the Swingline
Lender or the Issuing Bank under this Agreement or any of the other Loan
Documents may be amended, modified or waived without the consent of such Person;
and
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(d) no provision relating to the rights or obligations of the Agent
under this Agreement or any of the other Loan Documents may be amended, modified
or waived without the consent of the Agent.
10.9. Rights and Remedies Cumulative, Non-Waiver, Etc. The enumeration
of the Agent's and the Lenders' rights and remedies set forth in this Agreement
and the other Loan Documents is not intended to be exhaustive, and the exercise
by the Agent or any Lender of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative, and
shall be in addition to any other right or remedy given hereunder, under the
other Loan Documents or under any other agreement between the Borrower and the
Lenders, or any of them (or the Agent on their behalf), or that may now or
hereafter exist in law or in equity or by suit or otherwise. No delay or failure
to take action on the part of the Agent or any Lender in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Event of Default. No course of dealing
between any of the Borrower and the Agent or the Lenders or their agents or
employees shall be effective to change, modify or discharge any provision of
this Agreement or to constitute a waiver of any Event of Default. No notice to
or demand upon the Borrower in any case shall entitle the Borrower to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the right of the Agent or any Lender to exercise any right or remedy
or take any other or further action in any circumstances without notice or
demand.
10.10. Binding Effect, Assignment. All of the terms of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
successors and assigns of the Borrower, the Agent, the Issuing Bank and each
Lender; provided, however, that (i) the Borrower may not sell, assign or
transfer this Agreement or any portion hereof or thereof, including, without
limitation, any of its rights, title, interests, remedies, powers and duties
hereunder or thereunder and (ii) any assignees and participants of the Lenders
and any successor Issuing Bank shall have such rights and obligations with
respect to this Agreement and the other Loan Documents as are provided for in
and pursuant to SECTION 10.5.
10.11. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
10.12. Entire Agreement. THIS AGREEMENT AND THE LOAN DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED CONTEMPORANEOUSLY HEREWITH EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDE ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN, RELATING TO THE
SUBJECT MATTER HEREOF, INCLUDING WITHOUT LIMITATION THE COMMITMENT LETTER. THIS
AGREEMENT, THE NOTES, THE OTHER LOAN DOCUMENTS AND THE INSTRUMENTS AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
10.13. Interpretation. The captions to the various sections and
subsections of this Agreement have been inserted for convenience only and shall
not limit or affect any of the terms hereof. Unless the context otherwise
requires, words in the singular include the plural and words in the plural
include the singular, and the use of any gender shall be applicable to all
genders.
10.14. Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which, when so executed and
-97-
<PAGE> 104
delivered, shall be an original, but all of which shall together constitute one
and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
10.15. Conflict of Terms. The Exhibits and Schedules hereto and the
other Loan Documents are incorporated in this Agreement by this reference
thereto. Except as otherwise provided in this Agreement and except as otherwise
provided in the other Loan Documents, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision of the other
Loan Documents, the provision contained in this Agreement shall control.
10.16. Injunctive Relief. The Borrower recognizes that in the event it
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to the
Agent and the Lenders. The Borrower therefore agrees that the Agent and the
Lenders, if the Agent so requests, shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damages in any case
where a remedy at law, in the reasonable good faith opinion of the Required
Lenders, may prove to be inadequate relief.
10.17. Confidentiality. Each Lender agrees to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all nonpublic confidential information provided in connection with this
Agreement or any other Loan Document and agrees and undertakes that it shall not
use any such information for any purpose or in any manner other than pursuant to
the terms contemplated by this Agreement. Any Lender may disclose such
information (i) at the request of any bank regulatory authority or in connection
with an examination of such Lender by any such authority, (ii) pursuant to
subpoena or other court process, (iii) when required to do so in accordance with
the provisions of any applicable law, (iv) at the express direction of any
agency of any State of the United States of America or of any other jurisdiction
in which such Lender conducts its business or (v) to such Lender's independent
auditors and other professional advisors that have a reasonable need or basis
for access thereto. The Lenders agree to use reasonable efforts to notify the
Borrower within a reasonable period of time prior to any such disclosure.
10.18. Post-Closing Matters. The Borrower will, and will cause each of
its Subsidiaries to, use its best efforts to assist the Agent in the syndication
of the Facilities and the resultant addition of Lenders after the Closing Date.
[Signature page to follow]
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<PAGE> 105
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their corporate names by their duly authorized corporate officers as
of the date first above written.
BRIM, INC.
By: /s/ Martin S. Rash
------------------------------
Title: Chief Executive Officer
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, AS AGENT AND AS ISSUING BANK
By: /s/ Joseph H. Towell
------------------------------
Title: Senior Vice President
(signatures continued)
<PAGE> 106
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Joseph H. Towell
-----------------------------
Title: Senior Vice President
Term Loan
Commitment: $5,250,000
Revolving Credit: $9,750,000
Address:
First Union National Bank
of North Carolina
One First Union Center, DC-5
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Healthcare Finance Group
Telephone: (704) 383-7121
Telecopy: (704) 383-9144
First Union Bank
of North Carolina
150 Fourth Avenue North
2nd Floor
Nashville, Tennessee 37219
Attention: Carolyn Hannon
Telephone: (615) 251-9374
Telecopy: (615) 251-9247
Wiring Instructions:
First Union National Bank
of North Carolina
Charlotte, North Carolina
ABA# 053000219
For further credit to:
Syndication Agency Services
GL# 465906
RC# 5007
Reference: Brim, Inc./Principal Hospital Company
(signatures continued)
<PAGE> 107
AMSOUTH BANK OF ALABAMA
By: /s/ William P. Barnes
-----------------------
Title: Senior Vice President
Term Loan
Commitment: $4,725,000
Revolving Credit: $8,775,000
Lending Office, Hand Delivery Address
and Mailing Address:
AmSouth Bank of Alabama
1900 5th Avenue North
AmSouth Sonat Tower 7th Floor
Birmingham, Alabama 35203
Telephone: (205) 326-4081
Telecopy: (205) 326-4790
Attention: W. Page Barnes
Wiring Instructions:
AmSouth Bank of Alabama
ABA # 062000019
For further credit to:
Acct. # 0011 0245 0400 100
(Corp. Clrng. Acct.)
Healthcare Banking
Reference: Principal Hospital
Company
(signatures continued)
<PAGE> 108
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Dennis J. Dee
---------------------
Title: Authorized Signatory
Term Loan
Commitment: $4,375,000
Revolving Credit: $8,125,000
Lending Office:
Lehman Commercial Paper Inc.
c/o Bankers Trust Company
Corporate Trust & Agency Group
4 Albany Street - 10th Floor
New York, New York 10006
Telephone: (212) 250-6374
Telecopy: (212) 250-6151
Attention: Andrew Kunerb
and
Lehman Commercial Paper Inc.
101 Hudson Street - 30th Floor
Jersey City, New Jersey 07302
Telephone: (201) 524-4518
Telecopy: (201) 524-5847
Attention: Tom Wilson
With copies of modifications to Credit
Agreement and financial information only to:
Michele Swanson
Lehman Commercial Paper Inc.
3 World Financial Center - 10th Floor
New York, New York 10285
Telephone: (212) 526-0330
Telecopy: (212) 528-0819
Lehman Commercial Paper Inc.
Wiring Instructions:
Bankers Trust ABA # 021-001-033
For further credit to:
Favor NY Ltd. Loan Services Omnibus Acct.
Acct. # 01-0442 898
Attention: Brian Schmidt
(signatures continued)
<PAGE> 109
CREDIT LYONNAIS NEW YORK BRANCH
By:
-----------------------------------
Pascal Poupelle, Senior Vice President
Term Loan
Commitment: $4,025,000
Revolving Credit: $7,475,000
Lending Office, Hand Delivery Address
and Mailing Address:
Credit Lyonnais
1301 Avenue of the Americas
New York, New York 10019
Telephone: (212) 261-7791
Telecopy: (212) 261-3440
Attention: Martin D. Golden
Wiring Instructions:
Lyonnais
New York, New York
ABA # 0260-0807-3
Acct. # 01-88179214000001
Attention: Loan Servicing
Reference: Principal Hospital Company
(signatures continued)
<PAGE> 110
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ Glenn J. Mealey
-------------------------
Title: Vice President
By: /s/ Larry Robinson
-------------------------
Title: Vice President
Term Loan
Commitment: $3,500,000
Revolving Credit: $6,500,000
Lending Office, Hand Delivery Address
and Mailing Address:
Banque Paribas Houston Agency
1200 Smith Street
Houston, Texas 77002
Telephone: (713) 659-4811
Telecopy: (713) 659-5234
Attention: Glenn Mealey
Wiring Instructions:
Bankers Trust Company New York
ABA # 021001033
For Account 04202195 - Banque Paribas New York
For further credit to:
Acct. # 2144-001545 - Banque Paribas Houston Agency
Reference: Principal Hospital Company
Loan Operations Activity Contact:
Banque Paribas New York
1200 Smith Street
Suite 3100
Houston, Texas 77002
Telephone: (713) 659-4811
Telecopy: (713) 659-5305
Primary Contact: Leah Evans-Hughes
Secondary Contact: Nicole Krudop/Kim Grayson
(signatures continued)
<PAGE> 111
Banque Paribas Houston Agency
Letter of Credit Activity Contact:
Primary Contact:
Cheryl Johnson
1200 Smith Street
Suite 3100
Houston, Texas 77002
Telephone: (713) 659-4811
Telecopy: (713) 659-3832
Telex: 166514 or 166343
Secondary Contact:
Patricia Chui
1200 Smith Street
Suite 3100
Houston, Texas 77002
Telephone: (713) 659-4811
Telecopy: (713) 659-3832
Telex: 166514 or 166343
Wiring Instructions for Letter of Credit Activity:
Bankers Trust Company, New York
ABA # 021001033
For Acct. # 04-204254 - Banque Paribas Houston Agency
(signatures continued)
<PAGE> 112
KEY BANK OF OREGON
By: /s/ Charles J. Shoop
---------------------------
Title: Assistant Vice President
Term Loan
Commitment: $3,500,000
Revolving Credit: $6,500,000
Lending Office, Hand Delivery Address
and Mailing Address:
Key Bank of Oregon
1211 SW 5th
Suite 400
Portland, Oregon 97204
Telephone: (503) 790-7519
Telecopy: (503) 790-7574
Attention: Charlie Shoop
Wiring Instructions:
Key Bank of Oregon
ABA # 123002011
Beneficiary: NW Region Specialty Services
Acct. # 370215701092
Attn: Specialty Team
Telephone: 1 (800) 297-5518
(signatures continued)
<PAGE> 113
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Roderic M. Brown
-----------------------
Title: Vice President
Term Loan
Commitment: $3,500,000
Revolving Credit: $6,500,000
Lending Office, Hand Delivery Address
and Mailing Address:
National City Bank of Kentucky
101 South Fifth Street
Louisville, Kentucky 40202
Telephone: (502) 581-4369
Telecopy: (502) 581-4424
Attention: Roderic M. Brown
Wiring Instructions:
National City Bank of Kentucky
ABA # 083000056
For further credit to:
G/L # 151804
Attention: Tami Boston
Reference: Principal Hospital Company
(signatures continued)
<PAGE> 114
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Albert W. Kellye
-----------------------
Title: Vice President
Term Loan
Commitment: $3,500,000
Revolving Credit: $6,500,000
Lending Office, Hand Delivery Address
and Mailing Address:
Union Bank of California
550 S. Hope Street
3rd Floor
Los Angeles, California 90071
Telephone: (213) 243-3505
Telecopy: (213) 243-3552
Attention: Albert Kelley
Wiring Instructions:
Union Bank of California
ABA # 122000496
For further credit to:
Acct. # 0012060232
Reference: Principal Hospital Company
(signatures continued)
<PAGE> 115
FIRST AMERICAN NATIONAL BANK
By: /s/ Sandra G. Hamrick
---------------------
Title: Vice President
Term Loan
Commitment: $2,625,000
Revolving Credit: $4,875,000
Lending Office, Hand Delivery Address
and Mailing Address:
First American National Bank
First American Center
2nd Floor
Nashville, Tennessee 37237-0203
Telephone: (615) 748-2191
Telecopy: (615) 748-2812
Attention: Ms. Sandy Hamerick
Wiring Instructions:
First American National Bank
Nashville, Tennessee ABA #
064-0000-71 For further credit
to:
Wire Transfer Clearing
Acct # 0901256
Reference: Principal Hospital
<PAGE> 1
EXHIBIT 4.6
FIRST AMENDMENT TO CREDIT AGREEMENT
AND
MODIFICATION OF LOAN DOCUMENTS
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND MODIFICATION OF LOAN
DOCUMENTS, dated March 26, 1997 (this "Amendment"), is by and between PRINCIPAL
HOSPITAL COMPANY, an Oregon corporation formerly known as Brim, Inc. (the
"Borrower"), the financial institutions from time to time party to the Credit
Agreement (as hereinafter defined) (the "Lenders") and FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as Agent for the Lenders (in such capacity, the "Agent"), and
amends the Credit Agreement dated as of December 17, 1997 between the Borrower,
the Lenders and the Agent (the "Credit Agreement"). Capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Lenders extended to the Borrower
Term Loans in the aggregate principal amount of $35,000,000 and Revolving Credit
Loans in the aggregate principal amount of up to $65,000,000.
B. The Borrower has requested that the Agent and the Lenders amend the
Credit Agreement to modify certain financial covenants, all in accordance with
the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Required Lenders
and the Agent, for themselves, their successors and assigns, agree as follows:
ARTICLE I
AMENDMENTS
1.1 Definitions. The defined terms "Annualized Capital Expenditures,"
"Annualized Cash Taxes," "Annualized Consolidated EBITDAR," "Annualized Facility
Rent Expense," "Annualized Interest Expense," "Annualized Lease Expense," and
"Consolidated EBITDAR" set forth in Article I are hereby deleted in their
entirety and there are substituted in their place the following:
"Annualized Capital Expenditures" shall mean (i) as of March 31, 1997,
Capital Expenditures for the fiscal quarter ending on such date, multiplied
by four (4), and (ii) as of June 30, 1997 and as of the last day of any
fiscal quarter thereafter, Capital Expenditures for the two (2) consecutive
fiscal quarters ending on such date, multiplied by two (2).
"Annualized Cash Taxes" shall mean (i) as of March 31, 1997, Cash
Taxes for the fiscal quarter ending on such date, multiplied by four (4),
and (ii) as of June 30, 1997 and as of the last day of any fiscal quarter
thereafter, Cash Taxes for the two (2) consecutive fiscal quarters ending
on such date, multiplied by two (2).
"Annualized Consolidated EBITDAR" shall mean (i) as of March 31, 1997,
Consolidated EBITDAR for the fiscal quarter ending on such date, multiplied
by four (4), and (ii) as of June 30, 1997 and as of the last day of any
fiscal quarter thereafter,
<PAGE> 2
Consolidated EBITDAR for the two (2) consecutive fiscal quarters ending on
such date, multiplied by two (2).
"Annualized Facility Rent Expense" shall mean (i) as of March 31,
1997, Facility Rent Expense for the fiscal quarter ending on such date,
multiplied by four (4), and (ii) as of June 30, 1997 and as of the last day
of any fiscal quarter thereafter, Facility Rent Expense for the two (2)
consecutive fiscal quarters ending on such date, multiplied by two (2).
"Annualized Interest Expense" shall mean (i) as of March 31, 1997,
Interest Expense for the fiscal quarter ending on such date, multiplied by
four (4), and (ii) as of June 30, 1997 and as of the last day of any fiscal
quarter thereafter, Interest Expense for the two (2) consecutive fiscal
quarters ending on such date, multiplied by two (2).
"Annualized Lease Expense" shall mean (i) as of March 31, 1997, Lease
Expense for the fiscal quarter ending on such date, multiplied by four (4),
and (ii) as of June 30, 1997 and as of the last day of any fiscal quarter
thereafter, Lease Expense for the two (2) consecutive fiscal quarters
ending on such date, multiplied by two (2).
"Consolidated EBITDAR" shall mean, with respect to the Borrower and
its Subsidiaries on a consolidated basis as of the last day of any period,
EBITDAR for the period ending on such date determined in accordance with
Generally Accepted Accounting Principles. Consolidated EBITDAR shall be
deemed to include, without duplication, historical Consolidated EBITDAR, of
any business acquired and operated by the Borrower or any Subsidiary after
the commencement of the relevant measurement period, as if such business
had been acquired by the Borrower or such Subsidiary as of the first day of
such measurement period, subject to pro forma expense adjustments as set
forth below; provided that such Consolidated EBITDAR is supported by
financial statements, tax returns or other financial data acceptable to the
Agent in its sole discretion. Calculations of Consolidated EBITDAR shall
exclude the results of operations of any entity disposed of by the Borrower
or any Subsidiary at any time after the first day of the relevant
measurement period. Consolidated EBITDAR shall be adjusted for pro forma
expense adjustments in connection with newly acquired entities, if and only
to the extent approved in writing by the Required Lenders.
1.2 Financial Covenants.
(a) Sections 6.9 through 6.11 and 6.13 through 6.14 are hereby deleted in
their entirety and there are substituted in their place the following:
6.9 Consolidated Adjusted Debt to Annualized Consolidated EBITDAR.
Permit the ratio of Consolidated Adjusted Debt to Annualized Consolidated
EBITDAR as of the end of any fiscal quarter beginning with the fiscal
quarter ending March 31, 1997 to and including the fiscal quarter ending
June 30, 1997, to be greater than or equal to 4.25 to 1.0; and as of the
end of any fiscal quarter thereafter, to be greater than or equal to 4.0 to
1.0.
6.10 Consolidated Adjusted Senior Debt to Annualized Consolidated
EBITDAR. Permit the ratio of Consolidated Adjusted Senior Debt to
Annualized Consolidated EBITDAR to be greater than or equal to 4.25 to 1.0
for any fiscal quarter beginning with the fiscal quarter ending March 31,
1997 to and including
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<PAGE> 3
the fiscal quarter ending June 30, 1997; 4.00 to 1.0 thereafter to and
including the fiscal quarter ending September 30, 1997; 3.75 to 1.0
thereafter to and including the fiscal quarter ending March 31, 1998; 3.50
to 1.0 thereafter to and including the fiscal quarter ending September 30,
1998; and 3.00 to 1.0 for any fiscal quarter thereafter.
6.11 Minimum Consolidated EBITDAR. Permit Consolidated EBITDAR to be
less than $2,500,000.00 for the fiscal month ending January 31, 1997;
$3,900,000.00 for the two fiscal months ending February 28, 1997;
$5,500,000 for the fiscal quarter ending March 31, 1997; $7,200,000.00 for
the four fiscal months ending April 30, 1997; and $8,800,000.00 for the
five fiscal months ending May 31, 1997.
6.13 Annualized Consolidated EBITDAR to Annualized Interest Expense
and Annualized Lease Expense. Permit the ratio of Annualized Consolidated
EBITDAR to the sum of Annualized Interest Expense and Annualized Lease
Expense to be less than or equal to 2.0 to 1.0 for any fiscal quarter
beginning with the fiscal quarter ending March 31, 1997 to and including
the fiscal quarter ending September 30, 1997; 2.5 to 1.0 thereafter to and
including the fiscal quarter ending September 30, 1998; and 3.0 to 1.0 for
any fiscal quarter thereafter.
6.14 Fixed Charge Coverage. Permit the ratio of Annualized
Consolidated EBITDAR to Fixed Charges to be less than or equal to 1.1 to
1.0 for any fiscal quarter beginning with the fiscal quarter ending March
31, 1997 to and including the fiscal quarter ending December 31, 1997; and
1.0 to 1.0 for any fiscal quarter thereafter.
(b) The requirement that the Borrower submit calculations under Sections
6.9 through 6.11 and 6.13 through 6.14 of the Credit Agreement for the fiscal
quarter ending December 31, 1996 is hereby deleted.
ARTICLE II
LOAN DOCUMENTS
Any individual or collective reference to any of the Loan Documents in any
of the other Loan Documents to which the Borrower or any Guarantor is a party
shall mean, unless otherwise specifically provided, such Loan Document as
amended by this Amendment, and as it is further amended, restated, supplemented
or modified from time to time and any substitute or replacement therefor or
renewals thereof, including without limitation, all references to the Credit
Agreement, which shall mean the Credit Agreement as amended hereby and as
further amended from time to time.
ARTICLE III
CONDITIONS PRECEDENT
This Amendment and the obligations of the Lenders to continue to extend
credit under the terms of the Credit Agreement are subject to the satisfaction
of all of the following conditions precedent:
3.1 EXECUTION OF THIS AMENDMENT. This Amendment shall have been executed
and delivered by the Borrower, the Agent and the Required Lenders, it being
expressly understood that the terms of this Amendment require the express
consent of Lenders holding 66 2/3% or more of the sum of the aggregate
-3-
<PAGE> 4
principal amount of the Term Loans and Revolving Credit Commitments outstanding
as of the date hereof.
3.2 SECRETARY'S CERTIFICATES. The Lender shall have received certificates
of the Secretaries of the Borrower and Guarantors, each certifying and attaching
as applicable (a) any amendments filed since December 17, 1996 to the
certificate of incorporation or similar charter document of such corporation, as
certified as of a recent date by the Secretary of State or similar agency of
such corporation's state of incorporation, (b) any amendments to the bylaws of
such corporation adopted since December 17, 1996, (c) copies of the resolutions
of the Board of Directors of the Borrower and the Guarantors regarding the
execution and delivery of this Agreement and the Guarantor confirmation referred
to in SECTION 3.4 below, as applicable (or alternatively, a statement that no
such board authorization is required), and (d) the incumbency of the officers of
such Person authorized to sign this Amendment and the guarantor confirmation
referred to in SECTION 3.4 below.
3.3 NO DEFAULT. After giving effect to this Amendment, no Default or Event
of Default shall have occurred and be continuing, and the Agent and the Lenders
shall have received a certificate from the chief executive officer or the chief
financial officer of the Borrower to such effect.
3.4 GUARANTOR CONFIRMATION. The Agent and the Lenders shall have received
written confirmation by the Guarantors of their obligations under the Guaranty
Documents.
3.5 GOVERNMENTAL APPROVALS. All necessary approvals, authorizations and
consents, if any be required, of all governmental bodies (including courts)
having jurisdiction with respect to the transactions contemplated by this
Amendment shall have been obtained.
3.6 NO INJUNCTION, ETC. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain substantial damages in respect of, or which is related to or arises out
of this Amendment or the consummation of the transactions contemplated hereby or
which, in the Lenders' sole discretion, would make it inadvisable to consummate
the transactions contemplated by this Amendment.
3.7 NO MATERIAL ADVERSE CHANGE. In the reasonable judgment of the Agent,
there shall not have occurred any material adverse change in the business,
business prospects, financial condition or results of operations of the Borrower
or any Guarantor, or any event, condition or state of facts that would be
reasonably expected materially and adversely to affect the business, business
prospects, financial condition or results or operations of the Borrower or any
Guarantor.
ARTICLE IV
GENERAL
4.1 FULL FORCE AND EFFECT. As expressly amended hereby, the Credit
Agreement and each Loan Document shall continue in full force and effect in
accordance with the provisions thereof on the date hereof. As used in the Credit
Agreement, "hereinafter," "hereto," "hereof" and words of similar import shall
mean, unless the context otherwise requires, the Credit Agreement as amended by
this Amendment.
4.2 REPRESENTATIONS AND WARRANTIES. After giving effect to this Amendment,
the representations and warranties set forth in the Credit Agreement are true
and correct as of the date hereof, except to the extent such representations and
warranties relate solely to or are specifically expressed as of a particular
date or period.
-4-
<PAGE> 5
4.3 RELEASE. The Borrower hereby releases and discharges the Agent and each
of the Lenders, their directors, officers, agents, and employees, from any and
all causes of action, suits, claims, demands, liabilities and obligations
whatsoever, in law or in equity, whether the same are now known or unknown or
whether the facts on which the same are based are now known or unknown, which
they ever had, now have or hereafter may have by reason of any matter, act or
omission whatsoever occurring on or before the date of this Amendment, except
for any claims arising out of any wanton or willful misconduct or gross
negligence on the part of the Agent or any Lender.
4.4 APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the laws and judicial decisions of the State of North Carolina
without reference to conflicts of law principles.
4.5 COUNTERPARTS; TERMS. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
4.6 EXPENSES. The Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Agent and the Lenders in connection with the
preparation, execution and delivery of this Amendment, including, without
limitation, all fees and disbursements of Lenders' counsel.
4.7 HEADINGS. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
4.8 VALID AMENDMENT. The parties acknowledge that, when executed and
delivered by the Borrower, the Agent and the Required Lenders, this Amendment
complies in all respects with SECTION 10.8 of the Credit Agreement, which sets
forth the requirements for amendments thereto.
(signatures begin next page)
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in their corporate names by their duly authorized corporate officers as
of the date first above written.
[CORPORATE SEAL] PRINCIPAL HOSPITAL COMPANY
ATTEST: By: /s/ Martin S. Rash
-----------------------------------
Name: Martin S. Rash
/s/ Richard D. Gore ------------------------------
- -------------------------- Title: President and CEO
_______________, Secretary ----------------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, AS AGENT AND AS ISSUING BANK
By: /s/ Joseph H. Towell
-----------------------------------
Name: Joseph H. Towell
---------------------------------
Title: Senior Vice President
--------------------------------
(signatures continued)
-6-
<PAGE> 7
LENDERS:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Joseph H. Towell
-----------------------------------
Name: Joseph H. Towell
---------------------------------
Title: Senior Vice President
--------------------------------
AMSOUTH BANK OF ALABAMA
By: /s/ Keith Law
-----------------------------------
Name: Keith Law
---------------------------------
Title: Vice President
--------------------------------
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michael Swanson
-----------------------------------
Name: Michael Swanson
---------------------------------
Title: Authorized Signatory
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ John Oberle
-----------------------------------
John Oberle, Vice President
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ Glenn E. Mealey
-----------------------------------
Name: Glenn E. Mealey
---------------------------------
Title: Vice President
--------------------------------
By: /s/ Timothy A. Donnon
-----------------------------------
Name: Timothy A. Donnon
---------------------------------
Title: Regional General Manager
--------------------------------
(signatures continued)
-7-
<PAGE> 8
KEY BANK OF OREGON
By: /s/ Charles J. Shoop
-------------------------------
Name: Charles J. Shoop
-----------------------------
Title: Assistant Vice President
----------------------------
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Roderic M. Brown
-------------------------------
Name: Roderic M. Brown
-----------------------------
Title: Vice President
----------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Jennifer L. Banks
-------------------------------
Name: Jennifer L. Banks
-----------------------------
Title: Vice President
----------------------------
FIRST AMERICAN NATIONAL BANK
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
-8-
<PAGE> 1
EXHIBIT 10.3
FORM OF INVESTMENT AGREEMENT COUNTERPART
This Investment Agreement Counterpart is made this 17th day of
December, 1996, among _____________, ("Investor," see attached Schedule of
Investors ) Golder, Thoma, Cressey, Rauner Fund IV, L.P., a Delaware limited
partnership ("GTCR"), Principal Hospital Company, a Delaware corporation
("Principal"), and Brim, Inc., an Oregon corporation ("Brim").
GTCR, Principal and Brim are parties to an Investment
Agreement, dated as of November 21, 1996 (the "Investment Agreement"), a copy of
which is attached hereto. GTCR desires to assign certain of its rights and
obligations under the Investment Agreement to Investor, pursuant to Section
4.08(f) and 10.02 of the Investment Agreement, and Investor desires to accept
such rights and obligations. Capitalized terms used and not defined herein shall
have the respective meanings assigned such terms in the Investment Agreement.
The parties hereto agree as follows:
1. GTCR hereby assigns its right to purchase from Brim
____ shares of Junior Preferred Stock at a purchase price of $1,000 per share
and ______ shares of Common Stock at a purchase price of $1 per share to
Investor, and Investor hereby accepts such right. Investor shall be subject to
all rights and obligations of GTCR under the Investment Agreement with respect
to such shares.
2. Investor agrees to be bound by the terms of the
Investment Agreement, and confirms that all representations and warranties made
by GTCR pursuant to Paragraph 4.08 of the Investment Agreement are true and
correct with respect to Investor as of the date hereof.
3. Investor further represents and warrants to GTCR
that:
(a) the stock to be acquired by Investor pursuant to this
Counterpart (the "Stock") will be acquired for Investor's account and
not with a view to, or intention of, distribution thereof in violation
of the Securities Act, or any applicable state securities laws, and the
Stock will not be disposed of in contravention of the Securities Act or
any applicable state securities laws;
(b) Investor is able to bear the economic risk of his
investment in the Stock for an indefinite period of time because the
Stock has not been registered under the Securities Act and, therefore,
cannot be sold unless subsequently registered under the Securities Act
or an exemption from such registration is available;
(c) Investor has received a copy of the Investment
Agreement, and has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of the
Stock and has had full access to such other information concerning Brim
as Investor has requested; and
(d) Investor is an executive officer of Brim, is
sophisticated in financial matters and is able to evaluate the risks
and benefits of the investment in the Stock.
<PAGE> 2
4. Investor acknowledges and agrees that:
(a) neither the issuance of the Stock to the undersigned
nor any provision contained herein shall entitle Investor to remain in
the employment of Brim and its Subsidiaries or affect the right of the
Brim to terminate the Investor's employment at any time for any reason;
and
(b) Brim shall have no duty or obligation to disclose to
Investor and Investor shall have no right to be advised of, any
material information regarding Brim and its Subsidiaries at any time
prior to, or in connection with the repurchase of the Stock upon the
termination of Investor's employment with Brim and its Subsidiaries or
as otherwise provided hereunder.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Counterpart
on the date first written above.
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.
By: GTCR IV, L.P., its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.,
Its: General Partner
By: /s/ Bruce V. Rauner
---------------------------------------
Its: Principal
--------------------------------------------
[Investor]
Acknowledged and Agreed to:
BRIM, INC.
By /s/ A. E. Brim
--------------------------
Its President
--------------------------
PRINCIPAL HOSPITAL COMPANY
By /s/ Martin S. Rash
--------------------------
Its Chief Executive Officer
--------------------------
- 3 -
<PAGE> 4
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Name Shares of Preferred Stock Shares of Common Stock
---- ------------------------- ----------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Leeway & Co. 3,752 375,200
- -------------------------------------------------------------------------------------------
First Union Corporation of 48 4,800
Virginia
- -------------------------------------------------------------------------------------------
Martin S. Rash 103 10,300
- -------------------------------------------------------------------------------------------
Richard D. Gore 192 192,000
- -------------------------------------------------------------------------------------------
AmSouth Bancorporation 48 48,000
- -------------------------------------------------------------------------------------------
</TABLE>
- 4 -
<PAGE> 1
Exhibit 10.7
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of December 17, 1996 by and among Brim, Inc., an
Oregon corporation (the "Company"), Golder, Thoma, Cressey, Rauner Fund IV,
L.P., a Delaware limited partnership ("GTCR"), Leeway & Co., a Massachusetts
general partnership ("Leeway"), First Union Corporation of Virginia, a Virginia
corporation ("First Union"), AmSouth Bancorporation, a Delaware corporation
("AmSouth"), Martin S. Rash ("Rash"), Richard D. Gore ("Gore"), Principal
Hospital Company, a Delaware corporation (formerly known as Rural Hospital
Corporation) ("Principal") for the limited purpose specified in Section 25
hereof, and the individuals listed on Schedule I hereto (the "Carryover
Stockholders"). Rash and Gore are referred to herein collectively as the
"Executives" and individually as an "Executive." GTCR, Leeway, First Union,
AmSouth, the Executives and the Carryover Stockholders are referred to herein
collectively as the "Stockholders" and individually as a "Stockholder."
Capitalized terms used but not otherwise defined herein are defined in Section
19 hereof.
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purposes, among others, of (i) establishing the composition of
the Company's board of directors (the "Board"), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which the Stockholder Shares may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Board of Directors.
(a) From and after the date hereof, each Stockholder shall vote all of his
or its Stockholder Shares and any other voting securities of the Company over
which such Stockholder has voting control and shall take all other necessary or
desirable actions within his or its control (whether in his or its capacity as a
stockholder, director, member of a board committee or officer of the Company or
otherwise, and including, without limitation, attendance at meetings in person
or by proxy for purposes of obtaining a quorum and execution of written consents
in lieu of meetings), and the Company shall take all necessary and desirable
actions within its control (including, without limitation, calling special board
and stockholder meetings), so that:
(i) the authorized number of directors on the Board shall be
established at the number determined by GTCR, provided that such authorized
number shall be no fewer than four directors, and shall initially be five
directors;
(ii) the following persons shall be elected to the Board:
(A) two representatives designated by GTCR (the "GTCR
Directors"), who shall initially be Bruce V. Rauner and Joseph P.
Nolan;
<PAGE> 2
(B) one member of the Company's management (the "Executive
Director"), who shall be Rash for so long as he remains employed with
the Company or its Subsidiaries;
(C) one representative designated by Leeway (the "Leeway
Director") who shall initially be Lawrence M. Unrein;
(D) for a period of 3 years from the date hereof, or until his
earlier resignation, A.E. Brim; and
(E) if the size of the Board shall be set by GTCR at greater than
four directors, and except as otherwise provided in paragraph (D)
above, additional representatives shall be chosen jointly by GTCR and
Rash (the "Additional Directors"); provided that if GTCR and Rash are
unable to agree on the Additional Directors within ten days after the
date specified by GTCR for electing the Additional Directors, GTCR, in
its sole discretion, shall designate the Additional Directors;
(iii) the authorized number of directors on the board of directors of
each of the Company's Subsidiaries (each a "Sub Board") shall be
established at three directors, which directors shall designated by the
Board;
(iv) the removal from the Board (with or without cause) of any GTCR
Director, Leeway Director or Executive Director shall be only upon the
written request of the Person or Persons originally entitled to designate
such director pursuant to subsection 1(a)(ii) above, and the removal from
the Board of any Additional Director shall be only upon the written request
of GTCR; provided that if any Executive Director ceases to be an employee
of the Company and its subsidiaries, he shall be removed as a director
promptly after his employment ceases on a date specified by GTCR; and
(v) in the event that any representative designated hereunder for any
reason ceases to serve as a member of the Board or a Sub Board during his
term of office, the resulting vacancy on the Board or the Sub Board shall
be filled by a representative designated by the Person or Persons
originally entitled to designate such director pursuant to subsection
1(a)(ii) above.
(b) There shall be at least four meetings of the Board during every fiscal
year, at least one of which shall be held in each 120-day period during the
Company's fiscal year. The Company shall pay all out-of-pocket expenses incurred
by each director in connection with attending regular and special meetings of
the Board, any Sub Board and any committee thereof.
(c) If any party fails to designate a representative to fill a directorship
pursuant to the terms of this Section 1, the election of a person to such
directorship shall be accomplished in accordance with the Company's bylaws and
applicable law.
<PAGE> 3
2. Irrevocable Proxy; Conflicting Agreements.
(a) In order to secure each Stockholder's obligation to vote all of his or
its Stockholder Shares and other voting securities of the Company in accordance
with the provisions of Section 1 hereof, each Stockholder hereby appoints Bruce
V. Rauner and, in his absence, Joseph P. Nolan, as his or its true and lawful
proxy and attorney-in-fact, with full power of substitution, to vote all of his
or its Stockholder Shares and other voting securities of the Company for the
election and/or removal of directors and all such other matters as expressly
provided for in Section 1. Bruce V. Rauner and, in his absence, Joseph P. Nolan
may exercise the irrevocable proxy granted to him hereunder at any time any
Stockholder fails to comply with the provisions of this Agreement. The proxies
and powers granted by each Stockholder pursuant to this Section 2 are coupled
with an interest and are given to secure the performance of each Stockholder's
obligations to GTCR under this Agreement. Such proxies and powers will be
irrevocable and will survive the death, incompetency and disability of each
Stockholder and the respective holders of their Stockholder Shares.
(b) Each Stockholder represents that he or it has not granted and is not a
party to any proxy, voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement, and no holder of Stockholder
Shares shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with or conflicts with the provisions of this
Agreement.
3. First Refusal Rights.
(a) Prior to any sale, transfer, assignment, pledge or other disposal (a
"Transfer") of any Stockholder Shares by any of the Carryover Stockholders
(other than pursuant to (i) the provisions of Section 4 hereof, (ii) a Public
Sale or a Sale of the Company or (iii) a Permitted Transfer; provided that the
restrictions contained in this Section 3 shall continue to be applicable to
Stockholder Shares after a Permitted Transfer, and the transferees of such
Stockholder Shares shall agree in writing to be bound by the provisions of this
Agreement), such Stockholder shall deliver a written notice (the "Sale Notice")
to the Company, GTCR and Leeway, disclosing in reasonable detail the identity of
the prospective transferee(s), the number of shares to be transferred and the
terms and conditions of the proposed transfer. The Company may elect to purchase
all (but not less than all) of the Stockholder Shares to be transferred upon the
same terms and conditions as those set forth in the Sale Notice by delivering a
written notice of such election to the transferring Stockholder and GTCR within
30 days after the Sale Notice has been given to the Company. If the Company has
not elected to purchase all of the Stockholder Shares to be transferred, GTCR
may elect to purchase all (but not less than all) of the Stockholder Shares to
be transferred upon the same terms and conditions as those set forth in the Sale
Notice by giving written notice of such election to the transferring Stockholder
within 45 days after the Sale Notice has been given to GTCR. If neither the
Company nor GTCR elect to purchase all of the Stockholder Shares specified in
the Sale Notice, the transferring Stockholder may transfer the Stockholder
Shares specified in the Sale Notice, subject to the provisions of paragraph 3(b)
below, at a price and on terms no more favorable to the transferee(s) thereof
than specified in the Sale Notice during the 90-day period immediately following
the date on which the Sale Notice has been given to the Company and GTCR. Any
Stockholder Shares not transferred within such 90-day period will be subject to
the provisions of this paragraph 3(a) upon subsequent transfer.
<PAGE> 4
(b) In the event neither the Company nor GTCR has elected to purchase all
of the Stockholder Shares specified in a Sale Notice delivered pursuant to
paragraph 3(a) above, GTCR and Leeway may elect to participate in the
contemplated Transfer by delivering written notice to the transferring
Stockholder and the Company within 50 days after receipt by GTCR and Leeway of
the Sale Notice. If GTCR and Leeway have elected to participate in such sale,
the transferring Stockholder, GTCR and Leeway will be entitled to sell in the
contemplated sale, at the same price and on the same terms, a number of shares
of the Company's Common Stock equal to the product of (i) the quotient
determined by dividing the percentage of the Company's Common Stock (on a fully
diluted basis) held by GTCR or Leeway, as the case may be, by the aggregate
percentage of the Company's Common Stock (on a fully diluted basis) owned by the
transferring Stockholder and GTCR or Leeway, as the case may be and (ii) the
number of shares of Common Stock to be sold in the contemplated sale. Any
purchaser in a sale subject to this paragraph 3(b) will be required to purchase
from GTCR and Leeway, at the election of GTCR or Leeway, as the case may be, a
portion of the Junior Preferred held by GTCR or Leeway, as the case may be,
equal to the greater of the percentage of (x) the Common Stock held by GTCR
and/or Leeway, as the case may be, being sold in such transaction and (y) the
Junior Preferred being sold by the selling Stockholder in such transaction.
For example, if:
(i) the Sale Notice delivered by a Carryover Stockholder contemplated
a sale of 100 shares of Common Stock and no Junior Preferred;
(ii) such Carryover Stockholder was at such time the owner of 120
shares of Common Stock (which was equal to 30% of the Common Stock on a
fully diluted basis);
(iii) GTCR elected to participate and owned 80 shares of Common Stock
(which was equal to 20% of the Common Stock on a fully diluted basis) and
250 shares of Junior Preferred; and
(iv) Leeway elected to participate and owned 40 shares of Common Stock
(which was equal to 10% of the Common Stock on a fully diluted basis) and
125 shares of Junior Preferred;
then
(A) the Carryover Stockholder would be entitled to sell 50 shares of
Common Stock (30% / 60% x 100 shares);
(B) GTCR would be entitled to sell 33 shares of Common Stock (20% /
60% x 100 shares); and
(C) Leeway would be entitled to sell 17 shares of Common Stock (10% /
60% of 100 shares).
The Carryover Stockholders will each use their best efforts to obtain the
agreement of the prospective transferee(s) to the participation of GTCR and
Leeway in the contemplated Transfer and will not transfer any Stockholder Shares
to the prospective transferee(s) if such transferee(s) refuses
<PAGE> 5
to allow the participation of GTCR or Leeway. The aggregate transaction fees and
expenses incurred in connection with any such transfer shall be borne on a pro
rata basis by each Person participating in such transfer.
4. Repurchase Option.
(a) In the event any Carryover Stockholder who, as of the date hereof, is
an employee of the Company or its Subsidiaries ceases to be employed by the
Company and its Subsidiaries for any reason (the "Termination"), the Stockholder
Shares held by such Carryover Stockholder or his transferees (other than the
Company or a transferee who acquired such shares pursuant to a Permitted
Transfer) will be subject to repurchase by the Company and GTCR pursuant to the
terms and conditions set forth in this Section 4 (the "Repurchase Option").
(b) In the event of Termination, the purchase price for each Stockholder
Share will be the fair market value for such share at the time of such
Termination (as determined by the Board in its good faith judgment, taking into
consideration future liquidity events which are under active discussion by the
Board) (the "Fair Market Value"). During the twelve-month period following the
date hereof, the Fair Market Value shall not be set below the purchase price
paid by such Carryover Stockholder for such Stockholder Shares. In no event
shall the Fair Market Value of the Common Stock be set below the quotient of (x)
the difference between (i) the product of (a) five and (b) the consolidated
earnings of the Company from continuing operations before interest expense,
taxes, depreciation and amortization and (ii) the sum of (A) Indebtedness and
(B) the aggregate liquidation value of preferred stock outstanding plus accrued
and unpaid dividends thereon divided by (y) the number of shares of Common Stock
outstanding on a fully diluted basis. Such calculation shall be made in
accordance with generally accepted accounting principles, consistently applied.
The Board shall use its reasonable best efforts to set the fair market value on
an annual basis; provided that, such fair market value shall not be deemed
conclusive of the fair value at any time or in any other circumstances than on
the date so set. In addition, the Board shall determine the Fair Market Value as
soon as reasonably practicable following the occurrence of an event of
Termination.
(c) The Board may elect to purchase all or any portion of such Stockholder
Shares by delivering written notice (the "Repurchase Notice") to the holder or
holders thereof within 90 days after the Termination. The Repurchase Notice will
set forth the number of Stockholder Shares to be acquired from each holder, the
aggregate consideration to be paid for such shares and the time and place for
the closing of the transaction. The number of shares to be repurchased by the
Company shall first be satisfied to the extent possible from the Stockholder
Shares held by the Carryover Stockholder at the time of delivery of the
Repurchase Notice. If the number of Stockholder Shares then held by the
Carryover Stockholder is less than the total number of Stockholder Shares which
the Company has elected to purchase, the Company shall purchase the remaining
shares elected to be purchased from the other holder(s) of such Stockholder
Shares, pro rata according to the number of Stockholder Shares held by such
other holder(s) at the time of delivery of such Repurchase Notice (determined as
nearly as practicable to the nearest share).
(d) If for any reason the Company does not elect to purchase all of the
Stockholder Shares pursuant to the Repurchase Option, GTCR shall be entitled to
exercise the Repurchase Option for the Stockholder Shares the Company has not
elected to purchase (the "Available Shares"). As soon as practicable after the
Company has determined that there will be Available
<PAGE> 6
Shares, but in any event within 90 days after the Termination, the Company shall
give written notice (the "Option Notice") to GTCR setting forth the number of
Available Shares and the purchase price for the Available Shares. GTCR may elect
to purchase any or all of the Available Shares by giving written notice to the
Company within one month after the Option Notice has been given by the Company.
As soon as practicable, and in any event within ten days, after the expiration
of the one-month period set forth above, the Company shall notify each holder of
such Stockholder Shares as to the number of shares being purchased from such
holder by GTCR (the "Supplemental Repurchase Notice"). At the time the Company
delivers the Supplemental Repurchase Notice to the holder(s) of such Stockholder
Shares, the Company shall also deliver written notice to GTCR setting forth the
number of shares GTCR is entitled to purchase, the aggregate purchase price and
the time and place of the closing of the transaction.
(e) The closing of the purchase of Stockholder Shares pursuant to the
Repurchase Option shall take place on the date designated by the Company in the
Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than one month nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or GTCR will pay for the
Stockholder Shares to be purchased pursuant to the Repurchase Option by delivery
of a check or wire transfer of funds in the aggregate amount of the purchase
price for such shares. The Company and GTCR will be entitled to receive
customary representations and warranties from the sellers regarding such sale
and to require all sellers' signatures be guaranteed.
(f) Notwithstanding anything to the contrary contained in this Agreement,
all repurchases of Stockholder Shares by the Company shall be subject to
applicable restrictions contained in the Delaware General Corporation Law and in
the Company's and its Subsidiaries' debt and equity financing agreements. If any
such restrictions prohibit the repurchase of Stockholder Shares hereunder which
the Company is otherwise entitled or required to make, the Company may make such
repurchases as soon as it is permitted to do so under such restrictions.
5. Sale of the Company.
(a) If the Board and the holders of a majority of the shares of Common
Stock approve a Sale of the Company (an "Approved Sale"), each holder of
Stockholder Shares shall vote for, consent to and raise no objections against
such Approved Sale. If the Approved Sale is structured as a (i) merger or
consolidation, each holder of Stockholder Shares shall waive any dissenters'
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Stockholder Shares shall
agree to sell all of his Stockholder Shares and rights to acquire Stockholder
Shares on the terms and conditions approved by the Board and the holders of a
majority of the Stockholder Shares; provided, however, that Leeway, First Union
and AmSouth shall not be required to participate in an Approved Sale if such
participation would violate any provision of ERISA or in which Leeway's, First
Union's or AmSouth's share of any indemnification obligations could reasonably
be expected to exceed its share of the net proceeds of such transaction; and
further provided, that Leeway shall not be required to participate in an
Approved Sale if such participation would require it to make representations
other than with respect to its title to the Stockholder Shares it is selling and
authority to enter into such transaction, it being understood that
notwithstanding any other provision of this Agreement, the right of Leeway to
not participate in such a transaction because Leeway would be required to make
such representations is not transferrable to any other holder of Leeway Shares.
Each holder of Stockholder Shares shall
<PAGE> 7
take all necessary or desirable actions in connection with the consummation of
the Approved Sale as requested by the Company.
(b) The obligations of the holders of Stockholder Shares with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) if any holders of a class of Stockholder Shares are
given an option as to the form and amount of consideration to be received, each
holder of such class of Stockholder Shares shall be given the same option; and
(ii) each holder of then currently exercisable rights to acquire shares of a
class of Stockholder Shares shall be given an opportunity to either (A) exercise
such rights prior to the consummation of the Approved Sale and participate in
such sale as holders of such class of Stockholder Shares or (B) upon the
consummation of the Approved Sale, receive in exchange for such rights
consideration equal to the amount determined by multiplying (1) the same amount
of consideration per share of a class of Stockholder Shares received by holders
of such class of Stockholder Shares in connection with the Approved Sale less
the exercise price per share of such class of Stockholder Shares of such rights
to acquire such class of Stockholder Shares by (2) the number of shares of such
class of Stockholder Shares represented by such rights.
6. Additional GTCR Investments.
(a) GTCR shall have the right, at its sole discretion, to provide from time
to time until the second anniversary of the date of this Agreement up to an
aggregate of $3,000,000 (the "Initial GTCR Commitment") in equity financing to
the Company. In addition, following the investment of the Initial GTCR
Commitment, GTCR shall have the right, at its sole discretion, to provide from
time to time until the second anniversary of the date of this Agreement up to an
aggregate of $3,006,300 (the "Additional GTCR Commitment") in equity financing
to the Company.
(b) With respect to the Initial GTCR Commitment, GTCR may, from time to
time until the second anniversary of the date of this Agreement, at its sole
discretion, purchase up to an additional 2,733 shares of Junior Preferred at a
price of $1,000 per share and up to an additional 273,300 shares of Common Stock
at a price of $1 per share (each as adjusted from time to time as a result of
stock dividends, stock splits, recapitalization and similar events), and may,
with respect to the Additional GTCR Commitment, from time to time until the
second anniversary of the date of this Agreement, at its sole discretion
following investment of the Initial GTCR Commitment, purchase up to an
additional 4,545 shares of Junior Preferred at a price of $1,000 per share and
up to an additional 454,500 shares of Common Stock at a price of $1 per share.
(c) Each purchase of securities made by GTCR pursuant to this Section 6
shall be made pro rata, with GTCR purchasing 100 shares of Common Stock for each
share of Junior Preferred it purchases.
(d) Upon the purchase from time to time until the second anniversary of the
date of this Agreement by GTCR of up to an additional 2,733 shares of Junior
Preferred and 273,317 shares of Common Stock with respect to the Initial GTCR
Commitment pursuant to this Section 6, each of the Persons listed below shall
purchase, and the Company shall sell to each such Person, up to the number of
shares of Junior Preferred and Common Stock set forth for such Person below:
<PAGE> 8
<TABLE>
<CAPTION>
Aggregate Maximum Additional
Purchases
----------------------------------------
(A) (B) (C)
Shares of Shares of
Stockholder Junior Preferred Common Stock
----------- ---------------- ------------
<S> <C> <C>
Leeway 794 79,400
Rash 64 43,700
Gore 119 30,300
First Union 22.5 2,250
AmSouth 22.5 2,250
</TABLE>
The number of shares of Junior Preferred and Common Stock to be sold by the
Company and purchased by a Stockholder pursuant to this Section 6(d) at any time
shall equal (i) the number set forth in column (B) (in the case of the Junior
Preferred) and (C) (in the case of the Common Stock) for such Stockholder
multiplied by (ii) a fraction (A) the numerator of which will be the number of
shares of Junior Preferred to be concurrently purchased by GTCR and (B) the
denominator of which will be 2,733. All shares of Common Stock purchased by the
Executives pursuant to this Section 6 shall constitute "Vesting Shares" under
such Executive's Senior Management Agreement.
(e) Upon the purchase from time to time until the second anniversary of the
date of this Agreement by GTCR of up to an additional 4,545 shares of Junior
Preferred and 454,500 shares of Common Stock with respect to the Additional GTCR
Commitment pursuant to this Section 6, Leeway may from time to time until the
second anniversary of the date of this Agreement, at its option, purchase, and
the Company shall sell to Leeway, up to the number of shares of Senior
Preferred, Junior Preferred, Common Stock and Warrants set forth below:
<TABLE>
<CAPTION>
Aggregate Maximum Additional Purchases
-----------------------------------------------------------------------
(A) (B) (C) (D)
Warrants to
Shares of Shares of Shares of Purchase
Senior Junior Common Common
Preferred Preferred Stock Stock
--------- --------- --------- ----------
<S> <C> <C> <C>
4,000 909 90,909 26,138
</TABLE>
In the event Leeway has elected to purchase securities pursuant to this Section
6(e), the number of shares of Senior Preferred, Junior Preferred, Common Stock
and the number of Warrants to be sold by the Company and purchased by Leeway at
any time shall equal (i) the number set forth in column (A) (in the case of
Senior Preferred), (B) (in the case of Junior Preferred), (C) (in the case of
Common Stock) and (D) (in the case of Warrants) multiplied by (ii) a fraction
(A) the numerator of which will be the number of shares of Junior Preferred to
be concurrently purchased by GTCR and
<PAGE> 9
(B) the denominator of which will be 4,545. In the event Leeway elects not to
purchase securities pursuant to this Section 6(e), no additional warrants will
be issued to Leeway with respect to the additional securities purchased by GTCR
pursuant to this Section 6, nor will any adjustment be made in the number of
shares of Common Stock issuable with respect to such warrant or the warrant
price thereof with respect to the additional securities purchased by GTCR
pursuant to this Section 6.
(f) The Company will deliver to each of the Stockholders purchasing
securities pursuant to this Section 6 the certificates representing such
securities, and each of such Stockholders will deliver to the Company a
cashier's or certified check or a wire transfer of funds in the aggregate amount
of the sum of (i) $1,000 multiplied by the number of shares of Senior Preferred
purchased by such Stockholder, plus (ii) $1,000 multiplied by the number of
shares of Junior Preferred purchased by such Stockholder, plus (iii) $1
multiplied by the number of shares of Common Stock purchased by such
Stockholder.
(g) At the time of any purchase of equity securities by a Stockholder
pursuant to this Section 6, such Stockholder shall be entitled to receive, and
the Company shall be obligated to deliver, satisfactory representations and
warranties similar to those contained in Section 5 of the Purchase Agreement,
dated as of February 1, 1996, between GTCR and Principal Hospital Company (the
"Original GTCR Purchase Agreement"), as modified to reflect changes occurring in
the ordinary course of business, and all other information and documentation as
such Stockholder may reasonably request.
(h) As an inducement to the Company to issue securities to the Executives,
and as a condition thereto, each Executive acknowledges that:
(i) neither the issuance of securities pursuant to this Section 6 to
Executive nor any provision contained in this Agreement shall entitle
Executive to remain in the employment of the Company or any of its
Subsidiaries, or affect the right of the Company to terminate Executive's
employment at any time for any reason; and
(ii) the Company shall have no duty or obligation to disclose to
Executive, and Executive shall have no right to be advised of, any material
information regarding the Company and its Subsidiaries at any time prior
to, upon or in connection with the repurchase of Stockholder Shares upon
the termination of Executive's employment with the Company and its
Subsidiaries or as otherwise provided in this Agreement or Executive's
Senior Management Agreement, of even date herewith, between Executive and
the Company.
7. Preemptive Rights.
(a) Except for issuances of Stock or options (i) to the Executives pursuant
to the Senior Management Agreements, (ii) in connection with the Merger, (iii)
pursuant to a Public Offering, (iv) pursuant to the Investment Agreement or any
Investment Agreement Counterpart, (v) pursuant to Section 6 of this Agreement,
(vi) pursuant to the Option Plan or (vii) to Leeway pursuant to the Leeway
Securities Purchase Agreement or the Leeway Warrant, if the Company authorizes
the issuance or sale of any shares of Stock or any securities containing options
or rights to acquire any shares of Stock (other than as a dividend on the
outstanding Stock), the Company shall first offer to sell to GTCR, Leeway and
each Major Carryover Stockholder, a portion of such stock or
<PAGE> 10
securities equal to the percentage of the Company's underlying common equity
(calculated on a fully diluted basis) held by such holder. Each such holder
shall be entitled to purchase such stock or securities at the most favorable
price and on the most favorable terms as such stock or securities are to be
offered to any other Persons; provided that if all Persons entitled to purchase
or receive such stock or securities are required to also purchase other
securities of the Company, the holders of Stockholder Shares exercising their
rights pursuant to this Section shall also be required to purchase the same
strip of securities (on the same terms and conditions) that such other Persons
are required to purchase.
(b) In order to exercise its purchase rights hereunder, a holder of
Stockholder Shares must within 15 days after receipt of written notice from the
Company describing in reasonable detail the stock or securities being offered,
the purchase price thereof, the payment terms and such holder's percentage
allotment deliver a written notice to the Company describing its election
hereunder. If all of the stock and securities offered to GTCR, Leeway and the
Major Carryover Stockholders is not fully subscribed by such holders, the
remaining stock and securities shall be reoffered by the Company to the other
holders purchasing their full allotment upon the terms set forth in this
Section, except that such holders must exercise their purchase rights within
five days after receipt of such reoffer.
(c) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such stock or securities which GTCR, Leeway
and the Major Carryover Stockholders have not elected to purchase during the 90
days following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 90-day period must be reoffered to
GTCR, Leeway and the Major Carryover Stockholders pursuant to the terms of this
Section.
(d) Nothing contained in this Section shall be deemed to amend, modify or
limit in any way the restrictions on the issuance of shares of Stock set forth
in Section 11 hereof or elsewhere in this Agreement or in any other agreement to
which the Company is bound.
8. Participation Rights Applicable to Transfers by GTCR. At least 30 days
prior to any transfer of Stockholder Shares owned by GTCR (other than pursuant
to a Sale of the Company) (a "GTCR Transfer"), GTCR shall deliver a written
notice (the "GTCR Sale Notice") to the Company and Leeway specifying in
reasonable detail the identity of the prospective transferee(s), the number of
Stockholder Shares to be transferred and the terms and conditions of the GTCR
Transfer. Leeway may elect to participate in the contemplated GTCR Transfer at
the same price per share and on the same terms by delivering written notice to
GTCR within 30 days after delivery of the GTCR Sale Notice. If Leeway has
elected to participate in such GTCR Transfer, GTCR and such holder shall be
entitled to sell in the contemplated GTCR Transfer, at the same price and on the
same terms, a number of Stockholder Shares equal to the product of (i) the
quotient determined by dividing the percentage of Stockholder Shares owned by
such Person by the aggregate percentage of Stockholder Shares owned by GTCR and
such holder participating in such sale and (ii) the number of Stockholder Shares
to be sold in the contemplated GTCR Transfer.
For example, if the GTCR Sale Notice contemplated a sale of 100
Stockholder Shares by GTCR, and if GTCR owns 30% of all Stockholder
Shares and if Leeway elects to participate and owns 20% of all
Stockholder Shares, GTCR would be entitled to sell 60 shares (30 /
<PAGE> 11
50% x 100 shares) and Leeway would be entitled to sell 40 shares (20% /
50% x 100 shares).
GTCR will use its best efforts to obtain the agreement of the prospective
transferee(s) to the participation of Leeway in the contemplated GTCR Transfer
and will not transfer any Stockholder Shares to the prospective transferee(s) if
such transferee(s) refuses to allow the participation of Leeway. The aggregate
transaction fees and expenses incurred in connection with any such transfer
shall be borne on a pro rata basis by each Person participating in such
transfer.
9. Financial Statements and Other Information. The Company shall deliver to
each of GTCR, First Union, AmSouth and Leeway (so long as such Person holds any
Stock) and to each holder of at least 25% of the outstanding Senior Preferred,
each holder of at least 25% of the outstanding Junior Preferred and each holder
of at least 25% of the outstanding Common Stock:
(a) as soon as available but in any event within 45 days after the end of
each quarterly accounting period in each fiscal year, unaudited consolidated
statements of income and cash flows of the Company and its Subsidiaries for such
quarterly period and for the period from the beginning of the fiscal year to the
end of such quarter, and unaudited consolidating and consolidated balance sheets
of the Company and its Subsidiaries as of the end of such quarterly period, all
prepared in accordance with generally accepted accounting principles,
consistently applied, subject to the absence of footnote disclosures and to
normal year-end adjustments;
(b) accompanying the financial statements referred to in subsection (a), an
Officer's Certificate stating that neither the Company nor any of its
Subsidiaries is in default under any of its material agreements or, if any such
default exists, specifying the nature and period of existence thereof and what
actions the Company and its Subsidiaries have taken and propose to take with
respect thereto;
(c) within 120 days after the end of the 1996 fiscal year, and 100 days
after the end of each fiscal year thereafter, consolidated statements of income
and cash flows of the Company and its Subsidiaries for such fiscal year, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and accompanied
by (a) with respect to the consolidated portions of such statements, an opinion
containing no exceptions or qualifications (except for qualifications regarding
specified contingent liabilities) of an independent "Big Six" accounting firm
and (b) a copy of such firm's annual management letter to the Board;
(d) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) within sixty days after the end of the 1996 fiscal year, and 30 days
after the end of each fiscal year thereafter, an annual budget prepared on a
monthly basis for the Company and its Subsidiaries for such fiscal year
displaying anticipated statements of income and cash flows, and promptly upon
preparation thereof any other significant budgets prepared by the Company and
any revisions of such annual or other budgets, and within 30 days after any
monthly period in which
<PAGE> 12
there is a material adverse deviation from the annual budget, an Officer's
Certificate explaining the deviation and what actions the Company has taken and
proposes to take with respect thereto;
(f) promptly (but in any event within five business days) after the
discovery or receipt of notice of any default under any material agreement to
which it or any of its Subsidiaries is a party, or any other event or
circumstance affecting the Company or any Subsidiary which is reasonably likely
to have a material adverse effect on the financial condition, operating results,
assets, operations or business prospects of the Company or any Subsidiary
(including the filing of any material litigation against the Company or any
Subsidiary or the existence of any material dispute with any Person which
involves a reasonable likelihood of such litigation being commenced), an
Officer's Certificate specifying the nature and period of existence thereof and
what actions the Company and its Subsidiaries have taken and propose to take
with respect thereto; and
(g) with reasonable promptness, such other information and financial data
concerning the Company and its Subsidiaries as any Person entitled to receive
information under this Section 9 may reasonably request.
Each of the financial statements referred to in subsection (a) and (c) shall
present fairly in all material respects the financial condition and results of
operations of the entities covered thereby as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would, alone
or in the aggregate, be materially adverse to the financial condition, operating
results, assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole).
10. Inspection of Property. The Company shall permit any representatives
designated by any of GTCR, First Union, AmSouth or Leeway (so long as such
Person holds at least 10% of the Stockholder Shares owned by such Person on the
date hereof or issued to such Person with respect to Stockholder Shares so
owned) or by any holder of at least 25% of the outstanding Senior Preferred or
any holder of at least 25% of the outstanding Junior Preferred or any holder of
at least 25% of the outstanding Common Stock upon reasonable notice and during
normal business hours and at such other times as any such holder may reasonably
request, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries; provided that the Company shall have the right to have its
chief financial officer present at any meetings with the Company's independent
accountants. Each person entitled to receive information regarding the Company
and its subsidiaries under Section 9 or this Section 10 shall use his or its
best efforts to maintain the confidentiality of all such information to the
extent such information is not generally available to the public.
11. Restrictions. The Company shall not, without the prior written consent
of the holders of a majority of the outstanding GTCR Preferred (or, in the event
no GTCR Preferred is outstanding, without the prior written consent of the
holders of a majority of the outstanding GTCR Common):
<PAGE> 13
(a) directly or indirectly declare or pay any dividends or make any
distributions upon any of its equity securities, other than payments of
dividends on, or redemption payments in respect of, the Junior Preferred or the
Senior Preferred pursuant to the Certificate of Incorporation;
(b) except pursuant to this Agreement, the Senior Management Agreements,
the Articles, the Leeway Securities Purchase Agreement or the Leeway Warrant,
directly or indirectly redeem, purchase or otherwise acquire, or permit any
Subsidiary to redeem, purchase or otherwise acquire, any of the Company's or any
Subsidiary's equity securities (including, without limitation, warrants, options
and other rights to acquire equity securities);
(c) except in connection with the Merger, merge or consolidate with any
Person or permit any Subsidiary to merge or consolidate with any Person (other
than a wholly owned Subsidiary);
(d) sell, lease or otherwise dispose of, or permit any Subsidiary to sell,
lease or otherwise dispose of, substantially all of the assets of the Company
and its Subsidiaries (on a consolidated basis);
(e) liquidate, dissolve or effect a recapitalization or reorganization in
any form of transaction (including, without limitation, any reorganization into
a limited liability company, a partnership or any other non-corporate entity
which is treated as a partnership for federal income tax purposes);
(f) acquire, or permit any Subsidiary to acquire, any interest in any
business (whether by a purchase of assets, purchase of stock, merger or
otherwise) or enter into any joint venture other than (i) acquisitions and joint
ventures which require a commitment of capital and an assumption of liabilities
aggregating less than $1,000,000 and (ii) joint ventures with physicians not
constituting an acquisition of a practice and requiring a commitment of capital
and an assumption of liabilities aggregating less than $1,000,000;
(g) enter into, or permit any Subsidiary to enter into, the ownership,
active management or operation of any business other than the ownership and
operation of hospitals and other related businesses (including but not limited
to the provision of management services to physicians);
(h) enter into, or permit any Subsidiary to enter into, any transaction
with any of its or any Subsidiary's officers, directors, employees or Affiliates
or with any individual related by blood, marriage or adoption to any such Person
(a "Relative") or with any entity in which any such Person or individual owns a
beneficial interest (a "Related Entity"), except for normal employment
arrangements and benefit programs on reasonable terms and except as otherwise
expressly contemplated by this Agreement, the Senior Management Agreements and
the Professional Services Agreement; provided that in no event shall any
Relative or Related Entity be employed by, render services to or receive
compensation from the Company or any Subsidiary;
(i) create, incur, assume or suffer to exist, or permit any Subsidiary to
create, incur, assume or suffer to exist, any Indebtedness exceeding the amounts
approved therefor by the Board in the annual budget (other than Indebtedness
incurred pursuant to or otherwise permitted by the Credit Agreement); or
<PAGE> 14
(j) make any amendment to the Company's certificate of incorporation, or
the Company's Bylaws which could adversely affect the rights of the holders of
the GTCR Preferred or the Leeway Preferred.
12. Affirmative Covenants. The Company shall, and shall cause each
Subsidiary to comply with the following covenants for so long as GTCR holds at
least 10% of the GTCR Shares (unless it has received the prior written consent
of the holders of a majority of the outstanding GTCR Shares):
(a) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be expected to
have a material adverse effect upon the financial condition, operating results,
assets, operations or business prospects of the Company and its Subsidiaries
taken as a whole, and pay and discharge when payable all taxes, assessments and
governmental charges (except to the extent the same are being contested in good
faith and adequate reserves therefor have been established); and
(b) enter into and maintain nondisclosure and noncompete agreements with
its key employees in form and substance satisfactory to GTCR.
13. Current Public Information. At all times after the Company has filed a
registration statement with the Securities and Exchange Commission pursuant to
the requirements of either the Securities Act or the Securities Exchange Act,
the Company shall file all reports required to be filed by it under the
Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder and shall take such
further action as any holder or holders of Stockholder Shares may reasonably
request, all to the extent required to enable such holders to sell Stockholder
Shares pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission or (ii) a registration statement on Form S-2 or S-3 or any
similar registration form hereafter adopted by the Securities and Exchange
Commission. Upon request, the Company shall deliver to any holder of Stockholder
Shares a written statement as to whether it has complied with such requirements.
14. Amendment of Other Agreements. The Company shall not amend, modify or
waive any provision of any of the Senior Management Agreements or the Leeway
Securities Purchase Agreement without the prior written consent of the holders
of a majority of each of the GTCR Preferred and GTCR Common, and the Company
shall enforce the provisions of the Senior Management Agreements or the Leeway
Securities Purchase Agreement and shall exercise all of its rights and remedies
thereunder (including, without limitation, any repurchase options and first
refusal rights) unless it is otherwise directed by the holders of a majority of
each of the GTCR Preferred and GTCR Common.
15. Public Disclosures. The Company shall not, nor shall it permit any
Subsidiary to, disclose the name or identity as an investor in the Company of
any of GTCR, First Union, AmSouth or Leeway in any press release or other public
announcement or in any document or material filed with any governmental entity,
without the prior written consent of each party to be so named unless such
disclosure is required by applicable law or governmental regulations or by order
<PAGE> 15
of a court of competent jurisdiction, in which case prior to making such
disclosure the Company shall give written notice to each party to be so named
describing in reasonable detail the proposed content of such disclosure and
shall permit each party to be so named to review and comment upon the form and
substance of such disclosure.
16. Unrelated Business Taxable Income. The Company shall not engage in any
transaction which is reasonably likely to cause GTCR or its limited partners
which are exempt from income taxation under Section 501(a) of the IRC and, if
applicable, any pension plan that any such limited partner may be a part of, to
recognize unrelated business taxable income as defined in Section 512 and
Section 514 of the IRC.
17. Hart-Scott-Rodino Compliance. In connection with any transaction in
which the Company is involved which is required to be reported under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to
time (the "HSR Act"), the Company shall prepare and file all documents with the
Federal Trade Commission and the United States Department of Justice which may
be required to comply with the HSR Act, and shall promptly furnish all materials
thereafter requested by any of the regulatory agencies having jurisdiction over
such filings, in connection with the transactions contemplated thereby. The
Company shall take all reasonable actions and shall file and use reasonable best
efforts to have declared effective or approved all documents and notifications
with any governmental or regulatory bodies, as may be necessary or may
reasonably be requested under federal antitrust laws for the consummation of the
subject transaction.
18. Securities Law Restrictions on Transfer of Stockholder Shares.
(a) General Provisions. Stockholder Shares are transferable only pursuant
to (i) public offerings registered under the Securities Act, (ii) Rule 144 or
Rule 144A of the Securities and Exchange Commission (or any similar rule or
rules then in force) if such rule or rules are available and (iii) subject to
the conditions specified in Section 18(b) below, any other legally available
means of transfer.
(b) Opinion Delivery. In connection with the transfer of any Stockholder
Shares (other than a transfer described in clauses (i) or (ii) of Section 18(a)
above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of Kirkland & Ellis, Ropes & Gray or other counsel which (to the
Company's reasonable satisfaction) is knowledgeable in securities law matters to
the effect that such transfer of Stockholder Shares may be effected without
registration of such Stockholder Shares under the Securities Act. In addition,
if the holder of the Stockholder Shares delivers to the Company an opinion of
Kirkland & Ellis, Ropes & Gray or such other counsel that no subsequent transfer
of such Stockholder Shares shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Stockholder Shares which do not bear the Securities Act
portion of the legend set forth in Section 18(d). If the Company is not required
to deliver new certificates for such Stockholder Shares not bearing such legend,
the holder thereof shall not transfer the same until the prospective transferee
has confirmed to the Company in writing its agreement to be bound by the
conditions contained in this Section.
(c) Rule 144A. Upon the request of any Stockholder, the Company shall
promptly supply to such Person or its prospective transferees all information
regarding the Company
<PAGE> 16
required to be delivered in connection with a transfer pursuant to Rule 144A of
the Securities and Exchange Commission.
(d) Legend. Each certificate or instrument representing Stockholder Shares
shall be imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON DECEMBER 17, 1996, AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
CONDITIONS SPECIFIED IN THE STOCKHOLDERS AGREEMENT, DATED AS
OF DECEMBER 17, 1996, AND AS AMENDED AND MODIFIED FROM TIME TO
TIME, BETWEEN THE ISSUER (THE "COMPANY") AND CERTAIN
INVESTORS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE
TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH
STOCKHOLDERS AGREEMENT SHALL BE FURNISHED BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
19. Definitions.
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise, and if such Person is a partnership,
"Affiliate" shall also mean each general partner and limited partner of such
Person.
"Articles" means the Company's Articles of Incorporation, as from time to
time amended or modified, including any Certificates of Designation, whether
filed in such form or as an amendment to the Articles of Incorporation.
"Common Stock" means the Company's Common Stock, no par value.
"Credit Agreement" means the Credit Agreement dated as of the date hereof
among the Company, First Union National Bank of North Carolina and the lenders
party thereto, as amended, modified and supplemented from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Family Group" of an individual means such individual's spouse and
descendants (whether natural or adopted) and any trust solely for the benefit of
such individual and/or such individual's spouse and/or descendants.
<PAGE> 17
"GTCR Common" means any and all Common Stock constituting GTCR Shares.
"GTCR Preferred" means any and all Junior Preferred constituting GTCR
Shares.
"GTCR Shares" means (i) any capital stock of the Company purchased or
otherwise acquired by GTCR, (ii) any warrants, options or other rights to
subscribe for or to acquire, directly or indirectly, any capital stock of the
Company, purchased or otherwise acquired by GTCR, whether or not then
exercisable or convertible, and (iii) any stock or other securities which are
convertible into or exchangeable for, directly or indirectly, any capital stock
of the Company, purchased or otherwise acquired by GTCR, whether or not then
convertible or exchangeable, (iv) any securities or rights issued or issuable
directly or indirectly with respect to the securities and rights referred to in
clauses (i), (ii) and (iii) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular GTCR Shares, such shares shall
cease to be GTCR Shares when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them or (b) distributed to the public through a broker, dealer or
market maker pursuant to Rule 144 under the Securities Act (or any similar rule
then in force). References to a majority of the GTCR Shares or a certain
percentage of the GTCR Shares shall be calculated with all holders of GTCR
Shares voting as a single class, with each share of Junior Preferred and Common
Stock which is a GTCR Share being entitled to a number of votes equal to its pro
rata portion of the aggregate number of votes allocable to its class.
"Indebtedness" means all indebtedness for borrowed money (including
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendible at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Investment Agreement" means the Investment Agreement, dated as of November
21, 1996, among the Company, Principal Hospital Company and GTCR, as amended,
modified and supplemented from time to time.
"Investment Agreement Counterpart" means any counterpart to the Investment
Agreement whereby the Person executing such counterpart agrees to be bound by
the terms thereof and to purchase certain securities of Brim as a "designee" of
GTCR.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"Junior Preferred" means the Company's Series B Junior Preferred Stock, no
par value.
"Leeway Preferred" means any and all Junior Preferred and Senior Preferred
constituting Leeway Shares.
"Leeway Securities Purchase Agreement" means the Securities Purchase
Agreement of even date herewith between Leeway and the Company.
<PAGE> 18
"Leeway Shares" means (i) any capital stock of the Company purchased or
otherwise acquired by Leeway, (ii) any warrants, options or other rights to
subscribe for or to acquire, directly or indirectly, any capital stock of the
Company, purchased or otherwise acquired by Leeway, whether or not then
exercisable or convertible, and (iii) any stock or other securities which are
convertible into or exchangeable for, directly or indirectly, any capital stock
of the Company, purchased or otherwise acquired by Leeway, whether or not then
convertible or exchangeable, (iv) any securities or rights issued or issuable
directly or indirectly with respect to the securities and rights referred to in
clauses (i), (ii) and (iii) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Leeway Shares, such shares shall
cease to be Leeway Shares when they have been (a) effectively registered under
the Securities Act and disposed of in accordance with the registration statement
covering them or (b) distributed to the public through a broker, dealer or
market maker pursuant to Rule 144 under the Securities Act (or any similar rule
then in force). References to a majority of the Leeway Shares or a certain
percentage of the Leeway Shares shall be calculated with all holders of Leeway
Shares voting as a single class, with each share of Junior Preferred and Common
Stock which is a Leeway Share being entitled to a number of votes equal to its
pro rata portion of the aggregate number of votes allocable to its class.
"Leeway Warrant" means the Warrant of even date herewith issued by the
Company to Leeway and any Warrant issued to Leeway pursuant to Section 6 hereof.
"Major Carryover Stockholders" means Brim Capital Corporation, CTK Capital
Corporation, SSS Capital Corporation, John Miller and Steve Taylor.
"Merger" means the merger of Principal Merger Company, a Delaware
corporation and wholly owned subsidiary of the Company, with and into Principal
Hospital Company, a Delaware corporation.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that the officer signing such
certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate.
"Option Plan" means an employee stock option plan to be adopted by the
Company, as such plan may be amended, which shall provide for the issuance of
options (to Persons other than Rash and Gore) to purchase not more than 5% of
the outstanding Common Stock of the Company on a fully diluted basis after
giving effect to the closing of the transactions contained in the Investment
Agreement and Section 6 of this Agreement.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Permitted Transfer" means a Transfer (i) in the case of a Stockholder who
is an individual, pursuant to applicable laws of descent and distribution, or
among such individual's Family Group, and (ii) in the case of a Stockholder
which is an entity, among such entity's Affiliates.
<PAGE> 19
"Principal Stockholders Agreement" means the Stockholders Agreement, dated
as of February 1, 1996, as amended by Amendment No. 1 to Stockholders Agreement,
dated as of November 12, 1996 by and between Principal, GTCR, the Executives,
First Union and AmSouth.
"Professional Services Agreement" means the Professional Services Agreement
dated as of the date hereof between the Company and Golder, Thoma, Cressey,
Rauner, Inc., as amended, modified and supplemented from time to time.
"Public Sale" means any sale of Stockholder Shares to the public pursuant
to an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 adopted
under the Securities Act.
"Sale of the Company" means any transaction or series of transactions
pursuant to which any Person(s) other than GTCR or an Affiliate of GTCR in the
aggregate acquire(s) (i) capital stock of the Company possessing the voting
power (other than voting rights accruing only in the event of a default, breach
or event of noncompliance) to elect a majority of the Company's board of
directors (whether by merger, consolidation, reorganization, combination, sale
or transfer of the Company's capital stock, shareholder or voting agreement,
proxy, power of attorney or otherwise) or (ii) all or substantially all of the
Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Senior Management Agreements" means, collectively, the Senior Management
Agreements dated as of the date hereof between the Company and each of Rash and
Gore, as each may be amended, modified and supplemented from time to time.
"Senior Preferred" means the Company's Series A Senior Preferred Stock, no
par value.
"Stock" means, collectively, the Junior Preferred, the Senior Preferred and
the Common Stock.
"Stockholder Shares" means (i) any capital stock of the Company purchased
or otherwise acquired by any Stockholder, (ii) any warrants, options or other
rights to subscribe for or to acquire, directly or indirectly, any capital stock
of the Company, purchased or otherwise acquired by any Stockholder, whether or
not then exercisable or convertible, and (iii) any stock or other securities
which are convertible into or exchangeable for, directly or indirectly, any
capital stock of the Company, purchased or otherwise acquired by any
Stockholder, whether or not then convertible or exchangeable, (iv) any
securities or rights issued or issuable directly or indirectly with respect to
the securities and rights referred to in clauses (i), (ii) and (iii) above by
way of stock dividend or stock split, in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or in
connection with the exercise or conversion of any warrant. As to any particular
shares constituting Stockholder Shares, such shares will cease to be Stockholder
Shares when they have been (a) effectively registered under the Securities Act
and disposed of in accordance with the registration statement covering them or
(b) distributed to the public through a broker, dealer or market maker pursuant
to Rule 144 under the Securities Act (or any similar rule then in force).
References to a majority of the Stockholder Shares or a certain percentage of
the Stockholder Shares shall be calculated with all holders of Stockholder
Shares voting as a single
<PAGE> 20
class, with each share of Junior Preferred, Senior Preferred and Common Stock
which is a Stockholder Share being entitled to a number of votes equal to its
pro rata portion of the aggregate number of votes allocable to its class.
"Subsidiary" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
"Warrant" means any of the warrants to purchase Common Stock issued by the
Company to Leeway pursuant to Section 6 of this Agreement, each having terms and
conditions identical to the Leeway Warrants.
20. Transfers; Transfers in Violation of Agreement. Prior to transferring
any Stockholder Shares to any Person, the transferring Stockholder shall cause
the prospective transferee to execute and deliver to the Company and the other
Stockholders a counterpart of this Agreement. Any transfer or attempted transfer
of any Stockholder Shares in violation of any provision of this Agreement shall
be void, and the Company shall not record such transfer on its books or treat
any purported transferee of such Stockholder Shares as the owner of such shares
for any purpose.
21. Additional Stockholders. In connection with the issuance of any
additional equity securities of the Company to any Person, the Company may
permit such Person to become a party to this Agreement and succeed to all of the
rights and obligations of a "Stockholder" under this Agreement by obtaining an
executed counterpart signature page to this Agreement, and, upon such execution,
such Person shall for all purposes be a "Stockholder" party to this Agreement.
22. Holdback Agreement. Each holder of Stockholder Shares shall not effect
any public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 180-day
period beginning on the effective date of an initial Public Offering, unless the
underwriters managing such initial Public Offering otherwise agree.
23. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company and the holders of at
least 90% of the Stockholder Shares; provided that no modification, amendment or
waiver (i) of any provision of this Agreement which contains rights which are
unique to a single Stockholder or a group of Stockholders or (ii) which has a
pro rata effect on any class of Stock which is different than the pro rata
effect on all other classes of Stock, shall be effective against such
Stockholder or group of Stockholders unless such modification, amendment or
waiver is approved in writing by such Stockholder or group of Stockholders
holding such Stock, as the case may be. The failure of any party to enforce any
of the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
24. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of
<PAGE> 21
this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
25. Termination of Principal Stockholders Agreement. The Principal
Stockholders Agreement will be terminated automatically upon the effectiveness
of this Agreement, and from and after such time, shall be of no further force or
effect.
26. Adjustment of Numbers. All numbers set forth herein which refer to
share prices or amounts will be appropriately adjusted to reflect stock splits,
stock dividends, combinations of shares and other recapitalizations affecting
the subject class of stock.
27. Entire Agreement. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
28. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares. In addition, the rights and
obligations of GTCR under this Agreement and the agreements contemplated hereby
may be assigned by GTCR at any time, in whole or in part, to any investment fund
managed by Golder, Thoma, Cressey, Rauner, Inc., or any successor thereto. The
rights and obligations of GTCR and Leeway under this Agreement and the
agreements contemplated hereby shall inure to the benefit of and be enforceable
by the transferees of each of GTCR and Leeway.
29. Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
30. Remedies. The parties hereto shall be entitled to enforce their rights
under this Agreement specifically to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights existing in
their favor. The parties hereto agree and acknowledge that money damages may not
be an adequate remedy for any breach of the provisions of this Agreement and
that any party hereto may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without posting a bond or other security) in order to enforce or prevent
any violation of the provisions of this Agreement.
31. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to any other recipient at the address
indicated on the schedules hereto and to any subsequent holder of Stockholder
Shares subject to this Agreement at such address as indicated by the Company's
records,
<PAGE> 22
or at such address or to the attention of such other Person as the recipient
party has specified by prior written notice to the sending party. Notices will
be deemed to have been given hereunder when delivered personally, three days
after deposit in the U.S. mail and one day after deposit with a reputable
overnight courier service. The Company's address is:
Brim, Inc.
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
Attention: Martin S. Rash
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Kevin R. Evanich, P.C.
32. Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any choice of law or other conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
33. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
34. Gender. Each gender-specific term used in this Agreement has a
comparable meaning whether used in a masculine, feminine or gender-neutral form.
* * * * *
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
BRIM, INC.
By: /s/ Martin S. Rash
-------------------------------------
Its: Chief Executive Officer
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.
By: GTCR IV, L.P., its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.,
Its: General Partner
By: /s/ Bruce V. Rauner
-------------------------------------
Its: Principal
LEEWAY & CO.
By State Street Bank & Trust Company
Its Partner
By /s/ Edward J. Lavin Jr.
-------------------------------------
Its Vice President
FIRST UNION CORPORATION OF VIRGINIA
By /s/ Joseph H. Towell
-------------------------------------
Its Senior Vice President
AMSOUTH BANCORPORATION
By /s/ Sloan D. Gibson
-------------------------------------
Its Executive Vice President
PRINCIPAL HOSPITAL COMPANY
By /s/ Martin S. Rash
-------------------------------------
Its Chief Executive Officer
<PAGE> 24
BRIM CAPITAL CORPORATION
By /s/ A. E. Brim
-------------------------------------
Its President
SSS CAPITAL CORPORATION
By /s/ K. David McAllister
-------------------------------------
Its President
CTK CAPITAL CORPORATION
By /s/ James M. Williams
-------------------------------------
Its President
/s/ Martin S. Rash
-------------------------------------------
Martin S. Rash
/s/ Richard D. Gore
-------------------------------------------
Richard D. Gore
/s/ Michael Barry
-------------------------------------------
Michael Barry
/s/ Steve Taylor
-------------------------------------------
Steve Taylor
/s/ John Miller
-------------------------------------------
John Miller
/s/ Kathleen Sego
-------------------------------------------
Kathleen Sego
/s/ James McKinney
-------------------------------------------
James McKinney
/s/ Gary Edwards
-------------------------------------------
Gary Edwards
/s/ David Woodland
-------------------------------------------
David Woodland
/s/ Christine Craft
-------------------------------------------
Christine Craft
<PAGE> 25
SCHEDULE I
CARRYOVER STOCKHOLDERS
Michael Barry
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Brim Capital Corporation
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Christine Craft
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
CTK Capital Corporation
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Gary Edwards
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
James McKinney
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
John Miller
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Kathleen Sego
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
<PAGE> 26
SSS Capital Corporation
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Steve Taylor
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
David Woodland
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
<PAGE> 1
Exhibit 10.9
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of December 17, 1996 by and among Brim, Inc., an
Oregon corporation (the "Company"), Principal Hospital Company, a Delaware
corporation ("Principal") for the limited purpose specified in Section 9(k)
hereof, Golder, Thoma, Cressey, Rauner Fund IV, L.P., a Delaware limited
partnership ("GTCR"), Leeway & Co., a Massachusetts general partnership
("Leeway"), First Union Corporation of Virginia, a Virginia corporation ("First
Union"), AmSouth Bancorporation, a Delaware corporation ("AmSouth"), and the
individuals listed on the Schedule of Holders attached hereto (each, an "Other
Holder"). Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in paragraph 8 hereof.
Whereas the Company desires to provide the holders of Registrable
Securities with the registration rights set forth herein, the parties hereto
agree as follows:
1. Demand Registrations.
a. Requests for Registration. At any time after the 180th day after the
closing of the Initial Public Offering, the holders of a majority of the
Registrable Securities (other than the Leeway Registrable Securities) may
request (i) two registrations under the Securities Act of all or part of their
Registrable Securities on Form S-1 or any similar long-form registration (a
"Long-Form Registration") in which the Company will pay all Registration
Expenses (as defined in paragraph 5 below) ("Company-paid Long-Form
Registrations") and (ii) an unlimited number of Long-Form Registrations in which
the holders of Registrable Securities included in such registration shall pay
their share of the Registration Expenses (as defined in paragraph 5 below). At
any time after the 180th day after the closing of the Initial Public Offering,
the holders of a majority of the Leeway Registrable Securities may request (i)
one Company-paid Long-Form Registration and (ii) an unlimited number of
Long-Form Registrations in which the holders of Registrable Securities included
in such registration shall pay their share of the Registration Expenses (as
defined in paragraph 5 below). All registrations requested pursuant to this
paragraph 1(a) and paragraph 1(c) are referred to herein as "Demand
Registrations". Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and shall
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
b. Long-Form Registrations. A registration shall not count as one of the
permitted Long-Form Registrations until it has become effective, and no
Long-Form Registration shall count as one of the permitted Long-Form
Registrations unless the holders of Registrable Securities are able to register
and sell at least 90% of the Registrable Securities requested to be included in
such registration; provided that in any event the Company shall pay all
Registration Expenses in connection with any registration initiated as a
Company-paid Long-Form Registration
<PAGE> 2
whether or not it has become effective and whether or not such registration has
counted as one of the permitted Company-paid Long-Form Registrations.
c. Short-Form Registrations. In addition to the Long-Form Registrations
provided pursuant to paragraph 1(a), the holders of a majority of the
Registrable Securities shall be entitled to request an unlimited number of
registrations of all or any portion of their Registrable Securities on Form S-2
or S-3 or any similar short-form registration ("Short-Form Registrations") in
which the Company shall pay all Registration Expenses. The holder of a majority
of the Leeway Shares shall be entitled to request one Short-Form Registration
annually in which the Company shall pay all Registration Expenses. Demand
Registrations shall be Short-Form Registrations whenever the Company is
permitted to use any applicable short form. After the Company has become subject
to the reporting requirements of the Securities Exchange Act, the Company shall
use its best efforts to make Short-Form Registrations on Form S-3 available for
the sale of Registrable Securities.
d. Priority on Demand Registrations. The Company shall not include in any
Demand Registration any securities which are not Registrable Securities without
the prior written consent of the holders of a majority of the Registrable
Securities included in such registration. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities to be
included in such registration, therein without adversely affecting the
marketability of the offering, the Company shall include in such registration
prior to the inclusion of any securities which are not Registrable Securities
the number of Registrable Securities requested to be included which in the
opinion of such underwriters can be sold in an orderly manner within the price
range of such offering, pro rata among the respective holders thereof on the
basis of the amount of Registrable Securities owned by each such holder. Without
the consent of the Company and the holders of a majority of the Registrable
Securities included in such registration, any Persons other than holders of
Registrable Securities who participate in Demand Registrations which are not at
the Company's expense must pay their share of the Registration Expenses as
provided in paragraph 5 hereof.
e. Restrictions on Long-Form Registrations. The Company shall not be
obligated to effect any Long-Form Registration within one year after the
effective date of a previous Long-Form Registration or a previous registration
in which the holders of Registrable Securities were given piggyback rights
pursuant to paragraph 2 and in which there was no reduction in the number of
Registrable Securities requested to be included; provided that the Company shall
be obligated to effect any Long-Form Registration 180 days after the effective
date of a previous registration in which the holders of Registrable Securities
were given piggyback rights pursuant to paragraph 2 if such holders were not
allowed to sell in such offering the entire amount of Registrable Securities
which they desired to sell. The Company may postpone for up to one year the
filing or the effectiveness of a registration statement for a Demand
Registration if the Company and the holders of a majority of the Registrable
Securities agree that such Demand Registration would reasonably be expected to
have a material adverse effect on any proposal or plan by the Company or any of
its Subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer,
reorganization or similar transaction; provided
<PAGE> 3
that in such event, the holders of Registrable Securities initially requesting
such Demand Registration shall be entitled to withdraw such request and, if
such request is withdrawn, such Demand Registration shall not count as one of
the permitted Demand Registrations hereunder and the Company shall pay all
Registration Expenses in connection with such registration.
f. Selection of Underwriters. The holders of a majority of the Registrable
Securities included in any Demand Registration/Long-Form Registration shall have
the right to select the investment banker(s) and manager(s) to administer the
offering.
g. Other Registration Rights. Except as provided in this Agreement, the
Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of a majority of the Registrable Securities.
2. Piggyback Registrations.
a. Right to Piggyback. Whenever the Company proposes to register any of its
securities under the Securities Act (other than pursuant to the Initial Public
Offering or a Demand Registration) and the registration form to be used may be
used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company shall give prompt written notice (in any event
within three business days after its receipt of notice of any exercise of demand
registration rights other than under this Agreement) to all holders of
Registrable Securities of its intention to effect such a registration and shall
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 20 days
after the receipt of the Company's notice.
b. Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
c. Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company shall include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Registrable Securities on the basis of the number of shares
owned by each such holder, and (iii) third, other securities requested to be
included in such registration.
d. Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders of a majority of the
Registrable Securities to be included in such registration, the Company shall
include in such registration (i) first, the securities requested to be included
therein by the holders requesting such
<PAGE> 4
registration, (ii) second, the Registrable Securities requested to be included
in such registration, pro rata among the holders of such Registrable Securities
on the basis of the number of shares owned by each such holder, and (iii) third,
other securities requested to be included in such registration.
e. Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by the holders of a majority of the Registrable
Securities included in such Piggyback Registration. Such approval shall not be
unreasonably withheld.
f. Other Registrations. If the Company has previously filed a registration
statement with respect to Registrable Securities pursuant to paragraph 1 or
pursuant to this paragraph 2, and if such previous registration has not been
withdrawn or abandoned, the Company shall not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least 180 days has elapsed from the effective date of such previous
registration.
3. Holdback Agreements.
a. Each holder of Registrable Securities shall not effect any public sale
or distribution (including sales pursuant to Rule 144) of equity securities of
the Company, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the 180-day period
beginning on the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration in which Registrable Securities are included
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree.
b. The Company (i) shall not effect any public sale or distribution of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public offering
otherwise agree, and (ii) shall cause each holder of its Stock, or any
securities convertible into or exchangeable or exercisable for Stock, purchased
from the Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be registered pursuant to this
Agreement, the Company shall use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof, and pursuant thereto the Company shall as expeditiously
as possible:
<PAGE> 5
a. prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
shall be subject to the review and comment of such counsel);
b. notify each holder of Registrable Securities of the effectiveness of
each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
c. furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
d. use its best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions as any seller
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
e. notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
f. cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed and,
if not so listed, to be listed on the NASD automated quotation system and, if
listed on the NASD automated quotation system, use its best efforts to secure
designation of all such Registrable Securities covered by such registration
statement as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1
<PAGE> 6
of the Securities and Exchange Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the NASD;
g. provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
h. enter into such customary agreements (including underwriting agreements
in customary form) and take all such other actions as the holders of a majority
of the Registrable Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities (including effecting a stock split or a combination of shares);
i. make available for inspection by any seller of Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
j. otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
k. permit any holder of Registrable Securities which holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included;
l. in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any stock included in such registration statement for sale in any jurisdiction,
the Company shall use its best efforts promptly to obtain the withdrawal of such
order;
m. use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities; and
<PAGE> 7
n. obtain a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by cold comfort letters as the holders of a majority of the Registrable
Securities being sold reasonably request (provided that such Registrable
Securities constitute at least 10% of the securities covered by such
registration statement).
5. Registration Expenses.
a. All expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, fees and disbursements of custodians,
and fees and disbursements of counsel for the Company and all independent
certified public accountants, underwriters (excluding discounts and commissions)
and other Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), shall be borne as provided in this Agreement, except
that the Company shall, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the NASD
automated quotation system.
b. In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration and for the reasonable fees and disbursements of
each additional counsel retained by any holder of Registrable Securities for the
purpose of rendering a legal opinion on behalf of such holder in connection with
any underwritten Demand Registration or Piggyback Registration.
c. To the extent Registration Expenses are not required to be paid by the
Company, each holder of securities included in any registration hereunder shall
pay those Registration Expenses allocable to the registration of such holder's
securities so included, and any Registration Expenses not so allocable shall be
borne by all sellers of securities included in such registration in proportion
to the aggregate selling price of the securities to be so registered.
6. Indemnification.
a. The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any
<PAGE> 8
amendments or supplements thereto after the Company has furnished such holder
with a sufficient number of copies of the same. In connection with an
underwritten offering, the Company shall indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
b. In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be limited
to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
c. Any Person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (provided that the failure to give prompt notice shall not
impair any Person's right to indemnification hereunder to the extent such
failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party, and any other of such indemnified parties with respect to
such claim.
d. The indemnification provided for under this Agreement shall remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (i)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons
<PAGE> 9
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements;
provided that no holder of Registrable Securities included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters (other than representations and warranties regarding
such holder and such holder's intended method of distribution) or to undertake
any indemnification obligations to the Company or the underwriters with respect
thereto, except as otherwise provided in paragraph 6 hereof.
8. Definitions.
(a) "Executives" means Martin S. Rash and Richard D. Gore.
(b) "Common Stock" means the Company's Common Stock, no par value.
(c) "GTCR Registrable Securities" means (i) any Common Stock issued or
issuable to GTCR pursuant to the Investment Agreement or the Merger Agreement,
(ii) any Stock issued to GTCR pursuant to Section 6 of the Stockholders
Agreement, of even date herewith among the Company, GTCR and the other
stockholders named therein (whether issued before or after the date hereof),
(iii) any stock purchased by GTCR pursuant to the Senior Management Agreements,
(iv) any other Common Stock issued or issuable with respect to the securities
referred to in clauses (i), (ii) and (iii) by way of a stock dividend or stock
split or in connection with an exchange or combination of shares,
recapitalization, merger, consolidation or other reorganization, and (v) any
other shares of Common Stock held by Persons holding securities described in
clauses (i) to (iv), inclusive, above.
(d) "Initial Public Offering" means the sale in an initial underwritten
public offering registered under the Securities Act (other than on Form S-8 or a
similar form) of shares of Common Stock.
(e) "Investment Agreement" means the Investment Agreement dated as of
November 21, 1996, between the Company and the Investor, as amended,
supplemented or otherwise modified from time to time.
(f) "Leeway Registrable Securities" means (i) any Common Stock issued or
issuable to Leeway pursuant to the Securities Purchase Agreement, Section 6 of
the Shareholders Agreement or the Warrant, (ii) any stock purchased by Leeway
pursuant to the Senior Management Agreements, (iii) any other Common Stock
issued or issuable with respect to the securities referred to in clauses (i) and
(ii) by way of a stock dividend or stock split or in connection with an exchange
or combination of shares, recapitalization, merger, consolidation or other
reorganization, and (iv) any other shares of Common Stock held by Persons
holding securities described in clauses (i), (ii) or (iii) above.
(g) "Leeway Shares" means (i) any capital stock of the Company purchased or
otherwise acquired by Leeway, (ii) any warrants, options or other rights to
subscribe for or to acquire, directly or indirectly, any capital stock of the
Company, purchased or otherwise acquired
<PAGE> 10
by Leeway, whether or not then exercisable or convertible, and (iii) any stock
or other securities which are convertible into or exchangeable for, directly or
indirectly, any capital stock of the Company, purchased or otherwise acquired by
Leeway, whether or not then convertible or exchangeable, (iv) any securities or
rights issued or issuable directly or indirectly with respect to the securities
and rights referred to in clauses (i), (ii) and (iii) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Leeway Shares, such shares shall cease to be Leeway Shares when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them or (b) distributed to
the public through a broker, dealer or market maker pursuant to Rule 144 under
the Securities Act (or any similar rule then in force), it being understood that
this clause (b) shall not apply to transfers of shares pursuant to Rule 144A
under the Securities Act (or any similar rule then in force) and private
placements pursuant to Section 4(1) or Section 4(2) of the Securities Act.
References to a majority of the Leeway Shares or a certain percentage of the
Leeway Shares shall be calculated with all holders of Leeway Shares voting as a
single class, with each share of Junior Preferred and Common Stock which is a
Leeway Share being entitled to a number of votes equal to its pro rata portion
of the aggregate number of votes allocable to its class.
(h) "Merger Agreement" means the Agreement and Plan of Merger dated as of
December 17, 1996 among the Company, Principal Merger Company, Principal and
certain other parties, as amended, supplemented or otherwise modified from time
to time.
(i) "Other Registrable Securities" means (i) any Common Stock issued to
First Union, AmSouth or any Other Holder (whether issued before or after the
date hereof), (ii) any other Common Stock issued or issuable with respect to the
securities referred to in clause (i) by way of a stock dividend or stock split
or in connection with an exchange or combination of shares, recapitalization,
merger, consolidation or other reorganization, and (iii) any other shares of
Common Stock held by Persons holding securities described in clauses (i) or (ii)
above.
(j) "Principal Registration Agreement" means the Amended and Restated
Registration Agreement, dated as of November 12, 1996 between Principal, GTCR,
First Union, AmSouth and the Executives.
(k) "Registrable Securities" means, collectively, the GTCR Registrable
Securities, the Leeway Registrable Securities and the Other Registrable
Securities. As to particular Registrable Securities, such securities shall cease
to be Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force). For purposes of
this Agreement, a Person shall be deemed to be a holder of Registrable
Securities whenever such Person has the right to acquire such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
(l) "Securities Purchase Agreement" means the Securities Purchase Agreement
of even date herewith between the Company and Leeway.
<PAGE> 11
(m) "Senior Management Agreements" means the Senior Management Agreements
of even date herewith between the Company, Principal, Leeway and each of Martin
S. Rash and Richard D. Gore.
(n) "Stockholders Agreement" means the Stockholders Agreement of even date
herewith between the Company, GTCR, Leeway, First Union, AmSouth, the
Executives, Principal and the individuals listed on Schedule I thereto.
(o) "Stock" means, collectively, the Company's Series A Senior Preferred
Stock, no par value, the Company's Series B Junior Preferred Stock, no par value
and the Company's Common Stock, no par value.
(p) "Warrant" means the Warrant of even date herewith between the Company
and Leeway and any warrant issued pursuant to Section 6 of the Stockholders
Agreement.
(q) Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Stockholders Agreement dated as of the date hereof
among the Company and the parties hereto.
9. Miscellaneous.
a. No Inconsistent Agreements. The Company shall not hereafter enter into
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
b. Adjustments Affecting Registrable Securities. The Company shall not take
any action, or permit any change to occur, with respect to its securities which
would adversely affect the ability of the holders of Registrable Securities to
include such Registrable Securities in a registration undertaken pursuant to
this Agreement or which would adversely affect the marketability of such
Registrable Securities in any such registration (including, without limitation,
effecting a stock split or a combination of shares).
c. Remedies. Any Person having rights under any provision of this Agreement
shall be entitled to enforce such rights specifically to recover damages caused
by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or other
security) for specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
d. Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least 90% of the Registrable
Securities.
<PAGE> 12
e. Successors and Assigns. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not, and the rights and obligations of GTCR under this Agreement
and the agreements contemplated hereby may be assigned by GTCR at any time, in
whole or in part, to any investment fund managed by Golder, Thoma, Cressey,
Rauner, Inc., or any successor thereto. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of purchasers or holders of Registrable Securities are also for the
benefit of, and enforceable by, any subsequent holder of Registrable Securities.
f. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
g. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
h. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
i. Governing Law. All issues and questions concerning the construction,
validity, interpretation and enforcement of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of New York, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of New York or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
j. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to Leeway, First Union, AmSouth and the Other
Holders at the addresses indicated on Schedule of Holders attached hereto and to
the Company at the address of its corporate headquarters or to such other
address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party.
k. Termination of Principal Registration Agreement. Principal, GTCR, First
Union, AmSouth and the Executives agree that the Principal Registration
Agreement will be terminated automatically upon the effectiveness of this
Agreement and from and after such time, shall have no further force or effect.
<PAGE> 13
l. Additional Holders of Registrable Securities. In connection with the
issuance of any additional equity securities of the Company, the Company may
permit such person to become a party to this Agreement and succeed to all of the
rights and obligations of a holder of Registrable Securities under this
Agreement by obtaining an executed counterpart signature page to this Agreement,
and, upon such execution, such person shall for all purposes be a holder of
Registrable Securities party to this Agreement. The Company will not, without
the prior written consent of the holders of 90% of the Registrable Securities,
grant registration rights to any party other than pursuant to a counterpart to
this Agreement.
* * * * *
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BRIM, INC.
By /s/ Martin S. Rash
--------------------------------------
Its: Chief Executive Officer
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.
By: GTCR IV, L.P., its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.,
Its: General Partner
By: /s/ Bruce V. Rauner
-------------------------------------
Its: Principal
PRINCIPAL HOSPITAL COMPANY
By /s/ Martin S. Rash
--------------------------------------
Its: Chief Executive Officer
LEEWAY & CO.
By State Street Bank & Trust Company
Its Partner
By /s/ Edward J. Lavin Jr.
--------------------------------------
Its Vice President
FIRST UNION CORPORATION OF VIRGINIA
By /s/ Joseph H. Towell
--------------------------------------
Its Senior Vice President
AMSOUTH BANCORPORATION
By /s/ Sloan D. Gibson
--------------------------------------
Its Executive Vice President
BRIM CAPITAL CORPORATION
By /s/ A. E. Brim
-------------------------------------
Its President
<PAGE> 15
SSS CAPITAL CORPORATION
By /s/ K. David McAllister
--------------------------------------
Its President
CTK CAPITAL CORPORATION
By /s/ James M. Williams
--------------------------------------
Its President
/s/ Martin S. Rash
-----------------------------------------
Martin S. Rash
/s/ Richard D. Gore
-----------------------------------------
Richard D. Gore
/s/ Michael Barry
-----------------------------------------
Michael Barry
/s/ Christine Craft
-----------------------------------------
Christine Craft
/s/ Gary Edwards
-----------------------------------------
Gary Edwards
/s/ James McKinney
-----------------------------------------
James McKinney
/s/ John Miller
-----------------------------------------
John Miller
/s/ Kathleen Sego
-----------------------------------------
Kathleen Sego
/s/ Steve Taylor
-----------------------------------------
Steve Taylor
/s/ David Woodland
-----------------------------------------
David Woodland
SCHEDULE OF HOLDERS
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
<PAGE> 16
Chicago, IL 60606-6402
Attention: Bruce V. Rauner
Martin S. Rash
Principal Hospital Company
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
Richard D. Gore
Principal Hospital Company
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
Leeway & Co.
c/o State Street Bank and Trust Company
Master Trust Division - Q4W
P.O. Box 1992
Boston, Massachusetts 02101
AmSouth Bancorporation
1900 Fifth Avenue North
AmSouth-Sonat Tower, 7th Floor
Birmingham, AL 35203
Attention: Health Care Banking Department
First Union Corporation of Virginia
c/o First Union National Bank of North Carolina
150 Fourth Avenue North, Second Floor
Nashville, TN 37210
Attention: Carolyn Hannon
Brim Capital Corporation
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
SSS Capital Corporation
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
CTK Capital Corporation
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
<PAGE> 17
Michael Barry
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Christine Craft
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Gary Edwards
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
James McKinney
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
John Miller
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Kathleen Sego
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Steve Taylor
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
David Woodland
c/o Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
<PAGE> 1
EXHIBIT 10.10
SENIOR MANAGEMENT AGREEMENT
THIS AGREEMENT is made as of December 17, 1996, between Brim,
Inc., an Oregon corporation (the "Company"), Martin S. Rash ("Executive"),
Principal Hospital Company (formerly known as Rural Hospital Corporation), a
Delaware corporation ("Principal") for the limited purpose specified in Section
11(l), Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR") and Leeway & Co., a
Massachusetts general partnership ("Leeway") for the limited purpose specified
in Section 4.
Principal and Executive are parties to an Amended and Restated
Senior Management Agreement, dated as of June 14, 1996, as supplemented by
Supplement No. 1 to Amended and Restated Senior Management Agreement, dated as
of July 29, 1996 between Principal and Executive and Supplement No. 2 to Amended
and Restated Senior Management Agreement, dated as of September 30, 1996 (as so
supplemented, the "Original Management Agreement"), pursuant to which Executive
acquired certain securities of Principal and Principal and Executive agreed to
certain other matters.
Pursuant to a Plan and Agreement of Merger of even date
herewith among the Company, Principal Merger Company, a Delaware corporation and
the wholly owned subsidiary of the Company ("Newsub") and Principal, Newsub
agreed to merge with and into Principal, with Principal the surviving
corporation (the "Merger"). Pursuant to the Merger, Executive is entitled to
receive shares of the Company's Series B Junior Preferred Stock (the "Junior
Preferred") and the Company's Common Stock, no par value (the "Common Stock") as
consideration for his shares of Class A Common Stock and Class B Common Stock of
Principal. In addition, Executive has executed a counterpart (the "Investment
Agreement Counterpart") to the Investment Agreement, dated as of November 21,
1996, between the Company, the Investor and Principal (the "Investment
Agreement"), pursuant to which the Executive has agreed to be bound by the terms
of the Investment Agreement and to purchase certain securities of the Company.
All of the shares of Junior Preferred and Common Stock acquired by Executive
pursuant to the Merger or this Agreement, and all shares of Preferred Stock or
Common Stock hereafter acquired by Executive are referred to herein as
"Executive Stock".
The Company and Executive desire to terminate the Original
Management Agreement and enter into an agreement with respect to Executive's
ownership of Executive Stock, among other things, and the employment of the
Executive by the Company and its subsidiaries. Certain definitions are set forth
in paragraph 8 of this Agreement.
Certain provisions of this Agreement are intended for the
benefit of, and will be enforceable by, GTCR or an Affiliate thereof (the
"Investor").
The parties hereto agree as follows:
<PAGE> 2
PROVISIONS RELATING TO EXECUTIVE STOCK
1. Purchase and Sale of Common Stock.
(a) Upon execution of this Agreement, Executive will
purchase, and the Company will sell to Executive, 112,484 shares of Common Stock
at a price of $1 per share. The Company will deliver to Executive the
certificates representing such Common Stock, and Executive will deliver to the
Company a cashier's or certified check or wire transfer of funds or a promissory
note in the aggregate amount of $112,484. All of the shares purchased by
Executive pursuant to this Section 1(a) shall be "Vesting Shares" (as defined
below) pursuant to this Agreement.
(b) Upon the purchase from time to time by the Investor
pursuant to the Additional GTCR Commitment (as defined in the Stockholders
Agreement) of up to an additional 4,545 shares of Junior Preferred and up an
additional 454,500 shares of Common Stock pursuant to Section 6 of the
Stockholders Agreement, Executive shall have the right, but shall not be
required to, purchase from the Company at a price of $1 per share 54,892 shares
of Common Stock pro rata with GTCR's purchase of Junior Preferred Stock and
Common Stock.
2. Vesting of Certain Executive Stock.
(a) Executive received 193,163 shares of Common Stock
pursuant to the Merger, and, after giving effect to the purchase of shares of
Common Stock pursuant to paragraph 1(a) of this Agreement, owns an aggregate
315,947 shares of Common Stock, of which 227,135 shares shall, along with shares
of Common Stock acquired by the Executive pursuant to Section 6(d) of the
Stockholders Agreement, be "Vesting Shares" pursuant to this Agreement. Except
as otherwise provided in paragraph 2(b) below, the Vesting Shares will become
vested in accordance with the following schedule, if as of each such date
Executive is still employed by the Company or any of its Subsidiaries:
<TABLE>
<CAPTION>
Cumulative
Percentage of
Vesting Shares
Date Vested
------------ --------------
<S> <C>
July 26, 1997 20%
July 26, 1998 40%
July 26, 1999 60%
July 26, 2000 80%
July 26, 2001 100%
</TABLE>
All other shares of Executive Stock vest immediately upon receipt of such shares
pursuant to the Merger or the Investment Agreement Counterpart, or upon purchase
by Executive.
(b) If Executive ceases to be employed by the Company and
its Subsidiaries on any date other than any July 26 prior to July 26, 2001, the
cumulative percentage of Vesting Shares
<PAGE> 3
to become vested will be determined on a pro rata basis according to the number
of days elapsed since the prior July 26. Upon the occurrence of a Sale of the
Company, all shares of Executive Stock which have not yet become vested shall
become vested at the time of such event. Shares of Executive Stock which have
become vested are referred to herein as "Vested Shares," and all other shares of
Executive Stock are referred to herein as "Unvested Shares."
3. Repurchase Option.
(a) In the event (i) Executive ceases to be employed by
the Company and its Subsidiaries for any reason (the "Termination") or (ii)
Executive fails to purchase any shares of Junior Preferred which he is required
to purchase pursuant to paragraph 6 of the Stockholders Agreement (a "Triggering
Event"), the Executive Stock (whether held by Executive or one or more of
Executive's transferees, other than the Company or an Exempt Transferee (as
defined in paragraph 4(e) below)) will be subject to repurchase by the Company
and the Investor pursuant to the terms and conditions set forth in this
paragraph 3 (the "Repurchase Option").
(b) In the event of Termination, the purchase price for
each Unvested Share will be Executive's Original Cost for such share, and the
purchase price for each Vested Share will be the Fair Market Value for such
share. Upon a Triggering Event, the Purchase price for each share of Executive
Stock (whether a Vested share or an Unvested Share) will be Executive's Original
Cost for such share.
(c) The Company's board of directors (the "Board") may
elect to purchase all or any portion of the Unvested Shares and the Vested
Shares by delivering written notice (the "Repurchase Notice") to the holder or
holders of the Executive Stock within 90 days after the Termination. The
Repurchase Notice will set forth the number of Unvested Shares and Vested Shares
to be acquired from each holder, the aggregate consideration to be paid for such
shares and the time and place for the closing of the transaction. The number of
shares to be repurchased by the Company shall first be satisfied to the extent
possible from the shares of Executive Stock held by Executive at the time of
delivery of the Repurchase Notice. If the number of shares of Executive Stock
then held by Executive is less than the total number of shares of Executive
Stock which the Company has elected to purchase, the Company shall purchase the
remaining shares elected to be purchased from the other holder(s) of Executive
Stock under this Agreement, pro rata according to the number of shares of
Executive Stock held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).
The number of Unvested Shares and Vested Shares to be repurchased hereunder will
be allocated among Executive and the other holders of Executive Stock (if any)
pro rata according to the number of shares of Executive Stock to be purchased
from such person.
(d) If for any reason the Company does not elect to
purchase all of the Executive Stock pursuant to the Repurchase Option, the
Investor shall be entitled to exercise the Repurchase Option for the shares of
Executive Stock the Company has not elected to purchase (the "Available
Shares"). As soon as practicable after the Company has determined that there
will be Available Shares, but in any event within 90 days after the Termination,
the Company shall give written notice (the "Option Notice") to the Investor
setting forth the number of Available Shares and the purchase price for the
<PAGE> 4
Available Shares. The Investor may elect to purchase any or all of the Available
Shares by giving written notice to the Company within one month after the Option
Notice has been given by the Company. As soon as practicable, and in any event
within ten days, after the expiration of the one-month period set forth above,
the Company shall notify each holder of Executive Stock as to the number of
shares being purchased from such holder by the Investor (the "Supplemental
Repurchase Notice"). At the time the Company delivers the Supplemental
Repurchase Notice to the holder(s) of Executive Stock, the Company shall also
deliver written notice to the Investor setting forth the number of shares the
Investor is entitled to purchase, the aggregate purchase price and the time and
place of the closing of the transaction. The number of Unvested Shares and
Vested Shares to be repurchased hereunder shall be allocated among the Company
and the Investor pro rata according to the number of shares of Executive Stock
to be purchased by each of them.
(e) The closing of the purchase of the Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which date
shall not be more than one month nor less than five days after the delivery of
the later of either such notice to be delivered. The Company and/or the Investor
will pay for the Executive Stock to be purchased pursuant to the Repurchase
Option by delivery of a check or wire transfer of funds in the aggregate amount
of the purchase price for such shares. In addition, the Company may pay the
purchase price for such shares by offsetting amounts outstanding under any bona
fide debts owed by Executive to the Company. The Company and the Investor will
be entitled to receive customary representations and warranties from the sellers
regarding such sale and to require all sellers' signatures be guaranteed.
(f) The right of the Company and the Investor to
repurchase Vested Shares pursuant to this paragraph 3 shall terminate upon the
first to occur of the Sale of the Company or a Public Offering.
(g) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Executive Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law and in the Company's and its Subsidiaries' debt and equity financing
agreements. If any such restrictions prohibit the repurchase of Executive Stock
hereunder which the Company is otherwise entitled or required to make, the
Company may make such repurchases as soon as it is permitted to do so under such
restrictions.
(h) All shares of Executive Stock purchased by the
Company pursuant to this paragraph 3 and pursuant to paragraph 4 shall remain
available for reissuance to new executives as determined by the Board.
4. Restrictions on Transfer of Executive Stock.
(a) Retention of Executive Stock. Until the fifth
anniversary of the date of the Original Management Agreement, Executive shall
not sell, transfer, assign, pledge or otherwise dispose of any interest in any
shares of Executive Stock, except for Exempt Transfers (as defined in paragraph
5(b) below) other than sales to the public pursuant to Rule 144 promulgated
under the Securities Act or any similar rule then in force).
<PAGE> 5
(b) Transfer of Executive Stock. Subject to paragraph
4(a) above, Executive shall not Transfer any interest in any shares of Executive
Stock, except pursuant to (i) the provisions of paragraph 3 hereof, a Public
Sale or a Sale of the Company ("Exempt Transfers") or (ii) the provisions of
this paragraph 4; provided that in no event shall any Transfer of Executive
Stock pursuant to this paragraph 4 be made for any consideration other than cash
payable upon consummation of such Transfer or in installments over time. Prior
to making any Transfer other than an Exempt Transfer, Executive will give
written notice (the "Sale Notice") to the Company, the Investor and Leeway. The
Sale Notice will disclose in reasonable detail the identity of the prospective
transferee(s), the number of shares to be transferred and the terms and
conditions of the proposed transfer. Executive will not consummate any Transfer
until 60 days after the Sale Notice has been given to the Company, the Investor
and Leeway, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 4 prior to the expiration of such 60-day period. (The
date of the first to occur of such events is referred to herein as the
"Authorization Date").
(c) First Refusal Rights. The Company may elect to
purchase all (but not less than all) of the shares of Executive Stock to be
transferred upon the same terms and conditions as those set forth in the Sale
Notice by delivering a written notice of such election to Executive, the
Investor and Leeway within 30 days after the Sale Notice has been given to the
Company. If the Company has not elected to purchase all of the Executive Stock
to be transferred, the Investor may elect to purchase all (but not less than
all) of the Executive Stock to be transferred upon the same terms and conditions
as those set forth in the Sale Notice by giving written notice of such election
to Executive within 45 days after the Sale Notice has been given to the
Investor. If neither the Company nor the Investor elect to purchase all of the
shares of Executive Stock specified in the Sale Notice, Executive may transfer
the shares of Executive Stock specified in the Sale Notice, subject to the
provisions of paragraph 4(d) below, at a price and on terms no more favorable to
the transferee(s) thereof than specified in the Sale Notice during the 60-day
period immediately following the Authorization Date. Any shares of Executive
Stock not transferred within such 60-day period will be subject to the pro
visions of this paragraph 4(c) upon subsequent transfer. The Company may pay the
purchase price for such shares by offsetting amounts outstanding under any bona
fide debts owed by Executive to the Company.
(d) Participation Rights. If neither the Company nor the
Investor has elected to purchase all of the Executive Stock specified in the
Sale Notice pursuant to paragraph 4(c) above, each of the Investor and Leeway
may elect to participate in the contemplated Transfer by delivering written
notice to Executive and the Company within 50 days after receipt by the Investor
and Leeway of the Sale Notice. If the Investor or Leeway has elected to
participate in such sale, the Investor and Leeway, if electing to participate,
will be entitled to sell in the contemplated sale, at the same price and on the
same terms, a number of shares of the each class of the Company's capital stock
to be sold in the contemplated transaction equal to the product of (i) the
quotient determined by dividing the percentage of such class of capital stock
(on a fully diluted basis) held by such Person by the aggregate percentage of
such class of capital stock (on a fully diluted basis) held by Executive
(including both Vested and Unvested Shares), the Investor and Leeway if
participating in such sale and (ii) the number of shares of such class of
capital stock to be sold in the contemplated sale. In addition, any purchaser in
a sale subject to this Section 4(d) will be required to purchase from each of
the Investor and Leeway, at the election of the Investor and Leeway, a portion
of the Junior
<PAGE> 6
Preferred held by the Investor or Leeway equal to the greater of the percentage
of (x) the Investor's or Leeway's, as the case may be, Common Stock being sold
in such transaction and (y) Executive's Junior Preferred being sold in such
transaction.
For example, if:
(i) the Sale Notice contemplated a sale of 100 shares of
Common Stock and no Junior Preferred;
(ii) Executive was at such time the owner of 120 shares of
Common Stock (which was equal to 30% of the Common Stock on a fully
diluted basis); and
(iii) the Investor elected to participate and the Investor
owned 40 shares of Common Stock (which was equal to 10% of the Common
Stock on a fully diluted basis) and 200 shares of Junior Preferred; and
(iv) Leeway elected to participate and Leeway owned 40 shares
of Common Stock (which was equal to 10% of the Common Stock on a fully
diluted basis) and 50 shares of Junior Preferred;
then
(A) Executive would be entitled to sell 60 shares of
Common Stock (30% / 50% x 100 shares); and
(B) the Investor would be entitled to sell 20 shares of
Common Stock (10% / 50% x 100 shares) and 100 shares of Junior
Preferred (the same percentage of the Investor's Junior Preferred as
the percentage of the Investor's Common Stock being sold, i.e., 50%);
and
(C) Leeway would be entitled to sell 20 shares of Common
Stock (10% / 50% x 100 shares) and 25 shares of Junior Preferred (the
same percentage of Leeway's Junior Preferred as the percentage of
Leeway's Common Stock being sold, i.e., 50%).
Executive will use his best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Investor and Leeway in the
contemplated Transfer and will not transfer any Executive Stock to the
prospective transferee(s) if such transferee(s) refuses to allow the
participation of the Investor and Leeway. The aggregate transaction fees and
expenses incurred in connection with any such transfer shall be borne on a pro
rata basis by each Person participating in such transfer.
(e) Certain Permitted Transfers. The restrictions
contained in this paragraph 4 will not apply with respect to (i) transfers of
shares of Executive Stock pursuant to applicable laws of descent and
distribution or (ii) transfer of shares of Executive Stock among Executive's
Family Group; provided that such restrictions will continue to be applicable to
the Executive Stock after any
<PAGE> 7
such transfer and the transferees of such Executive Stock have agreed in writing
to be bound by the provisions of this Agreement.
(f) Termination of Restrictions. The restrictions on the
Transfer of shares of Executive Stock set forth in this paragraph 4 will
continue with respect to each share of Executive Stock until the date on which
such Executive Stock has been transferred in a transaction permitted by this
paragraph 4 (except in a transaction contemplated by subparagraph 4(e));
provided that in any event such restrictions will terminate on the first to
occur of a Sale of the Company or a Public Offering.
5. Additional Restrictions on Transfer of Executive
Stock.
(a) Legend. The certificates representing the Executive
Stock will bear substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN A SENIOR MANAGEMENT AGREEMENT BETWEEN THE
COMPANY AND AN EXECUTIVE OF THE COMPANY DATED AS OF DECEMBER 17, 1996.
A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) Opinion of Counsel. No holder of Executive Stock may
sell, transfer or dispose of any Executive Stock (except pursuant to an
effective registration statement under the Securities Act) without first
delivering to the Company an opinion of counsel (reasonably acceptable in form
and substance to the Company) that neither registration nor qualification under
the Securities Act and applicable state securities laws is required in
connection with such transfer.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive as
chief executive officer of each of the Company and Principal and Executive
accepts such employment for the period beginning as of the date hereof and
ending upon termination pursuant to paragraph 6(b) hereof (the "Employment
Period"). Executive will not be assigned duties inconsistent with the duties
customarily assigned to chief executive officers of comparable business
organizations.
(a) Salary, Bonus and Benefits. During the Employment
Period, the Company will pay Executive a base salary (the "Annual Base Salary")
as the Board may designate from time to time, at the rate of not less than
$250,000 per annum, which amount shall be reviewed annually by the Board in its
sole discretion with a view toward determining whether Executive's Annual Base
Salary is competitive with the salaries of similarly situated executives at
comparable business organizations. Executive will be eligible for a bonus equal
to 50% of Executive's Annual Base Salary for such year. It is anticipated that
such bonus will be awarded by the Board if Executive meets or exceeds the annual
operational and financial objectives agreed to by the Board and Executive, and
that the
<PAGE> 8
Company's performance meets or exceeds the targets outlined in the five-year
plan attached hereto as Exhibit B. If the Company has not met or exceeded its
financial or operational objectives, a bonus of less than 50% of Executive's
Annual Base Salary may be awarded in the Board's discretion. Executive's Annual
Base Salary for any partial year will be prorated based upon the number of days
elapsed in such year. In addition, during the Employment Period, Executive will
be entitled to such other benefits approved by the Board and made available to
the Company's senior management.
(b) Termination. The Employment Period will continue
until Executive's resignation, disability (as determined by the Board in its
good faith judgment) or death or until the Board determines in its good faith
judgment that termination of Executive's employment is in the best interests of
the Company. If Executive's employment is terminated by the Company without
cause or as a result of Executive's disability (as determined by the Board in
its good faith judgment) or death, the Company shall pay to Executive (or his
estate), in twelve equal monthly installments, an amount equal to Executive's
Annual Base Salary; provided that, if such termination occurs as a result of a
sale of the Company prior to July 26, 1997, the Company shall instead pay to
Executive (or his estate), in eighteen equal monthly installments, an amount
equal to one and one-half times Executive's Annual Base Salary; provided further
that the severance payments set forth in this paragraph 6(b) shall cease and the
Company shall have no further obligation hereunder upon Executive's acceptance
of employment with any entity whose business is within the Company's core
business of owning and operating rural hospitals.
(c) Headquarters. The headquarters of the Company will be
located in or near Nashville, Tennessee, and the Company presently intends that,
for so long as Executive remains employed with the Company, the headquarters
will not be moved from such location. Any relocation of the Company's
headquarters outside of the Nashville, Tennessee area during the Employment
Period will be deemed a termination of Executive's employment by the Company
without cause, entitling Executive to severance pay under the provisions of
paragraph 6(b).
7. Confidential Information. Executive acknowledges that
the information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company. Therefore, Executive
agrees that he will not disclose to any unauthorized person or use for his own
account any of such information, observations or data without the Board's
written consent, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act. Executive agrees to deliver to the Company
at the termination of his employment, or at any other time the Company may
request in writing, all memoranda, notes, plans, records, reports and other
documents (and copies thereof) relating to the business of the Company and its
affiliates (including, without limitation, all acquisition prospects, lists and
contact information) which he may then possess or have under his control.
8. Noncompetition and Nonsolicitation
(a) Noncompetition. Executive acknowledges that in the
course of his employment with the Company he will become familiar with the
Company's trade secrets and with other confidential information concerning the
Company and that his services will be of special, unique
<PAGE> 9
and extraordinary value to the Company. Therefore, Executive agrees that, during
the Employment Period and for two years thereafter (the "Noncompete Period"), he
shall not directly or indirectly own, manage, control, participate in, consult
with, render services for, (i) any business, the operating facilities of which
compete with the operating facilities of the Company or its Subsidiaries within
the geographical area included in the 50-mile radius around each location where
the Company or any Subsidiary owns, leases, manages or otherwise maintains an
operating facility, engages in business or, on the date of Executive's
termination, plans to own, lease, manage or otherwise maintain a facility or
engage in business, or (ii) any business in which the Company or any of its
Subsidiaries has entered into a letter of intent or is or has been within one
year prior to the date of termination of Executive's employment in active
negotiations relating to the acquisition of such business by the Company or its
Subsidiaries.
(b) Nonsolicitation. During the Noncompete Period,
Executive shall not directly or indirectly through another entity (i) induce or
attempt to induce any employee of the Company or any Subsidiary to leave the
employ of the Company or such Subsidiary, or in any way interfere with the
relationship between the Company or any Subsidiary and any employee thereof,
(ii) hire any person who was an employee of the Company or any Subsidiary within
six months prior to termination of Executive's employment, or (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company or any Subsidiary to cease doing business with the Company or such
Subsidiary.
(c) Enforcement. If, at the time of enforcement of
paragraph 7 or 8 of this Agreement, a court holds that the restrictions stated
herein are unreasonable under circumstances then existing, the parties hereto
agree that the maximum duration, scope or geographical area reasonable under
such circumstances shall be substituted for the stated period, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum duration, scope and area permitted by law. Because Executive's
services are unique and because Executive has access to confidential
information, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
(d) Submission to Jurisdiction. Each of the parties (i)
submits to the jurisdiction of any state or federal court sitting in Delaware in
any action or proceeding arising out of or relating to paragraphs 7 and/or 8 of
this Agreement, (ii) agrees that all claims in respect of such action or
proceeding may be heard or determined in any such court and (iii) agrees not to
bring any action or proceeding arising out of or relating to paragraphs 7 and/or
8 of this Agreement in any other court. Each of the parties waives any defense
of inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be required of any
other party with respect thereto. Each party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law.
<PAGE> 10
GENERAL PROVISIONS
9. Definitions.
"Affiliate" of the Investor means any direct or indirect
general or limited partner of the Investor, or any employee or owner thereof, or
any other person, entity or investment fund controlling, controlled by or under
common control with the Investor, and will include, without limitation, Golder,
Thoma, Cressey, Rauner, Inc. and its owners and employees.
"Common Stock" means the Company's Common Stock, no par value.
"Core Business" means the ownership and operation of rural
hospitals.
"Executive's Family Group" means Executive's spouse and
descendants (whether natural or adopted) and any trust solely for the benefit of
Executive and/or Executive's spouse and/or descendants.
"Executive Stock" will continue to be Executive Stock in the
hands of any holder other than Executive (except for the Company and the
Investor and except for transferees in a Public Sale), and except as otherwise
provided herein, each such other holder of Executive Stock will succeed to all
rights and obligations attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock will also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Executive Stock after any Transfer thereof.
"Fair Market Value" of each share of Executive Stock means 95%
of the average of the closing prices of the sales of the class of stock on all
securities exchanges on which such stock may at the time be listed, or, if there
have been no sales on any such exchange on any day, 95% of the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such stock is not so listed, 95% of the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day such stock is not quoted in the NASDAQ System,
95% of the average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Market Value
is being determined and the 20 consecutive business days prior to such day. If
at any time such stock is not listed on any securities exchange or quoted in the
NASDAQ System or the over-the-counter market, the Fair Market Value will be the
fair value of such stock determined in good faith by the Board.
"Junior Preferred" means the Company's Series B Junior
Preferred Stock, no par value.
"Original Cost" means (i) with respect to each share of Junior
Preferred purchased by Executive, $1,000 (as proportionately adjusted for all
subsequent stock splits, stock dividends and
<PAGE> 11
other recapitalizations) and (ii) with respect to each share of Common Stock
purchased by Executive, $1 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Permitted Transferee" means any holder of Executive Stock who
acquired such stock pursuant to a transfer permitted by paragraph 4(e).
"Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock approved
by the Board.
"Public Sale" means any sale pursuant to a registered public
offering under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or market
maker.
"Sale of the Company" means any transaction or series of
transactions pursuant to which any person(s) or entity(ies) (including any
Affiliates of the Investor) other than the Investor in the aggregate acquire(s)
(i) capital stock of the Company possessing the voting power (other than voting
rights accruing only in the event of a default, breach or event of
noncompliance) to elect a majority of the Company's board of directors (whether
by merger, consolidation, reorganization, combination, sale or transfer of the
Company's capital stock, shareholder or voting agreement, proxy, power of
attorney or otherwise) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis; provided that the term "Sale of the Company"
shall not include an initial Public Offering.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Stockholders Agreement" means the Stockholders Agreement, of
even date herewith, among the Company, Executive, the Investor, and the other
stockholders of the Company listed therein, as may be amended, modified and
supplemented from time to time.
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Transfer" means to sell, transfer, assign, pledge or
otherwise dispose of (whether with or without consideration and whether
voluntarily or involuntarily or by operation of law).
"Vesting Shares" means 227,135 shares of the Common Stock
acquired by Executive and any shares of Common Stock acquired by Executive
pursuant to Section 6(d) of the Stockholders Agreement.
10. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
<PAGE> 12
If to the Company:
Brim, Inc.
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
Attention: Chief Executive Officer
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Kevin R. Evanich, P.C.
If to the Executive:
Martin S. Rash
Principal Hospital Company
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
If to the Investor:
Golder, Thoma, Cressey Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bruce V. Rauner
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Kevin R. Evanich
If to Leeway:
Leeway & Co.
c/o State Street Bank and Trust Company
Master Trust Division - Q4W
P.O. Box 1992
Boston, Massachusetts 02101
Attention: Lisa Lane
<PAGE> 13
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Raj Marphatia
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
11. General Provisions.
(a) Expenses. The Company agrees to pay and hold
Executive harmless against liability for the payment of, (i) the fees and
expenses of its counsel arising in connection with the negotiation and execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement, and (ii) if Executive is the prevailing party in a judicial
proceeding involving a dispute hereunder, the fees and expenses of its counsel
incurred in connection with such dispute and/or proceeding.
(b) Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Executive Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Executive Stock as the owner of
such stock for any purpose.
(c) Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(d) Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
(e) Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement.
<PAGE> 14
(f) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder;
provided further that the rights and obligations of the Investor under this
Agreement and the agreements contemplated hereby may be assigned by the Investor
at any time, in whole or in part, to any investment fund managed by Golder,
Thoma, Cressey, Rauner, Inc., or any successor thereto. The rights and
obligations of GTCR and Leeway under Section 4(d) of this Agreement shall inure
to the benefit of and be enforceable by the transferees of each of GTCR and
Leeway.
(g) Choice of Law. All questions concerning the
construction, validity and interpretation of this Agreement and the exhibits
hereto will be governed by and construed in accordance with the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
(h) Remedies. Each of the parties to this Agreement
(including the Investor) will be entitled to enforce its rights under this
Agreement specifically, to recover damages and costs (including attorney's fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction for specific performance
and/or other injunctive relief in order to enforce or prevent any violations of
the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior written consent of the
Company, Executive and the Investor.
(j) Business Days. If any time period for giving notice
or taking action hereunder expires on a day which is a Saturday, Sunday or
holiday in the state in which the Company's chief executive office is located,
the time period shall be automatically extended to the business day immediately
following such Saturday, Sunday or holiday.
(k) Waiver of Acceleration of Vesting. Executive hereby
waives any vesting of Vesting Shares which may be triggered by the Merger, and
agrees that the Merger will not constitute a "Sale of the Company" under the
Original Management Agreement.
(l) Termination of Original Management Agreement. The
Original Management Agreement will be terminated automatically upon the
effectiveness of this Agreement, and from and after such time, shall have no
further force or effect.
(m) Termination. This Agreement (except for the
provisions of paragraph 6) shall survive the termination of Executive's
employment with the Company and shall remain in full force and effect after such
termination.
<PAGE> 15
(n) Adjustment of Numbers. All numbers set forth herein
which refer to share prices or amounts will be appropriately adjusted to reflect
stock splits, stock dividends, combinations of shares and other
recapitalizations affecting the subject class of stock.
*****
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
BRIM, INC.
By /s/ Martin S. Rash
-----------------------------------------
Its Chief Executive Officer
PRINCIPAL HOSPITAL COMPANY
By /s/ Martin S. Rash
-----------------------------------------
Its Chief Executive Officer
LEEWAY & CO.
By State Street Bank & Trust Company
Its Partner
By /s/ Edward J. Lavin Jr.
-----------------------------------------
Its Vice President
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.
By GTCR IV, L.P.,
Its General Partner
By Golder, Thoma, Cressey, Rauner, Inc.,
Its General Partner
By: /s/ Bruce V. Rauner
----------------------------------------
Its Principal
/s/ Martin S. Rash
--------------------------------------------
Martin S. Rash
<PAGE> 17
CONSENT
The undersigned spouse of Executive hereby acknowledges that I
have read the foregoing Senior Management Agreement and that I understand its
contents. I am aware that the Agreement provides for the repurchase of my
spouse's shares of stock under certain circumstances and imposes other
restrictions on the transfer of such stock. I agree that my spouse's interest in
the stock subject to this Agreement and any interest I may have in such stock
shall be irrevocably bound by this Agreement and further that the my community
property interest, if any, shall be similarly bound by this Agreement.
/s/ Debbie Rash
----------------------------------------
Spouse's Name:
/s/ Nancy Lancaster
----------------------------------------
Witness
<PAGE> 1
EXHIBIT 10.12
SENIOR MANAGEMENT AGREEMENT
THIS AGREEMENT is made as of December 17, 1996, between Brim,
Inc., an Oregon corporation (the "Company"), Richard D. Gore ("Executive"),
Principal Hospital Company (formerly known as Rural Hospital Corporation), a
Delaware corporation ("Principal") for the limited purpose specified in Section
11(l), Golder, Thoma, Cressey, Rauner Fund IV, L.P., a Delaware limited
partnership ("GTCR") for the limited purpose specified in Section 4 and Leeway &
Co., a Massachusetts general partnership ("Leeway") for the limited purpose
specified in Section 4.
Principal and Executive are parties to the Senior Management
Agreement, dated as of June 14, 1996, as supplemented by Supplement No. 1 to
Senior Management Agreement, dated as of July 26, 1996 between Principal and
Executive and Supplement No. 2 to Senior Management Agreement, dated as of
September 30, 1996 (as so supplemented, the "Original Management Agreement"),
pursuant to which Executive acquired certain securities of Principal and
Principal and Executive agreed to certain other matters.
Pursuant to a Plan and Agreement of Merger of even date
herewith among the Company, Principal Merger Company, a Delaware corporation and
the wholly owned subsidiary of the Company ("Newsub") and Principal, Newsub
agreed to merge with and into Principal, with Principal the surviving
corporation (the "Merger"). Pursuant to the Merger, Executive is entitled to
receive shares of the Company's Series B Junior Preferred Stock (the "Junior
Preferred") and the Company's Common Stock, no par value (the "Common Stock") as
consideration for his shares of Class A Common Stock and Class B Common Stock of
Principal. In addition, Executive has executed a counterpart (the "Investment
Agreement Counterpart") to the Investment Agreement, dated as of November 21,
1996, between the Company, the Investor and Principal (the "Investment
Agreement"), pursuant to which the Executive has agreed to be bound by the terms
of the Investment Agreement and to purchase certain securities of the Company.
All of the shares of Junior Preferred and Common Stock acquired by Executive
pursuant to the Merger or this Agreement, and all shares of Preferred Stock or
Common Stock hereafter acquired by Executive are referred to herein as
"Executive Stock".
The Company and Executive desire to terminate the Original
Management Agreement and enter into an agreement with respect to Executive's
ownership of Executive Stock, among other things, and the employment of the
Executive by the Company and its subsidiaries. Certain definitions are set forth
in paragraph 8 of this Agreement.
Certain provisions of this Agreement are intended for the
benefit of, and will be enforceable by, GTCR or an Affiliate thereof (the
"Investor").
The parties hereto agree as follows:
<PAGE> 2
PROVISIONS RELATING TO EXECUTIVE STOCK
1. Purchase and Sale of Common Stock.
(a) Upon execution of this Agreement, Executive will
purchase, and the Company will sell to Executive, 67,472 shares of Common Stock
at a price of $1 per share. The Company will deliver to Executive the
certificates representing such Common Stock, and Executive will deliver to the
Company a cashier's or certified check or wire transfer of funds or a promissory
note in the aggregate amount of $67,472. All of the shares purchased by
Executive pursuant to this Section 1(a) shall be "Vesting Shares" (as defined
below) pursuant to this Agreement.
(b) Upon the purchase from time to time by the Investor
pursuant to the Additional GTCR Commitment (as defined in the Stockholders
Agreement) of up to an additional 4,545 shares of Junior Preferred and up an
additional 454,500 shares of Common Stock pursuant to Section 6 of the
Stockholders Agreement, Executive shall have the right, but shall not be
required to, purchase from the Company at a price of $1 per share 26,975 shares
of Common Stock pro rata with GTCR's purchase of Junior Preferred and Common
Stock.
2. Vesting of Certain Executive Stock.
(a) Executive received 111,266 shares of Common Stock
pursuant to the Merger, and, after giving effect to the purchase of shares of
Common Stock pursuant to paragraph 1(a) of this Agreement, owns an aggregate of
197,938 shares of Common Stock, of which 110,404 shares shall, along with any
shares of Common Stock purchased pursuant to Section 6(d) of the Stockholders
Agreement, be "Vesting Shares" pursuant to this Agreement. Except as otherwise
provided in paragraph 2(b) below, the Vesting Shares will become vested in
accordance with the following schedule, if as of each such date Executive is
still employed by the Company or any of its Subsidiaries:
<TABLE>
<CAPTION>
Cumulative
Percentage of
Vesting Shares
Date Vested
------------ --------------
<S> <C>
July 26, 1997 20%
July 26, 1998 40%
July 26, 1999 60%
July 26, 2000 80%
July 26, 2001 100%
</TABLE>
All other shares of Executive Stock vest immediately upon receipt of such shares
pursuant to the Merger or the Investment Agreement Counterpart, or upon purchase
by Executive.
(b) If Executive ceases to be employed by the Company and
its Subsidiaries on any date other than any July 26 prior to July 26, 2001, the
cumulative percentage of Vesting Shares
<PAGE> 3
to become vested will be determined on a pro rata basis according to the number
of days elapsed since the prior July 26. Upon the occurrence of a Sale of the
Company, all shares of Executive Stock which have not yet become vested shall
become vested at the time of such event. Shares of Executive Stock which have
become vested are referred to herein as "Vested Shares," and all other shares of
Executive Stock are referred to herein as "Unvested Shares."
3. Repurchase Option.
(a) In the event (i) Executive ceases to be employed by
the Company and its Subsidiaries for any reason (the "Termination") or (ii)
Executive fails to purchase any shares of Junior Preferred which he is required
to purchase pursuant to paragraph 6 of the Stockholders Agreement (a "Triggering
Event"), the Executive Stock (whether held by Executive or one or more of
Executive's transferees, other than the Company or an Exempt Transferee (as
defined in paragraph 4(e) below)) will be subject to repurchase by the Company
and the Investor pursuant to the terms and conditions set forth in this
paragraph 3 (the "Repurchase Option").
(b) In the event of Termination, the purchase price for
each Unvested Share will be Executive's Original Cost for such share, and the
purchase price for each Vested Share will be the Fair Market Value for such
share. Upon a Triggering Event, the Purchase price for each share of Executive
Stock (whether a Vested share or an Unvested Share) will be Executive's Original
Cost for such share.
(c) The Company's board of directors (the "Board") may
elect to purchase all or any portion of the Unvested Shares and the Vested
Shares by delivering written notice (the "Repurchase Notice") to the holder or
holders of the Executive Stock within 90 days after the Termination. The
Repurchase Notice will set forth the number of Unvested Shares and Vested Shares
to be acquired from each holder, the aggregate consideration to be paid for such
shares and the time and place for the closing of the transaction. The number of
shares to be repurchased by the Company shall first be satisfied to the extent
possible from the shares of Executive Stock held by Executive at the time of
delivery of the Repurchase Notice. If the number of shares of Executive Stock
then held by Executive is less than the total number of shares of Executive
Stock which the Company has elected to purchase, the Company shall purchase the
remaining shares elected to be purchased from the other holder(s) of Executive
Stock under this Agreement, pro rata according to the number of shares of
Executive Stock held by such other holder(s) at the time of delivery of such
Repurchase Notice (determined as nearly as practicable to the nearest share).
The number of Unvested Shares and Vested Shares to be repurchased hereunder will
be allocated among Executive and the other holders of Executive Stock (if any)
pro rata according to the number of shares of Executive Stock to be purchased
from such person.
(d) If for any reason the Company does not elect to
purchase all of the Executive Stock pursuant to the Repurchase Option, the
Investor shall be entitled to exercise the Repurchase Option for the shares of
Executive Stock the Company has not elected to purchase (the "Available
Shares"). As soon as practicable after the Company has determined that there
will be Available Shares, but in any event within 90 days after the Termination,
the Company shall give written notice (the "Option Notice") to the Investor
setting forth the number of Available Shares and the purchase price for the
<PAGE> 4
Available Shares. The Investor may elect to purchase any or all of the Available
Shares by giving written notice to the Company within one month after the Option
Notice has been given by the Company. As soon as practicable, and in any event
within ten days, after the expiration of the one-month period set forth above,
the Company shall notify each holder of Executive Stock as to the number of
shares being purchased from such holder by the Investor (the "Supplemental
Repurchase Notice"). At the time the Company delivers the Supplemental
Repurchase Notice to the holder(s) of Executive Stock, the Company shall also
deliver written notice to the Investor setting forth the number of shares the
Investor is entitled to purchase, the aggregate purchase price and the time and
place of the closing of the transaction. The number of Unvested Shares and
Vested Shares to be repurchased hereunder shall be allocated among the Company
and the Investor pro rata according to the number of shares of Executive Stock
to be purchased by each of them.
(e) The closing of the purchase of the Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which date
shall not be more than one month nor less than five days after the delivery of
the later of either such notice to be delivered. The Company and/or the Investor
will pay for the Executive Stock to be purchased pursuant to the Repurchase
Option by delivery of a check or wire transfer of funds in the aggregate amount
of the purchase price for such shares. In addition, the Company may pay the
purchase price for such shares by offsetting amounts outstanding under any bona
fide debts owed by Executive to the Company. The Company and the Investor will
be entitled to receive customary representations and warranties from the sellers
regarding such sale and to require all sellers' signatures be guaranteed.
(f) The right of the Company and the Investor to
repurchase Vested Shares pursuant to this paragraph 3 shall terminate upon the
first to occur of the Sale of the Company or a Public Offering.
(g) Notwithstanding anything to the contrary contained in
this Agreement, all repurchases of Executive Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law and in the Company's and its Subsidiaries' debt and equity financing
agreements. If any such restrictions prohibit the repurchase of Executive Stock
hereunder which the Company is otherwise entitled or required to make, the
Company may make such repurchases as soon as it is permitted to do so under such
restrictions.
(h) All shares of Executive Stock purchased by the
Company pursuant to this paragraph 3 and pursuant to paragraph 4 shall remain
available for reissuance to new executives as determined by the Board.
4. Restrictions on Transfer of Executive Stock.
(a) Retention of Executive Stock. Until the fifth
anniversary of the date of the Original Management Agreement, Executive shall
not sell, transfer, assign, pledge or otherwise dispose of any interest in any
shares of Executive Stock, except for Exempt Transfers (as defined in paragraph
5(b) below) other than sales to the public pursuant to Rule 144 promulgated
under the Securities Act or any similar rule then in force).
<PAGE> 5
(b) Transfer of Executive Stock. Subject to paragraph
4(a) above, Executive shall not Transfer any interest in any shares of Executive
Stock, except pursuant to (i) the provisions of paragraph 3 hereof, a Public
Sale or a Sale of the Company ("Exempt Transfers") or (ii) the provisions of
this paragraph 4; provided that in no event shall any Transfer of Executive
Stock pursuant to this paragraph 4 be made for any consideration other than cash
payable upon consummation of such Transfer or in installments over time. Prior
to making any Transfer other than an Exempt Transfer, Executive will give
written notice (the "Sale Notice") to the Company, the Investor and Leeway. The
Sale Notice will disclose in reasonable detail the identity of the prospective
transferee(s), the number of shares to be transferred and the terms and
conditions of the proposed transfer. Executive will not consummate any Transfer
until 60 days after the Sale Notice has been given to the Company, the Investor
and Leeway, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 4 prior to the expiration of such 60-day period. (The
date of the first to occur of such events is referred to herein as the
"Authorization Date").
(c) First Refusal Rights. The Company may elect to
purchase all (but not less than all) of the shares of Executive Stock to be
transferred upon the same terms and conditions as those set forth in the Sale
Notice by delivering a written notice of such election to Executive, the
Investor and Leeway within 30 days after the Sale Notice has been given to the
Company. If the Company has not elected to purchase all of the Executive Stock
to be transferred, the Investor may elect to purchase all (but not less than
all) of the Executive Stock to be transferred upon the same terms and conditions
as those set forth in the Sale Notice by giving written notice of such election
to Executive within 45 days after the Sale Notice has been given to the
Investor. If neither the Company nor the Investor elect to purchase all of the
shares of Executive Stock specified in the Sale Notice, Executive may transfer
the shares of Executive Stock specified in the Sale Notice, subject to the
provisions of paragraph 4(d) below, at a price and on terms no more favorable to
the transferee(s) thereof than specified in the Sale Notice during the 60-day
period immediately following the Authorization Date. Any shares of Executive
Stock not transferred within such 60-day period will be subject to the pro
visions of this paragraph 4(c) upon subsequent transfer. The Company may pay the
purchase price for such shares by offsetting amounts outstanding under any bona
fide debts owed by Executive to the Company.
(d) Participation Rights. If neither the Company nor the
Investor has elected to purchase all of the Executive Stock specified in the
Sale Notice pursuant to paragraph 4(c) above, each of the Investor and Leeway
may elect to participate in the contemplated Transfer by delivering written
notice to Executive and the Company within 50 days after receipt by the Investor
and Leeway of the Sale Notice. If the Investor or Leeway has elected to
participate in such sale, the Investor and Leeway, if electing to participate,
will be entitled to sell in the contemplated sale, at the same price and on the
same terms, a number of shares of the each class of the Company's capital stock
to be sold in the contemplated transaction equal to the product of (i) the
quotient determined by dividing the percentage of such class of capital stock
(on a fully diluted basis) held by such Person by the aggregate percentage of
such class of capital stock (on a fully diluted basis) held by Executive
(including both Vested and Unvested Shares), the Investor and Leeway if
participating in such sale and (ii) the number of shares of such class of
capital stock to be sold in the contemplated sale. In addition, any purchaser in
a sale subject to this Section 4(d) will be required to purchase from each of
the Investor and Leeway, at the election of the Investor and Leeway, a portion
of the Junior
<PAGE> 6
Preferred held by the Investor equal to the greater of the percentage of (x) the
Investor's or Leeway's, as the case may be Common Stock being sold in such
transaction and (y) Executive's Junior Preferred being sold in such transaction.
For example, if:
(i) the Sale Notice contemplated a sale of 100 shares of
Common Stock and no Junior Preferred;
(ii) Executive was at such time the owner of 120 shares of
Common Stock (which was equal to 30% of the Common Stock on a fully
diluted basis); and
(iii) the Investor elected to participate and the Investor
owned 40 shares of Common Stock (which was equal to 10% of the Common
Stock on a fully diluted basis) and 200 shares of Junior Preferred; and
(iv) Leeway elected to participate and Leeway owned 40 shares
of Common Stock (which was equal to 10% of the Common Stock on a fully
diluted basis) and 50 shares of Junior Preferred;
then
(A) Executive would be entitled to sell 60 shares of
Common Stock (30% / 50% x 100 shares); and
(B) the Investor would be entitled to sell 20 shares of
Common Stock (10% / 50% x 100 shares) and 100 shares of Junior
Preferred (the same percentage of the Investor's Junior Preferred as
the percentage of the Investor's Common Stock being sold, i.e., 50%);
and
(C) Leeway would be entitled to sell 20 shares of Common
Stock (10% / 50% x 100 shares) and 25 shares of Junior Preferred (the
same percentage of Leeway's Junior Preferred as the percentage of
Leeway's Common Stock being sold, i.e., 50%).
Executive will use his best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Investor and Leeway in the
contemplated Transfer and will not transfer any Executive Stock to the
prospective transferee(s) if such transferee(s) refuses to allow the
participation of the Investor and Leeway. The aggregate transaction fees and
expenses incurred in connection with any such transfer shall be borne on a pro
rata basis by each Person participating in such transfer.
(e) Certain Permitted Transfers. The restrictions
contained in this paragraph 4 will not apply with respect to (i) transfers of
shares of Executive Stock pursuant to applicable laws of descent and
distribution or (ii) transfer of shares of Executive Stock among Executive's
Family Group; provided that such restrictions will continue to be applicable to
the Executive Stock after any
<PAGE> 7
such transfer and the transferees of such Executive Stock have agreed in writing
to be bound by the provisions of this Agreement.
(f) Termination of Restrictions. The restrictions on the
Transfer of shares of Executive Stock set forth in this paragraph 4 will
continue with respect to each share of Executive Stock until the date on which
such Executive Stock has been transferred in a transaction permitted by this
paragraph 4 (except in a transaction contemplated by subparagraph 4(e));
provided that in any event such restrictions will terminate on the first to
occur of a Sale of the Company or a Public Offering.
5. Additional Restrictions on Transfer of Executive
Stock.
(a) Legend. The certificates representing the Executive
Stock will bear substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN A SENIOR MANAGEMENT AGREEMENT BETWEEN THE
COMPANY AND AN EXECUTIVE OF THE COMPANY DATED AS OF DECEMBER 17, 1996.
A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) Opinion of Counsel. No holder of Executive Stock may
sell, transfer or dispose of any Executive Stock (except pursuant to an
effective registration statement under the Securities Act) without first
delivering to the Company an opinion of counsel (reasonably acceptable in form
and substance to the Company) that neither registration nor qualification under
the Securities Act and applicable state securities laws is required in
connection with such transfer.
PROVISIONS RELATING TO EMPLOYMENT
6. Employment. The Company agrees to employ Executive as
chief financial officer of each of the Company and Principal and Executive
accepts such employment for the period beginning as of the date hereof and
ending upon termination pursuant to paragraph 6(b) hereof (the "Employment
Period"). Executive will not be assigned duties inconsistent with the duties
customarily assigned to chief financial officers of comparable business
organizations.
(a) Salary, Bonus and Benefits. During the Employment
Period, the Company will pay Executive a base salary (the "Annual Base Salary")
as the Board may designate from time to time, at the rate of not less than
$175,000 per annum, which amount shall be reviewed annually by the Board in its
sole discretion with a view toward determining whether Executive's Annual Base
Salary is competitive with the salaries of similarly situated executives at
comparable business organizations. Executive will be eligible for a bonus equal
to 50% of Executive's Annual Base Salary for such year. It is anticipated that
such bonus will be awarded by the Board if Executive meets or exceeds the annual
operational and financial objectives agreed to by the Board and senior
management of the
<PAGE> 8
Company, and that the Company's performance meets or exceeds the targets
outlined in the five-year plan attached hereto as Exhibit B (inclusive of the
bonus expense). If the Company has not met or exceeded its financial or
operational objectives, a bonus of less than 50% of Executive's Annual Base
Salary may be awarded in the Board's discretion. Executive's Annual Base Salary
for any partial year will be prorated based upon the number of days elapsed in
such year. In addition, during the Employment Period, Executive will be entitled
to such other benefits approved by the Board and made available to the Company's
senior management.
(b) Termination. The Employment Period will continue
until Executive's resignation, disability (as determined by the Board in its
good faith judgment) or death or until the Board determines in its good faith
judgment that termination of Executive's employment is in the best interests of
the Company. If Executive's employment is terminated by the Company without
cause or as a result of Executive's disability (as determined by the Board in
its good faith judgment) or death, the Company shall pay to Executive (or his
estate), in twelve equal monthly installments, an amount equal to Executive's
Annual Base Salary; provided that the severance payments set forth in this
paragraph 6(b) shall cease and the Company shall have no further obligation
hereunder upon Executive's acceptance of employment with any entity whose
business is within the Company's core business of owning and operating rural
hospitals.
(c) Headquarters. The headquarters of the Company will be
located in or near Nashville, Tennessee, and the Company presently intends that,
for so long as Executive remains employed with the Company, the headquarters
will not be moved from such location. Any relocation of the Company's
headquarters outside of the Nashville, Tennessee area during the Employment
Period will be deemed a termination of Executive's employment by the Company
without cause, entitling Executive to severance pay under the provisions of
paragraph 6(b).
7. Confidential Information. Executive acknowledges that
the information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company. Therefore, Executive
agrees that he will not disclose to any unauthorized person or use for his own
account any of such information, observations or data without the Board's
written consent, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act. Executive agrees to deliver to the Company
at the termination of his employment, or at any other time the Company may
request in writing, all memoranda, notes, plans, records, reports and other
documents (and copies thereof) relating to the business of the Company and its
affiliates (including, without limitation, all acquisition prospects, lists and
contact information) which he may then possess or have under his control.
8. Noncompetition and Nonsolicitation
(a) Noncompetition. Executive acknowledges that in the
course of his employment with the Company he will become familiar with the
Company's trade secrets and with other confidential information concerning the
Company and that his services will be of special, unique and extraordinary value
to the Company. Therefore, Executive agrees that, during the Employment Period
and for one year thereafter (the "Noncompete Period"), he shall not directly or
indirectly own,
<PAGE> 9
manage, control, participate in, consult with or render services for, (i) any
business, the operating facilities of which compete with the operating
facilities of the Company or its Subsidiaries within the geographical area
included in the 50-mile radius around each location where the Company or any
Subsidiary owns, leases, manages or otherwise maintains an operating facility,
engages in business or, on the date of Executive's termination, plans to own,
lease, manage or otherwise maintain a facility or engage in business, or (ii)
any business in which the Company or any of its Subsidiaries has entered into a
letter of intent or is or has been within one year prior to the date of
termination of Executive's employment in active negotiations relating to the
acquisition of such business by the Company or its Subsidiaries.
(b) Nonsolicitation. During the Noncompete Period,
Executive shall not directly or indirectly through another entity (i) induce or
attempt to induce any employee of the Company or any Subsidiary to leave the
employ of the Company or such Subsidiary, or in any way interfere with the
relationship between the Company or any Subsidiary and any employee thereof,
(ii) hire any person who was an employee of the Company or any Subsidiary within
six months prior to termination of Executive's employment, or (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company or any Subsidiary to cease doing business with the Company or such
Subsidiary.
(c) Enforcement. If, at the time of enforcement of
paragraph 7 or 8 of this Agreement, a court holds that the restrictions stated
herein are unreasonable under circumstances then existing, the parties hereto
agree that the maximum duration, scope or geographical area reasonable under
such circumstances shall be substituted for the stated period, scope or area and
that the court shall be allowed to revise the restrictions contained herein to
cover the maximum duration, scope and area permitted by law. Because Executive's
services are unique and because Executive has access to confidential
information, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
(d) Submission to Jurisdiction. Each of the parties (i)
submits to the jurisdiction of any state or federal court sitting in Delaware in
any action or proceeding arising out of or relating to paragraphs 7 and/or 8 of
this Agreement, (ii) agrees that all claims in respect of such action or
proceeding may be heard or determined in any such court and (iii) agrees not to
bring any action or proceeding arising out of or relating to paragraphs 7 and/or
8 of this Agreement in any other court. Each of the parties waives any defense
of inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be required of any
other party with respect thereto. Each party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law.
<PAGE> 10
GENERAL PROVISIONS
9. Definitions.
"Affiliate" of the Investor means any direct or indirect
general or limited partner of the Investor, or any employee or owner thereof, or
any other person, entity or investment fund controlling, controlled by or under
common control with the Investor, and will include, without limitation, Golder,
Thoma, Cressey, Rauner, Inc. and its owners and employees.
"Common Stock" means the Company's Common Stock, no par value.
"Core Business" means the ownership and operation of rural
hospitals.
"Executive's Family Group" means Executive's spouse and
descendants (whether natural or adopted) and any trust solely for the benefit of
Executive and/or Executive's spouse and/or descendants.
"Executive Stock" will continue to be Executive Stock in the
hands of any holder other than Executive (except for the Company and the
Investor and except for transferees in a Public Sale), and except as otherwise
provided herein, each such other holder of Executive Stock will succeed to all
rights and obligations attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock will also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization. Notwithstanding the foregoing, all Unvested
Shares shall remain Executive Stock after any Transfer thereof.
"Fair Market Value" of each share of Executive Stock means 95%
of the average of the closing prices of the sales of the class of stock on all
securities exchanges on which such stock may at the time be listed, or, if there
have been no sales on any such exchange on any day, 95% of the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such stock is not so listed, 95% of the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day such stock is not quoted in the NASDAQ System,
95% of the average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Market Value
is being determined and the 20 consecutive business days prior to such day. If
at any time such stock is not listed on any securities exchange or quoted in the
NASDAQ System or the over-the-counter market, the Fair Market Value will be the
fair value of such stock determined in good faith by the Board.
"Junior Preferred" means the Company's Series B Junior
Preferred Stock, no par value.
<PAGE> 11
"Original Cost" means (i) with respect to each share of Junior
Preferred purchased by Executive, $1,000 (as proportionately adjusted for all
subsequent stock splits, stock dividends and other recapitalizations) and (ii)
with respect to each share of Common Stock purchased by Executive, $1 (as
proportionately adjusted for all subsequent stock splits, stock dividends and
other recapitalizations).
"Permitted Transferee" means any holder of Executive Stock who
acquired such stock pursuant to a transfer permitted by paragraph 4(e).
"Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock approved
by the Board.
"Public Sale" means any sale pursuant to a registered public
offering under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or market
maker.
"Sale of the Company" means any transaction or series of
transactions pursuant to which any person(s) or entity(ies) (including any
Affiliates of the Investor) other than the Investor in the aggregate acquire(s)
(i) capital stock of the Company possessing the voting power (other than voting
rights accruing only in the event of a default, breach or event of
noncompliance) to elect a majority of the Company's board of directors (whether
by merger, consolidation, reorganization, combination, sale or transfer of the
Company's capital stock, shareholder or voting agreement, proxy, power of
attorney or otherwise) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis; provided that the term "Sale of the Company"
shall not include an initial Public Offering.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Stockholders Agreement" means the Stockholders Agreement, of
even date herewith, among the Company, Executive, the Investor, and the other
stockholders of the Company listed therein, as may be amended, modified and
supplemented from time to time.
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
"Transfer" means to sell, transfer, assign, pledge or
otherwise dispose of (whether with or without consideration and whether
voluntarily or involuntarily or by operation of law).
"Vesting Shares" means 110,404 shares of the Common Stock
acquired by Executive and any shares of Common Stock acquired by Executive
pursuant to Section 6(d) of the Stockholders Agreement.
10. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested)
<PAGE> 12
or sent by reputable overnight courier service (charges prepaid) to the
recipient at the address below indicated:
If to the Company:
Brim, Inc.
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
Attention: Martin S. Rash
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Kevin R. Evanich, P.C.
If to the Executive:
Richard D. Gore
Principal Hospital Company
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
If to the Investor:
Golder, Thoma, Cressey Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bruce V. Rauner
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Kevin R. Evanich
<PAGE> 13
If to Leeway:
Leeway & Co.
c/o State Street Bank and Trust Company
Master Trust Division - Q4W
P.O. Box 1992
Boston, Massachusetts 02101
Attention: Lisa Lane
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Raj Marphatia
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
11. General Provisions.
(a) Expenses. The Company agrees to pay and hold
Executive harmless against liability for the payment of, (i) the fees and
expenses of its counsel arising in connection with the negotiation and execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement, and (ii) if Executive is the prevailing party in a judicial
proceeding involving a dispute hereunder, the fees and expenses of its counsel
incurred in connection with such dispute and/or proceeding.
(b) Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Executive Stock in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Executive Stock as the owner of
such stock for any purpose.
(c) Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(d) Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and
<PAGE> 14
understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
(e) Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder;
provided further that the rights and obligations of the Investor under this
Agreement and the agreements contemplated hereby may be assigned by the Investor
at any time, in whole or in part, to any investment fund managed by Golder,
Thoma, Cressey, Rauner, Inc., or any successor thereto. The rights and
obligations of GTCR and Leeway under Section 4(d) of this Agreement shall inure
to the benefit of and be enforceable by the transferees of each of GTCR and
Leeway.
(g) Choice of Law. All questions concerning the
construction, validity and interpretation of this Agreement and the exhibits
hereto will be governed by and construed in accordance with the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
(h) Remedies. Each of the parties to this Agreement
(including the Investor) will be entitled to enforce its rights under this
Agreement specifically, to recover damages and costs (including attorney's fees)
caused by any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction for specific performance
and/or other injunctive relief in order to enforce or prevent any violations of
the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior written consent of the
Company, Executive and the Investor.
(j) Business Days. If any time period for giving notice
or taking action hereunder expires on a day which is a Saturday, Sunday or
holiday in the state in which the Company's chief executive office is located,
the time period shall be automatically extended to the business day immediately
following such Saturday, Sunday or holiday.
<PAGE> 15
(k) Waiver of Acceleration of Vesting. Executive hereby
waives any vesting of Vesting Shares which may be triggered by the Merger, and
agrees that the Merger will not constitute a "Sale of the Company" under the
Original Management Agreement.
(l) Termination of Original Management Agreement. The
Original Management Agreement will be terminated automatically upon the
effectiveness of this Agreement, and from and after such time, shall have no
further force or effect.
(m) Termination. This Agreement (except for the
provisions of paragraph 6) shall survive the termination of Executive's
employment with the Company and shall remain in full force and effect after such
termination.
(n) Adjustment of Numbers. All numbers set forth herein
which refer to share prices or amounts will be appropriately adjusted to reflect
stock splits, stock dividends, combinations of shares and other
recapitalizations affecting the subject class of stock.
*****
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
BRIM, INC.
By /s/ Martin S. Rash
-----------------------------------------
Its Chief Executive Officer
PRINCIPAL HOSPITAL COMPANY
By /s/ Martin S. Rash
-----------------------------------------
Its Chief Executive Officer
LEEWAY & CO.
By State Street Bank & Trust Company
Its Partner
By /s/ Edward J. Lavin Jr.
-----------------------------------------
Its Vice President
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.
By GTCR IV, L.P.,
Its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.,
Its General Partner
By /s/ Bruce V. Rauner
-----------------------------------------
Its: Principal
/s/ Richard D. Gore
--------------------------------------------
Richard D. Gore
<PAGE> 17
CONSENT
The undersigned spouse of Executive hereby acknowledges that I
have read the foregoing Senior Management Agreement and that I understand its
contents. I am aware that the Agreement provides for the repurchase of my
spouse's shares of stock under certain circumstances and imposes other
restrictions on the transfer of such stock. I agree that my spouse's interest in
the stock subject to this Agreement and any interest I may have in such stock
shall be irrevocably bound by this Agreement and further that the my community
property interest, if any, shall be similarly bound by this Agreement.
/s/ Lynn Gore
----------------------------------------
Spouse's Name
/s/ Nancy Lancaster
----------------------------------------
Witness
<PAGE> 1
EXHIBIT 10.14
PROFESSIONAL SERVICES AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of December 17, 1996,
by and between Golder, Thoma, Cressey, Rauner, Inc., a Delaware Corporation
("GTCR"), Brim, Inc., an Oregon corporation (the "Company") and Principal
Hospital Company, a Delaware corporation (formerly known as Rural Hospital
Corporation) ("Principal") for the limited purpose specified in Section 14
hereof.
WHEREAS, Golder, Thoma, Cressey, Rauner Fund IV, L.P., a
Delaware limited partnership ("Purchaser"), of which GTCR is the indirect
general partner, has purchased (the "Investment") a portion of the Company's
Common Stock, no par value, and the Series B Junior Preferred Stock, no par
value;
WHEREAS, the Company desires to receive financial and
management consulting services from GTCR, and obtain the benefit of the
experience of GTCR in business and financial management generally and its
knowledge of the Company and the Company's financial affairs in particular; and
WHEREAS, in connection with the Investment, GTCR is willing to
provide financial and management consulting services to the Company, and the
compensation arrangements set forth in this Agreement are designed to compensate
GTCR for such services.
NOW, THEREFORE, in consideration of the foregoing premises and
the respective agreements hereinafter set forth and the mutual benefits to be
derived herefrom, GTCR and the Company hereby agree as follows:
1. Engagement. The Company hereby engages GTCR as a
financial and management consultant, and GTCR hereby agrees to provide financial
and management consulting services to the Company, all on the terms and subject
to the conditions set forth below.
2. Services of GTCR. GTCR hereby agrees during the term
of this engagement to consult with the Company's board of directors (the
"Board") and management of the Company and its subsidiaries in such manner and
on such business and financial matters as may be reasonably requested from time
to time by the Board, including but not limited to:
(i) corporate strategy;
(ii) budgeting of future corporate investments;
(iii) acquisition and divestiture strategies; and
(iv) debt and equity financings.
<PAGE> 2
3. Personnel. GTCR shall provide and devote to the
performance of this Agreement such partners, employees and agents of GTCR as
GTCR shall deem appropriate for the furnishing of the services required thereby.
4. Investment Fee. At the time of (a) any purchase of
stock of the Company by Purchaser pursuant to Section 6 of the Stockholders
Agreement of even date herewith among the Company, the Purchaser and the other
stockholders named therein and (b) any other debt or equity financing of the
Company other than such financing by a member of the Company's senior
management, the Company shall pay to GTCR an investment fee in immediately
available funds equal to one and one-quarter percent (1.25%) of the amount paid
to the Company in connection with such purchase or financing.
5. Management Fee. The Company shall pay to GTCR within
90 days after the end of each fiscal year, a management fee equal to $200,000.
6. Expenses. The Company shall promptly reimburse GTCR
for such reasonable travel expenses and other out-of-pocket fees and expenses as
may be incurred by GTCR, its directors, officers and employees in connection
with the consummation of the Purchaser's Investment in the Company, the
transactions related thereto and in connection with the rendering of services
hereunder.
7. Term. This Agreement will continue from the date
hereof until Purchaser ceases to own at least 20% of the GTCR Shares (as defined
in the Stockholders Agreement dated as of the date hereof among the Company and
certain of its stockholders (the "Stockholders Agreement"). No termination of
this Agreement, whether pursuant to this paragraph or otherwise, shall affect
the Company's obligations with respect to the fees, costs and expenses incurred
by GTCR in rendering services hereunder and not reimbursed by the Company as of
the effective date of such termination.
8. Liability. Neither GTCR nor any of its affiliates,
partners, employees or agents shall be liable to the Company or its subsidiaries
or affiliates for any loss, liability, damage or expense arising out of or in
connection with the performance of services contemplated by this Agreement,
unless such loss, liability, damage or expense shall be proven to result
directly from the gross negligence or willful misconduct of GTCR.
9. Indemnification. The Company agrees to indemnify and
hold harmless GTCR, its partners, affiliates, officers, agents and employees
against and from any and all loss, liability, suits, claims, costs, damages and
expenses (including attorneys' fees) arising from their performance hereunder,
except as a result of their gross negligence or intentional wrongdoing.
10. GTCR an Independent Contractor. GTCR and the Company
agree that GTCR shall perform services hereunder as an independent contractor,
retaining control over and responsibility for its own operations and personnel.
Neither GTCR nor its directors, officers, or employees shall be considered
employees or agents of the Company as a result of this Agreement nor
-2-
<PAGE> 3
shall any of them have authority to contract in the name of or bind the Company,
except as expressly agreed to in writing by the Company.
11. Notices. Any notice, report or payment required or
permitted to be given or made under this Agreement by one party to the other
shall be deemed to have been duly given or made if personally delivered or, if
mailed, when mailed by registered or certified mail, postage prepaid, to the
other party at the following addresses (or at such other address as shall be
given in writing by one party to the other):
If to GTCR:
Golder, Thoma, Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, IL 60606-6402
Attention: Bruce V. Rauner
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Kevin R. Evanich, P.C.
If to the Company:
Brim, Inc.
5123 Paddock Village Court, Suite A12
Brentwood, TN 37027
Attention: Martin S. Rash
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Kevin R. Evanich, P.C.
12. Entire Agreement; Modification. This Agreement (a)
contains the complete and entire understanding and agreement of GTCR and the
Company with respect to the subject matter hereof; and (b) supersedes all prior
and contemporaneous understandings, conditions and agreements, oral or written,
express or implied, respecting the engagement of GTCR in connection with the
subject matter hereof.
-3-
<PAGE> 4
13. Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach of that provision or any
other provision hereof.
14. Termination. The Professional Services Agreement,
dated as of February 1, 1996 by and between GTCR and Principal will be
terminated automatically upon the effectiveness of this Agreement, and from and
after such time, shall have no further force or effect.
15. Assignment. Neither GTCR nor the Company may assign
its rights or obligations under this Agreement without the express written
consent of the other; provided that GTCR, without the consent of the Company may
assign its rights and obligations hereunder to any successor entity to GTCR.
16. Successors. This Agreement and all the obligations
and benefits hereunder shall inure to the successors and permitted assigns of
the parties.
17. Counterparts. This Agreement may be executed and
delivered by each party hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original and both of which taken
together shall constitute one and the same agreement.
18. Choice of Law. This Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Delaware,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Delaware.
*****
-4-
<PAGE> 5
IN WITNESS WHEREOF, GTCR and the Company have caused this
Agreement to be duly executed and delivered on the date and year first above
written.
GOLDER, THOMA, CRESSEY
RAUNER, INC.
By: /s/ Bruce V. Rauner
----------------------------------------
Its: Principal
BRIM, INC.
By: /s/ Martin S. Rash
----------------------------------------
Its: Chief Executive Officer
PRINCIPAL HOSPITAL COMPANY
By: /s/ Martin S. Rash
----------------------------------------
Its: Chief Executive Officer
<PAGE> 1
Exhibit 10.17
LEASE AGREEMENT
THIS LEASE AGREEMENT, made as of the 1st day of October, 1996, by and
between County of Starke, State of Indiana, by and through its Board of
Commissioners and its County Council and Starke Memorial Hospital, a County
Hospital Organized Pursuant to the Acts of the General of Assembly of 1917,
Chapter 144, by and through its Board of Trustees, ("Lessor"), whose address is
c/o Starke County Auditor, Starke County Government Building, 53 E. Mound
Street, Knox, Indiana 46534 and Principal Knox Company, a Delaware corporation
("Lessee"), whose address is 5123 Paddock Place, Suite A-12, Brentwood,
Tennessee 37027.
W I T N E S S E T H :
SECTION 1. LEASE OF PREMISES AND EQUIPMENT.
In consideration of the rents and covenants herein stipulated to be paid
and performed by Lessee and upon the terms and conditions herein specified,
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
property commonly known as Starke Memorial Hospital, Knox, Indiana, consisting
of: (i) the parcel(s) of land located in Starke County, Indiana, as described
on Schedule A, Part I attached hereto and made a part hereof for all purposes
(the "Land"); (ii) all buildings, structures, "Fixtures" (as hereinafter
defined) and other improvements of every kind including, but not limited to,
alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines
(on-site and off-site), parking areas and roadways appurtenant to such
buildings and structures presently situated upon the Land (collectively, the
"Improvements"); (iii) all easements, rights and appurtenances relating to the
Land and the Improvements (collectively, the "Appurtenant Rights"); (iv) all
equipment, machinery, fixtures, and other items of property, including all
components thereof, now and hereafter permanently affixed to or incorporated
into the Improvements, including, without limitation, all furnaces, boilers,
heaters, electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems and apparatus, sprinkler systems and
fire and theft protection equipment, all of which to the greatest extent
permitted by law, are hereby deemed by the parties hereto to constitute real
estate, together with all replacement, modifications, alterations and additions
thereto, (collectively the "Fixtures"); and (v) all equipment, furnishings,
furniture, trade fixtures and other personal property used in connection with
medical-surgical
<PAGE> 2
hospital, urgent care and medical office building operations and businesses on
the Premises, all as more particularly described on Schedule B (collectively the
"Equipment"). The Land, the Improvements, the Appurtenant Rights and the
Fixtures are hereinafter referred to collectively as the "Premises."
SECTION 2. TERM.
2.1 The Premises and the Equipment are leased for a primary term (the
"Primary Term") and, at Lessee's option, two (2) additional extended terms (the
"Extended Terms"), unless and until the term of this Lease shall expire or be
terminated as hereinafter provided. The Primary Term shall be for twenty (20)
years commencing on October 1, 1996 (the "Commencement Date") and ending on
September 30, 2016. Following the Primary Term, Lessee shall have an option to
extend the term of this Lease for two (2) additional terms of ten (10) years
each. Such Extended Terms shall be on and subject to all of the same terms,
covenants and conditions as herein contained. The option for any Extended Term
shall be exercised only by written notice from Lessee to Lessor given no less
than six (6) months prior to the expiration of the Primary Term or the first
Extended Term, as the case may be. Unless specifically otherwise provided, the
terms and phrases "term," "term hereof" and "term of this Lease" shall include
the Primary Term and any Extended Term if exercised and in effect. "Lease Year"
shall mean the period beginning on the first day of the Primary Term and ending
at 12:00 midnight of the day prior to the first anniversary of the commencement
date of the Primary Term and each subsequent 12-month period within the term of
this Lease.
SECTION 3. AMOUNT AND MANNER OF PAYMENT OF RENT.
3.1 MINIMUM RENT. Lessee shall pay to Lessor in lawful money of the United
States, on the commencement date hereof, as partial prepayment of rent for the
Primary Term, the amount of Six Million Five Hundred Thousand Dollars
($6,500,000), by wire transfer to an account designated by Lessor, and
thereafter shall pay as fixed minimum rent ("Rent") for the Premises, the amount
of One Hundred Thousand Dollars ($100,000) per year during the first five (5)
Lease Years and the amount of Seventy-Five Thousand Dollars ($75,000) per year
during the remaining Lease Years of the Primary Term and any Extended Term,
payable quarterly in advance on the first day of each quarter, and subject to
adjustment as follows: (i) during the first Extended Term, if any, the Rent
shall be increased by a percentage equal to the percentage increase in the
Consumer Price Index-All items, for North Central metropolitan areas of 2,500 to
75,000 people ("CPI-NC"), for the period January 1, 2002 through to the end of
the Primary Term, and (ii) during the second Extended Term, if any, the Rent as
adjusted pursuant to clause (i) shall again by adjusted by a percentage equal to
the percentage increase in the CPI-NC during the period of the first
2
<PAGE> 3
Extended Term. To the extent the adjustment of the Rent for any Extended Term
cannot be calculated prior to the date the first payment of Rent as adjusted
shall be due, then payments shall be made without adjustment, and any amount
thereafter determined to have been due with respect to such payments made
without adjustment shall be paid with the next quarterly installment following
determination of the adjustment, payable without interest or penalty if so paid.
All Rent shall be paid to Lessor at Lessor's address set forth above or at such
other address or to such person as Lessor or Lessor's successor may designate in
writing from time to time. Any installment of Rent which is not paid within 30
days of the date such installment shall be due (the "Payment Date") shall bear
interest at the rate of 8% per annum from the 31st day after such Payment Date
until such installment is paid. The parties agree that the allocation of the
Rent as between the Premises (Land, Improvements, Appurtenant Rights and
Fixtures) and the Equipment shall be set forth on Schedule C to be attached
hereto within 90 days of the commencement of the Term.
SECTION 4. COVENANTS OF LESSEE AND LESSOR.
4.1 PAYMENT OF RENT. Lessee shall pay Rent in the manner provided in
Section 3 without notice or demand.
4.2 MAINTENANCE AND REPAIR. (a) Lessee, at its own expense, will maintain
all parts of the Improvements in at least as good condition as they, now are,
except for ordinary wear, tear, depreciation and obsolescence and damage by fire
or other casualty. Lessee acknowledges that the roof of the premises is in need
of repair.
(b) All of the Equipment shall be maintained by Tenant in such repair
and condition as similar equipment is maintained in other hospitals similar to
and similarly located to the Premises in Indiana, but Lessee shall not be
required to maintain any of the Equipment in any better condition than it now
is. In the event that Tenant decides for any reason that any item or items of
Equipment are no longer required for its use, Lessee may dispose of the same in
accordance with the provisions of Section 7.2. If Tenant elects to replace any
damaged or deteriorated Equipment instead of repairing the same, such
replacement items of equipment shall become the property of Lessee, provided
that the acquisition of any such replacement items of equipment shall be subject
to the provisions of Section 7. Upon the expiration or earlier termination of
this Lease, Tenant shall return to Landlord all items of Equipment not
previously returned to Landlord in such condition they are required to be
maintained hereunder, ordinary wear and tear, damage and deterioration, and any
loss or damage ordinarily covered by a policy of fire and extended coverages
excepted. As used throughout this Section 4.2(b), "ordinary wear and tear" shall
mean the wear, tear, damage and deterioration that
3
<PAGE> 4
would typically and ordinarily occur if used for a period of time equivalent to
the term of this Lease in a medical-surgical hospital facility similar to the
Premises.
4.3 TAXES AND UTILITIES. Lessee shall pay, prior to delinquency: all taxes,
assessments, levies, fees, water and sewer rents and charges, and all other
governmental charges, general and special, ordinary and extraordinary, foreseen
and unforeseen, which are during the Primary Term or any Extended Term hereof,
imposed or levied upon or assessed against (A) the Premises and the Equipment,
(B) any Rent or any additional rent or other sum payable by Lessee hereunder or
(C) this Lease, the leasehold estate hereby created or which arises in respect
of the operation, possession or use of the Premises. Lessee shall not be
required to pay any franchise, estate, inheritance, transfer, income or similar
tax of Lessor unless such tax is imposed, levied or assessed in substitution for
any other tax, assessment, charge or levy which Lessee is required to pay
pursuant to this Section 4.3. Lessee will furnish to Lessor, promptly after
demand therefor, proof of payment of all items referred to above which are
payable by Lessee. If any such assessment may legally be paid in installments,
Lessee may pay such assessment, together with any interest or penalties, in
installments; in such event, Lessee shall be liable only for installments,
together with any interest or penalties, which become due and payable during the
term hereof.
4.4 COMPLIANCE WITH LAWS. Lessee shall cause the Premises to be in
conformity with all laws, ordinances and regulations, and other governmental
rules, orders and determinations now or hereafter enacted, made or issued,
whether or not presently contemplated (collectively "Legal Requirements"),
applicable to the Premises or the use thereof.
4.5 INSURANCE.
(a) Lessee will maintain insurance on the Premises of the following
character:
(1) Insurance against loss by fire, flood, lightning, vandalism,
malicious mischief and other risks which at the time are included
under "extended coverage" endorsements with respect to the Premises,
in an amount not less than 100% of the actual replacement value of the
Improvements, exclusive of foundations, excavations, parking areas,
drives, underground utilities and all other land improvements.
(ii) Comprehensive public liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the
Premises and adjoining streets and sidewalks, in the amounts of
4
<PAGE> 5
$3,000,000 for bodily injury or death in any one occurrence and
$1,000,000 for property damage.
(iii) Worker's compensation insurance (including employers'
liability insurance, if requested by Lessor) to the extent required by
the law of the state in which the Premises are located and to the
extent necessary to protect Lessor and the Premises against worker's
compensation claims.
Such insurance shall be written by companies authorized to do business in the
State of Indiana and rated "A" or better by the Best's rating guide, and shall
name Lessor, the Healthcare Foundation of Starke County, Inc., and Starke
County, Indiana as additional insured parties; provided, that if there shall be
an additional cost, expense or premium for the inclusion of Lessor and/or Starke
County, Indiana as additional insured parties, then they shall bear such
additional costs if they choose to be additional insured parties. If the
Premises, or any part thereof shall be damaged or destroyed by fire or other
casualty, and if the estimated cost of rebuilding, replacing or repairing the
same shall exceed $300,000, Lessee shall notify Lessor and Mortgagee thereof.
4.6 SURRENDER OF PREMISES. Upon the expiration or termination of the
Primary Term, or if exercised, the last day of any Extended Term, Lessee shall
surrender the Premises to Lessor in the condition in which the Premises were
upon the commencement of the Primary Term, except as repaired, rebuilt,
restored, altered, added to, as permitted or required hereby; except for
ordinary wear and tear, normal deterioration and obsolescence and damage due to
causes reasonably beyond Lessee's control and, if this Lease shall be terminated
by Lessee pursuant to Section 12.1, except any damage resulting from any fire or
other casualty and not covered by policies of insurance not required under this
Lease.
4.7 USE OF PREMISES. Lessee may use and occupy the Premises for operation
of a medical surgical hospital or other health care facility or facilities and
the provision of such ancillary services and related, incidental uses as are
appropriate or desirable in conjunction with the operation of such health care
facilities and for any other purpose or purposes permitted by applicable Legal
Requirements and permitted by this Lease.
SECTION 5. TITLE AND CONDITION OF PREMISES.
5.1 TITLE TO PREMISES. Lessor covenants, represents and warrants that
Lessor has full right and lawful authority to enter into this Lease for the term
hereof, is lawfully seized of the Premises and has good and marketable title
thereto, free and clear of all liens and encumbrances except those listed on
Schedule A, Part II (the "Permitted Encumbrances").
5
<PAGE> 6
5.2 CONDITION OF THE PREMISES. Except for the roof of the Premises, which
needs repair, the Premises and the Equipment are in good operating condition and
repair and are structurally sound and, except as set forth in Schedule D, there
are no material deferred maintenance items and none of the Equipment nor any of
the buildings, structures, fixtures or improvements which are part of the
Premises are in need of any maintenance, repair or replacement, except for
ordinary routine periodic maintenance of the kind usually required from time to
time at similar facilities.
5.3 QUIET ENJOYMENT. So long as no Event of Default has occurred and is
continuing, Lessee shall peaceably and quietly have, hold, occupy and enjoy the
Premises and the Personal Property and all the appurtenances thereto, without
hindrance or molestation from Lessor or any other persons and other entities
whatsoever.
SECTION 6. INDEMNIFICATION.
6.1 INDEMNIFICATION. Lessee shall indemnify and hold Lessor harmless
against any and all claims, liabilities, damages or losses resulting from injury
or death of any person or damage to any property occurring on or about the
Premises or in any manner in conjunction with the use or occupancy of the
Premises in whole or in part, unless the death, injury or damage was sustained
as a result of any tortious or negligent act of Lessor, or Lessor's agents or
employees.
SECTION 7. ALTERATIONS, ADDITIONS AND REMOVAL.
7.1 ALTERATIONS, ADDITIONS AND REMOVAL. Lessee may, at its expense, make
additions to and alterations of the Improvements, and construct additional
Improvements, provided that (i) the market value of the Premises shall not be
materially lessened thereby; (ii) such work shall be completed in a good and
workmanlike manner and in compliance with all applicable Legal Requirements and
the requirements of all insurance policies required to be maintained by Lessee
hereunder; (iii) no material part of the Improvements shall be demolished unless
(A) the same are replaced by other improvements which are required by Lessee in
connection with its intended use of the Premises, or (B) Lessor's prior consent
shall have been obtained, which consent shall not be unreasonably withheld and
(iv) Lessee provides to Lessor the blueprints, specifications, construction
plans and "as built" drawings of the Improvements. All such additions and
alterations shall be and remain part of the realty and become the property of
Lessor at the expiration or earlier termination of this Lease. Lessee may place
upon the Premises any trade fixtures, machinery, equipment, materials,
inventory, furniture and/or other personal property belonging to Lessee or third
parties (collectively, "Lessee's Personal Property"), whether or not the same
shall be affixed to the Premises, which are used in connection with any of
Lessee's
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business operations on the Premises. Lessee may remove any of Lessee's Personal
Property at any time during the Primary Term and any Extended Term. Lessee shall
repair any damage to the Premises caused by such removal.
7.2 DISPOSAL OF EQUIPMENT. If Lessee shall determine at any time and from
time to time that any item or items of Equipment are obsolete or no longer
suitable for Lessee's use in connection with Lessee's business or operations at
the Premises, Lessee may sell, transfer, exchange, or otherwise dispose of such
item(s) in such manner as Lessee may deem appropriate. If requested by Lessee,
Lessor shall deliver to Lessee or to Lessee's designee a bill of sale, in form
and substance reasonably satisfactory to Lessee, duly executed and acknowledged
by Lessor, which shall be sufficient to convey and transfer to Lessee or its
designee all of Lessor's right, title and interest in and to the item(s), free
and clear of all liens and encumbrances whatsoever. Lessee may retain as its
sole and absolute property the proceeds, whether in cash or in exchange property
or otherwise, of any sale, transfer, exchange or other disposition of any such
items.
SECTION 8. LESSEE'S RIGHT TO MORTGAGE ITS LEASEHOLD INTEREST.
8.1 LESSEE'S RIGHT TO ENCUMBER AND MORTGAGE THIS LEASEHOLD. At any time
during the term of this Lease, Lessee may mortgage, hypothecate or otherwise
encumber Lessee's leasehold estate under this Lease in respect to both the
Premises and Equipment to secure indebtedness of Lessee under one or more
leasehold mortgages and may assign this Lease as security for such mortgage or
mortgages.
8.2 AMENDMENTS REQUIRED BY LEASEHOLD MORTGAGES. Lessor and Lessee shall
cooperate in including in this Lease by suitable amendment from time to time any
provision which may reasonably be requested by any proposed leasehold mortgagee
for the purpose of allowing such leasehold mortgagee reasonable means to protect
or preserve its lien upon Lessee's leasehold interest under this Lease on the
occurrence of a default under the terms of this Lease. Lessor and Lessee each
agree to execute and deliver (and to acknowledge, if necessary, for recording
purposes) any agreement necessary to effect any such amendment; provided,
however, that any such amendment shall not in any way affect Sections 2, 3 or
4.7 of this Lease, or Section 5.A.4 of Annex A hereto, or without the prior
written approval of Lessor, which will not be unreasonably withheld, modify any
other provision of this Lease in a manner which materially adversely affects
Lessor.
SECTION 9. MORTGAGES AND ENCUMBRANCES.
9.1 Subject to the provisions of Section 8, Lessee agrees that this Lease
may, at the option of Lessor, be subordinate to any mortgages, deeds to secure
debt or deeds of trust placed on the
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Premises (such mortgages, deeds to secure debt or deeds of trust being
hereinafter collectively referred to as the "Mortgage") after the commencement
of the Primary Term; provided that, Lessor shall obtain from the holder of the
Mortgage (hereinafter referred to as the "Mortgagee") an agreement (a
"Nondisturbance Agreement") in recordable form providing in substance that so
long as no Event of Default has occurred and is continuing, the Mortgagee agrees
that:
(A) in any action or proceeding to foreclose the Mortgage or exercise
the rights of a secured party under the Uniform Commercial Code in effect in the
State of Indiana (the "UCC"), Lessee will not be made a party defendant and the
leasehold estate created by this Lease shall not be affected or terminated by
such action or proceeding or by any judgment or decree rendered therein;
(B) the Mortgagee shall be deemed to have disclaimed any interest in
all personal property, equipment, fixtures, merchandise and inventories owned,
supplied by or under the possession or control of Lessee;
(C) Lessee shall have and at all times may exercise all rights and
privileges to which it is entitled under this Lease;
(D) Lessee's possession and other rights and privileges shall not be
disturbed by the Mortgagee or by any foreclosure or other proceedings, or
action, including, without limitation, the exercise of the rights of a secured
party under the UCC, on the debt which the Mortgage secures or by anyone whose
rights were acquired as a result of such proceedings or action or by virtue of
a right or power contained in the Mortgage or the bond or note secured thereby;
and
(E) if the use, occupancy or title of the Premises or any part thereof
is taken, requisitioned or sold in, by or on account of any actual or threatened
eminent domain proceeding or other action by any person having the power of
eminent domain, or if the Premises or any part thereof is damaged or destroyed
by fire, flood or other casualty, Lessee shall have the right to receive and
apply toward restoration or replacement of the Premises in accordance with
Section 12.2, the "Net Proceeds" (as defined in Section 12.1), provided that
Lessee's right to terminate this Lease as provided in Section 12.1 has not been
exercised; and further provided that Lessee shall not have any right to the
proceeds derived from a taking only of land and not any portion of the Premises,
except to the extent necessary to repair or relocate signage or like matters
incident to the use of the Premises as an acute care hospital.
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SECTION 10. ASSIGNMENTS AND SUBLEASES; MERGER AND SALE OF ASSETS.
10.1 ASSIGNMENTS AND SUBLEASES. Subject to the requirements of Section 4.7,
Lessee shall have the right to sublet the Premises or any part thereof from time
to time without the prior written consent of Lessor. Notwithstanding the
foregoing, Lessee shall not assign this Lease in whole or in part without the
consent of Lessor, which consent shall not be unreasonably withheld; provided
that, without the consent of Lessor, Lessee may assign this Lease to (i) any
subsidiary corporation or other entity owned at least 51%, directly or
indirectly, by Lessee; or (ii) to any person, firm or corporation who is the
purchaser of all or substantially all the assets and business of Lessee or is
the successor to substantially all the assets and business of Lessee by virtue
of a corporate merger or consolidation of, with or into Lessee, provided that
such purchaser, successor or assignee or the owner or ultimate parent of such
purchaser, successor or assignee has operational expertise and reputation
similar to Lessee and, in the reasonable best judgment of Lessee, sufficient
cash flow to perform its obligations hereunder. No such assignment as to which
the consent of Lessor is not required shall be effective unless each such
assignee by written instrument of law, shall assume and become bound to perform
and observe all of the covenants and agreements of Lessee under this Lease, but
Lessee shall not be released from liability for the payment of rent and for the
performance and observance of any of the other covenants and agreements of
Lessee under the Lease after the effective time of such assignment.
Nothing contained in this Section 10 shall be construed to prohibit or
restrict Lessee's right to permit patients of the hospital which is a part of
the Premises to occupy residential health care facilities therein or to permit
the physicians or other professionals to use or otherwise occupy office space
within the Premises. Each such assignment or sublease permitted hereunder shall
expressly be made subject and subordinate to the provisions of this Lease, and
no assignment or sublease permitted hereunder shall modify or limit any rights
or powers of Lessor hereunder or affect or reduce any obligation of Lessee
hereunder, and all such obligations shall continue in full effect as obligations
of a principal and not of a guarantor or surety, as though no assignment or
subletting had been made.
SECTION 11. PERMITTED CONTESTS. Notwithstanding any provision of this Lease
to the contrary, Lessee shall not be required, nor shall Lessor have the right,
to pay, discharge or remove any tax, assessment, levy, fee, rent (except Rent,
additional rent and any other sums due hereunder payable to or for the benefit
of Lessor), charge, lien or encumbrance, or to comply with any Legal Requirement
applicable to the Premises or the use thereof, as long as Lessee shall contest
the existence, amount or
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validity thereof by appropriate proceedings which shall prevent the collection
of or other realization upon the tax, assessment, levy, fee, rent, charge, lien
or encumbrance so contested, and which also shall prevent the sale, forfeiture
or loss of the Premises or any Rent, or to satisfy the same or Legal
Requirements, and which shall not affect the payment of any Rent, provided that
such contest shall not subject Lessor to the risk of any criminal liability or
any material civil liability. Lessee shall give such reasonable security as may
be demanded by Lessor, or any mortgagee to insure ultimate payment of such tax,
assessment, levy, fee, rent, charge, lien, or encumbrance and compliance with
Legal Requirements and to prevent any sale or forfeiture of the Premises, any
Rent, any additional rent or any other sum required to be paid by Lessee
hereunder.
SECTION 12. CONDEMNATION AND CASUALTY.
12.1 (A) Except as hereinafter provided, if any of the Improvements shall
be damaged or destroyed by fire or any other casualty covered by a standard
policy of fire and extended coverage insurance, as required pursuant to Section
4.5 hereof, Lessee shall thereafter commence and diligently prosecute to
completion, at Lessee's sole expense, the repair or rebuilding of the
Improvements or portion thereof which was damaged, in a good and workmanlike
manner, in accordance with plans and specifications satisfactory to Lessee and
Lessor, which Lessor shall not unreasonably disapprove, provided that the
Improvements upon completion of such repair or rebuilding shall have a value
which is not substantially less than the value of the Improvements immediately
prior to the damage or destruction. All proceeds remaining after payment of the
costs of collection and recovery, if any ("Net Proceeds") shall be paid over to
Lessee to fund the costs of repair and rebuilding.
(B) In the event that either (i) the damage or destruction with
respect to any building ("Building") which is a part of the Improvements is so
extensive that it cannot be rebuilt, restored or repaired as required in
Paragraph (a) of this Section 12.1 within 120 days after such occurrence, as
determined by Lessee in its reasonable judgment or (ii) any such damage or
destruction occurs during the last two years of the Primary Term, or the last
two years of any Extended Term, then Lessee shall have the right to terminate
this Lease with respect to the damaged or destroyed Building, but no other part
of the Premises, by giving written notice thereof to Lessor within 60 days
after the occurrence of such damage or destruction and such termination will be
effective retroactively as of the date of such damage or destruction; provided
that, if the Building which suffered such damage or destruction is the main
hospital building located on Tract 1 of the Premises, then Lessee shall have
the right to terminate this Lease by giving written notice thereof to Lessor
within 60 days after the occurrence of such damage or destruction and such
termination will
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be effective retroactively as of the date of such damage or destruction. In
addition, if any Building is materially damaged or destroyed by any casualty not
covered by the standard policy of fire and extended coverage insurance, then
Lessee may terminate this Lease effective as of the date of such damage or
destruction by giving the other party written notice thereof within 60 days
after the occurrence of such damage or destruction. If Lessee exercises its
option to terminate this Lease in part on account of damage or destruction to a
Building, the parties shall promptly thereafter execute an amendment to this
lease which shall provide that such Building will be excised from the Premises,
and that Rent will be proportionately and equitably reduced. In the event of a
termination of this Lease, either in whole or in part, pursuant to Section
12.l(b), the Net Proceeds of insurance shall be paid over to Lessor, except that
Lessee shall be entitled to receive such portion of such proceeds which
represents the amount allocable to the value of the leasehold improvements made
by Lessee and Lessee's Personal Property.
12.2 (A) If (i) the Premises are taken by an entity with the power of
eminent domain ("Condemning Authority") or if the Premises are conveyed to a
Condemning Authority by a negotiated sale, or if part of the Premises is so
taken or conveyed such that any of the Improvements cannot be rebuilt so that
upon completion Lessee may again use the Premises without substantial
interference, or (ii) due to any such taking or conveyances, access to the
Premises or any part thereof by motor vehicles and trucks as operated by Lessee,
its contractors, employees, patients and invitees in the course of Lessee's
business as theretofore conducted, is substantially impaired or terminated;
then in any such event, Lessee may terminate this Lease by giving Lessor written
notice any time after the occurrence of any of the foregoing and such
termination shall be effective 60 days from the date possession is taken by the
Condemning Authority.
(B) If part of the Premises or any Building or a substantial part
thereof is so taken or conveyed without substantially interfering with the use
of the Premises as a whole, but only one or more of the Buildings thereon, this
Lease shall not terminate, except to the extent hereinafter provided. In such
event, however, (i) Lessee shall have the option to terminate this Lease in
respect to any Building which is subject to such taking or conveyance by
notifying within 60 days after the title is transferred to the Condemning
Authority, and Lessor shall be entitled to all awards and payments made or to be
made by the Condemning Authority, and (ii) if Lessee exercises such termination
option, Lessor shall apply such portions of any award or payment made to Lessor
for such taking or conveyance as is necessary to pay the cost of restoring the
Building and/or the Premises to a complete architectural unit suitable for
Lessee's use and business on the Premises. If Lessee exercises its option to
terminate this
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Lease in part on account of a taking or conveyance of a Building or any
substantial part thereof as provided in clause (i) above, the parties shall
promptly thereafter execute an amendment to this Lease which shall provide that
the Building will be excised from the Premises, and that Rent will be
proportionately and equitably reduced.
(C) Except as provided below and in Paragraph (b) of this Section
12.2, all payments made for any such taking or conveyance shall be the property
of Lessor; provided, however, Lessor shall have no interest in any award or
payment or any portion of any such award or payment which is attributable to the
taking or conveyance of any trade fixtures, equipment and other personal
property that have been placed on or within the Premises by Lessee since the
Commencement Date or any leasehold improvements made by Lessee since the
Commencement Date, all of which shall be paid to Lessee.
(D) If this Lease is terminated pursuant to this Section 12, Lessor
and Lessee shall be released and discharged from all liabilities arising or
accruing under this Lease subsequent to the effective date of termination.
SECTION 13. RIGHT OF ENTRY.
Upon not less than 48 hours prior written notice to Lessee, Lessor and its
agents and designees may enter upon and examine the Premises at reasonable times
for the purpose of determining the condition of the Premises, and may show the
Premises to prospective purchasers, mortgagees or lessees as long as such
examination or showing shall not unreasonably interfere with the business
operations of Lessee on the Premises. In addition, Lessor may enter upon the
Premises at any time in the event of an emergency if so required in order to
protect the Premises.
SECTION 14. ESTOPPEL CERTIFICATE.
At any time and from time to time hereafter, Lessee, within 30 days after
request by Lessor, shall certify in writing to any mortgagee or purchaser,
proposed mortgagee or purchaser, or other person, firm or corporation specified
by Lessor, as to the validity and force and effect of this Lease, in accordance
with its tenor, as then constituted, as to the existence of any default on the
part of any party thereunder, as to the existence of any offsets, counterclaims
or defenses thereto on the part of Lessee, and as to any other matters relating
to this Lease which may be reasonably requested by Lessor.
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SECTION 15. DEFAULT.
15.1 In the event Lessee shall default in the payment of rent or any other
sums payable by Lessee hereunder, and such default shall continue for a period
of ten (10) days after Lessee receives written notice thereof from Lessor; or,
if Lessee shall default in the performance of any other covenants or agreements
hereunder and such default shall continue for 30 days after written notice
thereof, or, if the default is of such a nature that it could not reasonably be
cured within such 30 days period and Lessee does not, within said 30 day period
commence to cure it and thereafter proceed, with due diligence, to cure it; or,
if Lessee shall fail to cause the Premises to be in conformity with the Legal
Requirements and all other contracts, agreements, covenants, conditions and
restrictions applicable to the ownership, occupancy or use of the Premises, as
set forth in Section 4.4 hereof, and such failure shall continue for 30 days
after written notice thereof, or if the failure is of such a nature that it
could not reasonably be cured within such 30-day period and Lessee does not,
within said 30-day period commence to cure it and thereafter proceed, with due
diligence, to cure it; then, and in addition to any and all other legal remedies
and rights, Lessor may perform such covenant or agreement and to the extent sums
are expended in connection therewith, and add such sums to the rent due from
Lessee to Lessor or, at the election of Lessor, may terminate this Lease and
retake possession of the Premises by eviction, reentry or otherwise. Such
re-entry shall not bar the right or recovery of rent or damages for breach of
covenants, nor shall the receipt of rent after conditions broken be deemed a
waiver of Lessor's remedies.
15.2 After a dispossession or removal in accordance with Section 15.1, the
rent shall be paid to the date of such dispossession or removal, (i) Lessor
shall use its reasonable best efforts to re-let the Premises or portions
thereof, either in the name of Lessor, Lessee or otherwise, for a term or terms
which may, at the option of Lessor, be less than or exceed the period which
would otherwise have constituted the balance of the term of this Lease, (ii)
Lessee shall pay Lessor monthly any deficiency between the rent due hereunder
and the amount, if any, of the rent collected on account of the new lease or
leases of the Premises for each month of the period which would otherwise have
constituted the balance of the term of this Lease (not including any renewal or
extension the commencement of which shall not have occurred prior to such
dispossession or removal), and (iii) Lessor shall have any and all other rights
and remedies available to it.
15.3 If Lessee should fail to make any payment or cure any default
hereunder within the time herein permitted, Lessor, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other
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default for the account of Lessee, and thereupon Lessee shall be obligated to,
and hereby agrees, to pay Lessor, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Lessor in
taking such remedial action.
SECTION 16. ENVIRONMENTAL MATTERS.
16.1 Except as disclosed on Schedule E hereto, Lessor represents and
warrants to Lessee that, to the Lessor's knowledge, as of the date hereof no
"Hazardous Substances" (as hereafter defined) or any other toxic material or
medical waste are present on or in the Improvements or Land, except for
Hazardous Substances or other toxic materials or medical waste brought, kept or
used in the Premises in commercial quantities similar to those quantities
usually kept on similar premises by others in the same business or profession or
who operate medical facilities similar to those located in and on the Premises,
and which are used and kept in compliance with applicable public health, safety
and environmental laws; and Lessor shall indemnify Lessee against any and all
claims, demands, liabilities, losses and expenses, including consultant fees,
court costs and reasonable attorneys' fees, arising out of any breach of the
foregoing warranty.
16.2 Except for Hazardous Substances or other toxic materials or medical
waste brought, kept or used in the Premises in commercial quantities similar to
those quantities usually kept on similar premises by others in the same business
or profession or who operate medical facilities similar to those located in and
on the Premises, medical specialty, and which are used and kept in compliance
with applicable public health, safety and environmental laws, Lessee shall not
allow any Hazardous Substance, or other toxic material or medical waste to be
located in, on or under the Premises or allow the Premises to be used for the
disposal of any Hazardous Substance or other toxic material.
16.3 Lessee shall at all times and in all respects comply with all federal,
state or local laws, ordinances, regulations and orders applicable to the
Premises or the use thereof relating to industrial hygiene, the handling,
storage and disposal of medical waste, environmental protection, or the use,
analysis, generation, manufacture, storage, disposal or transportation of any
Hazardous Substance, toxic material or medical waste.
16.4 If Lessee becomes aware of the presence of any Hazardous Substance in
or on the Premises (except for those Hazardous Substances or other toxic
material or medical waste brought, kept or used in the Premises by Lessee in
commercial quantities similar to those quantities usually kept on similar
premises by others in the same business, profession or medical specialty and
which are used and kept in compliance with applicable public health, safety and
environmental laws) or if Lessee, or the Premises become
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subject to any order of any federal, state or local agency to repair, close,
detoxify, decontaminate or otherwise cleanup the Premises, Lessee shall, at its
own cost and expense, carry out and complete any repair, closure,
detoxification, decontamination or other cleanup of the Premises; provided that
Lessee shall not be responsible for any of the foregoing relating to any
Hazardous Substance, or other toxic materials or medical waste located on, in or
under the Premises on the date of this Lease, all of which shall be the
responsibility of Lessor pursuant to Section 16.1 and Lessor shall promptly
execute and complete any required repair, closure, detoxification,
decontamination or other clean-up of the Premises. If either party fails to
implement and diligently pursue any such repair, closure, detoxification,
decontamination other cleanup of the Premises which it is required to do
hereunder, the other party shall have the right, but not the obligation, to
carry out such action and to recover all of the costs and expenses from the
other.
16.5 "Hazardous Substances" as such term is used in this Lease means any
hazardous or toxic substance, material or waste, regulated or listed pursuant to
any federal, state or local environmental law, including without limitation, the
Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conversation and Recovery Act, the Federal Insecticide, Fungicide,
Rodenticide Act, the Safe Drinking Water Act and the Occupational Safety and
Health Act.
SECTION 17. NOTICES, DEMANDS AND OTHER INSTRUMENTS.
All notices, offers, consents and other instruments given pursuant to this
Lease shall be in writing and shall be validly given when actually delivered or
sent by a courier or express service guaranteeing overnight delivery, (a) if to
Lessor, addressed to it at its address set forth above, (b) if to Lessee,
addressed to Lessee at its address set forth above. Lessor and Lessee each may
from time to time specify, by giving 15 days notice to each other party, (i) any
other address in the United States as its address for purposes of this Lease and
(ii) any other person or entity that is to receive copies of notices, offers,
consents and other instruments hereunder.
SECTION 18. SEPARABILITY; BINDING EFFECT.
Each provision hereof shall be separate and independent and, the breach of
any such provision by Lessor shall not discharge or relieve Lessee from its
obligations to perform each and every covenant to be performed by Lessee
hereunder. If any provision hereof or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it is invalid or
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unenforceable, shall not be affected thereby, and each provision hereof shall be
valid and shall be enforceable to the extent permitted by law. All provisions
contained in this Lease shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of Lessor and Lessee to
the same extent as if each such successor and assign were named as a party
hereto. This Lease may not be changed, modified or discharged except by a
writing signed by Lessor and Lessee. Any such change, modification or discharge
made otherwise than as expressly permitted by this paragraph shall be void. This
Lease shall be governed by and interpreted in accordance with the laws of the
State of Indiana.
SECTION 19. HEADINGS AND TABLE OF CONTENTS.
The table of contents and the headings of the various Sections and
Schedules of this Lease have been inserted for reference only and shall not to
any extent have the effect of modifying, amending or changing the expressed
terms and provisions of this Lease.
SECTION 20. COUNTERPARTS.
This Lease may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
SECTION 21. MEMORANDUM OF LEASE.
Upon request of either party hereto, the parties shall execute and deliver
to each other duplicate originals of a Memorandum of this Lease, in recordable
form, containing the information required by law for recording the same.
SECTION 22. ASSIGNMENT OF EXISTING LEASES.
Lessor hereby assigns to Lessee all of its right, title and interest as
lessor under those certain leases affecting the Premises which are existing and
in effect as of the date of execution of this Lease listed on Schedule 3.7 (e)
of Annex A hereto attached hereto and made a part hereof (hereinafter the
"Existing Leases"), and Lessee hereby agrees to assume all Lessor's obligations,
covenants and agreements as lessor under the Existing Leases. Lessee shall be
entitled to collect and receive all such rents and other sums from the lessees
under the Existing Leases accruing on and after the Commencement Date, and
Lessee and Lessor agree that the Existing Leases shall upon this assignment
become subleases subject and subordinate to this Lease. Lessee shall notify each
of the lessees under the Existing Leases of this assignment.
SECTION 23. NO PARTNERSHIP.
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The parties hereto intend the relationship created by this Lease to be that
of lessor and lessee and do not intend for the arrangement between them to be a
partnership.
SECTION 24. PURCHASE OF EQUIPMENT, LEASEHOLD IMPROVEMENTS AND NET WORKING
CAPITAL AT END OF TERM.
Upon expiration or earlier termination of this Lease (other than in
accordance with Section 25 hereof), Lessor shall purchase: (i) all of Lessee's
personal property, used in the operations of the Premises; (ii) all equipment
owned by Lessee and used by Lessee in the operation of the Premises; (iii) any
and all leasehold improvements constructed and/or installed by Lessee on or in
the Premises; (iv) the "Net Working Capital" of the Hospital as of the last day
of the Term, corresponding to the "Net Working Capital" items purchased by
Lessor at the commencement of this Lease pursuant to the provisions set forth in
Annex A hereto, and (v) the items described in Section l.l(f) of Annex A. The
purchase price paid by Lessor for such equipment shall be the then net book
value of such equipment, personal property and leasehold improvements at the
time of expiration or earlier termination of this Lease, based on Lessee's books
and records. Lessee shall transfer and convey the same by bill of sale, free of
all liens and Lessor shall pay the purchase price in cash with delivery of the
bill of sale.
SECTION 25. OPTION TO PURCHASE.
25.1 During the Term hereof, and for a period of one hundred twenty (120)
days thereafter, Lessor shall, prior to any proposed sale, transfer or
assignment of substantially all of the assets comprising Starke Memorial
Hospital (the "Hospital Assets"), provide Lessee with written notice of the
terms and conditions of the proposed sale, transfer or assignment, including the
identity of the proposed transferee and the proposed purchase price. Lessee have
a right of first refusal for ten (10) days from the receipt of such notice in
which to agree to provide a preliminary commitment to Lessor to consummate such
sale, transfer or assignment on the same price, terms and conditions contained
in the notice, and an additional twenty (20) days thereafter in which to comfirm
its commitment. If Lessee elects to acquire the Hospital Assets on such price,
terms and conditions, Lessee shall have ninety (90) days from the date on which
it received notice of the transaction in which to consummate such transaction.
If Lessee fails to consummate such transaction within such 90-day period, Lessee
shall be entitled to proceed with the sale, transfer or assignment of the
Hospital Assets as originally intended, provided that if Lessor does not
consummate such transaction within ninety (90) days thereafter, then the
provisions hereof shall apply again to any proposed transaction.
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25.2 In the event of the purchase of the Leased Premises and the Equipment
by Lessee as provided in Section 25.1, Lessor shall convey to Lessee or its
designee by its general warranty deed and bill of sale, good, record and
marketable title to the Premises and the Equipment, subject only to Permitted
Exceptions, real estate taxes which are not delinquent and liens caused or
created by Lessee, but free and clear of all Mortgages, security deeds, liens,
encumbrances and security interests securing any indebtedness of Lessor. The
purchase price shall be paid in cash by wire transfer of immediately available
funds at the time of the closing; provided that if the Premises has suffered any
damage covered by the insurance described in Section 4.5, Lessor and the holders
of all Mortgages on the Premises shall pay to Lessee all of the proceeds of such
insurance not previously paid to Lessee, or to the extent such proceeds have not
been collected, assign to Lessee all of their respective rights and interests
therein to Lessee; or at its election Lessee may reduce the purchase price paid
by the amount of such proceeds and deduct such sum from the purchase price
payable at the closing. Each party shall be responsible for and shall pay 50% of
all other closing costs. Closing costs shall include the costs of title
insurance, a survey, any escrow charges, costs of recording deeds and all
documentary stamps and similar taxes on the recordation of the deeds. Each party
shall be responsible for the fees of its respective counsel.
25.3 Upon the completion of any such purchase, but not prior thereto
(whether or not any delay in the completion of or the failure to complete such
purchase shall be the fault of Lessor), this Lease and all obligations hereunder
(including, but not limited to, the obligations to pay rent and additional rent)
shall terminate, provided that neither party shall be released with respect to
obligations and liabilities of Lessee and Lessor, actual or contingent, under
this Lease which arose on or prior to the date of the closing of the purchase,
unless specific provision therefor shall be made in the instruments and
agreements relating to such purchase.
SECTION 26. DEPARTMENT OF HEALTH AND HUMAN SERVICES REGULATION.
Until the expiration of four years after the expiration or earlier
termination of the Term of this Lease, Lessor will make available to the
Secretary, U.S. Department of Health and Human Services, and the U.S.
Comptroller General, and their representatives, this Lease and all books,
documents, and records necessary to certify the nature and extent of Lessor's
costs with respect to this Lease and the Premises. If Lessor carries out any of
its duties under this Lease through a subcontract worth $10,000 or more over a
12-month period with a related organization, the subcontract will also contain
an access clause to permit access by
18
<PAGE> 19
the Secretary, Comptroller General, and their representatives to the related
organization's books and records.
SECTION 27. SCHEDULES.
The following Schedules A [SECTION 1], B [SECTION 1], C [SECTION 3.1], D
[SECTION 5.2], E [SECTION 16.1] and F [SECTION 22], referred to in this Lease,
which Schedules are hereby incorporated by reference herein.
SECTION 28. ANNEX A.
Additional terms and conditions regarding the transaction provided for
herein, and regarding the purchase of certain assets and agreement as to the
certain covenants, are set forth in Annex A to this Lease, which is incorporated
herein by reference.
[THE NEXT PAGES ARE THE SIGNATURE PAGES]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date and year first written above.
LESSOR:
COUNTY OF STARKE, STATE OF INDIANA,
BY AND THROUGH ITS BOARD OF
COMMISSIONERS
BY: /s/ Clifford Allen
--------------------------------
Clifford Allen, President
Attest:
/s/ Michaelene J. Houston
- ------------------------------
Michaelene J. Houston
Auditor, Starke County, IN
STARKE COUNTY COUNCIL
By: /s/ Judy Benninghoff
--------------------------------
Judy Benninghoff, President
Attest:
/s/ Michaelene J. Houston
- ------------------------------
Michaelene J. Houston
Auditor, Starke County, IN
BOARD OF TRUSTEES OF STARKE MEMORIAL
HOSPITAL, A COUNTY HOSPITAL ORGANIZED
PURSUANT TO THE ACTS OF THE GENERAL
ASSEMBLY OF 1917, CHAPTER 144
By: /s/ Geraldine Bowman
----------------------------------
Geraldine Bowman, Chairman
Attest:
/s/ Daniel Joseph Rannells
- --------------------------
Daniel Joseph Rannells
Secretary
<PAGE> 21
LESSEE:
PRINCIPAL KNOX COMPANY
By: /s/ Martin S. Rash
------------------------------
Martin S. Rash, President
Attest:
/s/ Richard D. Gore
- -------------------------
Richard D. Gore
Secretary
<PAGE> 22
SCHEDULE A - LANDS
LEASE AGREEMENT FOR STARKE MEMORIAL HOSPITAL
PART I
TRACT ONE--STARKE MEMORIAL HOSPITAL COMPLEX
Address: 102 East Culver Road, Knox, Indiana 46534
A tract of land located in the Northeast Quarter of Section 27, Township 33
North, Range 2 West of the 2nd P.M., Starke County, Indiana, and more
particularly described as follows, to-wit:
Beginning at the Northeast Corner of the Northeast Quarter of said Section 27;
thence South 00 degrees 01 minutes 23 seconds East, 609 feet; thence West 495
feet to an iron pin and being the Northwest Corner of a tract surveyed by
Richard T. Buckingham and occupied by the Knox City Fire Station, pursuant to
lease dated April 4, 1973 and recorded March 10, 1988 in the office of the
Recorder of Starke County, Indiana, in Miscellaneous Record FF, page 961; thence
South 117 feet; thence North 90 degrees West to the Southwest Corner of a tract
conveyed to the Board of Trustees of Starke Memorial Hospital by the Knox
Community School Corporation, by deed dated November 24, 1976 and recorded in
the office of the Recorder of Starke County, Indiana, in Deed Record 128, page
7; thence North 00 degrees 00 minutes West, 726 feet to the center of Culver
Road; and, thence North 90 degrees 00 minutes 00 seconds East 678 feet to the
point of beginning.
TRACT TWO--STARKE MEMORIAL HOSPITAL PROFESSIONAL BUILDING
Address: 502 East Culver Road, Knox, Indiana 46534
A tract of land commencing at a point on the Section line 985.5 feet East of the
Northwest corner of the Northwest Quarter of the Northwest Quarter of Section
26, Township 33 North, Range 2 West of the 2nd P.M.; thence East on the Section
line 159.5 feet, more or less, to a point 175 West of the Northeast corner of
the Northwest Quarter of the Northwest Quarter of said Section 26; thence South
292 feet; thence East 125 feet to the West line of Megill Street extended;
thence South 20 feet, more or less, to the Northeast corner of Lot number 8 in
Block 1 of James L. Brooke's Subdivision No. 1 recorded in Plat Book 2, Page 179
in the Office of the Recorder of Starke County, Indiana; thence West, on the
North line of said Block 1, 284.5 feet, more or less, to a point 16 feet East of
the Northwest corner of Lot 6 in said Block 1, thence North 312 feet, more or
less, to the point of beginning. EXCEPT: A tract of land commencing at a point
1145 feet east and 292 feet south of the northwest corner of the Northwest
Quarter of the Northwest Quarter of Section 26, Township 33 North, Range 2 West
of the 2nd
<PAGE> 23
SCHEDULE A-LANDS
P.M., which point is also 175 feet west of the east line of the Northwest
Quarter of the Northwest Quarter of said Section 26; thence east 125 feet to the
west line of Megill Street extended; thence south 20 feet, more or less, to the
northeast corner of Lot No. 8 in Block 1 of James L. Brooke's Subdivision No. 1
recorded in Plat Book 2, page 179, in the Office of the Recorder of Starke
County, Indiana; thence west on the north line of said Block 1, 125 feet, more
or less, to a point 20 feet south of the point of beginning; thence north 20
feet to the point of beginning.
TRACT 3--STARKE MEMORIAL HOSPITAL FAMILY HEALTH SERVICES
Address: 107 South Main Street, Knox, Indiana 46534
Lot 6 in Block 9 of Shields Addition to the Town of Knox, Starke County,
Indiana.
PART II
TRACT 1--
The legal description set forth above on Tract 1 is for the entire complex of
Starke Memorial Hospital bounded on the north by Culver Road, on the east by
Heaton Street (U. S. Highway 35), on the south by the Knox Fire Station and
Clabaugh Drive, and on the west by Main Street.
Included in that complex are the main buildings for Starke Memorial Hospital,
the helipad, parking areas and medical clinic operated by Foundation for Starke
Memorial Hospital. The improvements constituting the medical clinic are situated
upon the lands which were conveyed to the Board of Trustees of Starke Memorial
Hospital and leased from the manufacturer provider of the modular building
constituting the medical clinic.
On the Main Street side of the complex is situated an ambulance facility
operated by the Emergency Medical Services of Starke County under the auspices
of the Board of Commissioners of Starke County. The ambulance facility has been
located on the site by way of a License granted the County of Starke by the
Board of Trustees of Starke Memorial Hospital, a copy of which License is
attached as Schedule A-1.
Also situated on Tract 1 on the Heaton Street Side is a retail business known as
Knox Pizza King pursuant to a Lease originally granted Evelyn Estok by the Board
of Aviation Commissioners of Starke County when that part of Tract 1 was a part
of the Starke County Airport. The Board of Commissioners of Starke County,
Indiana, following the relocation of the Starke County Airport, dedicated the
land occupied by Evelyn Estok to the Board of Trustees of Starke Memorial
Hospital and authorized the Board of Trustees
<PAGE> 24
SCHEDULE A-LANDS
of Starke Memorial Hospital to terminate the Lease with Evelyn Estok when the
land was needed to be used for Starke Memorial Hospital. Notice to terminate
tenancy was issued Evelyn Estok and, following the failure of Evelyn Estok to
remove herself from the possession of the land and improvements, an action was
filed in the Starke Circuit Court entitled "The Board of Trustees of Starke
Memorial Hospital vs. Evelyn Estok, Gary Landrum and Annette Landrum" under
Cause No. 75C01-9408-CP-220. A copy of the Lease from the Board of Aviation
Commissioners with Estok is attached as Schedule A-2 and the Dedication of the
land by the Board of Commissioners of Starke County, Indiana occupied by Evelyn
Estok to Starke Memorial Hospital is attached as Schedule A-3.
ASSIGNMENT OF RIGHTS TO POSSESSION
Lessor, County of Starke, State of Indiana, by and through its Board of
Commissioners of Starke County, Indiana and its Starke County Council, and the
Board of Trustees of Starke Memorial Hospital, a County Hospital organized
pursuant to the Acts of the General Assembly of 1917, Chapter 144, by and upon
the execution of lease agreement of the buildings, lands and property of Starke
Memorial Hospital, as a County Hospital, with Principal Hospital
Company/Principal Knox Company, hereby assigns unto Principal Hospital Company
and Principal Knox Company, Delaware corporations, all rights to possession of
the real estate described on Schedule A-3, rights as Lessor under Lease dated
February 4, 1967 by and between the Starke County Board of Aviation
Commissioners and Evelyn Estok (Schedule A-2) and to act as plaintiff by
substituting themselves for current plaintiff under Cause No. 75C01-9408-CP-220
in the Starke Circuit Court in the County of Starke, State of Indiana, under
cause of action entitled "The Board of Trustees of Starke Memorial Hospital vs.
Evelyn Estok, Gary Landrum and Annette Landrum".
Part of Tract 1 from Schedule A-Lands, as attached to the Lease, is:
(a) Titled in the name of Starke County Hospital Association pursuant to
the terms of a Lease for construction of an addition to and renovation of Starke
Memorial Hospital;
(b) Is further subject to a Trust Indenture executed by the Starke County
Hospital Association and the American State Bank of North Judson, Indiana,
Trustee, (now known subsequent to merger as Indiana Federal Bank for Savings)
dated July 1, 1991 and recorded August 19, 1991 in Mortgage Record 149, page
987, in the office of the Recorder of Starke County, Indiana, securing the sum
of $3,800,000.00; and
(c) Is also subject to a Lease executed by Starke Memorial Hospital
Association, Lessor, and the County of Starke, Indiana, acting by and through
the Board of Commissioners of Starke County, the Starke County Council, and the
Board of
<PAGE> 25
Trustees of Starke Memorial Hospital, dated May 29, 1991 and recorded July 29,
1991 in Miscellaneous Record "HH", page 714, in the office of the Recorder of
Starke County, Indiana.
That part of the real estate described as Tract 1 on Schedule A attached to the
Lease which is the subject of the foregoing is more particularly described on
the attached Exhibit Schedule 3.7(a)(l).
Tract 3 on Schedule A-Lands, attached to the Lease, was sold to the Hospital's
Foundation with the provision that Howard J. Henry, M. D., the then owner, would
have the privilege and right to the use of an office within the building upon
the real estate for the purpose of continuing as he saw fit his private medical
practice at no cost to Howard J. Henry, M. D. The lease of the real estate at
107 South Main Street, Knox, Indiana to Principal Hospital Company/Principal
Knox Company is subject to the right reserved by Howard J. Henry, M. D. to the
use of an office within that building.
<PAGE> 26
L E A S E
THIS AGREEMENT made this 4th day of February 1967, by and between
STARKE COUNTY BOARD OF AVIATION COMMISSIONERS hereinafter called the Lessor,
party of the first part and Mrs. Leonard (Evelyn) Estok, hereinafter called
party of the second part;
WITNESSETH:- That it is hereby agreed as follows:-
(1) The Lessor shall grant and the lessee shall accept a lease on that tract
of land described as follows, to wit;-
A tract of land beginning 40 feet West of a point 485 feet South of a point
which is at the Northwest corner of section 27, Township 33 North; Range 2
West, in Starke County, Indiana; thence West 100 feet Thence South 120 feet;
thence East 100 feet; thence North 120 feet to place of beginning.
(2) Said lease shall be for a period of five (5) years and lessor
hereby grants lessee the right and option to renew and extend this lease, each
extension being a separate one year period, like terms and conditions due
hereunder at the commencement of each extension period. That said Board of
Starke County Aviation Commissioners reserve the right to cancel this lease upon
thirty days notice under one or more of the following conditions:
(a) When lessee shall be guilty of any illegal action on said property or upon
airport premises or of violating the rules of proper conduct on an airport as
set forth by the Civil Aeronautics Commission or by this Board.
(b) Whenever by reason of State or Federal laws or regulations, the said lease
or the purpose of which said land is used; becomes deterimental to or violates
the general public use of said Airport for any purpose, including transmission
of mail, freight and passengers.
SCHEDULE A-2
<PAGE> 27
(3) That for and in consideration of the agreement of the lessor to lease the
lessee agrees to pay for said leased real estate the sum of two hundred forty
($240.00) dollars, said being computed at the rate of $0.02 per square foot and
payable in advance. This lease, shall renew this lease by paying to the lessor
on or before the expiration date of this lease or any additional term, the sum
of $240.00 in advance, such sum as the Board shall have designated as rental for
extended terms.
(4) It is agreed that the real estate may be used for the operation of a
restaurant; all of which shall be constructed of fireproof materials, and upon
the expiration of this lease all property so erected may be removed by lessee if
the same is done properly and without necessary delay or cost to the Board of
Aviation Commissioners.
(5) Lessee shall have the right to let or assign all or any part of said
premises to tennants, occupants or other persons which he shall elect and such
tennants, occupants or other persons may exercise any and all rights and be
subject to all regulations governing lessee under this lease.
IN WITNESS WHEREOF: said parties set forth their hand and seals the day and
year first above mentioned.
STARKE COUNTY BOARD OF AVIATION COMM.
Lessors
/s/ Joe Cox
--------------------------------------
Joe Cox
/s/ Mrs. Leonard (Evelyn) Estok
- --------------------------------- /s/ Roy L. Eichstaedt
Mrs. Leonard (Evelyn) Estok --------------------------------------
Lessee Roy L. Eichstaedt
--------------------------------------
Chester M. Orr
--------------------------------------
William J. Roy
<PAGE> 28
DEDICATION OF LAND TO
STARKE MEMORIAL HOSPITAL
Whereas, Starke County is the owner of the following described real estate,
to-wit:
A parcel of land in the Northeast 1/4 of Section 27, Township
33 North, Range 2 West, in Starke County, Indiana, more
particularly described as follows: Commencing at the Northeast
corner of said Section 27; thence South (Assumed), along the
East line of section, a distance of 362 feet; thence North 89
degrees 50 ft. 40 inches West a distance of 40 feet to the
Point of Beginning; thence South a distance of 243 feet,
thence North 89 degrees 50 ft. 40 inches West a distance of
455 feet; thence North a distance of 126 feet; thence South 89
degrees 50 ft. 40 inches East a distance of 307 feet; thence
North a distance of 88 feet; thence South 89 degrees 50 ft. 40
inches East a distance of 148 feet to the Point of Beginning.
Containing 1.615 acres, more or less.
hereinafter referred to as the Real Estate, and
Whereas, the Real Estate abuts to the East on the present land heretofore
dedicated to the Board of Trustees of the Starke Memorial Hospital for hospital
use, and
Whereas, the Board of Trustees of the Starke Memorial Hospital have
requested the Board of Commissioners of the County of Starke to dedicate the
Real Estate for hospital use in order that the Board of Trustees of the Starke
Memorial Hospital may plan for future hospital expansion of the Starke Memorial
Hospital and may plan for the use of the Real Estate in conjunction with the
present operation of the Starke Memorial Hospital, and
Whereas, the County does not now have any present use for the Real Estate
and the Board of Commissioners of the County of Starke can forsee of no future
use for this land by the County other than in conjunction with the operation of
the Starke Memorial Hospital,
SCHEDULE A-3
<PAGE> 29
Whereas, the Starke County Board of Aviation Commission on February 4, 1967,
leased a portion of the aforesaid lands to Mrs. Leonard Estok for the purposes
of a restaurant more particularly described as follows:
A tract of land beginning 40 feet West of a point 485 feet South of a
point which is at the corner of Section 27, Township 33 North, Range 2
West, in Starke County, Indiana; thence West 100 feet; thence South 120
feet; thence East 100 feet; thence North 120 Feet to the place of
beginning.
for the annual sum of Two Hundred Forty dollars ($240.00) per year and Whereas,
it is the feeling of the County that so long as said property is occupied for
restaurant purposes that said annual rental shall be paid to said County;
however, it is the opinion of the County that the occupancy of the aforesaid
lands for restaurant purposes should continue only so long as said land is not
needed for hospital purposes and in the event, at some future date, should the
Board of Trustees of the Starke Memorial Hospital desire to terminate said lease
and to use said land for hospital purposes, they shall have every right so to
do.
Now therefore, be it resolved that the following described real estate,
to-wit:
A parcel of land in the Northeast 1/4 of Section 27, Township 33 North,
Range 2 West, in Starke County, Indiana, more particularly described as
follows: Commencing at the Northeast corner of said Section 27; thence
South (Assumed), along the East line of section, a distance of 362
feet; thence North 89 degrees 50 ft. 40 inches West a distance of 40
feet to the Point of Beginning; thence South a distance of 243 feet,
thence North 89 degrees 50 ft. 40 inches West a distance of 455 feet;
thence North a distance of 126 feet; thence South 89 degrees 50 ft. 40
inches East a distance of 307 feet; thence North a distance of 88 feet;
thence South 89 degrees 50 ft. 40 inches East a distance of 148 feet to
the Point of Beginning. Containing 1.615 acres, more or less.
<PAGE> 30
be and the same is hereby dedicated to the Board of Trustees
of the Starke Memorial Hospital for the use of the Starke
Memorial Hospital, and the possession, control and management
thereof is hereby vested in the Board of Trustees of the
Starke Memorial Hospital.
Dated this 20th day of December, 1976, by the Starke County Board of
Commissioners in their chambers in the Courthouse, at Knox, Indiana, with
the following members present:
/s/ Charles E. Troike
-------------------------------
Charles E. Troike
/s/ Donald Thompson
-------------------------------
Donald Thompson
/s/ Alvin Werner
-------------------------------
Alvin Werner
STARKE COUNTY COMMISSIONERS
ATTEST:
/s/ John E. Milner
- ----------------------------------
John E. Milner, County Auditor
<PAGE> 1
Exhibit 10.21
LEASE AGREEMENT
THIS LEASE AGREEMENT, made as of June 30, 1997, by and between The Board of
Trustees of Needles Desert Communities Hospital, a board of trustees duly
appointed by the Mayor of the City of Needles, California pursuant to Section
37603 of Title 4, Division 3, Part 2, Chapter 5, Article 7 of the Government
Code of the State of California ("Lessor"), whose address is 1401 Bailey Avenue,
Needles, California 92363, and Principal-Needles, Inc., a Tennessee corporation
("Lessee"), whose address is 109 Westpark Drive, Suite 180, Nashville, Tennessee
37027.
WITNESSETH:
1. Lease of Premises and Equipment. In consideration of the rents and
covenants herein stipulated to be paid and performed by Lessee and upon the
terms and conditions herein specified, Lessor hereby leases to Lessee, and
Lessee hereby leases from Lessor, the property commonly known as Needles Desert
Communities Hospital consisting of: (i) the parcel(s) of land located in
Needles, San Bernardino County, California, as described on Schedule A, Part I
attached hereto and made a part hereof for all purposes (the "Land"); (ii) all
buildings, structures, "Fixtures" (as hereinafter defined) and other
improvements of every kind including, but not limited to, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas and roadways appurtenant to such buildings and
structures presently situated upon the Land (collectively, the "Improvements");
(iii) all easements, rights and appurtenances relating to the Land and the
Improvements (collectively, the "Appurtenant Rights"); (iv) all equipment,
machinery, fixtures, and other items of property, including all components
thereof, now and hereafter permanently affixed to or incorporated into the
Improvements, including, without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, all of which to the greatest extent permitted by law, are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, (collectively
the "Fixtures"); and (v) all equipment, furnishings, furniture, trade fixtures
and other personal property used in connection with medical-surgical hospital,
urgent care and medical office building operations and businesses on the
Premises, all as more particularly described on Schedule B (collectively the
"Equipment"). The Land, the Improvements, the Appurtenant Rights and the
Fixtures are hereinafter referred to collectively as the "Premises."
2. Term. The Premises and the Equipment are leased for a primary term (the
"Primary Term") and, at Lessee's option, three (3) additional extended terms
(the "Extended Terms"), unless and until the term of this Lease shall expire or
be terminated as hereinafter provided. The Primary Term shall be for fifteen
(15) years commencing at 12:01 a.m. on the day following the Closing Date (as
that term is defined in Annex A attached hereto and made a part hereof) (the
"Commencement Date"). Following the Primary Term, Lessee shall have an option to
extend the term of this Lease for up to three (3) additional terms of five (5)
years each. Such Extended Terms shall be on and subject to all of the same
terms, covenants and conditions
1
<PAGE> 2
as herein contained. The option for any Extended Term shall be exercised only by
written notice from Lessee to Lessor given no less than six (6) months prior to
the expiration of the Primary Term, the first Extended Term or the second
Extended Term, as the case may be. Unless specifically otherwise provided, the
terms and phrases "term," "term hereof" and "term of this Lease" shall include
the Primary Term and any Extended Term if exercised and in effect. "Lease Year"
shall mean the period beginning on the first day of the Primary Term and ending
at 12:00 midnight of the day prior to the first anniversary of the commencement
date of the Primary Term and each subsequent 12-month period within the term of
this Lease.
3. Amount and Manner of Payment of Rent. Lessee shall pay to Lessor in
lawful money of the United States, as partial payment of rent, Two Million
Dollars ($2,000,000) (the "Initial Rent"), One Million Two Hundred Twenty One
Thousand Dollars ($1,221,000) of which shall be paid by wire transfer to an
account designated by Lessor and Seven Hundred Seventy Nine Thousand Dollars
($779,000) of which shall be paid by wire transfer to First Union National Bank
(the "Escrow Agent") to be held and disbursed by the Escrow Agent pursuant to an
escrow agreement mutually satisfactory to Lessor, Lessee and the Escrow Agent
(the "Escrow Agreement"), for mechanical upgrades to the Premises, including
without limitation those items set forth in Exhibit A and other items required
to bring the Premises into compliance with Legal Requirements (as that term is
defined in Section 4.4) to the extent it is not in compliance with Legal
Requirements as of the Commencement Date ("the Required Improvements"). In
addition, the funds held in the Escrow Account may be used to pay the
approximately $190,000 cost of a generator previously ordered by Lessor and to
reimburse Lessor for any down payment made in connection therewith. At the
Closing (as that term is defined in Annex A), Lessor shall repay Brim Hospitals,
Inc. ("Brim"), an affiliate of Lessee, out of the Initial Rent, the outstanding
principal amount due under a $221,000 loan previously made by Brim to Lessee,
without interest thereon.
In the event that the amount held by the Escrow Agent is insufficient the
pay for the costs of the Required Improvements (including the generator referred
to in the preceding paragraph), Lessee shall pay any such deficiency, and Lessor
shall have no further obligation to pay for the remainder of the costs
associated therewith. In addition, Lessor shall not be required to spend on any
item set forth in Exhibit A more that the amount set forth opposite such item
therein.
In the event that, at anytime during the term of this Lease, Lessee
wrongfully terminates this Lease or defaults under this Lease and Lessor is
permitted and does terminate this Lease as a result of such default, Lessee
shall forfeit any claim it may have to the Initial Rent. In the event that, at
anytime during the first year of the term of this Lease, Lessor wrongfully
terminates this Lease or defaults under this Lease and Lessee is permitted and
does terminate this Lease as a result of such default, Lessor shall forfeit and
immediately repay the full amount of the Initial Rent to Lessee. In the event
that, at anytime after the first year of the term of this Lease, Lessor
wrongfully terminates this Lease or defaults under this Lease and Lessee is
permitted and does terminate this Lease as a result of such default, Lessor
shall forfeit and immediately repay a prorated portion of the Initial Rent to
Lessee, such prorated portion being equal to 180 minus the number of months (not
to exceed 180) which have elapsed from the Commencement Date to the date of such
termination multiplied by the Initial Rent.
2
<PAGE> 3
Lessee shall pay, as additional rent ("Additional Rent") for the Premises,
the following, in equal quarterly installments in advance on the first day of
each quarter (the "Payment Date"):
<TABLE>
<CAPTION>
Years Annual Rent Quarterly Payment
----- ----------- -----------------
<S> <C> <C>
1 - 5 $310,000.00 $77,500.00
6 - 10 $319,300.00 $79,825.00
11 - 15 $328,879.00 $82,219.75
16 - 20* $338,745.37 $84,686.34
21 - 25* $348,907.73 $87,226.93
26 - 30* $359,374.96 $89,843.74
</TABLE>
* if such Extended Term is exercised.
The Initial Rent and the Additional Rent are hereinafter referred to together as
"Rent." All Rent shall be paid to Lessor at Lessor's address set forth above or
at such other address or to such person as Lessor may designate in writing from
time to time. Any installment of Rent which is not paid within ten (10) days of
the Payment Date shall bear interest at the rate of ten percent (10%) per annum
from the day after such Payment Date until such installment is paid. The parties
agree that the Rent shall be allocable to and payable in respect to the Premises
(Land, Improvements, Appurtenant Rights and Fixtures) and the Equipment in such
percentages as may be reasonably determined by Lessor and disclosed to Lessee in
writing on or before the Commencement Date.
4. Covenants of Lessee and Lessor.
4.1 Payment of Rent. Lessee shall pay Rent in the manner provided in
Section 3 without notice or demand.
4.2 Maintenance and Repair.
(a) Lessee, at its own expense, will maintain all parts of the
Improvements in at least as good condition as they now are (or with respect to
any additional or replacement Improvements, as they then are), except for
ordinary wear, tear, deterioration and obsolescence and damage by fire or other
casualty.
(b) Lessee, at its own expense, will maintain the Equipment in at
least as good condition and repair as it now is. In the event that Lessee
decides for any reason that any item of Equipment is no longer required for its
use, and such item has a Book Value of less than Five Thousand Dollars ($5,000),
Lessee may dispose of the same in accordance with the provisions of Section 7.2,
and shall be entitled to retain the proceeds thereof. In the event that Lessee
decides for any reason that any item of Equipment is no longer required for its
use, and such item has a Book Value of Five Thousand Dollars ($5,000) or more,
Lessee shall so notify Lessor, and Lessor shall promptly remove such item from
the Premises at its expense. For the purposes of this Lease, the term "Book
Value" shall mean the greater of a) the value then shown on the books and
records maintained by Lessee on behalf of Lessor with respect to the
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Equipment using allowable depreciation in accordance with generally accepted
accounting principals consistently applied, or b) fair market value. Lessor may
store or dispose of such items at its election, shall bear all costs associated
therewith and shall be entitled to retain the proceeds, if any, from the sale
thereof. Lessor shall remove such item within thirty (30) days of Lessee's
notice to remove such item, or if such item is not capable of being removed
within thirty (30) days, Lessor shall commence removing such item within thirty
(30) days of Lessee's notice and thereafter diligently pursue such removal to
completion. In the event Lessor does not remove, or commence to remove, as the
case may be, such item within thirty (30) days of Lessee's notice that such item
is no longer required for its use, Lessee may dispose of the same in accordance
with the provisions of Section 7.2, and shall be entitled to retain the proceeds
thereof. If Lessee elects to replace any Equipment instead of repairing the
same, such replacement items of equipment (including the value of any Equipment
used as "trade-in" toward such items of replacement equipment) shall become the
property of Lessee, provided that the acquisition of any such replacement items
of equipment shall be subject to the provisions of Section 7. Upon the
expiration or earlier termination of this Lease, Lessee shall return to Lessor
all items of Equipment not previously returned to Lessor in such condition they
are required to be maintained hereunder, ordinary wear and tear, damage and
deterioration, and any loss or damage ordinarily covered by a policy of fire and
extended coverages excepted. As used throughout this Section 4.2(b), "ordinary
wear and tear" shall mean the wear, tear, damage and deterioration that would
typically and ordinarily occur if used for a period of time equivalent to the
term of this Lease in a medical-surgical hospital facility similar to the
Premises.
4.3 Taxes and Utilities. Lessee shall pay, prior to delinquency: all
taxes, assessments, levies, fees, water and sewer rents and charges, and all
other governmental charges, general and special, ordinary and extraordinary,
foreseen and unforeseen, which during the term hereof, (i) are imposed or
levied upon or assessed against the Premises and the Equipment, or (ii) arise
out of the operation, possession or use of the Premises. Lessee shall not be
required to pay any franchise, estate, inheritance, transfer, income or similar
tax of Lessor unless such tax is imposed, levied or assessed in substitution for
any other tax, assessment, charge or levy which Lessee is required to pay
pursuant to this Section 4.3. Lessee will furnish to Lessor, promptly after
demand therefor, proof of payment of all items referred to above which are
payable by Lessee. If any such assessment may legally be paid in installments
and is not delinquent, Lessee may pay such assessment in installments; in such
event, Lessee shall be liable only for installments which accrue during the
term hereof. Lessee shall promptly notify Lessor in writing that it has elected
to pay such assessment in installments. In the event of the sale of any item of
Equipment, the party entitled to retain the proceeds thereof under Section
4.2(b) shall be responsible for the payment of any sales tax payable by the
seller in connection with such sale.
4.4 Compliance With Laws. Lessee shall promptly cause the Premises to
be in conformity with all laws, ordinances and regulations, and other
governmental rules, orders and determinations now or hereafter enacted, made or
issued, whether or not presently contemplated, including without limitation the
provisions of Sections 37609.1 and 37615.4 of the Government Code of the State
of California (collectively "Legal Requirements"), applicable to the Premises or
the use thereof throughout the term of this Lease at its sole cost and expense.
In the event that the Premises are not now in conformity with all Legal
Requirements, Lessor
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shall be responsible for promptly causing the Premises to become in conformity
with all Legal Requirements, at its sole cost and expense.
4.5 Insurance.
(a) Lessee will maintain insurance on the Premises of the following
character:
(i) Insurance against loss by earthquake, fire, flood,
lightning, vandalism, malicious mischief and other risks which at the
time are included under "extended coverage" endorsements with respect to
the Premises, in an amount not less than 100% of the actual replacement
value of the Improvements, exclusive of foundations, excavations,
parking areas, drives, underground utilities and all other land
improvements.
(ii) Comprehensive public liability insurance against claims
for bodily injury, death or property damage occurring on, in or about
the Premises and adjoining streets and sidewalks, in the amounts of
$3,000,000 for bodily injury or death in any one occurrence and
$1,000,000 for property damage.
(iii) Worker's compensation insurance (including employers'
liability insurance, if requested by Lessor) to the extent required by
the law of the state in which the Premises are located and to the extent
necessary to protect Lessor and the Premises against worker's
compensation claims.
(b) Lessee will maintain professional liability insurance in the
amount of at least $1,000,000 per occurrence and $3,000,000 in the aggregate.
The insurance referred to in subsections (a) and (b) above shall be written
by companies with not less than an A rating legally qualified to issue such
insurance, and shall name Lessor and Lessee as insured parties as their
interests may appear. Coverage for the items referred to in subsections (a)(ii),
(a)(iii) and (b) above may be provided through such combination of self
insurance and to "umbrella" policies maintained by Lessee or an Affiliate of
Lessee as Lessee deems advisable. Lessee shall provide copies of certificates of
insurance for such coverage to Lessor on or before the Commencement Date, and
shall maintain current copies of any such certificates with Lessor at all times
during the term of this Lease. Lessee shall notify Lessor of any change or lapse
in coverage. For the purpose of this Agreement, the term "Affiliate of Lessee"
shall mean any person or entity that directly or indirectly controls, is
controlled by, or is under common control with, Lessee, (ii) any entity of which
Lessee owns ten percent (10%) or more of the outstanding voting securities, or
(iii) any entity of which Lessee is a managing or controlling general partner or
joint venturer. As used in this definition of "Affiliate," the term "control"
means possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity whether through ownership
of voting securities, by contract or other written agreement.
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4.6 Surrender of Premises. Upon the expiration or termination of the of
this Lease, Lessee shall surrender the Premises to Lessor in at least the
condition in which the Premises were upon the commencement of this Lease, except
as repaired, rebuilt, restored, altered, added to, as permitted or required
hereby; except for ordinary wear and tear, normal deterioration and
obsolescence, and damage due to the negligent or willful acts or omissions of
Lessor and its members, and their respective agents and employees, and causes
excluded from coverage under the policies of insurance required to be maintained
under Section 4.5, and, if this Lease shall be terminated by Lessee pursuant to
Section 11.1, except any damage resulting from any fire or other casualty.
4.7 Use of Premises. Lessee may use and occupy the Premises for
operation of a medical surgical hospital or other health care facility or
facilities and the provision of such ancillary services and related, incidental
uses as are appropriate or desirable in conjunction with the operation of such
health care facilities.
4.8 Waiver of Subrogation. Lessor and Lessee on behalf of themselves and
all others claiming under them, including any insurer, waive all claims against
each other, including all rights of subrogation, for loss or damage to their
respective property (including, but not limited to, the Premises) arising from
fire, smoke damage, windstorm, hail, vandalism, theft, malicious mischief and
any of the other perils normally insured against in an "all risk" of physical
loss policy, regardless of whether insurance against those perils is in effect
with respect to such party's property and regardless of the negligence of either
party or their respective agents, employees, licensees and subtenants. If either
party so requests, the other party shall obtain from its insurer a written
waiver of all rights of subrogation that it may have against the other party.
4.9 Compliance with Accreditation Standards. Lessee shall at all times
at its own cost and expense maintain the Premises and operate the Hospital in
material compliance with the Accreditation Standards of the Joint Commission on
the Accreditation of Healthcare Organizations ("JCAHO"), as the same may be
amended from time to time. In the event that the Premises are not now in
conformity with all JCAHO Accreditation Standards, Lessor shall be responsible
for promptly causing the Premises to become in conformity with all JCAHO
Accreditation Standards at its own cost and expense.
5. Title and Condition of Premises.
5.1 Title to Premises. Lessor covenants, represents and warrants that
Lessor has full right and lawful authority to enter into this Lease for the term
hereof, is lawfully seized of the Premises and has good and marketable title
thereto, free and clear of all liens and encumbrances except those listed on
Schedule A, Part II (the "Permitted Encumbrances").
5.2 Condition of the Premises. The Premises and the Equipment are in
good operating condition and repair and are structurally sound and, except as
set forth in Schedule C, there are no material deferred maintenance items and
none of the Equipment nor any of the buildings, structures, fixtures or
improvements which are part of the Premises are in need of any maintenance,
repair or replacement, except for ordinary routine periodic maintenance of the
kind usually required from time to time at similar facilities.
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5.3 Quiet Enjoyment. So long as no Event of Default has occurred and is
continuing, Lessee shall peaceably and quietly have, hold, occupy and enjoy the
Premises and the Equipment and all the appurtenances thereto, without hindrance
or molestation from Lessor or any other persons and other entities whatsoever,
subject only to Permitted Encumbrances as set forth in Annex A.
6. Indemnification. Lessee shall indemnify and hold Lessor, its City
Council as it may be composed from time to time, and its agents and employees
harmless against any and all claims, liabilities, damages or losses resulting
from injury or death of any person or damage to any property occurring on or
about the Premises or in any manner in conjunction with the use or occupancy of
the Premises in whole or in part, unless the death, injury or damage was
sustained as a result of any willful or negligent acts or omissions of Lessor,
Lessor's City Council, or Lessor's agents or employees.
7. Alterations, Additions and Removal.
7.1 Alterations, Additions and Removal. Lessee may, at its expense,
make additions to and alterations of the Improvements, and construct additional
Improvements, provided that (i) the market value of the Premises shall not be
materially lessened thereby; (ii) such work shall be completed in a good and
workmanlike manner and in compliance with all applicable Legal Requirements and
the requirements of all insurance policies required to be maintained by Lessee
hereunder; (iii) no material part of the Improvements shall be demolished unless
(A) Lessor's prior consent shall have been obtained, which consent shall not be
unreasonably withheld, and (B) unless Lessor otherwise consents in writing, the
same are replaced by other improvements which are consistent with the intended
use of the Premises. All such additions and alterations shall be and remain part
of the Premises and become the property of Lessor at the expiration or earlier
termination of this Lease. Lessee shall keep accurate contemporaneous records
with respect to the costs of such additions and alterations. Lessee may place
upon the Premises any trade fixtures, machinery, equipment, materials,
inventory, furniture and/or other personal property belonging to Lessee or third
parties and not otherwise contemplated under this Lease (collectively, "Lessee's
Personal Property"), whether or not the same shall be affixed to the Premises,
which are used in connection with any of Lessee's business operations on the
Premises. Lessee may remove any of Lessee's Personal Property at any time during
the term of this Lease. Lessee shall repair promptly any damage to the Premises
caused by such removal.
7.2 Disposal of Equipment. If Lessee shall determine at any time and
from time to time that any item or items of Equipment are obsolete or no longer
suitable for Lessee's use in connection with Lessee's business or operations at
the Premises, Lessee may sell, transfer, exchange, or otherwise dispose of such
item(s) in such manner as Lessee may deem appropriate in accordance with Section
4.2(b). If requested by Lessee, Lessor shall deliver to Lessee or to Lessee's
designee a bill of sale, in form and substance reasonably satisfactory to
Lessee, duly executed and acknowledged by Lessor, which shall be sufficient to
convey and transfer to Lessee or its designee all of Lessor's right, title and
interest in and to the item(s), free and clear of all liens and encumbrances
whatsoever other than Permitted Encumbrances. Lessee
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may retain as its sole and absolute property the proceeds, whether in cash or in
exchange property or otherwise, of any sale, transfer, exchange or other
disposition of any such items.
8. Lessee's Right to Mortgage Its Leasehold Interest.
8.1 Lessee's Right to Encumber and Mortgage this Leasehold. At any time
during the term of this Lease, Lessee may mortgage, hypothecate or otherwise
encumber Lessee's leasehold estate under this Lease in respect to both the
Premises and Equipment to secure indebtedness of Lessee under one or more
leasehold mortgages and may assign this Lease as security for such mortgage or
mortgages. Lessee shall notify Lessor of the amount of any such loan and the
nature of the security given to secure the repayment thereof.
8.2 Amendments Required By Leasehold Mortgages. Lessor and Lessee shall
cooperate in including in this Lease by suitable amendment from time to time any
provision which may reasonably be requested by any leasehold mortgagee for the
purpose of allowing such leasehold mortgagee reasonable means to protect or
preserve its lien upon Lessee's leasehold interest under this Lease on the
occurrence of a default under the terms of this Lease. Lessor and Lessee each
agree to execute and deliver (and to acknowledge, if necessary, for recording
purposes) any agreement necessary to effect any such amendment; provided,
however, that any such amendment shall not in any way affect Sections 2, 3 or
4.7 of this Lease, or without the prior written approval of Lessor, which will
not be unreasonably withheld, modify any other provision of this Lease in a
manner which materially adversely affects Lessor. Lessee shall pay the
reasonable expenses, including legal fees, actually incurred by Lessor in
connection with any consents requested hereunder.
9. Assignments and Subleases; Merger and Sale of Assets. Lessee and its
assigns shall have the right to assign this Lease, in whole or in part, and to
sublet the Premises, or any part thereof, from time to time without the prior
written consent of Lessor to any Affiliate of Lessee. In addition, Lessee may
transfer, convey, sell or assign all or any part of its interest in the Lease
without the consent of Lessor if the transaction involves the transfer of
interests in additional healthcare facilities owned, leased or managed by Lessee
or any Affiliate of Lessee and Lessee's most recent twelve (12) month revenues
from the operation of the Hospital are less than fifty percent (50%) of the
total revenues of the facilities to be so transferred. Except as otherwise set
forth herein, Lessee may not assign this Lease, in whole or in part, or sublet
the Premises, or any part thereof, without the prior written consent of Lessor,
which consent will not be unreasonably withheld. Lessor consent to any such
transfer on one occasion shall not constitute consent to any other or future
transfer. Lessee shall pay the reasonable expenses, including legal fees,
actually incurred by Lessor in connection with its consideration of granting any
consent required hereunder.
10. Permitted Contests. Notwithstanding any provision of this Lease to the
contrary, Lessee shall not be required, nor shall Lessor have the right, to pay,
discharge or remove any tax, assessment, levy, fee, rent (except Rent,
additional rent and any other sums due hereunder payable to or for the benefit
of Lessor), charge, lien or encumbrance, or to comply with any Legal Requirement
applicable to the Premises or the use thereof, as long as Lessee shall contest
the existence, amount or validity thereof by appropriate proceedings which shall
prevent
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the collection of or other realization upon the tax, assessment, levy, fee,
rent, charge, lien or encumbrance so contested, and which also shall prevent the
sale, forfeiture or loss of the Premises or any Rent, or to satisfy the same or
Legal Requirements, and which shall not affect the payment of any Rent, provided
that such contest shall not subject Lessor to the risk of any criminal liability
or any civil liability. Lessee shall give such reasonable security as may be
demanded by Lessor, or any mortgagee to insure ultimate payment of such tax,
assessment, levy, fee, rent, charge, lien, or encumbrance and compliance with
Legal Requirements and to prevent any sale or forfeiture of the Premises, any
Rent, any additional rent or any other sum required to be paid by Lessee
hereunder.
11. Casualty and Condemnation.
11.1 Casualty.
(a) Except as hereinafter provided, if any of the Improvements
shall be damaged or destroyed by fire or any other casualty covered by a
standard policy of fire and extended coverage insurance, as required pursuant to
Section 4.5 hereof, Lessee shall thereafter commence and diligently prosecute to
completion, at Lessee's sole expense, the repair or rebuilding of the
Improvements or portion thereof which was damaged, in a good and workmanlike
manner, in accordance with plans and specifications satisfactory to Lessee and
Lessor, which Lessor shall not unreasonably disapprove, provided that the
Improvements upon completion of such repair or rebuilding shall have a value
which is not substantially less than the value of the Improvements immediately
prior to the damage or destruction. All proceeds remaining after payment of the
costs of collection and recovery, if any ("Net Proceeds") shall be paid over to
Lessee for the sole purpose of funding the costs of repair and rebuilding.
Lessee shall be accountable for the Net Proceeds and shall maintain adequate
contemporaneous records relating to such repair and rebuilding for the purpose
thereof.
(b) In the event that either (i) the damage or destruction with
respect to any building ("Building") which is a part of the Improvements is so
extensive that it cannot be rebuilt, restored or repaired as required in Section
11.1(a) within one hundred twenty (120) days after such occurrence, as
determined by Lessee in its judgment reasonably based upon written professional
opinion of licensed engineers, building contractors, inspectors or the like, or
(ii) any such damage or destruction occurs during the last two years of the term
of this Lease, then Lessee shall have the right to terminate this Lease with
respect to the damaged or destroyed Building, but no other part of the Premises,
by giving written notice thereof to Lessor within forty-five (45) days after the
occurrence of such damage or destruction and such termination will be effective
retroactively as of the date of such damage or destruction; provided that, if
the Building which suffered such damage or destruction is the main hospital
building located on Tract 1 of the Premises, then Lessee shall have the right to
terminate this Lease by giving written notice thereof to Lessor within
forty-five (45) days after the occurrence of such damage or destruction and such
termination will be effective retroactively as of the date of such damage or
destruction. In addition, if any Building is materially damaged or destroyed by
any casualty not covered by the standard policy of fire and extended coverage
insurance, then Lessee may terminate this Lease effective as of the date of such
damage or destruction by giving the other party written notice thereof within
forty-five (45) days after the occurrence of such damage or
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destruction. If Lessee exercises its option to terminate this Lease in part on
account of damage or destruction to a Building, the parties shall promptly
thereafter execute an amendment to this Lease which shall provide that such
Building will be excised from the Premises, and that Rent will be
proportionately and equitably reduced. In the event of a termination of this
Lease, either in whole or in part, pursuant to Section 11.1(b), the Net Proceeds
of insurance shall be paid over to Lessor, except that Lessee shall be entitled
to receive such portion of such proceeds which represents the amount allocable
to the then fair market value of Lessee's Personal Property, if any, provided
Lessee maintained adequate contemporaneous records thereof.
11.2 Condemnation.
(a) If (i) the Premises are taken by an entity with the power of
eminent domain ("Condemning Authority") or if the Premises are conveyed to a
Condemning Authority by a negotiated sale, or if part of the Premises is so
taken or conveyed such that any of the Improvements cannot be rebuilt so that
upon completion Lessee may again use the Premises without substantial
interference, or (ii) due to any such taking or conveyances, access to the
Premises or any part thereof by motor vehicles and trucks as operated by Lessee,
its contractors, employees, patients and invitees in the course of Lessee's
business as theretofore conducted, is substantially impaired or terminated; then
in any such event, Lessee may terminate this Lease by giving Lessor written
notice any time after the occurrence of any of the foregoing and such
termination shall be effective thirty (30) days from the date possession is
taken by the Condemning Authority.
(b) If part of the Premises or any Building or a substantial part
thereof is so taken or conveyed without substantially interfering with the use
of the Premises as a whole, but only one or more of the Buildings thereon, this
Lease shall not terminate, except to the extent hereinafter provided. In such
event, however, (i) Lessee shall have the option to terminate this Lease in
respect to any Building which is subject to such taking or conveyance by
notifying within thirty (30) days after the title is transferred to the
Condemning Authority, and Lessor shall be entitled to all awards and payments
made or to be made by the Condemning Authority, and (ii) if Lessee exercises
such termination option, Lessor shall apply such portions of any award or
payment made to Lessor for such taking or conveyance as is necessary to pay the
cost of restoring the Building and/or the Premises to a complete architectural
unit suitable for Lessee's use and business on the Premises prior to the date of
such taking. If Lessee exercises its option to terminate this Lease in part on
account of a taking or conveyance of a Building or any substantial part thereof
as provided in clause (i) above, the parties shall promptly thereafter execute
an amendment to this Lease which shall provide that the Building will be excised
from the Premises, and that Rent will be proportionately and equitably reduced.
(c) Except as provided below and in Section 11.2(b), all
payments made for any such taking or conveyance shall be the property of Lessor;
provided, however, Lessor shall have no interest in any award or payment or any
portion of any such award or payment which is attributable to the taking or
conveyance of any of Lessee's Personal Property, all of which shall be paid to
Lessee. Lessee shall maintain adequate contemporaneous records as to the value
of Lessee's Personal Property for purposes of determining what portion, if any,
of such award or payment shall be paid to Lessee hereunder.
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(d) If this Lease is terminated pursuant to this Section 11, Lessor
and Lessee shall be released and discharged from all liabilities arising or
accruing under this Lease subsequent to the effective date of termination.
12. Right of Entry.
Upon not less than twenty-four (24) hours prior written notice
received by Lessee on a weekday, which written notice may be hand delivered or
telecopied to Lessee, Lessor and its agents and designees may enter upon and
examine the Premises on weekdays from 8:00 a.m. to 5:00 p.m, excluding legal
holidays, for the purpose of determining the condition of the Premises, and may
show the Premises to prospective purchasers, mortgagees or lessees as long as
such examination or showing shall not unreasonably interfere with the business
operations of Lessee on the Premises.
13. Default.
13.1 Default; Notice and Cure; Remedies. In the event Lessee shall
default in the payment of Rent or any other sums payable by Lessee hereunder,
and such default shall continue for a period of ten (10) days after Lessee
receives written notice thereof from Lessor; or, if Lessee shall default in the
performance of any other covenants or agreements hereunder and such default
shall continue for thirty (30) days after written notice thereof, or, if the
default is of such a nature that it could not reasonably be cured within such
thirty (30) day period and Lessee does not, within said thirty (30) day period
commence to cure it and thereafter proceed, with due diligence, to cure it; or,
if Lessee shall fail to cause the Premises to be in conformity with the Legal
Requirements as set forth in Section 4.4 hereof and all other contracts,
agreements, covenants, conditions and restrictions applicable to the ownership,
occupancy or use of the Premises, and such failure shall continue for thirty
(30) days after written notice thereof, or if the failure is of such a nature
that it could not reasonably be cured within such thirty (30) day period and
Lessee does not, within such thirty (30) day period commence to cure it and
thereafter proceed, with due diligence, to cure it; then, and in addition to any
and all other legal remedies and rights, Lessor may perform such covenant or
agreement and to the extent sums are expended in connection therewith, and add
such sums to the Rent due from Lessee to Lessor and, at the election of Lessor,
may terminate this Lease and retake possession of the Premises by eviction,
reentry or otherwise. Such re-entry shall not bar the right or recovery of Rent
or damages for breach of covenants, nor shall the receipt of Rent after a
default and/or re-entry be deemed a waiver of Lessor's remedies.
13.2 Obligation to Relet. After a dispossession or removal in
accordance with Section 13.1, Rent shall be paid to the date of such
dispossession or removal, (i) Lessor shall use its reasonable best efforts to
re-let the Premises or portions thereof, either in the name of Lessor, Lessee
or otherwise, for a term or terms which may, at the option of Lessor, be less
than or exceed the period which would otherwise have constituted the balance of
the term of this Lease, (ii) Lessee shall pay Lessor quarterly any deficiency
between Rent due hereunder and the amount, if any, of rent collected on account
of the new lease or leases of the Premises for each quarter of the period which
would otherwise have constituted the balance of the term of this Lease (not
including any renewal or extension the execution of which shall not have
occurred
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prior to such dispossession or removal), and (iii) Lessor shall have any and all
other rights and remedies available to it.
13.3 Costs and Expenses. If Lessee should fail to make any payment or
cure any default hereunder within the time herein permitted, Lessor, without
being under any obligation to do so and without thereby waiving such default,
may make such payment and/or remedy such other default for the account of
Lessee, and thereupon Lessee shall be obligated to, and hereby agrees, to pay
Lessor, upon demand, all costs, expenses and disbursements (including reasonable
attorneys' fees and costs) incurred by Lessor in taking such remedial action,
and any interest thereon actually incurred and paid by Lessor to third parties.
14. Environmental Matters.
14.1 Warranty of Lessor. Except as set forth in Schedule D, Lessor
represents and warrants to Lessee that as of the date hereof no "Hazardous
Substances" (as hereafter defined) or any other toxic material or medical waste
are present on or in the Improvements or Land, except for Hazardous Substances
or other toxic materials or medical waste brought, kept or used in the Premises
in commercial quantities similar to those quantities usually kept on similar
premises by others in the same business or profession or who operate medical
facilities similar to those located in and on the Premises, and which are used
and kept in compliance with applicable public health, safety and environmental
laws; and Lessor shall indemnify Lessee against any and all claims, demands,
liabilities, losses and expenses, including consultant fees, court costs and
reasonable attorneys' fees, arising out of any breach of the foregoing warranty.
14.2 Covenant of Lessee. Except for Hazardous Substances or other toxic
materials or medical waste brought, kept or used in the Premises in commercial
quantities similar to those quantities usually kept on similar premises by
others in the same business or profession or who operate medical facilities
similar to those located in and on the Premises, medical specialty, and which
are used and kept in compliance with applicable public health, safety and
environmental laws, Lessee shall not allow any Hazardous Substance, or other
toxic material or medical waste to be located in, on or under the Premises or
allow the Premises to be used for the disposal of any Hazardous Substance or
other toxic material; and Lessee shall indemnify Lessor, its City Council and
its agents and employees against any and all claims, demands, liabilities,
losses and expenses, including consultant fees, court costs and reasonable
attorneys' fees arising out of any breach of the foregoing covenant.
14.3 Compliance with Laws. Lessee shall at all times and in all
respects comply with all Legal Requirements applicable to the Premises or the
use thereof relating to industrial hygiene, the handling, storage and disposal
of medical waste, environmental protection, or the use, analysis, generation,
manufacture, storage, disposal or transportation of any Hazardous Substance,
toxic material or medical waste.
14.4 Remediation. If Lessee becomes aware of the presence of any
Hazardous Substance in or on the Premises (except for those Hazardous Substances
or other toxic material or medical waste brought, kept or used in the Premises
by Lessee in commercial
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quantities similar to those quantities usually kept on similar premises by
others in the same business, profession or medical specialty and which are used
and kept in compliance with applicable public health, safety and environmental
laws) or if Lessee, or the Premises become subject to any order of any federal,
state or local agency to repair, close, detoxify, decontaminate or otherwise
cleanup the Premises, Lessee shall, at its own cost and expense, carry out and
complete any repair, closure, detoxification, decontamination or other cleanup
of the Premises; provided that Lessee shall not be responsible for any of the
foregoing relating to any Hazardous Substance, or other toxic materials or
medical waste located on, in or under the Premises on the date of this Lease,
all of which shall be the responsibility of Lessor pursuant to and as otherwise
limited by Section 14.1 and Lessor shall promptly execute and complete any
required repair, closure, detoxification, decontamination or other clean-up of
the Premises. If either party fails to implement and diligently pursue any such
repair, closure, detoxification, decontamination other cleanup of the Premises
which it is required to do hereunder, the other party shall have the right, but
not the obligation, to carry out such action and to recover all of the costs and
expenses from the other.
14.5 Definition. "Hazardous Substances" as such term is used in this
Lease means any hazardous or toxic substance, material or waste, regulated or
listed pursuant to any federal, state or local environmental law, including
without limitation, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Comprehensive Environmental Response Compensation and Liability
Act, the Resource Conversation and Recovery Act, the Federal Insecticide,
Fungicide, Rodenticide Act, the Safe Drinking Water Act and the Occupational
Safety and Health Act.
15. Notices, Demands and Other Instruments. All notices, offers, consents
and other instruments given pursuant to this Lease shall be in writing and shall
be validly given when personally delivered or when placed in the United States
mail, registered or certified with return receipt requested, when sent by
prepaid telegram or facsimile followed by confirmatory letter actually delivered
or when sent by a courier or express service guaranteeing overnight delivery,
(i) if to Lessor, addressed to it at its address set forth above, (ii) if to
Lessee, addressed to Lessee at its address set forth above. Lessor and Lessee
each may from time to time specify, by giving fifteen (15) days notice to each
other party, (i) any other address in the United States as its address for
purposes of this Lease and (ii) any other person or entity that is to receive
copies of notices, offers, consents and other instruments hereunder.
16. Separability; Binding Effect. Each provision hereof shall be separate
and independent and, the breach of any such provision by Lessor shall not
discharge or relieve Lessee from its obligations to perform each and every
covenant to be performed by Lessee hereunder. If any provision hereof or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remaining provisions hereof, or the application of such
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each provision hereof shall
be valid and shall be enforceable to the extent permitted by law. All provisions
contained in this Lease shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of Lessor and Lessee to
the same extent as if each such successor and assign were named as a party
hereto. This Lease may not be changed, modified or discharged except by a
writing signed by Lessor and
13
<PAGE> 14
Lessee. Any such change, modification or discharge made otherwise than as
expressly permitted by this paragraph shall be void. This Lease shall be
governed by and interpreted in accordance with the laws of the State of
California.
17. Headings and Table of Contents. The table of contents and the headings
of the various Sections and Schedules of this Lease have been inserted for
reference only and shall not to any extent have the effect of modifying,
amending or changing the expressed terms and provisions of this Lease.
18. Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
19. Memorandum of Lease. Upon request of either party hereto, the parties
shall execute and deliver to each other duplicate originals of a Memorandum of
this Lease, in recordable form, containing the information required by law for
recording the same.
20. Assignment of Scheduled Leases. Lessor hereby assigns to Lessee all of
its right, title and interest as lessor under those certain leases affecting the
Premises which are existing and in effect as of the date of execution of this
Lease listed on Schedule 4.6 of Annex A (hereinafter the "Scheduled Leases"),
and Lessee hereby agrees to assume all Lessor's obligations, covenants and
agreements as lessor under the Scheduled Leases. Lessee shall be entitled to
collect and receive all such rents and other sums from the lessees under the
Scheduled Leases accruing on and after the Commencement Date, and Lessee and
Lessor agree that the Scheduled Leases shall upon this assignment become
subleases subject and subordinate to this Lease. Lessee shall notify each of the
lessees under the Scheduled Leases of this assignment.
21. No Partnership. The parties hereto intend the relationship created by
this Lease to be that of lessor and lessee and do not intend for the arrangement
between them to be a partnership.
22. Right of First Refusal.
22.1 Exercise of Right. During the Term hereof, and for a period of
(120) days thereafter, Lessor shall, prior to any proposed sale, transfer or
assignment of all or any part of the Premises or the Equipment, provide Lessee
with written notice of the terms and conditions of the proposed sale, transfer
or assignment, including the identity of the proposed transferee and the
proposed purchase price. Lessee have a right of first refusal for thirty (30)
days from the receipt of such notice in which to agree to consummate such sale,
transfer or assignment on the same price, terms and conditions contained in the
notice. If Lessee elects to acquire the same on such price, terms and
conditions, Lessee shall have one hundred twenty (120) days from the date on
which it received notice of the transaction in which to consummate such
transaction. If Lessee fails to consummate such transaction within such one
hundred twenty (120) day period, Lessor shall be entitled to proceed with the
sale, transfer or assignment of the same as originally intended, provided that
if Lessor does not consummate such transaction within one
14
<PAGE> 15
hundred twenty (120) days thereafter, then the provisions hereof shall apply
again to any proposed transaction.
22.2 Conveyance Requirements. In the event of the purchase of the
Premises and/or the Equipment by Lessee as provided in Section 22.1, Lessor
shall convey to Lessee or its designee by its general warranty deed and bill of
sale, good, record and marketable title to the Premises and the Equipment,
subject only to Permitted Encumbrances, real estate taxes which are not
delinquent and liens caused or created by Lessee, but free and clear of all
mortgages, security deeds, liens, encumbrances and security interests securing
any indebtedness of Lessor. The purchase price shall be paid in cash by wire
transfer of immediately available funds at the time of the closing; provided
that if the Premises has suffered any damage covered by the insurance described
in Section 4.5, Lessor and the holders of any mortgages on the Premises shall
pay to Lessee all of the proceeds of such insurance not previously paid to
Lessee, or to the extent such proceeds have not been collected, assign to Lessee
all of their respective rights and interests therein to Lessee; or at its
election Lessee may reduce the purchase price paid by the amount of such
proceeds and deduct such sum from the purchase price payable at the closing.
Lessor shall be responsible for and shall pay one-half of all closing costs.
Closing costs shall include the costs of title insurance, a survey, any escrow
charges, costs of recording deeds and all documentary stamps and similar taxes
on the recordation of the deeds. Each party shall be responsible for the fees
of its respective counsel in connection with the transactions contemplated by
this Section 22.
22.3 Termination of Lease. Upon the completion of any such purchase,
but not prior thereto (whether or not any delay in the completion of or the
failure to complete such purchase shall be the fault of Lessor), this Lease and
all obligations hereunder (including, but not limited to, the obligations to pay
rent and additional rent) shall terminate, provided that neither party shall be
released with respect to obligations and liabilities of Lessee and Lessor,
actual or contingent, under this Lease which arose on or prior to the date of
the closing of the purchase, unless specific provision therefor shall be made in
the instruments and agreements relating to such purchase.
23. Purchase of Assets and Retransfer of Certain Items at End of Term. Upon
expiration or earlier termination of this Lease (other than in accordance with
Sections 22 hereof), Lessor, at its option, may purchase (i) all of Lessee's
Personal Property, and (ii) the items similar to those items described in
Section 1.3 of Annex A. The purchase price paid by Lessor for such assets shall
be the lesser of (i) the then net book value of such assets at the time of
expiration or earlier termination of this Lease, based on Lessee's books and
records, which books and records shall be maintained in accordance with
generally accepted accounting principals consistently applied, or (ii) the then
fair market value of such assets. Lessee shall transfer and convey the same by
bill of sale, free of all liens and Lessor shall pay the purchase price in cash
with delivery of the bill of sale.
24. Department of Health and Human Services Regulation. Until the
expiration of four years after the expiration or earlier termination of the Term
of this Lease, Lessor will make available to the Secretary, U.S. Department of
Health and Human Services, and the U.S. Comptroller General, and their
representatives, this Lease and all books, documents, and records
15
<PAGE> 16
necessary to certify the nature and extent of Lessor's costs with respect to
this Lease and the Premises. If Lessor carries out any of its duties under this
Lease through a subcontract worth $10,000 or more over a 12-month period with a
related organization, the subcontract will also contain an access clause to
permit access by the Secretary, Comptroller General, and their representatives
to the related organization's books and records.
25. Annex, Exhibits and Schedules. Annex A and the Exhibits and Schedules
referred to in this Lease are hereby incorporated by reference herein.
26. Due Diligence. The parties acknowledge and agree that they have
executed this Lease (i) prior to Lessee having completed its due diligence with
respect to the transactions described in this Lease, and (ii) without there
being attached hereto all of the Schedules required by this Lease, or, in the
case where a Schedule has been attached, it may not contain all of the
information required to make it complete. Lessor shall provide full and complete
Schedules on or before July 24, 1997, and may amend or supplement any
theretofore submitted Schedules on or before such date. Such finally submitted
complete Schedules submitted on or before July 24, 1997, shall be deemed a part
of this Lease and incorporated herein as of the date hereof as if originally
submitted to Lessee and attached hereto as of the date hereof. Lessee shall have
until July 31, 1997 (the "Due Diligence Period") to review the Schedules and
complete its due diligence. The Due Diligence Period may be modified by mutual
written agreement of Lessor and Lessee, and shall be extended a reasonable
period of time to allow Lessee to consider and conduct due diligence with
respect to the Schedules. Notwithstanding the foregoing, if for any reason in
its sole discretion, Lessee is dissatisfied with the result of its due
diligence, whether it relates to the Schedules or otherwise, Lessee may
terminate this Lease and Annex A, and thereafter this Lease and Annex A, and the
rights and obligations of the parties under this Lease and Annex A shall be null
and void.
27. Fair Market Value Opinion. The parties acknowledge and agree that
Lessor has executed this Lease prior to receiving a written fair market value
opinion from Arthur Anderson LLP covering the transactions contemplated by this
Lease and the Annex A. Notwithstanding any other provision in this Lease and the
Annex A, if, for any reason in its sole discretion, Lessor is dissatisfied with
the written fair market value opinion obtained from Arthur Anderson LLP, then
Lessor may terminate this Lease and Annex A, and, thereafter, this Lease and the
Annex A, and the rights and obligations of the parties under this Lease and the
Annex A, shall be null and void.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date and year first written above.
LESSOR:
THE BOARD OF TRUSTEES OF NEEDLES
DESERT COMMUNITIES HOSPITAL
By: /s/ Evelyn R. Connelly
------------------------------------
Name: Evelyn R. Connelly
----------------------------------
Title: President
---------------------------------
Signed, sealed and delivered
on the 30th day of June,
1997, in the presence of:
[signature illegible]
- ---------------------------
Witness
/s/ Daron Behr
- ---------------------------
Notary Public
San Bernardino County, California
APPROVED BY AND CONSENTED TO
BY THE CITY COUNCIL OF THE CITY
OF NEEDLES, CALIFORNIA
By: /s/ Murl L. Shaver
---------------------------------
Name: Murl L. Shaver
-------------------------------
Title: Mayor
------------------------------
Signed, sealed and delivered
on the 31 day of July,
1997, in the presence of:
/s/ Cheryl K. Sallis
- ---------------------------
Witness
/s/ Generene De Leon
- ---------------------------
Notary Public
San Bernardino County, California
17
<PAGE> 18
APPROVED AS TO FORM BY THE CITY
ATTORNEY FOR THE CITY OF NEEDLES,
CALIFORNIA
By: /s/ Robert W. Hargreaver
--------------------------------
Name: Robert W. Hargreaver
------------------------------
Title: City Attorney
-----------------------------
Signed, sealed and delivered
on the 31 day of July,
1997, in the presence of:
___________________________
Witness
/s/ Naughn Dishman
- ---------------------------
Notary Public
San Bernardino County, California
LESSEE:
PRINCIPAL-NEEDLES, INC.
By: /s/ Christine A. Craft
---------------------------------
Name: Christine A. Craft
-------------------------------
Title: Vice President, Acquisitions
and Development
------------------------------
Signed, sealed and delivered
on the 2nd day of July,
1997, in the presence of:
/s/ Dahyn Hood
- ---------------------------
Witness
/s/ Linda J. Bryant
- ---------------------------
Notary Public
______________ County, Oregon
18
<PAGE> 19
SCHEDULE A
(PART I)
Legal Description
A-I-1
<PAGE> 20
SCHEDULE A
(PART II)
Permitted Encumbrances
A-II-1
<PAGE> 21
SCHEDULE B
Equipment
B-1
<PAGE> 22
SCHEDULE C
Deferred Maintenance Items
C-1
<PAGE> 23
SCHEDULE D
Environmental Matters
E-1
<PAGE> 24
EXHIBIT A
Mechanical Upgrades
E-2
<PAGE> 1
Exhibit 10.24
THE LIMITED PARTNERSHIP INTERESTS CREATED BY THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS. EXCEPT
AS SPECIFICALLY OTHERWISE PROVIDED IN THIS AGREEMENT, THE INTERESTS MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH ACTS
OR AN OPINION OF COUNSEL THAT SUCH TRANSFER MAY BE LEGALLY EFFECTED WITHOUT SUCH
REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER AND SALE ARE SET FORTH IN THIS
AGREEMENT.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
ALIGNED BUSINESS CONSORTIUM GROUP, L.P.
(a Delaware Limited Partnership)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS................................................................................1
1.1 "Act".............................................................................1
1.2 "Additional Limited Partner"......................................................1
1.3 "Adverse Terminating Event".......................................................2
1.4 "Affiliate".......................................................................2
1.5 "Agreement".......................................................................2
1.6 "Approval of the Partners" or "Approved by the Partners"..........................2
1.7 "Bankruptcy"......................................................................2
1.8 "Brim"............................................................................2
1.9 "Brim Services Agreement".........................................................2
1.10 "Capital Account".................................................................2
1.11 "Capital Contribution"............................................................3
1.12 "Code"............................................................................3
1.13 "Columbia"........................................................................3
1.14 "Columbia Affiliate"..............................................................3
1.15 "Columbia Services Agreement".....................................................3
1.16 "Columbia Sub"....................................................................3
1.17 "Competitive Activities"..........................................................3
1.18 "General Partner".................................................................3
1.19 "Limited Partner".................................................................3
1.20 "Liquidator"......................................................................3
1.21 "Partners"........................................................................3
1.22 "Partnership".....................................................................3
1.23 "Person"..........................................................................3
1.24 "Services Agreements".............................................................4
1.25 "Sharing Percentage"..............................................................4
1.26 "Substituted Limited Partner".....................................................4
1.27 "Terminating Event"...............................................................4
1.28 "Treasury Regulations" or "Regulation"............................................4
1.29 "Units"...........................................................................4
2. FORMATION OF PARTNERSHIP...................................................................4
2.1 Formation.........................................................................4
2.2 Name..............................................................................4
2.3 Principal Office..................................................................5
2.4 Term..............................................................................5
2.5 Registered Agent and Office.......................................................5
3. PURPOSES AND POWERS OF THE PARTNERSHIP; NATURE OF THE BUSINESS OF THE
PARTNERSHIP................................................................................5
3.1 Purposes..........................................................................5
3.2 Powers............................................................................5
4. CAPITAL CONTRIBUTIONS, LOANS, CAPITAL ACCOUNTS.............................................6
4.1 Capital Contributions.............................................................6
4.2 Additional Capital Contributions..................................................6
4.3 Capital Accounts..................................................................6
4.4 Additional Provisions Regarding Capital Accounts..................................8
4.5 Loans.............................................................................9
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
5. ALLOCATIONS...............................................................................10
5.1 Allocations of Income and Losses.................................................10
6. DISTRIBUTIONS.............................................................................10
6.1 Distribution of Excess Cash......................................................10
7. BANK ACCOUNTS, BOOKS OF ACCOUNT, TAX COMPLIANCE AND FISCAL YEAR...........................10
7.1 Bank Accounts; Investments.......................................................10
7.2 Books and Records................................................................10
7.3 Determination of Profit and Loss: Financial Statements; Annual Budgets...........11
7.4 Tax Returns and Information......................................................11
7.5 Tax Audits.......................................................................11
7.6 Fiscal Year......................................................................12
8. RIGHTS, OBLIGATIONS AND INDEMNIFICATION OF THE GENERAL PARTNER............................12
8.1 Rights of the General Partner as Manager.........................................12
8.2 Right to Rely on the General Partner.............................................13
8.3 Specific Limitations on the General Partner......................................14
8.4 Additional Limitations on the Authority of the General Partner...................14
8.5 Management Obligations of the General Partner....................................14
8.6 Indemnification of the General Partner...........................................15
8.7 Reimbursement....................................................................15
8.8 Independent Activities...........................................................16
9. RIGHTS AND STATUS OF LIMITED PARTNERS.....................................................17
9.1 General..........................................................................17
9.2 Limitation of Liability..........................................................17
9.3 Bankruptcy; Death, Etc...........................................................17
10. SPECIAL COVENANTS OF THE PARTNERS.........................................................17
10.1 Non-ownership Provision..........................................................17
10.2 Limitation.......................................................................18
11. MEETINGS AND MEANS OF VOTING..............................................................18
11.1 Meetings of the Partners.........................................................18
11.2 Vote By Proxy....................................................................18
11.3 Conduct of Meeting...............................................................19
11.4 Action Without a Meeting.........................................................19
11.5 Closing of Transfer Record; Record Date..........................................19
12. Intentionally left blank..................................................................19
13. TRANSFER OF UNITS AND ADDITIONAL LIMITED PARTNERS.........................................19
13.1 Transfers by Limited Partners....................................................19
13.2 Substituted Limited Partner......................................................20
13.3 Basis Adjustment.................................................................21
13.4 Transfer by General Partner......................................................21
13.5 Admission of Additional Limited Partners.........................................21
13.6 Transfer Procedures..............................................................21
13.7 Invalid Transfer.................................................................21
13.8 Distributions and Allocations in Respect of a Transferred Ownership Interest.....22
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
13.9 Additional Requirements of Admission to Partnership..............................22
13.10 Amendment to Exhibit "B".........................................................22
14. RIGHT TO LIQUIDATE OR PURCHASE PARTNERSHIP INTERESTS......................................22
14.1 Partnership's and General Partner's Right of First Refusal.......................22
14.2 Occurrence of Terminating Event or Adverse Terminating Event.....................23
14.3 Payment for Partnership Interest.................................................24
14.4 Buy/Sell Option..................................................................25
14.5 Federal Income Tax Treatment.....................................................26
14.6 Right to Participate.............................................................26
15. DISSOLUTION...............................................................................27
15.1 Causes...........................................................................27
15.2 Reconstitution...................................................................27
15.3 Interim Manager..................................................................28
16. WINDING UP AND TERMINATION................................................................28
16.1 General..........................................................................28
16.2 Court Appointment of Liquidator..................................................29
16.3 Liquidation......................................................................29
16.4 Creation of Reserves.............................................................30
16.5 Final Statement..................................................................30
17. POWER OF ATTORNEY.........................................................................30
17.1 General Partner as Attorney-in-Fact..............................................30
17.2 Nature of Special Power..........................................................30
18. MISCELLANEOUS.............................................................................31
18.1 Notices..........................................................................31
18.2 Governing Law....................................................................31
18.3 Successors and Assigns...........................................................31
18.4 Construction.....................................................................31
18.5 Time.............................................................................31
18.6 Waiver of Partition..............................................................31
18.7 Entire Agreement.................................................................32
18.8 Amendments.......................................................................32
18.9 Severability.....................................................................33
18.10 Gender and Number................................................................33
18.11 Exhibits.........................................................................33
18.12 Additional Documents.............................................................33
18.13 Section Headings.................................................................33
18.14 Counterparts.....................................................................33
</TABLE>
(iii)
<PAGE> 5
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
ALIGNED BUSINESS CONSORTIUM GROUP, L.P.
(a Delaware Limited Partnership)
This Amended and Restated Limited Partnership Agreement is entered into and
shall be effective as of the 1st day of June, 1997 by and between Galen
Holdings, Inc., a Delaware corporation ("Columbia Sub"), as the General Partner,
and Columbia/TSP Holdings, Inc., a Nevada corporation ("Columbia/TSP"), Brim
Healthcare, Inc., an Oregon corporation ("Brim"), and each other Person whose
name is set forth on Exhibit "B" attached to this Limited Partnership Agreement
as Limited Partners.
WITNESSETH:
WHEREAS, the General Partner and Columbia/TSP are parties to that
certain Limited Partnership Agreement of Aligned Business Consortium Group L.P.
(the "Original Partnership Agreement");
WHEREAS, the General Partner, Columbia/TSP and Brim desire to amend and
restate the Original Partnership Agreement, as provided herein; and
WHEREAS, Brim desires to be admitted as a Limited Partner (as defined
herein) of the Partnership, and Columbia Sub and Columbia/TSP desire to admit
Brim as a Limited Partner, as provided herein;
NOW, THEREFORE, the General Partner, Columbia/TSP and Brim hereby amend
and restate the Original Partnership Agreement as follows:
1. DEFINITIONS
As used herein the following terms have the following meanings:
1.1 "ACT" means the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time.
1.2 "ADDITIONAL LIMITED PARTNER" means a Person who is admitted into
the Partnership as a Limited Partner pursuant to the terms of Section 13.5
hereof.
<PAGE> 6
1.3 "ADVERSE TERMINATING EVENT" means, with respect to any Limited
Partner, the Limited Partner has breached the terms and conditions of this
Agreement, including without limitation, violating the transfer restrictions set
forth in Article 13 hereof, as determined in the reasonable discretion of the
General Partner.
1.4 "AFFILIATE" means, with respect to any Partner, (i) any Person that
directly or indirectly controls, is controlled by, or is under common control
with, a Partner, (ii) any entity of which a Partner owns 10% or more of the
outstanding voting securities, (iii) any entity of which a Partner is an
officer, director, or general partner, or (iv) any child, grandchild (whether
through marriage, adoption or otherwise), sibling (whether through adoption or
otherwise), parent or spouse of a Partner. As used in this definition of
"Affiliate," the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of an
entity whether through ownership of voting securities, by contract or otherwise.
1.5 "AGREEMENT" means this Amended and Restated Limited Partnership
Agreement of Aligned Business Consortium Group, L.P., as from time to time
amended pursuant to Section 18.8 hereof.
1.6 "APPROVAL OF THE PARTNERS" or "APPROVED BY THE PARTNERS" means the
approval of those Partners (including the General Partner and its Affiliates)
who have collective ownership interests of at least fifty-one percent (51%) of
the aggregate Sharing Percentage of all Partners at the time the proposed
Partnership action is being considered for approval.
1.7 "BANKRUPTCY" means, as to any Partner, the Partner's taking or
acquiescing to the taking of any action seeking relief under, or advantage of,
any applicable debtor relief, liquidation, receivership, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar law
affecting the rights or remedies of creditors generally, as in effect from time
to time. For the purpose of this definition, the term "acquiescing" shall
include, without limitation, the failure to file within the time specified by
law, an answer or opposition to any proceeding commenced against such Partner
under any such law and a failure to file, within thirty (30) days after its
entry, a petition, answer or motion to vacate or to discharge any order,
judgment or decree providing for any relief under any such law.
1.8 "BRIM" means Brim Healthcare, Inc., an Oregon corporation, and any
successor thereto.
1.9 "BRIM SERVICES AGREEMENT" means the Services Agreement, of even
date herewith, by and among Brim and the Partnership.
1.10 "CAPITAL ACCOUNT" shall have the meaning set forth in Section 4.3
hereof.
2
<PAGE> 7
1.11 "CAPITAL CONTRIBUTION" means, as to any Partner, the amount of
cash or the Agreed Value (as defined in Exhibit "A" attached hereto) of all
property contributed to the Partnership by the Partner, which is set forth
opposite such Partner's name on the attached Exhibit "B" under the heading
"Capital Contribution."
1.12 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. All references herein to sections of the Code shall include any
provision or corresponding provisions of succeeding law.
1.13 "COLUMBIA" means Columbia/HCA Healthcare Corporation, a Delaware
corporation, and any successor in interest.
1.14 "COLUMBIA AFFILIATE" means any Affiliate of Columbia (other than
a natural person).
1.15 "COLUMBIA SERVICES AGREEMENT" means that certain Services
Agreement, of even date herewith, by and among the Partnership and Columbia Sub.
1.16 "COLUMBIA SUB" means Galen Holdings, Inc., a Delaware corporation
and a Columbia Affiliate, and any successor thereto.
1.17 "COMPETITIVE ACTIVITIES" shall have the meaning set forth in
Section 8.8(b) hereof.
1.18 "GENERAL PARTNER" means Columbia Sub or any replacement general
partner of the Partnership, but excluding any Person who ceases to be a general
partner of the Partnership pursuant to this Agreement.
1.19 "LIMITED PARTNER" means Brim, Columbia/TSP, any Limited Partner
whose name is set forth on Exhibit "B" hereto, and any Substituted Limited
Partner or Additional Limited Partner, but excluding any Person who ceases to be
a limited partner of the Partnership pursuant to this Agreement. "LIMITED
PARTNERS" means all of the Persons who are limited partners of the Partnership
as defined in this Section 1.19.
1.20 "LIQUIDATOR" means the Person who liquidates the Partnership under
Article 16 hereof.
1.21 "PARTNERS" means the General Partner and the Limited Partners,
collectively. "Partner" means any one of the Partners.
1.22 "PARTNERSHIP" means the limited partnership governed by this
Agreement.
1.23 "PERSON" means any individual, partnership, corporation, limited
liability company, trust or other entity.
3
<PAGE> 8
1.24 "SERVICES AGREEMENTS" means the Columbia Services Agreement and
the Brim Services Agreement.
1.25 "SHARING PERCENTAGE" means, as to a Partner, the percentage
obtained by dividing the Units of such Partner by the total Units of all
Partners at that time. The Partners hereby agree that their Sharing Percentages
shall constitute their "interests in the Partnership profits" for purposes of
determining their respective shares of the Partnership's "excess nonrecourse
liabilities" within the meaning of section 1.752-3(a)(3) of the Regulations.
1.26 "SUBSTITUTED LIMITED PARTNER" means any Person admitted to the
Partnership pursuant to Section 13.2.
1.27 "TERMINATING EVENT" means, with respect to any Limited Partner,
the Limited Partner is in Bankruptcy.
1.28 "TREASURY REGULATIONS" or "REGULATIONS" means the regulations,
promulgated by the United States Department of the Treasury pursuant to and with
respect of provisions of the Code. All references herein to sections of the
Treasury Regulations or the Regulations shall include any corresponding
provision or provisions of succeeding, similar or substitute proposed, temporary
or final regulations.
1.29 "UNITS" means all or a certain percentage, as the context
requires, of the issued and outstanding ownership interests of the Partnership
held by the Partners. "UNIT" means any one of the Units. "GENERAL PARTNER UNITS"
or "LIMITED PARTNER UNITS" means Units held by the General Partner, or the
Limited Partners, respectively.
2. FORMATION OF PARTNERSHIP
2.1 FORMATION. Columbia/TSP and the General Partner formed the
Partnership pursuant to the Act, and caused the Certificate of Limited
Partnership to be filed in the office of the Secretary of State of Delaware on
January 20, 1997 and have complied with all other legal requirements to form and
operate the Partnership. Except as stated in this Agreement, the Act shall
govern the rights and liabilities of the Partners.
2.2 NAME. The name of the Partnership is Aligned Business Consortium
Group, L.P., and the business of the Partnership shall be conducted under that
name or such other name or names as may be Approved by the Partners from time to
time.
2.3 PRINCIPAL OFFICE. The principal office of the Partnership shall be
located at One Park Plaza, Nashville, TN 37203 or at such other place or places
as the General Partner may from time to time determine.
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2.4 TERM. The Partnership began on the date the General Partner filed
the Certificate of Limited Partnership with the Secretary of the State of
Delaware as provided in Section 2.1 hereof, and shall continue until the date on
which the Partnership is dissolved pursuant to Article 15 and thereafter, to the
extent provided for by applicable law, until wound up and terminated pursuant to
Article 16 hereof.
2.5 REGISTERED AGENT AND OFFICE. The registered agent of the
Partnership shall be the Prentice-Hall Corporation System, Inc. and the
registered office of the Partnership shall be located at 1013 Centre Road,
Wilmington, DE, 19805-1297. The registered office or the registered agent, or
both, may be changed by the General Partner from time to time upon filing the
statement required by the Act. The Partnership shall maintain at its registered
office such records as may be specified by the Act.
3. PURPOSES AND POWERS OF THE PARTNERSHIP; NATURE OF THE BUSINESS
OF THE PARTNERSHIP
3.1 PURPOSES. The purposes of the Partnership are (i) to own, manage,
develop and operate a membership organization formed for the purpose of
aggregating purchasing activities in order to achieve economic benefits for its
members (a "Group Purchasing Organization") for hospital supplies, services and
materials and (ii) generally to engage in such other businesses and activities
and to do any and all other acts and things that the General Partner deems
reasonably necessary, appropriate or advisable from time to time in furtherance
of the purposes of the Partnership as set forth in this Section 3.1 (subject to
the provisions of Section 8.3 and 8.4 hereof); provided, however, that the
Partners agree that the business operations of the Partnership shall not include
any group purchasing of healthcare supplies, services and materials by Columbia
or any Columbia Affiliate for any hospital that is leased, managed or owned,
directly or indirectly, by Columbia or any Columbia Affiliate, including,
without limitation, hospitals owned indirectly or directly by Columbia or
Columbia Affiliates through a partnership, limited liability company,
corporation (including any not-for-profit corporation), joint venture, trust or
other entity. Notwithstanding the foregoing, the Partners agree that any
administrative fees received by the Partnership from any hospital that is
leased, managed or owned, directly or indirectly, by Columbia (or any Columbia
Affiliate) or by Brim (or any of its Affiliates) shall be paid by the
Partnership to Columbia or Brim (so long as it or any of its Affiliates is a
Partner), respectively, or if paid directly to Columbia or Brim, may be retained
by Columbia or Brim (so long as it or any of its Affiliates is a Partner).
3.2 POWERS. Subject to the limitations contained in this Agreement and
in the Act, the Partnership purposes may be accomplished by the General Partner
taking any action permitted under this Agreement that in the good faith judgment
of the General Partner, is customary or reasonably related to accomplishing such
purposes.
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4. CAPITAL CONTRIBUTIONS, LOANS, CAPITAL ACCOUNTS
4.1 CAPITAL CONTRIBUTIONS. Each Partner has contributed its Capital
Contribution to the capital of the Partnership.
4.2 ADDITIONAL CAPITAL CONTRIBUTIONS. If Additional Capital
Contributions (herein so called) are required in the determination of the
General Partner for any expenditure (in accordance with the purpose of the
Partnership as set forth in Section 3.1 hereof) of the Partnership, the General
Partner shall have the right to request that the Partners make such Additional
Capital Contributions (pro rata in accordance with each Partner's Sharing
Percentage) to the Partnership in excess of its initial Capital Contribution. If
the General Partner makes such a request, no Partner shall be required to make
such Additional Capital Contribution, provided that if any Partner elects not to
make the Additional Capital Contribution (a "Noncontributing Partner"), the
other Partners (the "Contributing Partners") shall have the right to contribute
to the Partnership the amount of cash that the Noncontributing Partner or
Partners failed to contribute. The Partners shall have thirty (30) days from the
General Partner's request in which to elect to make or not make such Additional
Capital Contributions. Effective as of the end of such thirty (30) day period,
the Partners' Sharing Percentages shall be adjusted to a fraction (converted to
a percentage), the numerator of which is the amount of such Partner's Capital
Account and the denominator of which is the aggregate amount of all Partner's
Capital Accounts. The number of Units held by each Partner shall be adjusted
automatically to reflect any change in the Partners' Sharing Percentages under
this section.
4.3 CAPITAL ACCOUNTS. A Capital Account (herein so called) shall be
established and maintained for each Partner for the full term of this Agreement
in accordance with the capital accounting rules of section 1.704-1(b)(2)(iv) of
the Regulations. Each Partner shall have only one Capital Account, regardless of
the number or classes of Units or other interests in the Partnership owned by
such Partner and regardless of the time or manner in which such Units or other
interests were acquired by such Partner. Pursuant to the basic capital
accounting rules of section 1.704-l(b)(2)(iv) of the Regulations, the balance of
each Partner's Capital Account shall be:
(a) Increased by the amount of money contributed by such
Partner (or such Partner's predecessor in interest) to the capital of
the Partnership pursuant to this Article 4 and decreased by the amount
of money distributed to such Partner (or such Partner's predecessor in
interest) pursuant to Article 6 hereof;
(b) Increased by the fair market value of each property
(determined without regard to section 7701(g) of the Code) contributed
by such Partner (or such Partner's predecessor in interest) to the
capital of the Partnership pursuant to this Article 4 (net of all
liabilities secured by such property that the Partnership is considered
to assume or take subject to under section 752 of the Code) and
decreased by the fair market value of each property (determined without
regard to section 7701(g) of the Code) distributed to such Partner (or
such Partners predecessor in interest) by the Partnership pursuant to
Article 4
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hereof (net of all liabilities secured by such property that such
Partner is considered to assume or take subject to under section 752 of
the Code);
(c) Increased by the amount of each item of Partnership profit
allocated to such Partner (or such Partner's predecessor in interest)
pursuant to Section 3.1 of Exhibit "A" hereto;
(d) Decreased by the amount of each item of Partnership loss
allocated to such Partner (or such Partner's predecessor in interest)
pursuant to Section 3.1 of Exhibit "A" hereto; and
(e) Otherwise adjusted as follows:
(i) Effective immediately prior to any "Revaluation
Event" (as defined Exhibit "A" hereto), the balances of all Partners'
Capital Accounts shall be adjusted to reflect the manner in which items
of profit or loss, as computed for book purposes, equal to the
"Unrealized Book Gain Or Loss" (as defined in Exhibit "A" hereto) then
existing with respect to each Partnership property (to the extent not
previously reflected in the Partners' Capital Account) would be
allocated among the Partners pursuant to Section 3.1 of Exhibit "A"
hereto if there were a taxable disposition of such property immediately
prior to such Revaluation Event for its fair market value (as
determined by the General Partner taking section 7701 (g) of the Code
into account (i.e., such value shall not be less than the amount of
nonrecourse liabilities to which such property is subject));
(ii) With respect to items of Partnership profit and
loss, the balances of all the Partners' Capital Accounts shall be
adjusted solely for allocations of such items, as computed for book
purposes, under Section 3.1 of Exhibit "A" hereto and shall not be
adjusted for allocations of correlative Tax Items under Section 3.2 of
Exhibit "A" hereto;
(iii) immediately before giving effect under Section
4.3(b) hereof to any adjustment attributable to the distribution of
property to a Partner, the balances of all the Partners' Capital
Accounts first shall be adjusted to reflect the manner in which items
of profit or loss, as computed for book purposes, equal to the
Unrealized Book Gain Or Loss existing with respect to the distributed
property (to the extent not previously reflected in the Partners'
Capital Accounts) would be allocated among the Partners pursuant to
Section 3.1 of Exhibit "A" hereto if there were a taxable disposition
of such property, on the date of such distribution, by the Partnership
for its fair market value at the time of such distribution (as agreed
to in writing by the Partners taking section 7701(g) of the Code into
account (i.e., such value shall not be agreed to be less than the
amount of Nonrecourse Liabilities to which such property is subject));
and
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(iv) Upon the transfer of all or part of any Unit or other
interest in the Partnership, the Capital Account of the transferor
Partner, to the extent attributable to the transferred interest, shall
carry over to the transferee Partner; provided, however, if the
transfer causes the termination of the Partnership for federal income
tax purposes under section 708(b)(1)(B) of the Code, the Capital
Account that carries over to the transferee Partner shall be subject to
adjustment in accordance with Section 4.3(e)(i) hereof in connection
with the resulting constructive liquidation of the Partnership for
federal income tax purposes.
4.4 ADDITIONAL PROVISIONS REGARDING CAPITAL ACCOUNTS.
(a) If a Partner pays any Partnership indebtedness or forgives
any Partnership indebtedness owing to such Partner, such payment or
forgiveness shall be treated as a cash contribution by that Partner to
the capital of the Partnership, and the Capital Account of such Partner
shall be increased by the amount so paid by such Partner.
(b) Except as otherwise provided herein, no Partner may
contribute capital to, or withdraw capital from, the Partnership. To
the extent any monies which any Partner is entitled to receive pursuant
to the Agreement would constitute a return of capital, each of the
Partners consents to the withdrawal of such capital.
(c) A loan by a Partner to the Partnership shall not be
considered a contribution of money to the capital of the Partnership,
and the balance of such Partner's Capital Account shall not be
increased by the amount so loaned. No repayment of principal or
interest on any such loan, reimbursement made to a Partner with respect
to advances or other payments made by such Partner on behalf of the
Partnership or payments of fees to a Partner which are made by the
Partnership shall be considered a return of capital or in any manner
affect the balance of such Partner's Capital Account.
(d) No Partner with a deficit balance in its Capital Account
shall have any obligation to the Partnership or any other Partner to
restore such deficit balance. In addition, no venturer or partner in
any Partner shall have any liability to the Partnership or any other
Partner for any deficit balance in such venturer's or partner's capital
account in the Partner in which it is a partner or venturer.
Furthermore, a deficit Capital Account balance of a Partner (or a
capital account of a partner or venturer in a Partner) shall not be
deemed to be a liability of such Partner (or of such venturer or
partner in such Partner) or a Partnership asset or property. The
provisions of this Section 4.4(d) shall not affect any Partner's
obligation to make capital contributions to the Partnership that are
required to be made by such Partner pursuant to this Agreement.
(e) Except as otherwise provided herein, no interest shall be
paid on any capital contributed to the Partnership or the balance in
any Partner's Capital Account.
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(f) All of the provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with section
1.704-l(b) of the Regulations, and shall be interpreted and applied in
a manner consistent with such Regulations. If the General Partner
determines that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities that are secured
by contributed or distributed property or that are assumed by the
Partnership or any of the Partners) are computed in order to comply
with the Regulations, the General Partner may make such modifications,
provided that such modifications are not likely to have a material
effect on the amounts distributable to any Partner from the
Partnership. The General Partner shall also make appropriate
modifications in the event unanticipated events might otherwise cause
this Agreement not to comply with section 1.704-l(b) of the
Regulations.
4.5 LOANS. The General Partner or any Limited Partner, with the consent
of the General Partner, may lend money to the Partnership. If the General
Partner or, with the written consent of the General Partner, any Limited Partner
makes any loan or loans to the Partnership, the amount of any such loan shall
not be treated as a contribution to the capital of the Partnership but shall be
a debt due from the Partnership. Any Partner's loan to the Partnership shall be
repayable out of the Partnership's cash and shall bear interest at prevailing
market rates. None of the Partners nor any of their Affiliates shall be
obligated to loan money to the Partnership.
5. ALLOCATIONS
5.1 ALLOCATIONS OF INCOME AND LOSSES. All items of income or loss of
the Partnership shall be allocated to the Partners in accordance with the
provisions of Exhibit "A" attached hereto, which is hereby incorporated by
reference for all purposes of this Agreement.
6. DISTRIBUTIONS
6.1 DISTRIBUTION OF EXCESS CASH. Except as otherwise may be provided in
Section 16.3, or as otherwise may be prohibited or required by applicable law,
as soon as practicable and in any event within ninety (90) days after the end of
each fiscal year, the General Partner shall determine in its reasonable
discretion the extent (if any) that the Partnership's cash on hand exceeds its
current and anticipated needs, including without limitation, for operating
expenses, debt service, acquisitions, capital expenditures, and a reasonable
contingency reserve. If the General Partner determines that such an excess
exists, the General Partner shall cause the Partnership to distribute such
excess to the Partners, pro rata in accordance with their respective Sharing
Percentages; provided, however, that, to the extent that the Partnership
distributes any such excess relating to the Partnership's operations during the
period beginning on the date hereof and ending on the first anniversary of such
date, the General Partner shall cause the Partnership to make such distributions
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as if Brim's Sharing Percentage was 30% and Columbia Sub's and Columbia/TSP's
cumulative Sharing Percentage was 70%; provided, further, that if Additional
Limited Partners are admitted to the Partnership during such period, then such
percentages shall be proportionally reduced in accordance with the existing
Partners actual Sharing Percentages.
7. BANK ACCOUNTS, BOOKS OF ACCOUNT, TAX COMPLIANCE AND FISCAL YEAR
7.1 BANK ACCOUNTS: INVESTMENTS. The General Partner may (i) establish
one or more bank accounts as provided in Section 8.1 (g) into which all
Partnership funds shall be deposited or (ii) deposit Partnership funds in a
central account established in the name of Columbia, Columbia Sub or a Columbia
Affiliate, provided that detailed separate entries are made on the books and
records of the Partnership and on the books and records of Columbia, Columbia
Sub or such Columbia Affiliate with respect to amounts received from the
Partnership and deposited in such central account for the account of the
Partnership. The daily balances of the funds of the Partnership deposited into
such central account shall bear interest at a current market rate. Funds
deposited in the Partnership's bank accounts may be withdrawn only to pay
Partnership debt or obligations or to be distributed to the Partners under this
Agreement. Partnership funds, however, may be invested in such securities and
investments, as the General Partner may select until withdrawn for Partnership
purposes.
7.2 BOOKS AND RECORDS. The General Partner shall keep books of account
and records relative to the Partnership's business. The books shall be prepared
in accordance with generally accepted accounting principles using the accrual
method of accounting. The accrual method of accounting shall also be used by the
Partnership for income tax purposes. The Partnership's books and records shall
at all times be maintained at the principal business office of the Partnership
or its accountants (and to the extent required by the Act, at the registered
office of the Partnership) and shall be available for inspection by the Limited
Partners or their duly authorized representatives during reasonable business
hours. The books and records shall be preserved for at least four (4) years
after the term of the Partnership ends.
7.3 DETERMINATION OF PROFIT AND LOSS: FINANCIAL STATEMENTS:
ANNUAL BUDGETS.
(a) All items of Partnership income, expense, gain, loss,
deduction and credit shall be determined with respect to, and allocated
in accordance with, this Agreement for each Partner for each
Partnership fiscal year. Within one hundred twenty (120) days after the
end of each Partnership fiscal year, the General Partner shall cause to
be prepared, at the Partnership's expense, unaudited financial
statements of the Partnership for the preceding fiscal year, including,
without limitation, a balance sheet, profit and loss statement,
statement of cash flows and statement of the balances in the Partners'
Capital Accounts, prepared in accordance with the terms of this
Agreement and generally accepted accounting principles consistently
applied. These financial statements shall be available for inspection
and copying
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during ordinary business hours at the reasonable request of any
Partner, and shall be furnished to all Limited Partners by the
Partnership as soon as practicable upon their completion.
(b) Prior to the end of each fiscal year, the Partnership
shall provide to Brim a copy of the Partnership's annual and capital
expenditure budget for the next succeeding fiscal year.
7.4 TAX RETURNS AND INFORMATION. The Partners intend for the
Partnership to be treated as a partnership, rather than as an association
taxable as a corporation, for federal income tax purposes. The General Partner
shall prepare or cause to be prepared all federal, state and local income and
other tax returns which the Partnership is required to file, provided that the
General Partner may request an extension with respect to any federal, state and
local income and other tax returns which the Partnership is required to file.
The General Partner shall furnish such returns to the Limited Partners, together
with a copy of each Limited Partner's Form K-l and any other information which
any Limited Partner may reasonably request relating to such returns, within
ninety (90) days after the end of each Partnership fiscal year or within 30 days
after the filing of such returns pursuant to an extension.
7.5 TAX AUDITS. The General Partner shall be the tax matters partner of
the Partnership under Section 623l(a)(7) of the Code. The General Partner shall
inform the Limited Partners of all matters which may come to its attention in
its capacity as tax matters partner by giving the Limited Partners notice
thereof within ten (10) days after becoming so informed. The General Partner
shall not take any action contemplated by Sections 6222 through 6232 of the Code
unless the General Partner has first given the Limited Partners notice of the
contemplated action and received the Approval of the Partners to the
contemplated action. This provision is not intended to authorize the General
Partner to take any action which is left to the determination of the individual
Partner under Sections 6222 through 6232 of the Code.
7.6 FISCAL YEAR. The Partnership fiscal year shall be the calendar
year.
8. RIGHTS, OBLIGATIONS AND INDEMNIFICATION OF THE GENERAL PARTNER
8.1 RIGHTS OF THE GENERAL PARTNER AS MANAGER. Subject to the
limitations imposed upon the General Partner in this Agreement (including,
without limitation, Sections 8.3, 8.4 and 8.5 hereof) the General Partner shall
have full, exclusive and complete duty and right to manage and control, and,
within its reasonable discretion, shall make all decisions and take any
necessary or appropriate action in connection with the Partnership's business.
Without limiting the General Partner's power or authority under this Agreement
or the Act, the General Partner may (without obtaining the consent or approval
of any Partners) take the following actions if and when it deems any such action
to be reasonably necessary, appropriate or advisable, at the sole cost and
expense of
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the Partnership, subject however in all respects to the limitations imposed on
the General Partner in this Agreement (including, without limitation, Sections
8.3, 8.4 and 8.5):
(a) Subject to the last sentence of Section 8.5 hereof, borrow
money from any source, including, without limitation, from the General
Partner, Columbia, Columbia/TSP or a Columbia Affiliate and, if
security is required therefor, to mortgage or subject to any other
security device any portion of the Partnership's property, to obtain
replacements of any mortgage or other security device, and to prepay,
in whole or in part, refinance, increase, modify, consolidate or extend
any mortgage or other security device, all of the foregoing on such
terms and in such amounts as the General Partner deems, in its
reasonable discretion, to be in the best interest of the Partnership;
(b) Acquire and enter into any contract of insurance which the
General Partner deems reasonably necessary and proper for the
protection of the Partnership, for the conservation of the
Partnership's assets, or for any purpose convenient or beneficial to
the Partnership;
(c) Employ, from time to time on behalf of the Partnership,
individuals (including employees of the General Partner, the Limited
Partners, or any of their Affiliates) on such terms and for such
compensation as the General Partner shall determine (but not in an
amount which would be considered unreasonable based upon the scope of
an individual employee's duties and responsibilities), and enter into
agreements for the transfer of interests to such Persons as provided
in Article 13 and 14 hereof;
(d) Make decisions as to accounting principles and elections,
whether for book or tax purposes (and such decisions may be different
for each purpose);
(e) Set up or modify record keeping, billing and accounts
payable accounting systems;
(f) Alienate, mortgage, pledge or otherwise encumber, sell,
exchange, lease or purchase real and/or personal property in
fulfillment of the Partnership purposes and for the operation of other
Partnership property;
(g) Open checking and savings accounts, in banks or similar
financial institutions, in the name of the Partnership, and deposit
cash in and withdraw cash from such accounts, provided that any such
deposits are made in federally insured banks or financial institutions;
(h) Adjust, arbitrate, compromise, sue or defend, abandon, or
otherwise deal with and settle any and all claims in favor of or
against the Partnership, as the General Partner shall, in its sole
discretion, deem proper (subject to the General Partner's fiduciary
duties as the General Partner of the Partnership);
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(i) Execute, make, perform and carry out on behalf of and in
the name of the Partnership all types of contracts, leases, agreements,
instruments, notes, certificates, titles or other documents of any kind
or nature as deemed reasonably necessary and desirable by the General
Partner, including without limitation contracts, leases, other
agreements and documents and cash management systems with Columbia
Affiliates or any Partner, and amend, extend, or modify, any contact,
lease or agreement at any time entered into by the Partnership,
provided that the General Partner uses its best efforts to insure that
all such contracts, leases, or agreements are representative of fair
market value; and
(j) Do all acts reasonably necessary or desirable to carry out
the business for which the Partnership is formed or which may
facilitate the General Partner's exercise of its powers hereunder.
8.2 RIGHT TO RELY ON THE GENERAL PARTNER. No Person or governmental
body dealing with the Partnership shall be required to inquire into, or to
obtain any other documentation as to, the authority of the General Partner to
take any action permitted under Section 8.1. Furthermore, any Person dealing
with the Partnership may rely upon a certificate signed by the General Partner
as to the following:
(a) The identity of the General Partner or any Limited
Partner;
(b) The existence or nonexistence of any fact or facts that
constitute a condition precedent to acts by the General Partner or
which are in any other manner germane to the affairs of the
Partnership;
(c) The Persons who are authorized to execute and deliver any
instrument or document of the Partnership; or
(d) Any act or failure to act by the Partnership on any other
matter whatsoever involving the Partnership or any Partner.
8.3 SPECIFIC LIMITATIONS ON THE GENERAL PARTNER. Notwithstanding
anything to the contrary in this Agreement or the Act, without the prior written
approval of all of the Limited Partners to the specific act in question, the
General Partner shall have no right, power or authority to do any of the
following acts, each of which is considered outside the ordinary course of
Partnership business:
(a) To do any act in contravention of this Agreement;
(b) To change or reorganize the Partnership into any other
legal form; or
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(c) To knowingly perform any act that would subject any
Limited Partner to liability as a general partner in any jurisdiction.
8.4 ADDITIONAL LIMITATIONS ON THE AUTHORITY OF THE GENERAL PARTNER.
Without (i) the prior Approval of the Partners and (ii) the prior written
approval of Brim (so long as Brim or any of its Affiliates is a Partner), the
General Partner shall have no authority to do any of the following:
(a) Amend this Agreement (except as provided in Section 18.8);
(b) Change the nature of the business of the Partnership;
(c) Sell all or substantially all of the assets of the
Partnership; or
(d) Dissolve the Partnership.
The limitations in Sections 8.3(b) and this Section 8.4 shall not be applicable
to any General Partner or any Liquidator in winding up and liquidating the
business of the Partnership under Article 16.
8.5 MANAGEMENT OBLIGATIONS OF THE GENERAL PARTNER. The General Partner
shall devote such time to the Partnership as may be necessary to manage and
supervise the Partnership business and affairs, but nothing in this Agreement
shall preclude the General Partner, at the expense of the Partnership, from
employing any Columbia Affiliate or a third party to provide management or other
services to the Partnership, always subject, however, to the control of the
General Partner. Any transaction between the Partnership and the General
Partner, Columbia, Columbia/TSP or any Columbia Affiliate is hereby expressly
authorized provided that the terms of such transactions are generally no less
favorable to the Partnership than the terms that would be made available to the
Partnership in arm's length transactions with independent third parties.
8.6 INDEMNIFICATION OF THE GENERAL PARTNER.
(a) Except to the extent such indemnification may be
prohibited by law, the Partnership, its receiver, or its trustee shall
indemnify, hold harmless, and pay all judgments and claims against the
General Partner relating to any liability or damage incurred or
suffered by the General Partner by reason of any act performed or
omitted to be performed (but not constituting willful misconduct or
gross negligence) by the General Partner or its agents or employees in
connection with the Partnership's business, including reasonable
attorneys' fees incurred by the General Partner in connection with the
defense of any claim or action based on any such act or omission,
which attorneys' fees may be paid as incurred (provided that the
General Partner shall be required to reimburse the Partnership for any
such attorneys' fees paid as incurred if the General Partner is not
entitled to indemnification for the claims, actions or liabilities
relating to such fees).
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(b) In the event any Limited Partner shall bring a legal
action against the General Partner, including a Partnership derivative
suit, the Partnership shall indemnify, hold harmless, and pay all
expenses of the General Partner, including but not limited to
attorneys' fees incurred in the defense of such action, unless the
General Partner shall be adjudicated guilty of gross negligence or
willful misconduct in connection with the performance of its duties as
General Partner to the Partnership.
(c) The Partnership shall indemnify, hold harmless, and pay
all expenses, costs or liabilities of the General Partner which (or
who) for the benefit of the Partnership makes any deposit, acquires any
option, makes any payment, or assumes any obligation in connection with
any property proposed to be acquired by the Partnership and which (or
who) suffers any financial loss as a result of such action.
(d) Any indemnification required herein to be made by the
Partnership shall be made promptly following the fixing of any loss,
liability, or damage incurred or suffered. If, at any time, the
Partnership has insufficient funds to provide such indemnification as
herein provided, it shall provide such indemnification if and as the
Partnership generates sufficient funds, and prior to any distribution
to the Partners.
Notwithstanding the foregoing provisions of this Section 8.6, the
General Partner shall not be indemnified by the Partnership from any liability
for actions or omissions that constitute willful misconduct or gross negligence
on the part of the General Partner.
8.7 REIMBURSEMENT. The General Partner shall be entitled to be
reimbursed for any and all reasonable costs and expenses incurred by it in
connection with managing and operating the Partnership and its properties and
business. Such reimbursement shall be paid by the Partnership, upon the written
application of the General Partner, as soon as funds are available therefor.
8.8 INDEPENDENT ACTIVITIES.
(a) Subject to the limitations set forth in Section 8.8(b)
hereof, the General Partner, Columbia/TSP and any of their Affiliates
may engage in or possess interests in other business ventures of every
nature and description, independently, and with others, whether such
activities are competitive with the Partnership or otherwise without
having or incurring any obligation to offer any interest in such
activities to the Partnership or any Partner. Subject to the
limitations set forth in Section 8.8(b) hereof, neither this Agreement
nor any activity undertaken hereunder shall prevent the General
Partner, Columbia/TSP or any of their Affiliates from engaging in such
other activities or require the General Partner, Columbia/TSP or any of
their Affiliates to permit the Partnership or any Limited Partner to
participate in such activities. Furthermore, as a material part of the
consideration for the General Partner and Columbia/TSP executing this
Agreement and admitting the Limited
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Partners to the Partnership, the Limited Partners herein waive,
relinquish and renounce any right or claim of participation in any such
activities.
(b) Notwithstanding the foregoing, neither the General
Partner, Columbia/TSP or their Affiliates nor Brim or its Affiliates
may engage in or possess any interests in any other business venture
that (i) owns, manages, develops or operates a national Group
Purchasing Organization for purchasing for hospitals, surgery centers,
long-term care facilities, assisted living facilities and skilled
nursing facilities ("Competitive Businesses") and (ii) is competitive
with the Partnership ("Competitive Activities"); provided, however,
that such Competitive Activities shall not include, without limitation,
the owning, managing, developing or operating of (w) any Group
Purchasing Organization for healthcare supplies, services and materials
purchasing which operates within a specific geographic market or
markets that is or are not national in scope, (x) any international
healthcare or hospital related businesses or matters (including,
without limitation, any Group Purchasing Organizations), (y) any Group
Purchasing Organization for purchasing for activities which are not
Competitive Businesses, such as Group Purchasing Organizations for
equipment, supplies or other materials and services used in physician
practices or pharmaceuticals (whether or not distributed in hospitals),
and any Group Purchasing Organization or similar arrangement for an
array of products whose usage in hospitals is relatively minor and who
have not traditionally been offered through Group Purchasing
Organizations, or (z) any Group Purchasing Organization or Group
Purchasing Organizations that is or are owned, managed or operated by a
Person that is acquired by the General Partner, Columbia/TSP or any of
their Affiliates or by Brim or any of its Affiliates after the date
hereof, provided that the operations of such Group Purchasing
Organization or Group Purchasing Organizations do not comprise more
than twenty percent (20%) of the consolidated revenues of such Person.
In the event of an actual or threatened breach by the General Partner,
Columbia/TSP or their Affiliates or Brim or its Affiliates of this
Section 8.8(b), the non-breaching party shall be entitled to an
injunction in any appropriate court, restraining the actual or
threatened breach by such other party. If a court shall hold that the
duration and/or scope (geographic or otherwise) of the agreement
contained in this Section 8.8(b) is unreasonable, then, to the extent
permitted by law, the court may prescribe a duration and/or scope
(geographic or otherwise) that is reasonable and judicially
enforceable.
9. RIGHTS AND STATUS OF LIMITED PARTNERS
9.1 GENERAL. The Limited Partners have the rights and the status of
limited partners under the Act. Except to the extent expressly otherwise
provided in this Agreement, the Limited Partners shall not take part in the
management or control of the Partnership business, or sign for or bind the
Partnership, such powers being vested exclusively in the General Partner.
9.2 LIMITATION OF LIABILITY. No Limited Partner shall have any personal
liability whatsoever, solely by reason of its status as a Limited Partner of
the Partnership, whether to the
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Partnership, the General Partner or any creditor of the Partnership, for the
debts of the Partnership or any of its losses beyond the amount of the Limited
Partner's obligation to contribute its Capital Contribution to the Partnership.
9.3 BANKRUPTCY; DEATH, ETC. Neither the Bankruptcy, death, disability
nor declaration of incompetence or incapacity of a Limited Partner shall
dissolve the Partnership, but the rights of a Limited Partner to share in the
profits and losses of the Partnership and to receive distributions of
Partnership funds shall, on the happening of such an event, devolve upon the
Limited Partner's estate, legal representative or successor in interest, as the
case may be, subject to this Agreement, and the Partnership shall continue as a
limited partnership under the Act. The Limited Partner's estate, representative
or successor in interest shall be entitled to receive distributions and
allocations with respect to such Limited Partner's interest in the Partnership
and shall be liable for all of the obligations of the Limited Partner. However,
the Limited Partner's estate, representative or successor in interest shall have
no right to any information or accounting of the affairs of the Partnership,
shall not be entitled to inspect the books or records of the Partnership, and
shall not be entitled to any of the rights of a general partner or limited
partner (other than the right to receive distributions and allocations as
described in the foregoing sentence) under the Act or this Agreement unless such
estate, representative or successor in interest is admitted to the Partnership
as a Substituted Limited Partner in accordance with Section 13.2.
10. SPECIAL COVENANTS OF THE PARTNERS
10.1 NON-OWNERSHIP PROVISION. Each Limited Partner (other than
Columbia/TSP and any of its Affiliates) agrees that while it is a Limited
Partner and for three (3) years thereafter neither it nor any of its Affiliates
shall, directly or indirectly, hold an ownership interest in any Competitive
Activities without the prior written consent of the General Partner. Each such
Limited Partner expressly agrees that neither it nor any of its Affiliates shall
violate the terms of this Section 10.1 while such Limited Partner is a limited
partner of the Partnership and for a period of three (3) years thereafter.
Notwithstanding anything in this Section 10.1 to the contrary, at any time after
a Limited Partner is no longer a Partner in the Partnership, such Limited
Partner and its Affiliates may utilize the services of another Group Purchasing
Organization or contract directly with suppliers, but only in connection with
hospitals actually owned, leased or managed by such Limited Partner or its
Affiliates. In addition, notwithstanding anything in this Section 10.1 to the
contrary, each of the parties hereto agrees and acknowledges that nothing in
this Section 10.1 shall limit or negate Columbia Sub's or its Affiliates'
obligations or rights under Section 8.8(b) hereof.
10.2 LIMITATION. In the event of an actual or threatened breach by any
Limited Partner of Section 10.1, the General Partner shall be entitled to an
injunction in any appropriate court, restraining the actual or threatened breach
by such Partner. If a court shall hold that the duration and/or scope
(geographic or otherwise) of the agreement contained in Section 10.1 is
unreasonable, then, to the extent permitted by law, the court may prescribe a
duration and/or scope (geographic or
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otherwise) that is reasonable and judicially enforceable. The parties agree to
accept such determination, subject to their rights of appeal, which the parties
hereto agree may be substituted in place of any and every offensive part of
Section 10.1, and as so modified, Section 10.1 of this Agreement shall be as
fully enforceable as if set forth herein by the parties in the modified form.
Nothing herein stated shall be construed as prohibiting any party hereto from
pursuing any other remedies available for such breach or threatened breach,
including the recovery of damages.
11. MEETINGS AND MEANS OF VOTING
11.1 MEETINGS OF THE PARTNERS. Meetings of the Partners may be called
by the General Partner and shall be promptly called upon the written request of
any one or more Limited Partners who own in the aggregate 15% or more of the
aggregate Sharing Percentage in the Partnership. The notice of a meeting shall
state the nature of the business to be transacted at such meeting, and actions
taken at any such meeting shall be limited to those matters specified in the
notice of the meeting. Notice of any meeting shall be given to all Partners not
less than ten (10) and not more than sixty (60) days prior to the date of the
meeting.
Except as otherwise expressly provided in this Agreement or required by
the express provisions of the Act, the requisite vote of the Partners shall be
the Approval of the Partners which shall control all decisions for which the
vote of the Partners is required hereunder. Each Partner's voting rights shall
be the same as that Partner's Sharing Percentage at the time of the vote. The
Partners may, at their election, participate in any regular or special meeting
by means of telephone conference or similar communications equipment by means of
which all Persons participating in the meeting can hear each other. A Partner's
participation in a meeting pursuant to the preceding sentence shall constitute
presence in person at such meeting for all purposes of this Agreement, and such
presence shall constitute a waiver of notice of the meeting with respect to such
Partner.
11.2 VOTE BY PROXY. Each Partner may authorize any Person to act on
Partner's behalf by proxy on all matters in which a Partner is entitled to
participate, whether by waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Partner
authorizing such proxy or such Partner's attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months after the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Partner executing it.
11.3 CONDUCT OF MEETING. Each meeting of Partners shall be conducted by
the General Partner or by a Person appointed by the General Partner. The meeting
shall be conducted pursuant to such reasonable rules as may be adopted by the
General Partner or the Person appointed by the General Partner for the conduct
of the meeting.
11.4 ACTION WITHOUT A MEETING. Notwithstanding anything to the contrary
in this Agreement, any action that (i) may be taken at a meeting of the Partners
and (ii) requires only the
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Approval of Partners and not the consent or approval of any individual Partner
may be taken without a meeting if a consent in writing setting forth the action
so taken is Approved by the Partners, which consent may be executed in multiple
counterparts. In the event any action is taken pursuant to this Section 11.4, it
shall not be necessary to comply with any notice or timing requirements set
forth in Section 11.1. Prompt written notice of the taking of action without a
meeting shall be given to the Partners who have not consented in writing to such
action.
11.5 CLOSING OF TRANSFER RECORD; RECORD DATE. For the purpose of
determining the Partners entitled to notice of or to vote at any meeting of
Partners, any reconvening thereof, or to act by consent, the General Partner may
provide that the transfer record shall be closed for at least ten (10) days
immediately preceding such meeting (or such shorter time as may be reasonable in
light of the period of the notice) or the first solicitation of consents in
writing. If the transfer record is not closed and if no record date is fixed for
determining the Partners entitled to notice of or to vote at a meeting of
Partners or by consent, the date on which the notice of the meeting is mailed or
the first written consent is received by the General Partner shall be the record
date for such determination.
12. Intentionally left blank.
13. TRANSFER OF UNITS AND ADDITIONAL LIMITED PARTNERS
13.1 TRANSFERS BY LIMITED PARTNERS. Except as otherwise set forth in
this Article 13 and Article 14, a Limited Partner may not sell, assign,
transfer, pledge or hypothecate all or any part of its interest in the
Partnership without the prior written consent of each of the General Partner and
Brim. Each of the General Partner and Brim in its sole discretion may withhold
its consent to any transfer for which such consent is required with or without
reasonable cause. Notwithstanding the foregoing, (i) if Brim or any of its
Affiliates requests in writing the prior written consent of the General Partner
to any sale, assignment, transfer, pledge or hypothecation of its interest in
the Partnership pursuant to this Section 13.1, and such request is denied or
disapproved, then Brim or any of its Affiliates shall have the right to exercise
the Buy/Sell Option pursuant to the terms of Section 14.4 hereof by giving the
Buy/Sell Notice even if such notice and exercise are to occur prior to the date
of the fifth anniversary hereof and (ii) if Columbia Sub or any of its
Affiliates or Columbia/TSP or any of its Affiliates requests in writing the
prior written consent of Brim to any sale, assignment, transfer, pledge or
hypothecation of its interest in the Partnership pursuant to this Section 13.1,
and such request is denied or disapproved, then Columbia Sub or any of its
Affiliates or Columbia/TSP or any of its Affiliates shall have the right to
exercise the Buy/Sell Option pursuant to the terms of Section 14.4 hereof by
giving the Buy/Sell Notice even if such notice and exercise are to occur prior
to the date of the fifth anniversary hereof. If a Limited Partner receives the
prior consent of the General Partner and Brim, it may sell its interest in the
Partnership if the following conditions are satisfied:
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(a) The sale, transfer or assignment is with respect to one or
more Units;
(b) The sale, transfer or assignment, when aggregated with any
prior sales, transfers or assignments of Partnership interests, does
not result in a sale or exchange within a twelve (12) month period of
fifty percent (50%) or more of the total interests in the Partnership's
capital and profits within the meaning of Code Section 708(b) (provided
that such sale, transfer or assignment may be completed if Approved by
the Partners);
(c) The Limited Partner and its transferee execute,
acknowledge and deliver to the General Partner such instruments of
transfer and assignment with respect to such transaction as are in form
and substance reasonably satisfactory to the General Partner;
(d) Unless waived in writing by the General Partner, the
Limited Partner delivers to the General Partner an opinion of counsel
reasonably satisfactory to the General Partner, covering such
securities and tax laws and other aspects of the proposed transfer as
the General Partner may reasonably request;
(e) The Limited Partner has furnished to the transferee a
written statement showing the name and taxpayer identification number
of the Partnership in such form and together with such other
information as may be required under Section 6050K of the Code and the
Regulations thereunder; and
(f) The Limited Partner pays the Partnership a transfer fee
that is sufficient to pay all reasonable expenses of the Partnership
(which shall include any and all reasonable expenses of the General
Partner and Brim) in connection with such transaction.
Any Limited Partner who thereafter sells, assigns or otherwise transfers all or
any portion of its interest in the Partnership shall promptly notify the General
Partner of such transfer and shall furnish to the General Partner the name and
address of the transferee and such other information as may be required under
Section 6050K of the Code and the Regulations thereunder. Any transferee
obtaining the interest of a Limited Partner in accordance with this Section 13.1
hereof shall be deemed a Substituted Limited Partner for purposes of this
Agreement without any further action or approval.
13.2 SUBSTITUTED LIMITED PARTNER. No Person taking or acquiring, by
whatever means, the interest of any Limited Partner in the Partnership, except
as provided in Section 13.1 hereof, shall be admitted as a Substituted Limited
Partner without the consent of the General Partner (which consent may not be
unreasonably withheld) and unless such Person:
(a) Elects to become a Substituted Limited Partner by
delivering notice of such election to the Partnership;
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(b) Executes, acknowledges and delivers to the Partnership
such other instruments as the General Partner may deem reasonably
necessary or advisable to effect the admission of such Person as a
Substituted Limited Partner, including, without limitation, the written
acceptance and adoption by such Person of the provisions of this
Agreement; and
(c) Pays a transfer fee to the Partnership in an amount
sufficient to cover all reasonable expenses connected with the
admission of such Person as a Substituted Limited Partner, provided
that such Person has not previously paid a transfer fee to the
Partnership pursuant to Section 13.l(f) hereof.
13.3 BASIS ADJUSTMENT. Upon the transfer of all or part of an interest
in the Partnership, at the request of the transferee of the interest the General
Partner may, in its sole discretion, cause the Partnership to elect, pursuant to
Section 754 of the Code or the corresponding provisions of subsequent law, to
adjust the basis of the Partnership properties as provided by Sections 734 and
743 of the Code.
13.4 TRANSFER TO COLUMBIA AFFILIATES AND BY THE GENERAL PARTNER.
Notwithstanding any of the provisions of this Agreement to the contrary, the
General Partner and Columbia/TSP may transfer, convey, sell or assign any of the
Units held by such General Partner and Columbia/TSP to any Columbia Affiliate
without the consent of or notice to any other Partner. Except as otherwise set
forth in this Article 13 and Article 14, the General Partner may not sell,
assign, transfer, pledge or hypothecate all or any part of its interest in the
Partnership without the prior written consent of Brim.
13.5 ADMISSION OF ADDITIONAL LIMITED PARTNERS. The General Partner is
authorized to issue limited partnership interests in the Partnership to any
Person and to admit them to the Partnership as Additional Limited Partners,
which in all instances shall comply with applicable securities laws. The General
Partner shall have reasonable discretion in determining the consideration, which
must be based on then current value (which must be fully paid in cash or
property at the time of subscription), and the terms and conditions with respect
to the Partnership for admitting Additional Limited Partners. The General
Partner will not permit any Person to become an Additional Limited Partner
unless such Person agrees to be bound by the terms of this Agreement. The
General Partner shall do all things necessary to comply with the Act and is
authorized to do all things it deems to be necessary or advisable in connection
with the Partnership for admitting any Additional Limited Partner, including,
but not limited to, complying with any statute, rule, regulation or guideline
issued by any Federal, state or other governmental agency.
13.6 TRANSFER PROCEDURES. The General Partner shall establish a
transfer procedure consistent with this Article 13 to ensure that all conditions
precedent to the admission of a Substituted Limited Partner or Additional
Limited Partner have been complied with.
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13.7 INVALID TRANSFER. No transfer of an interest in the Partnership
that is in violation of this Article 13 or Article 14 hereof shall be valid or
effective, and the Partnership shall not recognize any improper transfer for the
purposes of making allocations, payments of profits, return of capital
contributions or other distributions with respect to such Partnership interest,
or part thereof. The Partnership may enforce the provisions of this Article 13
or Article 14 either directly or indirectly or through its agents by entering an
appropriate stop transfer order on its books or otherwise refusing to register
or transfer or permit the registration or transfer on its books of any proposed
transfers not in accordance with this Article 13 or Article 14.
13.8 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF A TRANSFERRED
OWNERSHIP INTEREST. If any Partner sells, assigns or transfers any part of its
interest in the Partnership during any accounting period in compliance with the
provisions of this Article 13, Partnership income, gain, deductions and losses
attributable to such interest for the respective period shall be divided and
allocated between the transferor and the transferee by taking into account their
varying interests during the appropriate accounting period in accordance with
Code Section 706(d), using the daily proration method. All Partnership
distributions before the effective date of such transfer shall be made to the
transferor, and all such Partnership distributions on and after the effective
date of such transfer shall be made to the transferee. Solely for purposes of
making Partnership tax allocations and distributions, the Partnership shall
recognize a transfer on the day following the day of transfer. Neither the
Partnership nor the General Partner shall incur any liability for making
Partnership allocations and distributions in accordance with the provisions of
this Section 13.8.
13.9 ADDITIONAL REQUIREMENTS OF ADMISSION TO PARTNERSHIP. The General
Partner shall not admit any Person as a Limited Partner if such admission would
have the effect of causing the Partnership to be re-classified for federal
income tax purposes as an association (taxable as a corporation under the Code),
or would violate any Medicare or other health care law, rule or regulation, or
would not meet applicable exemptions from securities registration and securities
disclosure provided under Federal and state securities laws.
13.10 AMENDMENT TO EXHIBIT "B". The General Partner shall amend Exhibit
"B" attached to this Agreement from time to time to reflect the admission of any
successor General Partner, Substituted Limited Partners or Additional Limited
Partners, or the reduction or termination of any Partner's interest in the
Partnership.
14. RIGHT TO LIQUIDATE OR PURCHASE PARTNERSHIP INTERESTS
14.1 PARTNERSHIP'S AND GENERAL PARTNER'S RIGHT OF FIRST REFUSAL.
Subject to the restrictions on transfer set forth in Article 13, if any Limited
Partner receives or obtains an offer from a third party to acquire in any manner
all or any part of its interest in the Partnership which offer the Limited
Partner intends to accept the Limited Partner shall promptly notify the General
Partner in writing of the offer received, including the name of the offeror, the
number of whole or partial Units
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offered to be purchased, the proposed purchase price and the other terms and
conditions of the offer. The Partnership shall have the option for a period of
sixty (60) days from the day the General Partner receives notice of such offer
to purchase such Limited Partner's interest in the Partnership on the same terms
and conditions contained in the offer. The Partnership may exercise its option
by notifying the Limited Partner proposing to sell prior to the end of such
sixty (60) day period of its exercise of the option and shall thereafter
purchase such Limited Partner's interest within such sixty (60) day period
(unless such exercise is subsequently revoked). If the Partnership does not
exercise its option, the General Partner shall have the option to purchase such
Limited Partner's interest in the Partnership on the same terms and conditions
within the same sixty (60) day period. If the Partnership and the General
Partner fail to or both indicate in writing that they will not exercise the
option, within the period provided, or if either the Partnership or the General
Partner exercises the option but fails to effect the purchase within the
prescribed period, the Limited Partner, in accordance with and subject to the
provisions of Article 13 (including the provisions of Section 13.1 hereof
requiring the consent of the General Partner) may convey or dispose of the part
of the Partner's interest in the Partnership that was the subject of the offer
but only at the price, terms and conditions, and to the party specified in the
offer notice to the General Partner. If terms and conditions more favorable to
the proposed purchaser than, or in any material manner different from, those
offered to the Partnership and the General Partner should be agreed to by the
Limited Partner, the Partnership and the General Partner shall again have the
option to purchase the selling Limited Partner's interest in the Partnership
which is subject to the more favorable or different purchase terms in accordance
with this Section 14.1. Neither the General Partner nor the Partnership shall be
liable or accountable to any Limited Partner which attempts to transfer its
interest in the Partnership for any loss, damage, expense, cost, or liability
resulting from the Partnership's or General Partner's exercise or failure to
exercise the purchase option under this Section 14.1 within sixty (60) day
period described herein, or from the Partnership's or General Partner's failure
to notify the Limited Partner within such sixty (60) day period of the
Partnership's or the General Partner's intention not to exercise the purchase
option.
14.2 OCCURRENCE OF TERMINATING EVENT OR ADVERSE TERMINATING EVENT.
(a) In the event a Terminating Event shall occur with respect
to any Limited Partner, such Partner or the Partner's successor or
other legal representative, including a trustee in a Bankruptcy, shall
give written notice thereof to the Partnership within thirty (30) days
of the occurrence of such event. Upon the receipt of such notice, the
Partnership shall have the right, but not the obligation, for the
ensuing sixty (60) days to purchase such Partner's interest in the
Partnership. If the Partnership has not received written notice of a
Terminating Event with respect to any Limited Partner as required under
this Section 14.2(a) the Partnership will have the right to purchase
such Partner's interest in the Partnership for sixty (60) days after
the Partnership has actual knowledge of the occurrence of any such
event and gives written notice thereof to the Limited Partner.
Notwithstanding anything to the contrary in this Agreement, the failure
of a Limited Partner to notify the Partnership of
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the occurrence of a Terminating Event as required under this Section
14.2(a) shall not constitute the occurrence of an Adverse Terminating
Event.
(b) In the event the General Partner determines that an
Adverse Terminating Event has occurred with respect to any Limited
Partner, the Partnership shall give written notice thereof to such
Partner and, for a period of sixty (60) days from the date of such
notice, the Partnership shall have the right, but not the obligation,
to purchase such Partner's interest in the Partnership.
(c) In the event the Partnership does not elect to exercise
its right to purchase such Partner's interest in the Partnership
pursuant to subsections (a) or (b) above, then the General Partner
shall have the right, but not the obligation, within the time period
indicated in Section 14.2(a) hereof to purchase such Partner's
interest, pursuant to the same terms provided in Section 14.3 hereof,
for Partnership purchases of such Partner's interest.
14.3 PAYMENT FOR PARTNERSHIP INTEREST.
(a) If any Limited Partner's interest in the Partnership is
purchased because of the occurrence of a Terminating Event prior to the
third anniversary of the date of this Agreement, the amount the
Partnership will pay for each Unit owned by such Partner shall be equal
to the greater of (i) the "Fair Market Value" of each of its Units, as
determined in accordance with Section 14.3(c); or (ii) the amount the
Partner paid to acquire its Units less any distributions to such
Partner pursuant to Section 6.1 hereof; and if any Limited Partner's
interest in the Partnership is purchased because of the occurrence of a
Terminating Event on or after the third anniversary of the date of this
Agreement, the amount the partnership will pay for each Unit owned by
such Partner shall be equal to the Fair Market Value of each of his
Units, as determined in accordance with Section 14.3(c) hereof.
(b) If the Partnership purchases any Limited Partner's
interest in the Partnership as a result of an Adverse Terminating
Event, the amount to be paid by the Partnership to such Partner shall
be equal to the lesser of (i) the Fair Market Value of such Partner's
interest, as determined in accordance with Section 14.3(c) hereof; or
(ii) the amount paid by the Limited Partner to acquire its Units less
any distributions to such Partner pursuant to Section 6.1 hereof.
(c) If the Partnership purchases any Limited Partner's
interest in the Partnership as provided in this Section 14.3, the Fair
Market Value of each Unit owned by such Limited Partner shall be equal
to four times the average annual Net Cash From Operations earned with
respect to a Unit during the three years immediately preceding the date
a Terminating Event (or Adverse Terminating Event, as the case may be)
has occurred with respect to such Partner (or if the Partnership has
been in existence less than three years, the period of time the
Partnership has been in existence). For purposes of this Section
14.3(c), the term "Net
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Cash From Operations" means the gross cash revenues received from
Partnership operations less amounts used to pay or establish reserves
for all Partnership expenses, debt payments (principal and interest),
capital improvements, capital replacements and contingencies, all as
determined by the General Partner. Net Cash From Operations shall not
be reduced by depreciation, amortization, cost recovery deductions or
similar allowances, but shall be increased by any reductions or
reserves previously established.
(d) If the Partnership purchases any Limited Partner's
interest in the Partnership as provided in this Section 14.3, the
Partnership shall pay any such amounts owed therefor to such Partner or
its successor in a lump sum or, at the discretion of the General
Partner, in up to sixty (60) equal monthly payments with interest at
the "prime" or base rate as established from time to time by Chemical
Bank on the unpaid principal balance. If the General Partner exercises
its discretion to pay for a Partnership interest in monthly
installments, the first such installment will be paid to the Partner or
its successor in interest on the first day of the month after thirty
(30) days have expired since the Partner's interest in the Partnership
has been purchased. Each subsequent installment shall be paid on the
first day of each successive month until the full amount owed to the
Partner or its successor in interest has been paid. The Partnership's
obligation to pay the Partner in monthly installments under this
Section 14.3 will be evidenced by a nonrecourse promissory note
executed by the General Partner on behalf of the Partnership.
14.4 BUY/SELL OPTION.
(a) At any time following the fifth anniversary of the date
hereof, each of Columbia Sub, Columbia TSP and Brim (the "Initiating
Partner") shall have the option (the "Buy/Sell Option") to give the
others written notice (the "Buy/Sell Notice") of intent to rely on this
Section 14.4, and to sell its interest in the Partnership or purchase
the other Partners' interest in the Partnership, whereupon the
provisions of this Section 14.4 shall apply.
(b) The Initiating Partner shall specify in its Buy/Sell
Notice the cash purchase price at which the Initiating Partner would be
willing to purchase an undivided one hundred percent (100%) interest in
the Partnership (the "Buy/Sell Valuation Price").
(c) Upon receipt of the Buy/Sell Notice, the other Partner
(the "Responding Partner") shall then be obligated either:
(i) to sell to the Initiating Partner for cash its
Partnership interest at a price equal to the amount the
Responding Partner would have been entitled to receive upon
dissolution of the Partnership pursuant to the liquidation
provisions set forth in Section 16.3 hereof as if the
Partnership assets had been sold for cash to a third party at
the Buy/Sell Valuation Price; or
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(ii) to purchase the interest of the Initiating
Partner for cash at a price equal to the amount the Initiating
Partner would have been entitled to receive upon dissolution
of the Partnership pursuant to the liquidation provisions set
forth in Section 16.3 hereof as if the Partnership assets had
been sold for cash to a third party at the Buy/Sell Valuation
Price.
(d) The Responding Partner shall notify the Initiating Partner
of its election under Section 14.4(c) hereof within forty-five (45)
days after the date of receipt of the Buy/Sell Notice. Failure to give
such notice within the required time period shall be deemed an election
not to purchase, but to sell its Partnership Interest to the Initiating
Partner pursuant to Section 14.4 (c)(i).
(e) If following an election by the Responding Partner to
purchase under Section 14.4(c)(ii), the Responding Partner shall fail
to consummate the purchase of the Initiating Partner's interest in the
Partnership within sixty (60) days of receipt of the notice received
pursuant to Section 14.4(d) hereof, then the Responding Partner shall
sell to the Initiating Partner pursuant to Section 14.4(c)(i).
14.5 FEDERAL INCOME TAX TREATMENT. In the event the Partnership
exercises the right to purchase any Partner's interest in the Partnership under
this Article 14, one hundred percent (100%) of all payments made by the
Partnership to such Partner hereunder in consideration for such Partner's
Partnership interest will, for federal income tax purposes, be classified as a
Code Section 736(b) payment except for such Partner's share of the Partnership's
"unrealized receivables," as defined in Code Section 751(c) which will be
classified as a Code Section 736(a)(1) payment. The General Partner, shall
conclusively determine or cause to be determined any such Partner's share of
"unrealized receivables." Neither the Partnership nor the General Partner shall
be liable to any Person for any inaccuracy in determining any such Partner's
share of the Partnership's "unrealized receivables."
14.6 RIGHT TO PARTICIPATE. If at anytime Brim (or any of its
Affiliates) is no longer a Partner, including, without limitation, as a result
of the exercise of the Buy/Sell Option by Columbia Sub or Columbia/TSP pursuant
to Section 14.4 hereof, a transfer by Brim of its entire interest in the
Partnership pursuant to Article 13 or Article 14 hereof, or the dissolution of
the Partnership pursuant to Article 15 hereof, then Brim (and its Affiliates)
shall, for the period beginning on the date Brim (or any of its Affiliates)
ceases to be a Partner and ending on the date which is five (5) years thereafter
(the "Participation Period"), continue to have the right on behalf of or in the
name of any hospital owned, managed or leased by Brim (or any of its Affiliates)
to participate in the Partnership's Group Purchasing Organization for purchasing
hospital supplies, services and materials on the same terms and conditions
contained in the Form of Corporate Purchasing Agreement attached as Exhibit "C"
hereto, provided that such right shall immediately terminate if the Partnership
terminates its operation of a Group Purchasing Organization for hospital
supplies, services and materials. If Brim (or any of its Affiliates) elect to
continue to participate in the
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Partnership's Group Purchasing Organization pursuant to this Section 14.6, then
the Partnership and Brim (or any of its Affiliates) shall enter into a Corporate
Purchasing Agreement substantially in the form of Exhibit "C" hereto.
Notwithstanding the foregoing sentence, neither Brim (nor any of its Affiliates)
shall be entitled to any right under this Section 14.6 if Brim (or any of its
Affiliates) is no longer a Partner as a result of an Adverse Terminating Event.
15. DISSOLUTION
15.1 Causes. Each Partner expressly waives any right which it might
otherwise have to dissolve the Partnership except as set forth in this Article
15. The Partnership shall be dissolved upon the first to occur of the following:
(a) The Bankruptcy, dissolution or any other occurrence which
would legally disqualify the General Partner from acting hereunder;
(b) The Approval by the Partners of an instrument dissolving
the Partnership;
(c) The dissolution of the Partnership by judicial decree;
(d) The General Partner in its reasonable discretion
determines that a rule, ordinance, regulation, statute or government
pronouncement has been enacted that makes any material aspect of this
Agreement or the activities conducted by the Partnership unlawful or
eliminates or substantially reduces, either directly or indirectly, the
benefits that would accrue to the Partners (including the General
Partner) with respect to continuing the Partnership's business
operations;
(e) There remains only one Partner in the Partnership; or
(f) December 31, 2050.
Nothing contained in this Section 15.1 is intended to grant to any
Partner the right to dissolve the Partnership at will (by retirement,
resignation withdrawal or otherwise), or to exonerate any Partner from liability
to the Partnership and the remaining Partners if it dissolves the Partnership at
will. Any dissolution at will of the Partnership, including dissolution caused
under Section 15.1 (a), shall be in contravention of this Agreement for purposes
of the Act. Dissolution of the Partnership under Section 15.1(c) shall not
constitute a dissolution at will.
15.2 RECONSTITUTION. If the Partnership is dissolved as a result of an
event described in Section 15.l(a), the Partnership may be reconstituted and its
business continued if, within ninety (90) days after the date of dissolution,
Limited Partners holding ninety percent (90%) of the outstanding Units held by
Limited Partners (including Units held as a limited partner by Columbia
Affiliates) affirmatively elect to reconstitute the Partnership, agree on the
identity of the new general partner
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or partners, and execute an instrument confirming such facts. If the Partnership
is reconstituted, an amendment to this Agreement shall be executed and an
amended Certificate of limited Partnership filed of record.
15.3 INTERIM MANAGER. If the Partnership is dissolved as a result of an
event described in Section 15.l(a) and the General Partner is unable to continue
acting as the General Partner of the Partnership, those Partners who own Units
representing a majority of the aggregate Sharing Percentage of all of the
Partners (excluding Units owned by the General Partner) may appoint an interim
manager of the Partnership, who shall have and may exercise only the rights,
powers and duties of a general partner necessary to preserve the Partnership
assets, until (a) the new general partner is elected under Section 15.2, if the
Partnership is reconstituted; or (b) a Liquidator is appointed under Section
16.1, if the Partnership is not reconstituted. The interim manager shall not be
liable as a general partner to the Limited Partners and shall, while acting in
the capacity of interim manager on behalf of the Partnership, be entitled to the
same indemnification rights as are set forth in Section 8.6. The interim manager
appointed as provided herein shall be entitled to receive such reasonable
compensation for its services as may be agreed upon by such interim manager and
those Partners who appointed the interim manager.
16. WINDING UP AND TERMINATION
16.1 GENERAL. If the Partnership is dissolved and is not reconstituted,
the General Partner (or in the event that the General Partner has withdrawn or
is deemed to be in Bankruptcy), a Liquidator or liquidating committee selected
by those Limited Partners who own at least 67% of the aggregate Partners'
Sharing Percentage (excluding Units owned by the General Partner), shall
commence to wind up the affairs of the Partnership and to liquidate and sell the
Partnership's assets. The party or parties actually conducting such liquidation
in accordance with the foregoing sentence, whether the General Partner, a
Liquidator or a liquidating committee, is herein referred to as the
"Liquidator." The Liquidator (if other than the General Partner) shall have
sufficient business expertise and competence to conduct the winding up and
termination of the Partnership and, in the course thereof, to cause the
Partnership to perform any contracts which the Partnership has or thereafter
enters into. The Liquidator shall have full right and unlimited discretion to
determine the time, manner and terms of any sale or sales of Partnership
property under such liquidation, having due regard for the activity and
condition of the relevant market and general financial and economic conditions.
The Liquidator (if other than the General Partner) appointed as provided herein
shall be entitled to receive such reasonable compensation for its services as
shall be agreed upon by the Liquidator and those Limited Partners who own at
least 67% of the aggregate Partners' Sharing Percentage (excluding that owned by
the General Partner). If the General Partner serves as the Liquidator, the
General Partner shall not be entitled to receive any fee for carrying out the
duties of the Liquidator. The Liquidator may resign at any time by giving
fifteen (15) days prior written notice and may be removed at any time, with or
without cause, by written notice to Limited Partners who own at least 67% of the
aggregate Partner's Sharing Percentage (excluding that owned by the General
Partner). Upon the death, dissolution, removal or resignation of the Liquidator,
a successor and
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substitute Liquidator (who shall have and succeed to all the rights, powers and
duties of the original Liquidator) will within thirty (30) days thereafter be
appointed by those Limited Partners who own at least 67% of the aggregate
Partners' Sharing Percentage (excluding that owned by the General Partner),
evidenced by written appointment and acceptance. The right to appoint a
successor or substitute Liquidator in the manner provided herein shall be
recurring and continuing for so long as the functions and services of the
Liquidator are authorized to continue under the provisions hereof, and every
reference herein to the Liquidator will be deemed to refer also to any such
successor or substitute Liquidator appointed in the manner herein provided. The
Liquidator shall have and may exercise, without further authorization or consent
of any of the parties hereto or their legal representatives or successors in
interest, all of the powers conferred upon the General Partner under the terms
of this agreement to the extent necessary or desirable in the good faith
judgment of the Liquidator to perform its duties and functions. The Liquidator
(if other than the General Partner) shall not be liable as a general partner to
the Limited Partners and shall, while acting in such capacity on behalf of the
Partnership, be entitled to the indemnification rights set forth in Section 8.6.
16.2 COURT APPOINTMENT OF LIQUIDATOR. If, within ninety (90) days
following the date of dissolution or other time provided in Section 16.1, a
Liquidator or successor Liquidator has not been appointed in the manner provided
therein, any interested party shall have the right to make application to any
United States Federal District Judge (in his individual and not judicial
capacity) for the United States Federal Court, District of Nashville, Tennessee
for appointment of a Liquidator or successor Liquidator, and the Judge, acting
as an individual and not in his judicial capacity, shall be fully authorized and
empowered to appoint and designate a Liquidator or successor Liquidator who
shall have all the powers, duties, rights and authority of the Liquidator herein
provided.
16.3 LIQUIDATION. The Liquidator shall give all notices to creditors of
the Partnership and shall make all publications required by the Act. In the
course of winding up and terminating the business and affairs of the
Partnership, the assets of the Partnership (other than cash) shall be sold, its
liabilities and obligations to creditors, including any Partners who made loans
to the Partnership as provided in Section 4.5 hereof, and all expenses incurred
in its liquidation shall be paid, and all resulting items of Partnership income,
gain, loss or deduction shall be credited or charged to the Capital Accounts of
the Partners in accordance with Article 5. All Partnership property shall be
sold upon liquidation of the Partnership and no Partnership property shall be
distributed in kind to the Partners. Thereafter, all Partnership assets shall be
distributed among all Partners having positive Capital Account balances (as
determined after giving effect to all adjustments attributable to allocations of
items of profit and loss realized by the Partnership during the fiscal year in
question (including items of profit and loss realized on the liquidation) and
all adjustments attributable to contributions and distributions of money and
property effected prior to such distribution), pro rata in accordance with such
positive Capital Account balances. This distribution shall be made no later than
the end of the fiscal year during which the Partnership is liquidated (or, if
later, ninety (90) days after the date on which the Partnership is liquidated).
Upon the completion of the liquidation of the Partnership and the distribution
of all the Partnership funds, the Partnership shall terminate and the General
Partner (or the Liquidator, as the case may be) shall have the authority to
execute and record
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all documents required to effectuate the dissolution and termination of the
Partnership. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the Partners may instead be
distributed to a trust established for the benefit of the Partners for the
purposes of liquidating Partnership property, collecting amounts owed to the
Partnership, and paying any contingent or unforeseen liabilities or obligations
of the Partnership or of the Partners arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the Partners
from time to time, in the reasonable discretion of the Liquidator, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the Partners pursuant to this Agreement.
16.4 CREATION OF RESERVES. After making payment or provision for
payment of all debts and liabilities of the Partnership and all expenses of
liquidation, the Liquidator may set up such cash reserves as the Liquidator may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership.
16.5 Final Statement. Within a reasonable time following the completion
of the liquidation, the Liquidator shall supply to each of the Partners a
statement which shall set forth the assets and the liabilities of the
Partnership as of the date of complete liquidation, each Partner's pro rata
portion of distributions under Section 16.3, and the amount retained as reserves
by the Liquidator under Section 16.4.
17. POWER OF ATTORNEY
17.1 GENERAL PARTNER AS ATTORNEY-IN-FACT. Each Limited Partner hereby
makes, constitutes, and appoints the General Partner, with full power of
substitution and resubstitution, its true and lawful attorney-in-fact for it and
in its name, place, and stead and for its use and benefit to sign, execute,
certify, acknowledge, swear to, file, and record (a) this Agreement and all
agreements, certificates, instruments, and other documents which the General
Partner may deem reasonably necessary, desirable, or appropriate including,
without limitation, to reflect (i) the valid exercise by any General Partner of
any power granted to it under this Agreement; (ii) any amendments adopted by the
Partners in accordance with the terms of this Agreement; (iii) the valid
admission of any Substituted Limited Partner or Additional Limited Partner to
the Partnership; or (iv) the valid disposition by any Partner of its interest in
the Partnership; and (b) any, certificates, instruments, or documents as may be
required by, or may be appropriate under, the laws of the State of Delaware or
any other State of the United States.
17.2 NATURE OF SPECIAL POWER. The power of attorney granted pursuant
to this Article 17:
(a) is a special power of attorney coupled with an interest
and is irrevocable;
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<PAGE> 35
(b) may be exercised by any such attorney-in-fact by listing
the Limited Partners executing any agreement, certificate, instrument
or other document with the single signature of any such
attorney-in-fact acting as attorney-in-fact for such Limited Partners;
and
(c) shall survive the death, disability, legal incapacity,
Bankruptcy, insolvency, dissolution, or cessation of existence of a
Limited Partner and shall survive the delivery of an assignment by a
Limited Partner of the whole or a portion of its interest in the
Partnership, except that where the assignment is of such Limited
Partner's entire interest in the Partnership and the assignee, with the
consent of the General Partner, is admitted as a Substituted Limited
Partner, the power of attorney shall survive the delivery of such
assignment for the sole purpose of enabling any such attorney-in-fact
to effect such substitution.
18. MISCELLANEOUS
18.1 NOTICES. All notices given pursuant to this Agreement shall be in
writing and shall be deemed effective when personally delivered or upon being
placed in the United States mail, registered or certified with return receipt
requested, or when sent by prepaid telegram or facsimile followed by
confirmatory receipt. For purposes of notice, the addresses of the Partners
shall be as stated under their names on the attached Exhibit "B"; provided,
however, that each Partner shall have the right to change his address with
notice hereunder to any other location by the giving of thirty (30) days notice
to the General Partner in the manner set forth above.
18.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the substantive federal laws of the United States and the
laws of the State of Delaware.
18.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Partners, and their respective heirs, legal
representatives, successors and permitted assigns; provided, however, that
nothing contained herein shall negate or diminish the restrictions set forth in
Articles 13 or 14 hereof.
18.4 CONSTRUCTION. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Partner. The failure by any party to specifically
enforce any term or provision hereof or any rights of such party hereunder shall
not be construed as the waiver by that party of its rights hereunder. The waiver
by any party of a breach or violation of any provision of this Agreement shall
not operate as, or be construed to be, a waiver of any subsequent breach of the
same or other provision hereof.
18.5 TIME. Time is of the essence with respect to this Agreement.
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18.6 WAIVER OF PARTITION. Notwithstanding any statute or principle of
law to the contrary, each Partner hereby agrees that during the term of the
Partnership, he or it shall have no right (and hereby waives any right that he
or it might otherwise have had) to cause any Partnership property to be
partitioned and/or distributed in kind.
18.7 ENTIRE AGREEMENT. This Agreement (including the exhibits hereto),
together with the Contribution Agreement dated of even date herewith between the
Partnership and Brim, the Contribution Agreement dated of even date herewith
between the Partnership and Columbia Sub and Columbia/TSP, and the Services
Agreements, contain the entire agreement among the Partners relating to the
subject matter hereof, and all prior agreements relative hereto which are not
contained herein, including, without limitation, the letter agreement, dated
October 17, 1996 between Columbia and Brim and the Original Partnership
Agreement, are terminated.
18.8 AMENDMENTS. Except as otherwise expressly provided in Section 8.4
and this Section 18.8, amendments or modifications may be made to this Agreement
only by setting forth such amendments or modifications in a document (i)
approved by the Partners and (ii) approved in writing by Brim, provided that
Brim (or any of its Affiliates) is a Partner, and any alleged amendment or
modification herein which is not so documented shall not be effective as to any
Partner. The General Partner may, without the consent of any Limited Partner
(including Brim or any of its Affiliates) and without the Approval of the
Partners, amend any provision of this Agreement and execute, swear to,
acknowledge, deliver, file and record whatever documents may be required in
connection therewith to reflect:
(a) a change in the location of the principal place of
business of the Partnership not inconsistent with the provisions of
Section 3.2, or a change in the registered office or the registered
agent of the Partnership;
(b) admission of a Limited Partner into the Partnership or
termination of any Limited Partner's interest in the Partnership in
accordance with this Agreement;
(c) qualification of the Partnership as a limited partnership
under the laws of any state or that is necessary or advisable in the
opinion of the General Partner to ensure that the Partnership will not
be treated as an association taxable as a corporation for federal
income tax purposes, provided, in either case, such action shall not
adversely affect any Limited Partner;
(d) a change (i) that is of an inconsequential nature and does
not adversely affect any Limited Partner in any material respect; (ii)
that is reasonably necessary or desirable to satisfy any requirements,
conditions or guidelines contained in any opinion, directive, order,
ruling or regulation of any federal or state agency or contained in any
federal or state statute, compliance with any of which the General
Partner deems to be in the best interest of the
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<PAGE> 37
Partnership and the Limited Partners; or (iii) that is required or
contemplated by this Agreement;
(e) a change to any provision in this Agreement required to be
so changed by the staff of the Securities and Exchange Commission or
other federal agency or by a State Securities Commissioner or similar
official, which change is deemed by such commission, agency or official
to be for the benefit or protection of the Limited Partners.
However, no amendment or modification which disproportionately affects the
interest of any Partner in the capital, profits or losses of, or distributions
or allocations with respect to, the Partnership shall be effective as to any
Partner unless the same has been set forth in a document duly executed by such
Partner.
18.9 SEVERABILITY. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement or the
application thereof to any Person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, but the extent of such invalidity or
unenforceability does not destroy the basis of the bargain among the Partners as
expressed herein, then the remainder of this Agreement and the application of
such provision to other Persons or circumstances shall not be affected thereby,
but rather shall be enforced to the greatest extent permitted by law.
18.10 GENDER AND NUMBER. Whenever required by the context as used in
this Agreement, the singular number shall include the plural and the neuter
shall include the masculine or feminine gender, and vice versa.
18.11 EXHIBITS. Each exhibit to this Agreement is incorporated herein
for all purposes.
18.12 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the
General Partner, agrees to perform all further acts and execute, acknowledge and
deliver any documents that may be reasonably necessary, appropriate or desirable
to carry out the provisions of this Agreement.
18.13 SECTION HEADINGS. The section headings appearing in this
Agreement are for convenience of reference only and are not intended, to any
extent or for any purpose, to limit or define the text of any section.
18.14 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original but all of which shall constitute but one
document.
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IN WITNESS WHEREOF, the Partners have executed this Agreement as of the
effective date first referenced above.
GENERAL PARTNER:
GALEN HOLDINGS, INC.
By: /s/ Stephen T. Braun
-------------------------------
Name: Stephen T. Braun
-----------------------------
Title: Senior Vice President
----------------------------
BRIM:
BRIM HEALTHCARE, INC.
By: /s/ Jim M. Kinney
-------------------------------
Name: Jim M. Kinney
-----------------------------
Title: President
----------------------------
COLUMBIA/TSP:
COLUMBIA/TSP HOLDINGS, INC.
By: /s/ Stephen T. Braun
-------------------------------
Name: Stephen T. Braun
-----------------------------
Title: Senior Vice President
----------------------------
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---------------------------
EXHIBIT A
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.................................................... 1
ARTICLE II
SECTION 704 CAPITAL ACCOUNTS
Section 2.1 Section 704 Capital Accounts................................... 8
ARTICLE III
ALLOCATIONS OF PROFIT AND LOSS
Section 3.1 Allocation of Book Items....................................... 9
Section 3.2 Allocation of Tax Items........................................ 12
Section 3.3 Allocation of Profit And Loss And
Distributions in Respect of Interests Transferred............ 12
</TABLE>
EXHIBIT A -- PAGE I
<PAGE> 40
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. All capitalized terms used herein
shall have the meanings assigned to them in the Amended and Restated Limited
Partnership Agreement Of Aligned Business Consortium Group. Notwithstanding the
foregoing, the following definitions shall be applicable to the following terms
as used in this Exhibit A:.
(a) Adjusted Net Income Or Loss.
"Adjusted Net Income Or Loss" for any fiscal year (or portion
thereof) shall mean the excess (or deficit) of (x) the Gross Income for such
period (not including Gross Income (if any) allocated during such period
pursuant to Sections 3.1(a), 3.1(b) and 3.1(c) hereof) over (y) the Deductible
Expenses for such period (not including Deductible Expenses (if any) allocated
during such period pursuant to Sections 3.1(d) and 3.l(e) hereof) with the
following modifications:
(i) Any item of Partnership profit that is exempt from federal
income tax and not otherwise taken into account in computing Adjusted
Net Income Or Loss pursuant to this Section 1.1(a) shall be treated as
additional Gross Income and, if not otherwise allocated pursuant to
Section 3.1(a), 3.1(b) or 3.1(c) hereof, added to the amount otherwise
calculated as Adjusted Net Income Or Loss under this Section 1.1(a);
and
(ii) Any Partnership expenditure that is described in section
705(a)(2)(B) of the Code (relating to Partnership expenditures that are
not deductible for federal income tax purposes in computing taxable
income and not properly chargeable to capital), or treated as so
described pursuant to section 1.704-1(b)(2)(iv)(i) of the Regulations,
and not otherwise taken into account in computing Adjusted Net Income
Or Loss pursuant to this Section 1.1(a) shall be treated as an
additional Deductible Expense and, if not otherwise allocated pursuant
to Section 3.1(d) or 3.1(e) hereof, subtracted from the amount
otherwise calculated as Adjusted Net Income Or Loss under this Section
1.1(a).
EXHIBIT A -- PAGE 1 OF 13
<PAGE> 41
(b) Agreed Value.
"Agreed Value" of any property contributed to the capital of
the Partnership shall mean the fair market value of such property at the time of
contribution (as agreed to in writing by the Partners without regard to section
7701(g) of the Code (i.e., determined without regard to the amount of
Nonrecourse Liabilities to which such property is subject)).
(c) Book Basis.
The initial "Book Basis" of any Partnership property shall be
equal to the Partnership's initial adjusted tax basis in such property;
provided, however, that the initial "Book Basis" of any Partnership property
contributed to the capital of the Partnership shall be equal to the Agreed Value
of such property. Effective immediately after giving effect to the allocations
of profit and loss, as computed for book purposes, for each Fiscal Year under
Section 3.1 hereof, the Book Basis of each Partnership property shall be
adjusted downward by the amount of Book Depreciation allowable to the
Partnership for such Fiscal Year with respect to such property. In addition,
effective immediately prior to any Revaluation Event, the Book Basis of each
Partnership property shall be further adjusted upward or downward, as necessary,
so as to equal the fair market value of such property at the time of such
Revaluation Event (as agreed to in writing by the Partners taking section
7701(g) of the Code into account (i.e., such value shall not be agreed to be
less than the amount of Nonrecourse Liabilities to which such property is
subject)).
(d) Book Depreciation.
The amount of "Book Depreciation" allowable to the Partnership
for any Fiscal Year with respect to any Partnership property shall be equal to
the product of (1) the amount of Tax Depreciation allowable to the Partnership
for such year with respect to such property, multiplied by (2) a fraction, the
numerator of which is the property's Book Basis as of the beginning of such year
(or the date of acquisition if the property is acquired during such year) and
the denominator of which is the property's adjusted tax basis as of the
beginning of such year (or the date of acquisition if the property is acquired
during such year). If the denominator of the fraction described in clause (2)
above is equal to zero, the amount of "Book Depreciation" allowable to the
Partnership for any Fiscal Year with respect to the Partnership property in
question shall be determined under any reasonable method selected by the General
Partner.
EXHIBIT A - PAGE 2 OF 13
<PAGE> 42
(e) Book Gain Or Loss.
"Book Gain Or Loss" realized by the Partnership in connection
with the disposition of any Partnership property shall mean the excess (or
deficit) of (1) the amount realized by the Partnership in connection with such
disposition (as determined under section 1001 of the Code) over (2) the Book
Basis of such property at the time of the disposition.
(f) Book/Tax Disparity Property.
"Book/Tax Disparity Property" shall mean any Partnership
property that has a Book Basis which is different from its adjusted tax basis to
the Partnership. Thus, any property that is contributed to the capital of the
Partnership by a Partner shall be a "Book/Tax Disparity Property" if its Agreed
Value is not equal to the Partnership's initial tax basis in the property. In
addition, once the Book Basis of a Partnership property is adjusted in
connection with a Revaluation Event to an amount other than its adjusted tax
basis to the Partnership, the property shall thereafter be a "Book/Tax Disparity
Property."
(g) Capital Accounts.
"Capital Account" shall have the meaning assigned to such term
in Section 4.3 of the Agreement.
(h) Capital Transaction.
"Capital Transaction" shall mean (1) any transaction pursuant
to which the Partnership borrows funds, all or part of the Partnership's
properties are sold, condemned, exchanged, abandoned or otherwise disposed of,
insurance proceeds or other damages are recovered by the Partnership or (2) any
other transaction which, in accordance with generally accepted accounting
principles, is considered capital in nature (including, without limitation, any
transaction that is entered into in connection with, or results in, the
Liquidation of the Partnership).
(i) Deductible Expenses.
"Deductible Expenses" for any Fiscal Year (or portion
thereof) shall mean all items, as calculated for book purposes, which are
allowable as deductions to the Partnership for such period under Federal income
tax accounting principles (including Book Depreciation but excluding any
expense or deduction attributable to a Capital Transaction).
EXHIBIT A -- PAGE 3 OF 13
<PAGE> 43
(j) Economic Risk Of Loss.
"Economic Risk Of Loss" borne by any Partner for any
Partnership liability shall mean the aggregate amount of economic risk of loss
that such Partner and all Related Persons to such Partner are treated as bearing
with respect to such liability pursuant to section 1.752-2 of the Regulations.
(k) Gross Income.
"Gross Income" for any Fiscal Year (or portion thereof) shall
mean the gross income derived by the Partnership from all sources (other than
from capital contributions and loans to the Partnership and other than from a
Capital Transaction) during such period, as calculated for book purposes in
accordance with Federal income tax accounting principles.
(l) Liquidation.
"Liquidation" of a Partner's Unit or other interest in the
Partnership shall mean and be deemed to occur upon the earlier of (1) the date
upon which the Partnership is terminated under section 708(b)(1) of the Code,
(2) the date upon which the Partnership ceases to be a going concern (even
though it may continue in existence for the limited purpose of winding up its
affairs, paying its debts and distributing any remaining Partnership properties
to the Partners) or (3) the date upon which there is a liquidation of the
Partner's Unit or other interest in the Partnership (but the Partnership is not
terminated) under section 1.761-1(d) of the Regulations. "Liquidation" of the
Partnership shall mean and be deemed to occur upon the earlier of (a) the date
upon which the Partnership is terminated under section 708(b)(l) of the Code or
(b) the date upon which the Partnership ceases to be a going concern (even
though it may continue in existence for the limited purpose of winding up its
affairs, paying its debts and distributing any remaining Partnership properties
to the Partners).
(m) Modified 752 Share Of Recourse Debt.
"Modified 752 Share of Recourse Debt" of any Partner shall
mean, as of any date, the Economic Risk Of Loss borne by such Partner with
respect to Recourse Debt of the Partnership (determined, as of the date in
question, by assuming, for purposes of section 1.752-2 of the Regulations, that
the Partnership constructively liquidates on such date (within the meaning of
section 1.752-2 of the Regulations) except that all Partnership properties shall
be deemed thereunder to be transferred in fully taxable exchanges for an
aggregate amount of cash consideration equal to their respective Book Bases and
such consideration shall be deemed thereunder to be used, in the appropriate
order of priority, in full or partial satisfaction of all Partnership
liabilities).
EXHIBIT A -- PAGE 4 OF 13
<PAGE> 44
(n) Nonrecourse Deductions.
"Nonrecourse Deductions" shall mean any and all items of Book
Depreciation and other Deductible Expenses that are treated as "nonrecourse
deductions" under section 1.704-2(c) of the Regulations.
(o) Nonrecourse Liability.
"Nonrecourse Liability" shall mean any Partnership liability
treated as a "nonrecourse liability" under section 1.704-2(b)(3) of the
Regulations. Subject to the foregoing sentence, "Nonrecourse Liability" shall
mean any Partnership liability (or portion thereof) for which no Partner bears
the Economic Risk Of Loss.
(p) Partner Nonrecourse Debt Minimum Gain.
"Partner Nonrecourse Debt Minimum Gain" shall mean the amount
of Partnership "minimum gain" that is computed strictly in accordance with the
principles of section 1.704-2(i)(2) of the Regulations. A Partner's share of
such "Partner Nonrecourse Debt Minimum Gain" shall be calculated in accordance
with the provisions of section 1.704-2(i)(5) of the Regulations.
(q) Partner Nonrecourse Debt.
"Partner Nonrecourse Debt" shall mean any Partnership
liability that is treated as a "partner nonrecourse debt" under section
1.704-2(b)(4) of the Regulations.
(r) Partner Nonrecourse Deductions.
"Partner Nonrecourse Deductions" shall mean any and all items
of Book Depreciation and other Deductible Expenses that are treated as "partner
nonrecourse deductions" under section 1.704-2(i) of the Regulations.
(s) Partnership Minimum Gain.
"Partnership Minimum Gain" shall mean the amount of
Partnership "minimum gain" that is computed strictly in accordance with the
principles of section 1.704-2(d)(1) of the Regulations. A Partner's share of
such "Partnership Minimum Gain" shall be calculated in accordance with the
provisions of section 1.704-2(g) of the Regulations.
(t) Recourse Debt.
"Recourse Debt" shall mean any Partnership liability (or
portion thereof) that is neither a Nonrecourse Liability nor a Partner
Nonrecourse Debt.
EXHIBIT A -- PAGE 5 OF 13
<PAGE> 45
(u) Related Person.
"Related Person" shall mean, as to any Partner, any person who
is related to such Partner (within the meaning of section 1.752-4(b) of the
Regulations).
(v) Revaluation Event.
"Revaluation Event" shall mean any of the following
occurrences: (1) the contribution of money or other property (other than a de
minimis amount) by a new or existing Partner to the capital of the Partnership
as consideration for the issuance of an additional Unit or other interest in the
Partnership; (2) the distribution of money or other property (other than a de
minimis amount) by the Partnership to a retiring or continuing Partner as
consideration for a Unit or other interest in the Partnership; or (3) the
termination of the Partnership for federal income tax purposes under section
708(b)(l)(B) of the Code; provided, however, under no circumstances shall the
issuance of Units pursuant to Section 13.5 of the Agreement constitute a
Revaluation Event; and provided further, that the occurrence of an event
described in clause (1) or (2) above shall not constitute a Revaluation Event if
the General Partner reasonably determines that it is not necessary to adjust the
Book Bases of the Partnership's assets or the Partners' Capital Accounts in
connection with the occurrence of any such event.
(w) Section 704 Capital Account.
"Section 704 Capital Account" shall have the meaning assigned
to such term in Section 2.1 hereof.
(x) Tax Depreciation.
"Tax Depreciation" for any Fiscal Year shall mean the amount
of depreciation, cost recovery or other amortization deductions allowable to the
Partnership for federal income tax purposes for such year.
(y) Tax Items.
"Tax Items" shall mean, with respect to any property, all
items of profit and loss (including Tax Depreciation) recognized by or allowable
to the Partnership with respect to such property, as computed for federal income
tax purposes.
EXHIBIT A -- PAGE 6 OF 13
<PAGE> 46
(z) Unrealized Book Gain Or Loss.
"Unrealized Book Gain Or Loss" with respect to any Partnership
property shall mean the excess (or deficit) of (1) the fair market value of such
property (as agreed to in writing by the Partners taking section 7701(g) of the
Code into account (i.e., such value shall not be agreed to be less than the
amount of Nonrecourse Liabilities to which such property is subject)), over (2)
the Book Basis of such property.
EXHIBIT A -- PAGE 7 OF 13
<PAGE> 47
ARTICLE II
SECTION 704 CAPITAL ACCOUNTS
Section 2.1 Section 704 Capital Accounts.
A "Section 704 Capital Account" (herein so called) shall be
determined and maintained for each Partner throughout the full term of the
Agreement. The balance of a Partner's Section 704 Capital Account shall be equal
to such Partner's Capital Account balance (as determined after giving effect to
all adjustments attributable to allocations of items of profit and loss realized
by the Partnership, and all adjustments attributable to contributions and
distributions of money and property effected, on or before the effective date of
such determination), modified as follows:
(a) Increased by the amount (if any) that such
Partner is treated as being obligated to contribute subsequently to the capital
of the Partnership (as determined under section 1.704-1(b)(2)(ii)(c) of the
Regulations);
(b) Decreased by the amount (if any) of cash that
reasonably is expected to be distributed to such Partner pursuant to Article 6
of the Agreement, but only to the extent that the amount thereof exceeds any
offsetting increase to such Partner's Section 704 Capital Account that
reasonably is expected to occur during (or prior to) the Fiscal Year during
which such distributions reasonably are expected to be made (as determined under
section 1.704-1(b)(2)(ii)(d) of the Regulations);
(c) Decreased by the items (if any) of the
Partnership's loss that reasonably are expected to be allocated to such Partner
pursuant to section 704(e)(2) or 706(d) of the Code or section 1.751-1(b)(2)(ii)
of the Regulations (as determined under section 1.704-1(b)(2)(ii)(d) of the
Regulations);
(d) Increased by the amount (if any) of such
Partner's share of Partnership Minimum Gain;
(e) Increased by the amount (if any) of such
Partner's share of Partner Nonrecourse Debt Minimum Gain; and
(f) Increased by the amount (if any) of such
Partner's Modified 752 Share of Recourse Debt.
EXHIBIT A -- PAGE 8 OF 13
<PAGE> 48
ARTICLE III
ALLOCATIONS OF PROFIT AND LOSS
Section 3.1 Allocation Of Book Items.
Subject to the provisions of Sections 3.2 and 3.3, all items
of profit and loss realized by the Partnership during each fiscal year shall be
allocated among the Partners (after giving effect to all adjustments
attributable to all contributions and distributions of money and property
effected during such year) in the manner prescribed in this Section 3.1.
(a) Pursuant to section 1.704-2(f) of the Regulations
(relating to minimum gain chargebacks), if there is a net decrease in
Partnership Minimum Gain for such year (or if there was a net decrease in
Partnership Minimum Gain for a prior fiscal year and the Partnership did not
have sufficient amounts of Gross Income and Book Gain during prior years to
allocate among the Partners under this Section 3.1), then items of Gross Income
and Book Gain shall be allocated, before any other allocation is made pursuant
to the succeeding provisions of this Section 3.1 for such year, to each Partner
in an amount equal to such Partner's share of the net decrease in such
Partnership Minimum Gain (as determined under sections 1.704-2(g)(2) of the
Regulations).
(b) Pursuant to section 1.704-2(i)(4) of the
Regulations (relating to minimum gain chargebacks), if there is a net decrease
in Partner Nonrecourse Debt Minimum Gain with respect to a Partner Nonrecourse
Debt for such year (or if there was a net decrease in such Partner Nonrecourse
Debt Minimum Gain for a prior fiscal year and the Partnership did not have
sufficient amounts of Gross Income and Book Gain during prior years to allocate
among the Partners under this Section 3.1(b)), then items of Gross Income and
Book Gain shall be allocated, before any other allocation is made pursuant to
the succeeding provisions of this Section 3.1 for such year, to each Partner
with a share of such Partner Nonrecourse Debt Minimum Gain as of the first day
of such year in an amount equal to such Partner's share of the net decrease in
such Partner Nonrecourse Debt Minimum Gain (as required by sections
1.704-2(i)(4) of the Regulations).
(c) Pursuant to section 1.704-l(b)(2)(ii)(d) of the
Regulations (relating to "qualified income offsets"), Partnership profit shall
be allocated, before any other allocation is made pursuant to the succeeding
provisions of this Section 3.1 for such year, among the Partners with deficit
balances in their Section 704 Capital Accounts (as determined after giving
effect to all adjustments attributable to the allocations provided for in
Sections 3.1(a) and 3.1(b) hereof but before giving effect to any adjustment
attributable
EXHIBIT A -- PAGE 9 OF 13
<PAGE> 49
to other allocations provided for in succeeding provisions of this Section 3.1)
in amounts and the manner sufficient to eliminate such deficit balances as
quickly as possible.
(d) All Partner Nonrecourse Deductions attributable
to a Partner Risk Nonrecourse Debt shall be allocated among the Partner bearing
the Economic Risk Of Loss for such debt; provided, however, that if more than
one Partner bear the Economic Risk Of Loss for such debt, the Partner Risk
Nonrecourse Deductions attributable to such debt shall be allocated to and among
such Partners, pro rata in the same proportion that their Economic Risks Of Loss
bear to one another.
(e) All Nonrecourse Deductions shall be allocated
among the Partners, pro rata in accordance with their respective Sharing
Percentages.
(f) Any Adjusted Net Income realized by the
Partnership for such year and, except as otherwise provided in Section 3.1(h)
hereof, any Book Gain derived from a Capital Transaction occurring during such
year and not allocated pursuant to Sections 3.1(a), 3.1(b) and 3.1(c) hereof,
shall be allocated among the Partners, as necessary, so as to cause the balances
in their respective Section 704 Capital Accounts to be in the same ratio to one
another as are their Sharing Percentages, with all remaining amounts of Adjusted
Net Income and Book Gain to be allocated to the Partners, pro rata in accordance
with their respective Sharing Percentages:
(g) Any Adjusted Net Loss realized by the Partnership
for such year and, except as otherwise provided in Section 3.1(h) hereof, any
Book Loss derived from a Capital Transaction occurring during such year and not
allocated pursuant to Sections 3.1(a), 3.1(b) and 3.1(c) hereof, shall be
allocated among the Partners, as necessary, so as to cause the balances in their
respective Section 704 Capital Accounts to be in the same ratio to one another
as are their Sharing Percentages, with all remaining amounts of Adjusted Net
Loss and Book Gain to be allocated to the Partners, pro rata in accordance with
their respective Sharing Percentages.
(h) Book Gain Or Loss derived from a Capital
Transaction that is entered into in connection with, or results in, the
Liquidation of the Partnership shall be allocated among the Partners as follows
in the following order of priority (after giving effect to all adjustments
attributable to allocations of items of Partnership profit and loss made
pursuant to the preceding provisions of this Section 3.1 for such year and after
giving effect to all adjustments attributable to contributions and distributions
or money and property effected prior to such determination):
(i) Book Gain remaining after the
allocations provided for in Sections 3.1(a), 3.1(b) and 3.1(c)
hereof shall be allocated as follows and in the following
order of priority:
EXHIBIT A -- PAGE 10 OF 13
<PAGE> 50
(A) First: Book Gain equal to the deficit
balance (if any) in each Partner's Capital Account
shall be allocated to such Partner.
(B) Second: An amount of Book Gain shall be
allocated next among the Partners to the least extent
necessary to cause their positive Capital Account
balances to equal their respective Sharing
Percentages.
(c) Third: All remaining amounts of Book
Gain shall be allocated among the Partners, pro rata
in accordance with their respective Sharing
Percentages.
(ii) Book Loss (if any) shall be allocated as
follows and in the following order of priority:
(A) First: Book Loss shall be allocated to
the Partners to the least extent necessary to cause
the positive balances in their Capital Accounts to be
in the same proportion to one other as are their
respective Sharing Percentages.
(B) Second: Amounts of Book Loss shall be
allocated next among all of the Partners, pro rata in
accordance with their respective Sharing Percentages
until the Capital Account balance of each Partner
equals zero.
(c) Third: Any remaining Book Loss shall be
allocated to the General Partner.
(i) For purposes of determining the nature (as
ordinary or capital) of any Partnership profit allocated among the Partners for
federal income tax purposes pursuant to this Section 3.1, the portion of such
profit required to be recognized as ordinary income pursuant to sections 1245
and/or 1250 of the Code shall be deemed to be allocated among the Partners in
the same proportion that they were allocated and claimed the Book Depreciation
deductions, or basis reductions, directly or indirectly giving rise to such
treatment under sections 1245 and/or 1250 of the Code.
(j) The parties intend that the foregoing allocation
provisions of this Section 3.1 shall produce Capital Account balances of the
Partners that will permit liquidating distributions that are made in accordance
with final Capital Account balances under Section 16.3 of the Agreement to be
made to the Partners, pro rata in accordance with their respective Sharing
Percentages. To the extent that the tax allocation provisions of this Section
3.1 would fail to cause the Partners' final Capital Account balances to be in
EXHIBIT A -- PAGE 11 OF 13
<PAGE> 51
such ratio, (i) such provisions shall be amended by the Partners if and to the
extent necessary to produce such result and (ii) taxable income and taxable loss
of the Partnership for prior open years (or items of Gross Income and Deductible
Expenses of the Partnership for such years) shall be reallocated among the
Partners to the extent it is not possible to achieve such result with
allocations of items of income (including Gross Income) and Deductible Expenses
for the current year and future years. This Section 3.01(j) shall control
notwithstanding any reallocation or adjustment of taxable income, taxable loss,
or items thereof by the Internal Revenue Service or any other taxing authority.
Section 3.2 Allocation Of Tax Items.
(a) Except as otherwise provided in the succeeding
provisions of this Section 3.2, each Tax Item shall be allocated among the
Partners in the same manner as each correlative item of profit or loss, as
calculated for book purposes, is allocated pursuant to the provisions of Section
3.1 hereof.
(b) The Partners hereby acknowledge that all Tax
Items in respect of any Book/Tax Disparity Property owned by the Partnership are
required to be allocated among the Partners in the same manner as under section
704(c) of the Code (as specified in sections 1.704-l(b)(2)(iv)(f) and 1.704-1
(b)(2)(iv)(g) of the Regulations) and that the principles of section 704(c) of
the Code require that such Tax Items must be shared among the Partners so as to
take account of the variation between the adjusted tax basis and Book Basis of
each such Book/Tax Disparity Property. Thus, notwithstanding anything in Section
3.1 or 3.2(a) hereof to the contrary, the Partners' distributive shares of Tax
Items in respect of each Book/Tax Disparity Property shall be separately
determined and allocated among the Partners in accordance with the principles of
section 704(c) of the Code. For purposes of making tax allocations pursuant to
section 704(c) of the Code (including allocations pursuant to Section
1.704-1(b)(2)(iv)(f) if a Revaluation Event occurs) the General Partner shall
determine the method or methods to be used by the Partnership.
Section 3.3 Allocations Of Profit And Loss And Distributions
In Respect Of Interests Transferred.
(a) If any Unit or other interest in the Partnership
is transferred, or is increased or decreased by reason of the admission of a new
Partner or otherwise, during any Fiscal Year, each item of Adjusted Net Income
Or Loss, Book Gain Or Loss and other Partnership profit and loss for such year
shall be divided and allocated among the Partners in question by taking account
of their varying interests in the Partnership during such year on a daily,
monthly or other basis, as determined by the General Partner using any
permissible method under section 706 of the Code and the Regulations thereunder.
(b) Distributions of Partnership properties in
respect of a unit or other interest in the Partnership shall be made only to the
Persons or entities who,
EXHIBIT A -- PAGE 12 OF 13
<PAGE> 52
according to the Partnership's books and records, are the holders of record of
the Units or other interests in the Partnership in respect of which such
distributions are made on the actual date of distribution. Neither the
Partnership nor the General Partner shall incur any liability for making
distributions in accordance with the provisions of the preceding sentence,
whether or not the Partnership or the General Partner has knowledge or notice of
any transfer or purported transfer of ownership of any unit or other interest in
the Partnership.
(c) Notwithstanding any provision above to the
contrary, Book Gain Or Loss realized in connection with a sale or other
disposition of any Partnership properties shall be allocated solely among the
parties owning units or other interests in the Partnership as of the date such
sale or other disposition occurs.
EXHIBIT A -- PAGE 13 OF 13
<PAGE> 53
EXHIBIT B
<TABLE>
<CAPTION>
CAPITAL
GENERAL PARTNER CONTRIBUTION UNITS
- ---------------------------------------- ------------------ -----------
<S> <C> <C>
Galen Holdings, Inc 10,000 100
c/o Columbia/HCA Healthcare
Corporation
One Park Plaza
P.O. Box 550
Nashville, TN 37202-0550
Attention: General Counsel
</TABLE>
<TABLE>
<CAPTION>
CAPITAL
LIMITED PARTNERS CONTRIBUTION UNITS
- ---------------------------------------- ------------------ -----------
<S> <C> <C>
Columbia/TSP Holdings, Inc. 790,000 7,900
c/o Columbia/HCA Healthcare
Corporation
One Park Plaza
P.O. Box 550
Nashville, TN 37202-0550
Attention: General Counsel
Brim Healthcare, Inc. $200,000 2,000
305 N.E. 102nd Street
Portland, OR 97220-4199
Attention: Chief Executive Officer
</TABLE>
B-1
<PAGE> 54
EXHIBIT C
FORM OF
CORPORATE FORM OF PURCHASING AGREEMENT
GROUP MEMBER
This Corporate Purchasing Agreement (the "Agreement") is entered into
by and between _______, a _________ (hereinafter "Participant"), located at
___________ and ALIGNED BUSINESS CONSORTIUM GROUP, L.P. a limited partnership
(hereinafter "ABC Group"), located at One Park Plaza, Nashville, Tennessee
37203, ATTENTION: EXECUTIVE DIRECTOR OF ABC GROUP.
W I T N E S S E T H:
A. ABC Group maintains agreements for purchasing various goods,
supplies, materials, dietary products, pharmaceuticals and equipment
(collectively, "Supplies and Equipment") used by hospitals on a national basis.
The purchase agreements, as amended or modified from time to time, together with
such additional purchase agreements as ABC Group and its affiliates may
hereafter enter into and which are designated by ABC Group as a part of this
program, are herein collectively referred to as the "Supply Contracts."
B. Participant desires to purchase Supplies and Equipment under the
Supply Contracts in accordance with the terms and conditions of those Supply
Contracts; subject however to limitations imposed on Participant under its
existing supply agreements and technological limitations related to
Participant's equipment and operations. The current Supply Contracts are
described on Exhibit A attached hereto.
C. Participant and its affiliates own, operate and/or manage the
hospitals or other health care related facilities and services described on
Exhibit B attached hereto (the "Facilities").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth, it is agreed as follows:
1. PURPOSE. Participant hereby engages ABC Group to assist in the
purchasing of Supplies and Equipment used in the normal and customary operations
of the Facilities of the Participant and ABC Group agrees to assist in the
purchasing of such Supplies and Equipment, all as more fully set forth below.
2. TERM. Subject to prior termination under Paragraph 7 below, the term
of this Agreement shall be for a period of five (5) years commencing on
_________, and ending on __________ (the "Term"). Upon completion of the Term of
this Agreement, the parties may negotiate with respect to extension or renewal
hereof. If upon the expiration hereof, an agreement has not been negotiated by
the parties, this Agreement shall continue on a month-to-month basis upon the
same terms and
<PAGE> 55
conditions as were in effect prior to expiration, subject to termination by
either party upon ninety (90) days written notice to the other.
3. ABC GROUP'S RESPONSIBILITIES.
(A) Upon execution of this Agreement, ABC Group will deliver,
or cause to be delivered, to Participant a copy (or brief summary
hereof) of all Supply Contracts which ABC Group has in effect at that
time. Additionally, ABC Group will, during the Term hereof and any
extension or renewal, provide Participant with copies of any additional
amendments, changes or termination to such agreements on a timely basis
so that Participant can be advised thereof.
(B) ABC Group will provide consultation with Participant to
effect a smooth transition to the purchasing program.
(C) ABC Group shall notify each of the suppliers under the
Supply Contracts that Participant and its affiliates are participating
in those agreements. Participant and its affiliates shall be entitled
to purchase Supplies and Equipment under the Supply Contracts for the
normal and customary use of such Supplies and Equipment in the
operation of the Facilities and, in connection therewith, Participant
and its affiliates shall receive the same discounts thereunder as ABC
Group.
(D) Participant acknowledges that ABC Group has certain
subsidiaries and affiliates which operate in the health care field.
Certain of these subsidiaries or affiliates may, from time to time,
make proposals to or do business with Participant and/or its
affiliates. Participant and its affiliates shall not be required to
accept any such future proposals as a result of this Agreement or any
other business relationship between ABC Group and Participant and its
affiliates.
(E) ABC Group shall consult with Participant and its
affiliates regarding the monitoring and evaluation of the
implementation and utilization of the Supply Contracts.
4. REPRESENTATIONS AND COVENANTS BY PARTICIPANT. Participant
hereby represents and warrants to and covenants with ABC Group as follows:
(A) All purchasing by Participant and its affiliates of
Supplies and Equipment under said Supply Contracts shall be in the name
of Participant or its affiliates, who shall be solely responsible for
payment therefore.
(B) Any purchase under the Supply Contracts by Participant and
its affiliates for Supplies and Equipment for any of the Facilities
will be between Participant or its affiliates, on the one hand, and the
respective contractor, on the other hand. ABC Group shall have no
liability under such agreements or with respect to any such purchases,
or any Supplies and
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<PAGE> 56
Equipment furnished thereunder. Without limiting the generality of the
foregoing, ABC Group does not make any warranty, express or implied, as
to such Supplies and Equipment.
(C) Participant and its affiliates shall indemnify and hold
harmless ABC Group, its affiliates, subsidiaries, agents, officers,
directors and employees (the "Indemnified Parties") from any liability,
claim, judgment, penalty, cost or expense (including attorneys fees and
litigation expenses) incurred by, brought or asserted against them or
any of them arising out of this purchasing program, including without
limitation any claims resulting the failure to pay for any Supplies and
Equipment purchased, any product liability claims associated with the
Supplies and Equipment purchased, and any claims resulting from ABC
Group's acts or omissions (except to the extent that any such claims
result from the gross negligence or intentional misconduct of ABC
Group).
(D) During the Term of this Agreement and any extension or
renewal hereof, neither Participant nor any of its affiliates shall
enter into or utilize any other similar group purchasing agreement or
arrangement for purchasing hospital goods, supplies, materials, dietary
products, pharmaceutical and/or equipment except with ABC Group or a
subsidiary or affiliate of ABC Group. The parties intend that this
Agreement shall be the exclusive arrangement that Participant utilizes
for the purchase of Supplies and Equipment through a group purchasing
organization or similar entity.
(E) Participant shall ensure that the Facilities will not
utilize or maintain membership in any other group purchasing
organization except for the group purchasing organization of ABC Group.
(F) Participant covenants, represents and warrants that the
Facilities will maintain a compliance rate of 80% for the ABC Group
Supply Contracts.
(G) Participant shall cause the Facilities to comply with the
payment terms of the Supply Contracts.
5. COMPENSATION.
(A) As compensation for purchasing assistance services
rendered by ABC Group, Participant shall pay a fee of $10,000.00 per
facility for the first year, and $5,000.00 per year per facility for
years two through five. The first payment shall be due upon execution
of this Agreement. The second payment shall be due on the first
anniversary of the execution of this Agreement and each subsequent
payment shall be due on the next succeeding anniversary date. If this
Agreement is extended on a month-to-month basis as described in Section
2 hereof, Participant shall pay to ABC Group in advance on the first of
every month during the continuation of this Agreement $1000 per
facility as compensation for the purchasing assistance services.
C-3
<PAGE> 57
(B) All payments will be made to:
ALIGNED BUSINESS CONSORTIUM GROUP
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
ATTENTION: WAYNE COLE, EXECUTIVE DIRECTOR
(C) Participant acknowledges that, as a result of
Participant's participation in the up purchasing program, ABC Group may
receive administrative fees in connection with certain Supplies and
Equipment that are purchased, licensed or leased by Participant and its
affiliates for the Facilities. Such payment shall not exceed 3% of the
purchase price of the goods or services provided by the participating
vendor. All administrative fees collected by ABC Group, with respect to
purchases made by Participant and its affiliates for the Facilities
will be shared with Participant on a fifty-fifty (50-50) basis. ABC
Group shall disclose to Participant, on a quarterly basis, ABC Group's
receipt of these fees and will submit to Participant in writing, on an
annual basis, and to the Secretary of Health and Human Services upon
his or her request, the amount received from each vendor with respect
to purchases made by or on behalf of Participant. Participant is
responsible for disclosing this information to each Facility and for
the payment of any portion of such fees which is due to Participant's
affiliates or the Facilities.
6. LOSS OF ADMINISTRATIVE FEE SHARE. ABC Group shall not be
obligated to share the administrative fees with Participant as described in
SECTION 5 above upon the occurrence of any one or more of the following events:
(A) Failure of Participant and/or its affiliates to maintain
the compliance level described in Section 4.f. for any one or more of
the Facilities.
(B) Failure of Participant and/or its affiliates to comply
with the terms and conditions of Supply Contracts.
7. TERMINATION.
(A) Either party may terminate this Agreement without cause at
any time during the Term or thereafter by giving written notice to the
other, such termination to be effective ninety (90) days after the date
such notice is given.
(B) Upon termination of this Agreement, whether by expiration
of its Term or otherwise, ABC Group shall have no further obligations
hereunder, including, without
C-4
<PAGE> 58
limitation, no obligation to maintain, update or advise Participant or
its affiliates concerning any system or procedure provided hereunder.
(C) ABC Group may terminate this Agreement on ten (10) days
notice to Participant if Participant or its affiliates fail to meet the
compliance level described in Section 4.f. for any one or more of the
Facilities or if Participant otherwise breaches the terms of this
Agreement.
8. SUCCESSORS AND ASSIGNS.
(A) Neither party may assign its interest in or delegate the
performance of its obligations under this Agreement to any other person
without obtaining the prior written consent of the other party, except
that ABC Group may assign its interest or delegate the performance of
its obligations to a any affiliate of ABC Group or any other party that
is qualified to do business in the states in which the Facilities are
located (if such qualification is required pursuant to the laws of
those states).
(B) Participant shall not have the right to sell, hypothecate,
convey, assign or otherwise transfer this Agreement or assign any of
its interest or the benefits hereunder to any other party without the
prior written consent of ABC Group; provided however that the
affiliates of Participant who are operating the Facilities may
participate in this purchasing program to the extent required for the
normal and customary usage of Supplies and Equipment for those
Facilities.
(C) The terms, provisions, covenants, obligations and
conditions of this Agreement shall be binding upon and shall inure to
the benefit of the successors in interest and the assigns of the
parties hereto, provided that no assignment, transfer, pledge or
mortgage by or through either party, as the case may be, in violation
of the provisions of this Agreement, shall vest any rights in the
assignee, transferee, pledgee or mortgagee.
9. NOTICES. Any notice by any party to the other shall be in writing
and shall be deemed to have been given on the earlier of (a) the date on which
it is personally received or (b) four (4) days after it is deposited in the U.S.
mail, postage prepaid, certified with return receipt requested and addressed to
the party at its address as set forth on Page 1 of this Agreement (or at such
other address as may have been designated by the party pursuant to this
Paragraph 9).
10. APPLICABLE LAW. This Agreement is entered into in the State of
Tennessee and shall be governed by the laws of the State of Tennessee and all
actions concerning this Agreement shall be brought in the courts of the State of
Tennessee with exclusive venue in Davidson County, Tennessee.
11. ACCESS TO BOOKS AND RECORDS OF ABC GROUP BY SECRETARY OF HHS OR
AUTHORIZED REPRESENTATIVE. Upon written request of the Secretary of Health and
Human Services or the Comptroller General or any of their duly authorized
representatives, ABC Group or any other related organization providing services
with a value or cost of ten thousand dollars ($10,000.00) or more, over
C-5
<PAGE> 59
a twelve (12) month period, shall make available to the Secretary the contract,
books, documents and records that are necessary to certify the nature and extent
of the costs of providing such services. Such inspection shall be available up
to four (4) years after the rendering of such services. This paragraph is not
intended to prohibit or impede any state audits pursuant to state law.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and correctly
sets forth the rights, duties and obligations of the parties as of the date set
forth above. Any and all prior agreements, promises, proposals, negotiations or
representations, whether written or oral, which are not expressly set forth in
this Agreement are hereby superseded and are of no force or effect. No
modification, amendment or change hereof shall be effective or binding on any
party unless set forth in writing, duly executed by the parties.
13. MISCELLANEOUS. The parties acknowledge that this Agreement is the
result of mutual negotiation. Accordingly, this Agreement shall not be construed
against the party preparing and drafting it, but shall be construed as if both
parties jointly prepared and drafted it. Any uncertainty or ambiguity shall not
be interpreted against either party by virtue of such party's actual role in the
preparation and drafting hereof. The waiver by any party hereto of any
requirement or obligation arising hereunder shall be in writing to be effective
and shall not operate or be construed as a subsequent waiver thereof. The
headings in this Agreement are for purposes of reference only and shall not
limit or define the meaning hereof. This Agreement may be executed in one or
more counterparts, each of which shall be an original but all of which shall
constitute one instrument. If any provision contained in this Agreement shall
for any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not invalidate this entire
Agreement. Such provision shall be deemed to be modified to the extent necessary
to render it valid and enforceable, and if no such modification shall render it
valid or enforceable, then this Agreement shall be construed as if not
containing such provision. The term "affiliate" shall mean with respect to any
party any entity or person controlling, controlled by or under common control
with such party. This Agreement is intended solely for the benefit of the
parties hereto and is not intended to, and shall not, create any enforceable
third party beneficiary rights.
14. CONFIDENTIALITY. All information, documents and instruments
(including, without limitation, all information relative to the terms and
conditions of the Supply Contracts) delivered to Participant and its affiliates
or their agents, directors, officers and employees are of a confidential and
proprietary nature. Participant agrees that throughout the term of this
Agreement and for a period of five (5) years following the expiration of this
Agreement it will maintain the confidentiality of all such confidential
information, documents or instruments and will only disclose such information,
documents and instruments to its duly authorized officers, directors,
representatives and agents and its affiliates who operate the Facilities.
Participant shall communicate to each of such parties the confidentiality
obligations required under this Agreement and shall be responsible for those
parties compliance with these confidentiality obligations. Participant
acknowledges and agrees that any breach of this section would result in
irreparable harm to ABC Group and its affiliates and that therefore each of them
shall be entitled to an injunction to prohibit any such breach or anticipated
breach, without the necessity of posting a bond, cash or otherwise, in addition
to all of their other legal and equitable remedies.
C-6
<PAGE> 60
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed by their authorized representatives this _____ day of _____________,
199___.
ALIGNED BUSINESS [PARTICIPANT]
CONSORTIUM GROUP
By:
-------------------------- ----------------------------
SIGNATURE SIGNATURE
-------------------------- ----------------------------
PRINT NAME PRINT NAME
-------------------------- ----------------------------
TITLE TITLE
C-7
<PAGE> 61
EXHIBIT A
LIST OF HOSPITALS AND OTHER HEALTH CARE FACILITIES AND SERVICES
NAME ADDRESS DESCRIPTION OWNED OR MANAGED
- ---- ------- ----------- ----------------
C-8
<PAGE> 62
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (the "Agreement") is made and entered into
as of this 1st day of June, 1997, by and between Galen Holdings, Inc., a
Delaware corporation, ("Columbia Sub"), Columbia/TSP Holdings, Inc., a Nevada
corporation ("Columbia/TSP," and collectively with Columbia Sub, the "Columbia
Entities"), and Aligned Business Consortium Group, L.P., a Delaware limited
partnership (the "Partnership").
WHEREAS, Columbia Sub currently holds a one percent (1%) interest as a
general partner in the Partnership, and Columbia/TSP currently holds a
ninety-nine (99%) interest as a limited partner in the Partnership.
WHEREFORE, in consideration of: the promises and mutual covenants set
forth herein, each of the Columbia Entities and the Partnership declare and
agree as follows:
1. CONTRIBUTION. Columbia Sub and Columbia/TSP hereby contribute as a
capital contribution to the Partnership the amount of $800,000 in cash, in the
aggregate, with each such Columbia Entity contributing the amount set forth
opposite its name on Schedule 1 hereto.
2. RECORDATION. The Partnership hereby accepts and acknowledges receipt in
full of such contributions to the capital of the Partnership, and shall reflect
such contribution in its required records, and shall also reflect that upon the
consummation of the contribution to the Partnership by Brim Healthcare, Inc., an
Oregon corporation ('Brim"), pursuant to that certain Contribution Agreement of
even date herewith between the Partnership and Brim, the ownership interest of
Columbia Sub shall be a one percent (1%) general partnership interest in the
Partnership and the ownership interest of Columbia/TSP shall be a seventy-nine
percent (79%) limited partnership interest in the Partnership.
3. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware.
4. MODIFICATION. Neither this Agreement nor any provision hereof shall be
amended or modified (or deemed amended or modified), except by an agreement in
writing duly executed and acknowledged with the same formality as this
Agreement.
5. ATTORNEYS' FEES. In the event of a claim or controversy between the
parties for any matter arising out of this Agreement, the prevailing party in
such claim or controversy shall be entitled to recovery against the other party
of reasonable attorneys' fees and court costs at all levels.
6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7. INDEPENDENT COVENANTS. Each of the respective rights and obligations of
the parties hereunder shall be deemed independent and may be enforced
independently irrespective of any of the other rights and obligations set forth
herein. No waivers, express or implied, by either party or any breach of any of
<PAGE> 63
the covenants, agreements or duties hereunder of the other party shall be deemed
to be a waiver of any other breach thereof or the waiver of any other covenant,
agreement or duty.
8. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, who hereby acknowledge
that there have been and are no representations, warranties, covenants or
understandings other than those expressly set further herein.
IN WITNESS WHEREOF, Columbia Sub, Columbia/TSP and the Partnership have
caused this Agreement to be duly executed as of the day and year set forth
above.
GALEN HOLDINGS, INC.
By: /s/ Stephen T. Braun
----------------------------
Name: Stephen T. Braun
Title: Senior Vice President
COLUMBIA/TSP HOLDINGS, INC.
By: /s/ Stephen T. Braun
----------------------------
Name: Stephen T. Braun
Title: Senior Vice President
ALIGNED BUSINESS CONSORTIUM GROUP, L.P.
By: /s/ Stephen T. Braun
----------------------------
Name: Stephen T. Braun
Title: Senior Vice President
<PAGE> 64
SCHEDULE 1
<TABLE>
<CAPTION>
COLUMBIA ENTITY CAPITAL CONTRIBUTION
- --------------- --------------------
<S> <C>
Galen Holdings, Inc. $ 10,000
Columbia/TSP Holdings, Inc. $790,000
</TABLE>
<PAGE> 65
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (the "Agreement") is made and entered into
as of this 1st day of June, 1997, by and between Brim Healthcare, Inc., an
Oregon corporation ("Brim"), and Aligned Business Consortium Group, L.P.,
a Delaware limited partnership (the "Partnership").
WHEREFORE, in consideration of the promises and mutual covenants set
forth herein, each of Brim and the Partnership declare and agree as follows:
1. CONTRIBUTION. As consideration for the issuance of a 20% limited
partnership interest (the "Partnership Interest") in the Partnership, Brim
hereby contributes as a capital contribution to the Partnership (i) the
software, information and tracking systems it uses in connection with its
business of providing administrative and other services for group purchasing, as
described and valued at the amount set forth on Exhibit A attached hereto and
incorporated herein by this reference, (ii) all "know-how," trade secrets and
proprietary information relating to such systems or such business, and (iii) the
amount of $200,000 in cash.
2. RECORDATION. The Partnership hereby accepts and acknowledges receipt in
full of such contributions to the capital of the Partnership. The Partnership
shall reflect such contribution in its required records, and shall also reflect
the issuance of a 20% limited partnership interest in the Partnership to Brim.
3. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware.
4. REPRESENTATIONS AND WARRANTIES. Brim hereby represents and warrants to
the Partnership that it has good and marketable title to the Assets hereby
contributed to the Partnership, free and clear of any and all liens,
liabilities, obligations, restrictions, encumbrances or any other defects in
title. Brim further represents and warrants to the Partnership that (i) Brim has
no continuing agreement, contract, obligation, promise, or undertaking (whether
written or oral and whether express or implied) with Tenet Healthcare
Corporation ("Tenet") or its affiliates respecting the Assets or the business
previously conducted by Brim using the Assets, except that Brim has previously
licensed a version of the software referred to in paragraph 1 hereof to Tenet
(the "Tenet License"), and (ii) the formation of the Partnership and the
performance of any obligations under this Agreement or the Partnership Agreement
will not, indirectly or directly, contravene, conflict with or result in a
violation or breach of, or give any person the right to declare a default or
exercise any remedy under, any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied), including
the Tenet License, with Tenet or its affiliates.
<PAGE> 66
5. INDEMNIFICATION. Brim hereby agrees to indemnify, defend and hold the
Partnership and its general partner and limited partners (other than Brim)
harmless from and against, any and all liabilities, indebtedness, commitments or
obligations of any kind whatsoever, including, but not limited to, reasonable
attorney's fees, including fees on appeal, (i) resulting from Brim's breach of
any representation or warranty set forth herein, or (ii) relating to the
transfer of the Assets or any business or activity of Brim prior to the date
hereof which is related to the Assets contributed pursuant hereto.
6. MODIFICATION. Neither this Agreement nor any provision hereof shall be
amended or modified (or deemed amended or modified), except by an agreement in
writing duly executed and acknowledged with the same formality as this
Agreement.
7. ATTORNEYS' FEES. In the event of a claim or controversy between the
parties for any matter arising out of this Agreement, the prevailing party in
such claim or controversy shall be entitled to recovery against the other party
of reasonable attorneys' fees and court costs at all levels.
8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9. INDEPENDENT COVENANTS. Each of the respective rights and obligations of
the parties hereunder shall be deemed independent and may be enforced
independently irrespective of any of the other rights and obligations set forth
herein. No waivers, express or implied, by either party or any breach of any of
the covenants, agreements or duties hereunder of the other party shall be deemed
to be a waiver of any other breach thereof or the waiver of any other covenant,
agreement or duty.
10. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, who hereby acknowledge
that there have been and are no representations, warranties, covenants or
understandings other than those expressly set further herein.
<PAGE> 67
IN WITNESS WHEREOF, Brim and the Partnership have caused this Agreement
to be duly executed as of the day and year set forth above.
BRIM HEALTHCARE, INC.
By: /s/ Jim M. Kinney
-----------------------------
Name: Jim M. Kinney
Title: President
ALIGNED BUSINESS CONSORTIUM GROUP, L.P.
By: Galen Holdings, Inc.,
its General Partner
By: /s/ Stephen T. Braun
---------------------------
Name: Stephen T. Braun
Title: Senior Vice President
<PAGE> 68
EXHIBIT A TO
CONTRIBUTION AGREEMENT
All of the Brim Group Purchasing Software and other information and tracking
systems used in connection with its business of providing services for group
purchasing.
<PAGE> 69
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement") is made and entered into
this 1st day of June, 1997, by and between Galen Holdings, Inc., a Delaware
corporation ("Columbia"), and Aligned Business Consortium Group, L.P., a
Delaware limited partnership (the "Partnership").
W I T N E S S E T H
WHEREAS, the Partnership has been formed for the purpose of owning,
managing, developing and operating a group purchasing organization for
healthcare supplies, services and materials;
WHEREAS, Columbia is the general partner of the Partnership, and as
such has the authority pursuant to the law of the State of Delaware and the
Amended and Restated Limited Partnership Agreement of the Partnership (the
"Partnership Agreement") to manage and control the business and properties of
the Partnership (all capitalized terms used herein and not otherwise defined are
so defined in the Partnership Agreement);
WHEREAS, Columbia, through its executives, other personnel, and
personnel at Affiliates, possesses certain experience and expertise in the
management, development and operation of businesses like that of Partnership;
and
WHEREAS, the Partnership wishes to retain Columbia to provide certain
services ("Services") for the Partnership, as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
of the parties hereto, it is mutually agreed as follows:
1. ENGAGEMENT. The Partnership hereby retains Columbia, and
Columbia hereby agrees to be retained by the Partnership, to provide Services
upon the terms and conditions hereinafter set forth.
2. SERVICES. In consideration of the reimbursements to be made by
the Partnership in accordance with paragraph 3 hereof, Columbia will provide, or
may provide through one or more of its Affiliates, the following Services to the
Partnership:
a. MANAGEMENT OVERSIGHT. Columbia shall provide advisory,
consultative and other direct services to the Partnership
to assist the Partnership in achieving its objectives.
b. PERSONNEL. Columbia shall provide and employ all of the
full-time employees of the Partnership (the "Employees").
1
<PAGE> 70
c. COMPENSATION/BENEFITS. Compensation, benefits and the
terms and conditions of employment ("Benefits") of
the Employees shall, initially, be consistent with
those generally offered to employees of Columbia/HCA
Healthcare Corporation, a Delaware corporation,
("Columbia/HCA"), and its affiliates, provided, that
such Benefits may, subsequently, be amended or
altered by Columbia from time to time so as to be
different from Benefits generally offered to
employees of Columbia/HCA.
d. COMPUTERS AND INFORMATION SYSTEMS. Columbia will provide
the Partnership with access to appropriate computer and
information systems.
e. SPACE. Columbia will provide the Partnership with office
space at its headquarters in Nashville, Tennessee or at
such other location as Columbia shall designate.
f. GROUP PURCHASING. Columbia shall provide the Partnership
with appropriate access to, or the benefit of, Columbia's
purchasing greements or purchasing programs of
Columbia/HCA, to the extent that Columbia is legally or
practically able to do so.
3. REIMBURSEMENT. Columbia shall be reimbursed by the Partnership for
costs and expenses associated with the provision of Services (except for any
Services provided by Ed Carty) to the Partnership as described in paragraph 2
above, including any reasonable out-of-pocket travel costs and expenses
associated with providing such Services to the Partnership.
At all times, Columbia shall allocate the costs and expenses of
providing Services to the Partnership in a manner that is fair and equitable, in
Columbia's reasonable discretion.
4. AFFILIATES. Any Service to be provided hereunder may be provided, at
the option of Columbia, by an Affiliate of Columbia, but Columbia will be
responsible for assuring the quality and timely delivery of all Services
hereunder. In such case, such Affiliate will be a subcontractor of Columbia,
Columbia will be responsible for paying any fees of such Affiliate.
5. TERM. The term of this Agreement shall commence upon the execution
of this Agreement and shall terminate on the fifth anniversary hereof; provided,
however, that, notwithstanding the foregoing, this Agreement shall automatically
terminate at such time as Columbia and the Original Limited Partner or its
Affiliates are no longer Partners in the Partnership.
6. NOTICES. All notices required to be given under this Agreement shall
be in writing, and delivered in person or sent by telecopy, overnight courier or
certified mail, return receipt requested, postage prepaid, to the following
addresses:
2
<PAGE> 71
Columbia: Galen Holdings, Inc.
One Park Plaza
Nashville, Tennessee 37203
Attn: Chief Executive Officer
Partnership: Aligned Business Consortium Group, L.P.
One Park Plaza
Nashville, TN 37203
Attn: Executive Director
with a copy to: Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, TN 37203
Attn: General Counsel
The foregoing addresses may be changed by either of the aforesaid
persons, and additional persons may be added thereto by notifying all of the
other parties hereto in writing and in the manner hereinabove set forth. All
notices shall be effective on the earlier of receipt or five (5) days after
deposited in the U.S. Mail.
7. ASSIGNMENT. Columbia shall have the right to assign this
Agreement without prior written consent of the Partnership if such assignment is
to an entity which is owned directly or indirectly by Columbia. The Partnership
shall not assign this Agreement without the prior written consent of Columbia.
8. INDEMNIFICATION. The Partnership shall indemnify, defend and
hold harmless Columbia and its agents and employees of and from any claims,
losses, liabilities and demands of every kind and nature whatsoever, including,
without limitation, the costs of defending any such claims, liabilities and
demands, including, without limitation, reasonable attorneys' and accountants'
fees therefor, arising in connection with Columbia's authorized activities set
forth herein; provided, however, that the Partnership shall not be required to
indemnify or hold harmless Columbia from any claims, losses, liabilities or
demands which arise from actions (or failures to act) which are performed in bad
faith by Columbia and which arise out of willful misconduct, gross negligence or
fraud by Columbia or any of its agents or employees.
9. MODIFICATION. Neither this Agreement nor any provision hereof
shall be amended or modified (or deemed amended or modified), except by an
agreement in writing duly executed and acknowledges with the same formality as
this Agreement.
10. GOVERNING LAW. All matters affecting the interpretation of
this Agreement and the rights or the parties hereto shall be governed by the
laws of the State of Delaware.
3
<PAGE> 72
11. INDEPENDENT COVENANTS. Each of the respective rights and
obligations of the parties hereunder shall be deemed independent and may be
enforced independently irrespective of any of the other rights and obligations
set forth herein. No waivers, express or implied, by either party or any breach
of any of the covenants, agreements or duties hereunder of the other party shall
be deemed to be a waiver of any other breach thereof or the waiver of any other
covenant, agreement or duty.
12. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof, which
hereby acknowledge that there have been and are no representations, warranties,
covenants or understandings other than those expressly set further herein.
13. ATTORNEYS' FEES. In the event of a claim or controversy
between the parties for any matter arising out of this Agreement, the prevailing
party in such claim or controversy shall be entitled to recovery against the
other party of reasonable attorneys' fees and court costs at all levels.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
4
<PAGE> 73
IN WITNESS WHEREOF the parties hereunto have executed this Agreement,
as of the day and year first above written.
Columbia: GALEN HOLDINGS, INC.
By: /s/ Stephen T. Braun
----------------------------
Name: Stephen T. Braun
---------------------------
Title: Senior Vice President
-------------------------
Partnership: ALIGNED BUSINESS CONSORTIUM GROUP, L.P.
By: Galen Holdings, Inc.
By: /s/ Stephen T. Braun
-----------------------------
Name: Stephen T. Braun
-----------------------
Title: Senior Vice President
----------------------
5
<PAGE> 74
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement") is made and entered into
this 1st day of June, 1997, by and between BRIM HEALTHCARE, INC., an Oregon
corporation ("Brim"), and Aligned Business Consortium Group, L.P., a Delaware
limited partnership (the "Partnership").
WITNESSETH
WHEREAS, the Partnership has been formed for the purpose of owning,
managing, developing and operating a group purchasing organization for
healthcare supplies, services and materials; and
WHEREAS, the Partnership wishes to retain Brim to provide certain
services ("Services") for the Partnership, as hereinafter set forth;
All capitalized terms used herein and not otherwise defined are so
defined in the Amended and Restated Limited Partnership Agreement of the
Partnership (the "Partnership Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and promises
of the parties hereto, it is mutually agreed as follows:
1. ENGAGEMENT. The Partnership hereby retains Brim, and Brim hereby
agrees to be retained by the Partnership, to provide Services upon the terms and
conditions hereinafter set forth.
2. SERVICES. In consideration of the reimbursements to be made by the
Partnership in accordance with paragraph 3 hereof, Brim will provide to the
Partnership certain professional consulting services as well as certain other
general services which may include, among other things, information systems
development, education programming and delivery, and product development and
marketing services.
3. REIMBURSEMENT. Brim shall be reimbursed by the Partnership for costs
and expenses associated with the provision of Services by Brim employees (except
for any Services provided by Jim McKinney) to the Partnership as described in
paragraph 2 above, including any reasonable out-of-pocket travel costs and
expenses associated with providing such Services to the Partnership; provided,
however, that such costs to be reimbursed by the Partnership shall be
pre-approved in writing by the Partnership through its General Partner.
At all times, Brim shall allocate the costs and expenses of providing
Services to the Partnership in a manner that is fair and equitable, in Brim's
reasonable discretion.
4. TERM. The term Of this Agreement shall commence upon the execution
of this Agreement and shall terminate on the fifth anniversary of such
execution; provided, however, that.
1
<PAGE> 75
notwithstanding the foregoing, this Agreement shall automatically terminate at
any such time as Columbia Sub and Brim are no longer Partners in the
Partnership.
5. NOTICES. All notices required to be given under this Agreement shall
be in writing, and delivered in person or sent by telecopy, overnight courier or
certified mail, return receipt requested, postage prepaid, to the following
addresses:
Brim: Brim Healthcare, Inc.
305 N.E. 102nd Street
Portland, OR 97220-4199
Attn: Chief Executive Officer
Partnership: Aligned Business Consortium Group, L.P.
One Park Plaza
Nashville, TN 37203
Attn: Executive Director
with a copy to: Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, TN 37203
Attn: General Counsel
The foregoing addresses may be changed by either of the aforesaid
persons, and additional persons may be added thereto by notifying all of the
other parties hereto in writing and in the manner hereinabove set forth. All
notices shall be effective on the earlier of receipt or five (5) days after
deposited in the U.S. Mail.
6. ASSIGNMENT. Brim shall have the right to assign this Agreement
without prior written consent of the Partnership if such assignment is to an
entity which is owned directly or indirectly by Brim. The Partnership shall not
assign this Agreement without the prior written consent of Brim.
7. INDEMNIFICATION. The Partnership shall indemnify and hold harmless
Brim and its agents and employees of and from any claims, losses, liabilities
and demands of every kind and nature whatsoever, including, without limitation,
the costs of defending any such claims, liabilities and demands, including,
without limitation, reasonable attorneys' and accountants' fees therefor,
arising in connection with Brim's authorized activities set forth herein;
provided, however, that the Partnership shall not be required to indemnify or
hold harmless Brim from any claims, losses, liabilities or demands which arise
from actions (or failures to act) which are performed by Brim in bad faith and
which arise out of willful misconduct, gross negligence or fraud by Brim, or any
of its agents or employees.
2
<PAGE> 76
8. MODIFICATION. Neither this Agreement nor any provision hereof shall
be amended or modified (or deemed amended or modified), except by an agreement
in writing duly executed and acknowledges with the same formality as this
Agreement.
9. GOVERNING LAW. All matters affecting the interpretation of this
Agreement and the rights or the parties hereto shall be governed by the laws of
the State of Delaware.
10. INDEPENDENT COVENANTS. Each of the respective rights and
obligations of the parties hereunder shall be deemed independent and may be
enforced independently irrespective of any of the other rights and obligations
set forth herein. No waivers, express or implied, by either party or any breach
of any of the covenants, agreements or duties hereunder of the other party shall
be deemed to be a waiver of any other breach thereof or the waiver of any other
covenant, agreement or duty.
11. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof, which
hereby acknowledge that there have been and are no representations, warranties,
covenants or understandings other than those expressly set further herein.
12. ATTORNEYS' FEES. In the event of a claim or controversy between the
parties for any matter arising out of this Agreement, the prevailing party in
such claim or controversy shall be entitled to recovery against the other party
of reasonable attorneys' fees and court costs at all levels.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
3
<PAGE> 77
IN WITNESS WHEREOF the parties hereunto have executed this Agreement,
as of the day and year first above written.
Brim: BRIM HEALTHCARE, INC.
By: /s/ Jim McKinney
----------------------------
Name: Jim McKinney
---------------------------
Title: President
-------------------------
Partnership: ALIGNED BUSINESS CONSORTIUM GROUP, L.P.
By: Galen Holdings, Inc.
By: /s/ Stephen T. Braun
-----------------------------
Name: Stephen T. Braun
-----------------------
Title: Senior Vice President
----------------------
4
<PAGE> 1
Exhibit 10.25
CORPORATE PURCHASING AGREEMENT
GROUP MEMBER
This Corporate Purchasing Agreement (the "Agreement") is entered into
by and between PRINCIPAL HOSPITAL COMPANY, (hereinafter "Participant"), located
at 109 Westpark Drive, Brentwood, Tennessee 37027 and ALIGNED BUSINESS
CONSORTIUM GROUP, L.P. a limited partnership (hereinafter "ABC Group"), located
at One Park Plaza, Nashville, Tennessee 37203, ATTENTION: EXECUTIVE DIRECTOR OF
ABC GROUP.
W I T N E S S E T H:
A. ABC Group maintains agreements and provides access to Columbia/HCA
agreements for purchasing various goods, supplies, materials, dietary products,
pharmaceuticals and equipment (collectively, "Supplies and Equipment") used by
hospitals on a national basis. These purchase agreements, as amended or modified
from time to time, together with such additional purchase agreements as ABC
Group and Columbia/HCA and their affiliates may hereafter enter into and which
are designated by ABC Group as accessible by Participant, are herein
collectively referred to as the "Supply Contracts."
B. Participant desires to purchase Supplies and Equipment under the
Supply Contracts in accordance with the terms and conditions of those Supply
Contracts; subject however to limitations imposed on Participant under its
existing supply agreements and technological limitations related to
Participant's equipment and operations. The current Supply Contracts are
described on Exhibit A attached hereto.
C. Participant and its affiliates own, operate and/or manage the
hospitals or other health care related facilities and services described on
Exhibit B attached hereto (the "Facilities").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth, it is agreed as follows:
1. PURPOSE. Participant hereby engages ABC Group to assist in the
purchasing of Supplies and Equipment through access to
Columbia/HCA contracts at Columbia/HCA pricing and through ABC
Group contracts at ABC Group pricing used in the normal and
customary operations of the Facilities of the Participant and
ABC Group agrees to assist in the purchasing of such Supplies
and Equipment, all as more fully set forth below.
2. TERM. Subject to prior termination under Paragraph 7 below,
the term of this Agreement shall be for a period of five (5)
years commencing on 1st day of April, 1997, and ending on 31st
day of December, 2002 (the "Term"). Upon the completion of the
term of this Agreement, or upon the end of Brim Healthcare's
participation in the ABC Group Limited Partnership as a
Limited Partner, or upon the dissolution of the ABC Group,
which ever comes first, The Principal Hospital Corporation
shall continue to have access to the portfolio contracts of
Columbia/HCA at Columbia/HCA pricing and (if the ABC Group
continues to exist) access to ABC Group contracts at ABC Group
pricing for a minimum of five years thereafter.
1
<PAGE> 2
3. ABC GROUP'S RESPONSIBILITIES.
a. Upon execution of this Agreement, ABC Group will deliver, or
cause to be delivered, to Participant a copy (or brief summary
hereof) of all Supply Contracts which ABC Group and
Columbia/HCA has in effect at that time. Additionally, ABC
Group will, during the Term hereof and any extension or
renewal, provide Participant with copies of any additional
amendments, changes or termination to such agreements on a
timely basis so that Participant can be advised thereof.
b. ABC Group will provide consultation with Participant to effect
a smooth transition to the purchasing program.
c. ABC Group shall notify each of the suppliers under the Supply
Contracts that Participant and its affiliates are
participating in those agreements. Participant and its
affiliates shall be entitled to purchase Supplies and
Equipment under the Supply Contracts for the normal and
customary use of such Supplies and Equipment in the operation
of the Facilities and, in connection therewith, Participant
and its affiliates shall receive the same discounts thereunder
as ABC Group or as Columbia/HCA receives, as may be
appropriate.
d. Participant acknowledges that ABC Group has certain
subsidiaries and affiliates that operate in the health care
field. Certain of these subsidiaries or affiliates may, from
time to time, make proposals to or do business with
Participant and/or its affiliates. Participant and its
affiliates shall not be required to accept any such future
proposals as a result of this Agreement or any other business
relationship between ABC Group and Participant and its
affiliates.
e. ABC Group shall consult with Participant and its affiliates
regarding the monitoring and evaluation of the implementation
and utilization of the Supply Contracts.
4. REPRESENTATIONS AND COVENANTS BY PARTICIPANT. Participant
hereby represents and warrants to and covenants with ABC Group
as follows:
a. All purchasing by Participant and its affiliates of Supplies
and Equipment under said Supply Contracts shall be in the name
of Participant or its affiliates, who shall be solely
responsible for payment therefore.
b. Any purchase under the Supply Contracts by Participant and its
affiliates for Supplies and Equipment for any of the
Facilities will be between Participant or its affiliates, on
the one hand, and the respective contractor, on the other
hand. ABC Group shall have no liability under such agreements
or with respect to any such purchases, or any Supplies and
Equipment furnished thereunder. Without limiting the
generality of the foregoing, ABC Group does not make any
warranty, express or implied, as to such Supplies and
Equipment.
2
<PAGE> 3
c. Participant and its affiliates shall indemnify and hold
harmless ABC Group and Columbia/HCA, their affiliates,
subsidiaries, agents, officers, directors and employees (the
"Indemnified Parties") from any liability, claim, judgment
penalty, cost or expense (including attorneys fees and
litigation expenses) incurred by, brought or asserted against
them or any of them arising out of this purchasing program,
including without limitation any claims resulting the failure
to pay for any Supplies and Equipment purchased, any product
liability claims associated with the Supplies and Equipment
purchased, and any claims resulting from ABC Group's acts or
omissions (except to the extent that any such claims result
from the gross negligence or intentional misconduct of ABC
Group).
d. During the Term of this Agreement and any extension or renewal
hereof, neither Participant nor any of its affiliates shall
enter into or utilize any other similar group purchasing
agreement or arrangement for purchasing hospital goods,
supplies, materials, dietary products, pharmaceutical and/or
equipment except with ABC Group or a subsidiary or affiliate
of ABC Group. The parties intend that this Agreement shall be
the exclusive arrangement that Participant utilizes for the
Purchase of Supplies and Equipment through a group purchasing
organization or similar entity.
e. Participant shall ensure that the Facilities will not utilize
or maintain membership in any other group purchasing
organization except for the group purchasing organization of
ABC Group.
f. Participant covenants, represents and warrants that the
Facilities will maintain a compliance rate of 80% for the
Supply Contracts accessed by the Participant and its
facilities.
g. Participant shall cause the Facilities to comply with the
payment terms of the Supply Contracts.
5. COMPENSATION.
a. Participant acknowledges that, as a result of Participant's
participation in the group purchasing program, ABC Group may
receive administrative fees in connection with certain
Supplies and Equipment that are purchased, licensed or leased
by Participant and its affiliates for the Facilities. Such
payment shall not exceed 3% of the purchase price of the goods
or services provided by the participating vendor. All
administrative fees collected by ABC Group, with respect to
purchases made by Participant and its affiliates for the
Facilities will be returned to Participant on a one hundred
percent (100%) basis. ABC Group shall disclose to Participant,
on a quarterly basis, ABC Group's receipt of these fees and
will submit to Participant in writing, on an annual basis, and
to the Secretary of Health and Human Services upon his or her
request, the amount received from each vendor with respect to
purchases made by or on behalf of Participant. Participant is
responsible for disclosing this information to each Facility
and for the payment of any portion of such fees which is due
to Participant's affiliates or the Facilities.
3
<PAGE> 4
b. All rebates generated as a result of the Participant's
facilities accessing Supply Contracts available directly or
accessible through ABC shall be paid directly to the
Participant's facility whose purchasing activity generated
said rebate.
7. TERMINATION.
a. Upon termination of this Agreement, whether by expiration of
its Term or otherwise, ABC Group shall have no further
obligations hereunder, including without limitation, no
obligation to maintain, update or advise Participant or its
affiliates concerning any system or procedure provided
hereunder.
b. ABC Group may terminate this Agreement on one hundred eighty
(180) days notice to Participant or its affiliates if
Participant and it affiliates fail to meet the compliance
level described in Section 4.f. for any one or more of the
Facilities or if Participant otherwise breaches the terms of
this Agreement and if Participant fails to cure its lack of
compliance upon written notice from ABC Group.
8. SUCCESSORS AND ASSIGNS.
a. Neither party may assign its interest in or delegate the
performance of its obligations under this Agreement to any
other person without obtaining the prior written consent of
the other party, except that ABC Group may assign its interest
or delegate the performance of its obligations to a any
affiliate of ABC Group or any other party that is qualified to
do business in the states in which the Facilities are located
(if such qualification is required pursuant to the laws of
those states).
b. Participant shall not have the right to sell, hypothecate,
convey, assign or otherwise transfer this Agreement or assign
any of its interest or the benefits hereunder to any other
party without the prior written consent of ABC Group; provided
however that the affiliates of Participant who are operating
the facilities may participate in this purchasing program to
the extent required for the normal and customary usage of
Supplies and Equipment for those Facilities.
c. The terms, provisions, covenants, obligations and conditions
of this Agreement shall be binding upon and shall inure to the
benefit of the successors in interest and the assigns of the
parties hereto, provided that no assignment, transfer, pledge
or mortgage by or through either party, as the case may be, in
violation of the provisions of this Agreement, shall vest any
rights in the assignee, transferee, pledgee or mortgagee.
4
<PAGE> 5
9. NOTICES. Any notice by any party to the other shall be in
writing and shall be deemed to have been given on the earlier
of (a) the date on which it is personally received or (b) four
(4) days after it is deposited in the U.S. mail, postage
prepaid, certified with return receipt requested and addressed
to the party at its address as set forth on page 1 of this
Agreement (or at such other address as may have been
designated by the party pursuant to this Paragraph 9).
10. APPLICABLE LAW. This Agreement is entered into in the State of
Tennessee and shall be governed by the laws of the State of
Tennessee and all actions concerning this Agreement shall be
brought in the courts of the State of Tennessee with exclusive
venue in Davidson County, Tennessee.
11. ACCESS TO BOOKS AND RECORDS OF ABC GROUP, BY SECRETARY OF HHS
OR AUTHORIZED REPRESENTATIVE. Upon written request of the
Secretary of Health and Human Services or the Comptroller
General or any of their duly authorized representatives, ABC
Group or any other related organization providing services
with a value or cost of ten thousand dollars ($10,000.00) or
more, over a twelve (12) month period, shall make available
to the Secretary the contract, books, documents and records
that are necessary to certify the nature and extent of the
costs of providing such services. Such inspection shall be
available up to four (4) years after the rendering of such
services. This paragraph is not intended to prohibit or
impede any state audits pursuant to state law.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject
matter hereof and correctly sets forth the rights, duties and
obligations of the parties as of the date set forth above. Any
and all prior agreements, promises, proposals, negotiations or
representations, whether written or oral, which are not
expressly set forth in this Agreement are hereby superseded
and are of no force or effect. No modification, amendment or
change hereof shall be effective or binding on any party
unless set forth in writing, duly executed by the parties.
5
<PAGE> 6
13. MISCELLANEOUS. The parties acknowledge that this Agreement is
the result of mutual negotiation. Accordingly, this Agreement
shall not be construed against the party preparing and
drafting it, but shall be construed as if both parties jointly
prepared and drafted it. Any uncertainty or ambiguity shall
not be interpreted against either party by virtue of such
party's actual role in the preparation and drafting hereof.
The waiver by any party hereto of any requirement or
obligation arising hereunder shall be in writing to be
effective and shall not operate or be construed as a
subsequent waiver thereof. The headings in this Agreement are
for purposes of reference only and shall not limit or define
the meaning hereof. This Agreement may be executed in one or
more counterparts, each of which shall be an original but all
of which shall constitute one instrument. If any provision
contained in this Agreement shall for any reason be held
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not
invalidate this entire Agreement. Such provision shall be
deemed to be modified to the extent necessary to render it
valid and enforceable, and if no such modification shall
render it valid or enforceable, then this Agreement shall be
construed as if not containing such provision. The term
"affiliate" shall mean with respect to any party any entity or
person controlling, controlled by or under common control with
such party. This Agreement is intended solely for the benefit
of the parties hereto and is not intended to, and shall not,
create any enforceable third party beneficiary rights.
14. CONFIDENTIALITY. All information, documents and instruments
(including, without limitation, all information relative to
the terms and conditions of the Supply Contracts) delivered to
Participant and its affiliates or their agents, directors,
officers and employees are of a confidential and proprietary
nature. Participant agrees that throughout the term of this
Agreement and for a period of five (5) years following the
expiration of this Agreement it will maintain the
confidentiality of all such confidential information,
documents or instruments and will only disclose such
information, documents and instruments to its duly authorized
officers, directors, representatives and agents and its
affiliates who operate the Facilities. Participant shall
communicate to each of such parties the confidentiality
obligations required under this Agreement and shall be
responsible for those parties compliance with these
confidentiality obligations. Participant acknowledges and
agrees that any breach of this section would result in
irreparable harm to ABC Group and its affiliates and that
therefore each of them shall be entitled to an injunction to
prohibit any such breach or anticipated breach, without the
necessity of posting cash or otherwise, in addition to all of
their other legal and equitable remedies.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed
by their authorized representatives this 21st day of April, 1997.
ALIGNED BUSINESS PRINCIPAL
CONSORTIUM GROUP HOSPITAL COMPANY
By: /s/ C. Wayne Cole /s/ Jim McKinney
------------------------------ -----------------------------------
Signature Signature
C. Wayne Cole Jim McKinney
- ---------------------------------- -----------------------------------
Print Name Print Name
Executive Director Senior Vice President
- ---------------------------------- -----------------------------------
Title Title
8
<PAGE> 1
PROVINCE HEALTHCARE COMPANY
EXHIBIT 11.1 -- COMPUTATION OF EARNINGS PER SHARE
(In Thousands, except Per Share Data)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended June 30,
December 31, -------------------
1996 1996 1997
------------ ------ ------
<S> <C> <C> <C>
Pro Forma primary and fully diluted(1):
Shares outstanding(1) 7,280 7,280 7,280
Net effect of dilutive stock options and warrants--based on the
treasury stock method: (i) using the estimated initial
public offering price and (ii) assuming all common stock
issued, and common stock options and warrants granted, within
twelve months of the initial public offering of common stock,
were outstanding for all periods presented 1,563 1,563 1,563
------- ------ ------
Pro Forma number of common and common equivalent shares 8,843 8,843 8,843
======= ====== ======
Net income (loss) $(2,890) $2,207 $3,399
Preferred stock dividends and accretion (172) -- (2,384)
------- ------ ------
Net income (loss) applicable to common and common equivalent shares $(3,062) $2,207 $1,015
======= ====== ======
Net income (loss) per common and common equivalent share $ (0.35) $ 0.25 $ 0.11
======= ====== ======
</TABLE>
(1) Pro forma as to the year ended December 31, 1996 and the six months ended
June 30, 1996. The 7,280 common shares issued in the recapitalization
and the merger in December 1996 have been included in the pro forma calculation
as if the recapitalization and merger had occurred as of the first day of 1996.
(See Note 2 to the Company's 1996 consolidated financial statements, and Note 2
to the Company's June 30, 1997 condensed consolidated financial statements.)
<PAGE> 1
Exhibit 16.1
August 26, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Province Healthcare Company
(formerly Brim, Inc.) and, under the date of March 8, 1996, we reported on the
consolidated financial statements of Province Healthcare Company (formerly
Brim, Inc.) as of December 31, 1995 and for the years ended December 31, 1994
and 1995. On December 18, 1996, our appointment as principal accountants was
terminated. We have read Province Healthcare Company's statements included
under Item 11(i) of its Form S-1 dated August 26, 1997, and we agree with such
statements.
KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Incorporation
- --------------------------------------------------- ---------------
<S> <C>
Brim Equipment Services, Inc........................ Oregon
Brim Healthcare, Inc................................ Oregon
(dba: HealthDirect)
Brim Hospitals, Inc................................. Oregon
(dba: General Hospital, Palo
Verde Community Hospital,
Parkview Regional Hospital,
Ojai Valley Community
Hospital, Colorado Plains
Medical Center, and Fort
Morgan Community
Hospital)
Brim Fifth Avenue, Inc.............................. Oregon
Brim Pavilion, Inc.................................. Oregon
Brim Outpatient Services, Inc....................... Oregon
Care Health Company, Inc............................ Washington
InProNet, Inc....................................... Oregon
Mexia-Principal, Inc................................ Texas
Mexia Principal Healthcare, L.P..................... Texas
Principal Hospital Company of
Nevada, Inc........................................ Nevada
PHC of Delaware, Inc................................ Delaware
Palestine-Principal G.P. Inc........................ Texas
Palestine Principal Healthcare, L.P................. Texas
Palestine Principal, Inc............................ Tennessee
Principal Knox Company.............................. Delaware
Principal Needles, Inc.............................. Tennessee
The Woodrum Group, Inc.............................. Oregon
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated April 30, 1997, except for Note 16, and Notes 1 and
17, as to which the dates are May 8, 1997 and September , 1997, respectively,
in the Registration Statement (Form S-1) and related Prospectus of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until September , 1997) for
the registration of 6,555,000 shares of its common stock.
Ernst & Young LLP
Nashville, Tennessee
September , 1997
The foregoing consent is in the form that will be signed upon the
completion of the reincorporation described in Note 17 to the consolidated
financial statements.
Ernst & Young LLP
Nashville, Tennessee
August 26, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Province Healthcare Company (formerly known as Brim, Inc. until
January 16, 1997 and as Principal Hospital
Company from January 16, 1997 until September 1997)
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Portland, Oregon
August 26, 1997
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 25, 1997 with respect to the consolidated
financial statements of Memorial Hospital Foundation -- Palestine, Inc., in the
Registration Statement (Form S-1) and related Prospectus of Province Healthcare
Company (formerly known as Brim, Inc. until January 16, 1997 and as Principal
Hospital Company from January 16, 1997 until September 1997) for the
registration of common stock.
Harrell, Rader, Bonner & Bolton
Palestine, Texas
August 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,256
<SECURITIES> 0
<RECEIVABLES> 27,306
<ALLOWANCES> 4,477
<INVENTORY> 2,883
<CURRENT-ASSETS> 45,323
<PP&E> 40,683
<DEPRECIATION> 4,818
<TOTAL-ASSETS> 94,025
<CURRENT-LIABILITIES> 22,535
<BONDS> 78,122
46,227
0
<COMMON> 3,276
<OTHER-SE> (64,599)
<TOTAL-LIABILITY-AND-EQUITY> 94,025
<SALES> 123,262
<TOTAL-REVENUES> 129,855
<CGS> 0
<TOTAL-COSTS> 131,212
<OTHER-EXPENSES> 12,012
<LOSS-PROVISION> 9,578
<INTEREST-EXPENSE> 2,523
<INCOME-PRETAX> (13,369)
<INCOME-TAX> (4,464)
<INCOME-CONTINUING> (8,905)
<DISCONTINUED> 6,015
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,890)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
